Legal Aspects of Supply Chain

LEGAL ASPECTS OF SCM
(FOR PRIVATE CIRCULATION ONLY)

2019
PROGRAMME COORDINATOR
Prof. Sudeep Limaye
COURSE DESIGN AND REVIEW COMMITTEE

Prof. L. C. Jhamb Prof. Amola Darekar
Prof. Dr. Shailesh Kasande Prof. Nazima Shaikh
Prof. Dr. Ashish Urkude Prof. Vijay Masarkar
Prof. Manisha Ketkar Prof. Dr. Narendra Parchure
Prof. Madhup Ghandi Prof. Viraj Atre
Prof. Rajiv Shirke
COURSE WRITER
Prof. Shantilal Hajeri
EDITOR
Ms. Neha Mule
Published by Symbiosis Centre for Distance Learning (SCDL), Pune

July, 2007 (Revision 03, 2018)
Copyright © 2019 Symbiosis Open Education Society

All rights reserved. No part of this book may be reproduced, transmitted or utilised in any form or by any
means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval
system without written permission from the publisher.
Acknowledgement
Every attempt has been made to trace the copyright holders of materials reproduced in this book. Should any
infringement have occurred, SCDL apologises for the same and will be pleased to make necessary corrections
in future editions of this book.
PREFACE
Supply Chain Management involves all the activities right from transporting raw material from
supplier to production unit, storage of finished goods, transportation of finished goods to wholesalers
and retailers.
The efficiency of a manufacture depends upon the efficiency of Supply Chain Management. In the
process of being efficient, you should also ensure that every thing that you do is in accordance with
laws.
Innumerable laws have been enacted. Many of them apply to the activity of Supply Chain Management.
All those connected with SCM, must be conversant with these laws. For want of knowledge, if you
violate the laws, you cannot take a stand that you are not aware of these laws. Please remember
“Ignorance of Law is no excuse.”
You should know the laws so that you can follow them, in order to prevent undesirable consequences
of violations of law. After all “Prevention is better than cure.”
Most of the transactions you do in relation to SCM are basically contracts. Hence, the first unit deals
with important aspects of Indian Contract Act. SCM deals with buying and selling of goods. Hence,
there is a separate unit on sale of goods Act. In your day-to-day dealings, you issue cheques and
receive cheques. Hence, there is a unit on NI Act. When you buy goods/services you are a consumer.
You should know your rights as a consumer. Hence, there is a unit on Consumer Protection Act.
Vehicles are used in transportation; hence, a unit on Motor Vehicle Act has been included. Similarly,
Income Tax Act, Excise Act, Labour Laws, Child Labour Act, Standard Weight and Measurement Act
have also been included.
Readers are welcome to offer their suggestions on the SLM, which will be taken in to account while
revising the book.
Disclaimer : All these Acts are covered in brief and simple language. Intention is to give basic and
general awareness about these laws. Readers may refer to original Acts or consult their advocates
before acting on them. If anybody suffers any loss by relying upon the contents of this book, neither
SCDL nor the author will be responsible for the same.
S. V. Hajeri
iii
ABOUT THE AUTHOR
Prof. Shantilal V. Hajeri has obtained his M.Com. degree with banking specialisation. He has also
obtained LLB (Spl.) degree with labour law specilisation. His professional qualifications include
CAIIB (Certified Associate of Indian Institute of Bankers). He has also done a course on Project
Planning and Management (PPM) from University of Bradford, UK.
He has worked for 27 years with Bank of Maharashtra, 13 years as Branch Manager and 4 years as
Faculty member. He has worked as Joint Director of Mahabank Self Employment Training Institute
for 2 years. He has won awards for his excellent performance as Branch Manager.
He is being invited as a visiting faculty by more than a dozen management institutes in Pune. He has
been associated with Symbiosis Group since 1997. He has edited 3 books for SCDL. He is faculty
on panel of SCDL for corporate PGDBA and PCP. He has worked as a Subject Matter Expert (SME)
for SCDL for preparing e-learning modules. Finance, Laws and foreign exchange are the areas of his
specialisation. He is a consultant to many industries in Pune.
iv
CONTENTS
Unit No. TITLE Page No.

1 The Indian Contract Act, 1872 1-24
1.1 Introduction
1.2 Important Definitions
1.3 Essentials of a Contract
1.4 Special Types of Contracts
1.5 Contract of Agency
1.6 Discharge of a Contract
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
2 The Sale of Goods Act, 1930 25-48
2.1 Introduction
2.2 Essentials of a Contract of Sale
2.3 Difference between Sale and Agreement to Sell
2.4 Conditions and Warranties
2.5 Rights of an Unpaid Seller
Summary
Keywords
Suggested Reading
3 Negotiable Instruments Act, 1930 49-84
3.1 Introduction
3.2 Characteristics of Negotiable Instruments
3.3 Modes of Negotiation
3.4 Duties and Liabilities of a Paying Banker
3.5 Duties and Liabilities of a Collecting Banker
3.6 Bouncing of a Cheque- a Criminal Offence
Summary
Keywords
Suggested Reading
v
4 The Consumer Protection Act, 1986 85-100
4.1 Introduction
4.3 District Forum
4.4 State Commission
4.5 National Commission
Summary
Keywords
Suggested Reading
5 The Standards of Weights and Measures Act, 1976 101-134
5.1 Introduction
5.3 Establishment of Standards of Weights and Measures
5.4 Inter-state Trade or Commerce
5.5 Import and Export of Weights and Measures
5.6 Offences and their Trial
5.7 Other Provisions of the Act
Summary
Keywords
Suggested Reading
6 Insurance Laws 135-160
6.1 Introduction
6.2 Definitions of Important Insurance Terms
6.3 Marine Cargo Policy
6.4 Export Credit Guarantee
Summary
Keywords
Suggested Reading
vi
7 Insurance Cover 161-182
7.1 Introduction
7.2 Indian Insurance Industry
7.3 Life Insurance
7.4 Health Insurance
7.5 Motor Vehicle Insurance
7.6 Shopkeeper’s Policy
Summary
Keywords
Suggested Reading
8 Income Tax Act 183-212
8.1 Introduction
8.3 Income from Salary
8.4 Income from House Property
8.5 Income from Business
8.6 Income from Capital Gain
8.7 Income from Other Sources
8.8 Fringe Benefit Tax
8.9 Tax Deduction at Source
8.10 Filing of Returns
Summary
Keywords
Suggested Reading
vii
9 Goods and Services Tax 213-234
9.1 Introduction
9.2 What is GST
9.3 History of GST
9.4 Constitutional Amendments
9.5 Advantages of GST
9.6 Components of GST
9.7 Levy and Collection of Tax
9.8 Meaning of Supply
9.9 Activities to be treated as supply of goods or supply of services
9.10 Activities not to be treated as supply
9.11 Composition Levy
9.12 Time of Supply of Goods and Services
Summary
Keywords
Suggested Reading
10 Labour Laws 235-256

10.1 Introduction
10.2 The Payment of Wages Act, 1936
10.3 The Minimum Wages Act, 1948
10.4 The Payment of Bonus Act, 1965
10.5 The Payment of Gratuity Act, 1972
10.6 The Employee’s Provident Funds and Miscellaneous Provisions
Act, 1952
10.7 The Employee’s State Insurance Act, 1948
10.8 The Workman’s Compensation Act, 1923
Summary
Keywords
Suggested Reading
viii
11 Child Labour Act and Contract Labour Act 257-274
11.1 Introduction
11.3 Important Provisions of the Child Labour Act
11.4 Penalties under Child Labour Act
11.5 Important Provisions of the Contract Labour Act
Summary
Keywords
Suggested Reading
12 Documentation Laws 275-294
12.1 Introduction
12.3 Types of Documents
12.4 Stamp Duty on Documents
12.5 Laws Applicable to Documents
Summary
Keywords
Suggested Reading
13 The Motor Vehicles Act, 1988 295-328
13.1 Introduction
13.3 Provisions regarding Driving Licence
13.4 Provisions regarding Conductor’s Licence
13.5 Registration of Vehicles
Summary
Keywords
Suggested Reading
ix
x
The Indian Contract Act, 1872
UNIT
1
Structure:
1.1 Introduction
1.3 Essentials of a Contract
1.4 Special Types of Contracts
1.5 Contract of Agency
1.6 Discharge of a Contract
Summary
Keywords
Suggested Reading
The Indian Contract Act, 1872 1

Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
• Explain the essentials of a valid contract
----------------------
• Describe the provisions of contract of Agency
---------------------- • Enumerate the modes of discharge of a contract
----------------------
1.1 INTRODUCTION
----------------------
Supply Chain consists of all stages involved, directly or indirectly,
---------------------- in fulfilling a customer request. Within each organisation, the supply chain
---------------------- includes all functions involved in fulfilling customer request. Supply Chain
is dynamic and involves the constant flow of information, product and funds
---------------------- between different stages. It includes the manufacturers, suppliers, transporters,
warehouses, retailers, wholesalers and customers themselves. All these people
---------------------- are entering into contracts with each other. Therefore, it is essential that the
---------------------- people involved in Supply Chain Management should know the basics of the
Indian Contract Act, 1872.
----------------------
1.2 IMPORTANT DEFINITIONS
----------------------
---------------------- When you place an order for purchase of raw material from a supplier,
if the supplier accepts your order it means you have entered into a contract
---------------------- with your supplier of raw materials. What is the meaning of “Contract”? As per
Section 2 (h) an agreement enforceable by law is a contract. It can be shown as
---------------------- under:-
---------------------- Contract = Agreement + Enforceability
---------------------- By Enforceability it is meant that the party to a contract can approach a

Court of Law to enforce his rights under the contract provided, he has fulfilled
---------------------- all the conditions of a valid contract. As per Section 2(g) an agreement not
enforceable by law is said to be a void agreement.
----------------------
This leads us to the next question, “What is the meaning of Agreement?”
---------------------- As per Section 2 (e) every promise and every set of promises, forming the
consideration for each other, is an agreement. An Agreement can be shown as
----------------------
under:-
---------------------- Agreement = Proposal (Offer) + Acceptance
---------------------- There are two parties in a contract. One party makes offer to another
party. When the other party accepts this offer then the agreement takes place.
---------------------- A proposal is also called as an Offer. As per Section 2 (a) when one person
signifies to another his willingness to do or to abstain from doing anything, with
----------------------
a view to obtaining the assent of that either to such act or abstinence, he is said
---------------------- to make a proposal. As per Section 2 (b), when the person to whom the
2 Legal Aspects of SCM

proposal is made, signifies his assent thereto, the proposal is said to be accepted. Notes
A proposal, when accepted, becomes a promise.
----------------------
Example:
Mr. Shantilal offers to sell cotton yarn to Mr. Muruganathan at Rs. 50 per ----------------------
kg and Mr. Muruganathan conveys his acceptance to buy the cotton yarn at this
----------------------
rate, then it becomes an agreement. As per Section 2 (c), the person making
the proposal is called the “promisor”, and the person accepting the proposal ----------------------
is called “promisee”. As per Section 2 (d) when, at the desire of the promisor,
the promisee or any other person has done or abstained from doing, or does or ----------------------
abstains from doing, or promises to do or to abstain from doing, something, such
----------------------
act or abstinence or promise is called a consideration for the promise. As per
Section 2 (f), promises which form the consideration or part of the consideration ----------------------
for each other, are called reciprocal promises.
----------------------
In the above example, Mr. Shantilal promises to sell the cotton and Mr.
Muruganathan promises to pay the price. Therefore, in an agreement, both ----------------------
the parties are promisors as well as promises. As far as selling cotton yarn is
concerned, Mr. Shantilal is a promisor and Mr. Muruganathan is a promise. As ----------------------
far as payment of price is concerned Mr. Muruganathan is a promisor and Mr.
----------------------
Shantilal is a promise.
As per Section 2 (i), 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 vowable contract.
Role of communication in contracts ----------------------
Since the offer and acceptance have to be communicated between the ----------------------
parties, the role of communication is very important.
----------------------
As per Section 3, the communication of proposals, the acceptance of
proposals, and the revocation of proposals and acceptances, respectively, ----------------------
deemed to be made by any act or omission of the party proposing, accepting
----------------------
or revoking, by which he intends to communicate such proposal, acceptance or
revocation, or which has the effect of communicating it. ----------------------
As per Section 4, the communication of a proposal is complete when it
----------------------
comes to the knowledge of the person to whom it is made.
The communication of an acceptance is complete as against the proposer, ----------------------
when it is put in a course of transmission to him so at to be out of the power ----------------------
of the acceptor; as against the acceptor, when it comes to the knowledge of the
proposer. ----------------------
The communication of a revocation is complete as against the person who ----------------------
makes it, when it is put into a course of transmission to the person to whom it
is made, so as to be out of the power of the person who makes it; as against the ----------------------
person to whom it is made, when it comes to his knowledge.
----------------------
As per Section5,aproposalmayberevokedatanytimebeforethecommunicat
ion of its acceptance is complete as against the proposer, but not afterwards. ----------------------

Notes An acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards.
----------------------
As per Section 6, a proposal is revoked
---------------------- (1) by the communication of notice of revocation by the proposer to the other
party;
----------------------
(2) by the lapse of the time prescribed in such proposal for its acceptance,
---------------------- or, if no time is so prescribed, by the lapse of a reasonable time, without
communication of the acceptance;
----------------------
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance;
---------------------- or
---------------------- (4) by the death or insanity of the proposer, if the fact of the death or insanity
comes to the knowledge of the acceptor before acceptance.
----------------------
As per Section 7, in order to convert a proposal into a promise the acceptance
---------------------- must
---------------------- (1) be absolute and unqualified
(2) be expressed in some reasonable manner or the manner prescribed in the
----------------------
proposal.
---------------------- As per Section 8, in so far as the proposal or acceptance of any promise is
---------------------- made in words, the promise is said to be express. In so far as such proposal or
acceptance is made otherwise than in words, the promise is said to be implied.
---------------------- Illustration
---------------------- Mr. Shantilal from Pune dispatched a letter to Mr. Vishal at Mumbai on
12-10-2007 offering to sell 100 school bags for Rs.1.00 lac. Mr. Vishal has
---------------------- received this letter on 14-10-2007 at 11.00 a.m. Mr. Vishal dispatched his letter
---------------------- of acceptance on 15-10-07 at 10 a.m. the same was received by Mr. Shantilal on
17-10-2007 at 3 p.m.
----------------------
The communication of a proposal is complete on 14-10-2007 at 11.00 a.m.
---------------------- The communication of an acceptance is complete as against Mr.Shantilal
on 15-10-2007 at 10.00 p.m. It means Mr.Shantilal cannot revoke his offer after
----------------------
this time.
---------------------- The communication of an acceptance is complete as against Mr. Vishal on
17-10-2007. It means Mr. Vishal cannot revoke his acceptance after this time.
----------------------
On 16-10-2007, Mr. Shantilal received a better offer for his car from
---------------------- Mr.Vithalsingh. Hence, Mr. Shantilal dispatched his letter of REVOCATION of
---------------------- Offer on 16-10-07 at 9 a.m. The same is received by Mr. Vishal on 17-3-2007 at
4 p.m. Mr. Shantilal sold the car to Mr. Vithalsingh for Rs.1,10,000/-. Mr.Vishal
---------------------- filed a case against Mr. Shantilal for breach of contract. Will he succeed?
---------------------- Mr. Shantilal has revoked his offer after the communication of acceptance
was complete against him. Hence, Mr. Shantilal is liable for breach of contract.
----------------------

1.3 ESSENTIALS OF A VALID CONTRACT Notes
As per Section10, all agreements are contracts if they are made by the free ----------------------
consent of parties competent to contract, for a lawful consideration and with a ----------------------
lawful object, and are not hereby expressly declared to be void. Nothing herein
contained shall affect any law in force in India by which any contract is required ----------------------
to be made in writing or in the presence of witnesses, or any law relating to the
registration of documents. ----------------------
For a contract to be legal and valid, it must fulfill the following conditions: ----------------------
a) There should be two or more parties ----------------------
b) There should be agreement between the parties
----------------------
c) There should be free consent of parties
----------------------
d) There should be a lawful consideration
e) There should be a lawful object ----------------------
f) The parties should be competent to contract ----------------------

g) The agreements are not hereby expressly declared to be void ----------------------
h) They should fulfill norms under any other applicable Acts in respect of
----------------------
witness, documentation, registration and stamp duty etc.
As per Section 11, every person is competent to contract who is of the ----------------------
age of majority according to the law to which he is subject and who is of sound ----------------------
mind and is not disqualified from contracting by any law to which he is subject
to. ----------------------
A person is said to have attained majority if he has attained the age of ----------------------
18 years. A person below the age of 18 years is considered as a minor. Any
contract with a minor is void ab initio. It means right from the beginning, such ----------------------
contracts are invalid. Minor can be a beneficiary of a contract, but he cannot
incur liability under the contract. If you enter into a contract with a minor, you ----------------------
cannot enforce your rights through court of law in the case of non performance ----------------------
by the minor. If you employ a minor to load the goods into a lorry and pay him
the advance wages, if the minor does not load the goods you cannot take any ----------------------
action against the minor.
----------------------
As per Section 12, a person is said to be of sound mind for the purposes of
making a contract, if, at the time when he makes it, he is capable of understanding ----------------------
it and of forming a rational judgment as to its effect upon his interests. If a person
is in a state of drunkenness, then temporarily he is of unsound mind since he ----------------------
is not capable of understanding the consequences of a contract. Therefore, you ----------------------
should not deal with a person when he is under the influence of alcohol.
----------------------
As per Section 13, two or more persons are said to consent when they
agree upon the same thing in the same sense. ----------------------
----------------------

Notes As per Section 14, consent is said to be free when it is not caused by-
(1) coercion, as defined in section 15, or
----------------------
(2) undue influence, as defined in section 16, or
----------------------
(3) fraud, as defined in section 17, or
---------------------- (4) misrepresentation, as defined in section 18, or
---------------------- (5) mistake, subject to the provisions of sections 20, 21, and 22
---------------------- As per Section 15, ‘Coercion’ is committing, or threatening to commit, any
act forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining,
---------------------- or threatening to detain, any property, to the prejudice of any person whatever,
with the intention of causing any person to enter into an agreement.
----------------------
As per Section 16 (1) A, a contract is said to be induced by ‘undue
---------------------- influence’ where the relations subsisting between the parties are such that one of
the parties is in a position to dominate the will of the other and uses that position
----------------------
to obtain an unfair advantage over the other.
---------------------- In particular and without prejudice to the generality of the foregoing
principle, a person is deemed to be in a position to dominate the will of another:
----------------------
(a) where he holds a real or apparent authority over the other, or where he
---------------------- stands in a fiduciary relation to the other; or
---------------------- (b) where he makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness, or mental
---------------------- or bodily distress.
---------------------- As per Section 17, “Fraud” means and includes any of the following acts
committed by a party to a contract, or with his connivance, or by his agents ,
---------------------- with intent to deceive another party thereto or his agent, or to induce him to
---------------------- enter into the contract:
(1) the suggestion as a fact, of that which is not true, by one who does not
---------------------- believe it to be true;
---------------------- (2) the active concealment of a fact by one having knowledge or belief of the
fact;
----------------------
(3) a promise made without any intention of performing it;
---------------------- (4) any other act fitted to deceive;
---------------------- (5) any such act or omission as the law specially declares to be fraudulent. As
per Section 18, “Misrepresentation” means and includes:
----------------------
(1) the positive assertion, in a manner not warranted by the information
---------------------- of the person making it, of that which is not true, though he believes
it to be true;
----------------------
(2) any breach of duty which, without an intent to deceive, gains and
---------------------- advantage to the person committing it, or any one claiming under
him; by misleading another to his prejudice, or to the prejudice of
---------------------- any one claiming under him;

(3) causing, however innocently, a party to an agreement, to make a Notes
mistake as to the substance of the thing which is the subject of the
agreement. ----------------------
As per Section 19, when consent to an agreement is caused by coercion, ----------------------
fraud or misrepresentation, the agreement is a contract voidable at the option of
the party whose consent was so caused. ----------------------
As per Section 23, the consideration or object of an agreement is lawful, ----------------------
unless –
----------------------
It is forbidden by law; or is of such nature that, if permitted it would
defeat the provision of any law or is fraudulent; or involves or implies, injury to ----------------------
the person or property of another; or the court regards it as immoral, or opposed
to public policy. ----------------------
In each of these cases, the consideration or object of an agreement is ----------------------
said to be unlawful. Every agreement of which the object or consideration is
unlawful is void. ----------------------
----------------------
Check your Progress 1
----------------------
State True or False.
----------------------
1. A proposal may be revoked at any time before the communication of
its acceptance is complete as against the proposer, but not afterwards. ----------------------
----------------------
Activity 1 ----------------------
Collect a copy of the Purchase Order of any firm and write the essentials of ----------------------
the contract, as evident from the Purchase Order.
----------------------
----------------------
1.4 SPECIAL TYPES OF CONTRACTS
----------------------
Contract of Indemnity, Contract of Guarantee, Contract of Bailment, Contract
of Pledge and Contract of Agency are considered as special contracts. ----------------------
Contract of Indemnity ----------------------
If you have lost original lorry receipt, or railway receipt, the transporter ----------------------
may ask you to furnish an indemnity bond before he can release the goods to
you. You must know the meaning of Indemnity. Insurance service is another ----------------------
example of contract of indemnity.
----------------------
There are two parties in a contract namely Indemnifier and Indemnified.
Insurance company is the Indemnifier and the Policy holder is Indemnified. ----------------------
As per Section 124, a contract by which one party promises to save the ----------------------
other from loss caused to him by the contract of the promisor himself, or by the
conduct of any other person, is called a ‘contract of indemnity’. ----------------------

Notes As per Section 125, rights of indemnity-holder when sued are as under:-
The promisee in a contract of indemnity, acting within the scope of his authority,
----------------------
is entitled to recover from the promisor
---------------------- (i) all damages which he may be compelled to pay in any suit in respect of
any matter to which the promise to indemnify applies;
----------------------
(ii) all costs which he may be compelled to pay in any such suit, if in bringing
---------------------- or defending it, he did not contravene the orders of the promisor, and
acted as it would have been prudent for him to act in the absence of any
----------------------
contract of indemnity, or if the promisor authorised him to bring or defend
---------------------- the suit;
---------------------- (iii) all sums which he may have paid under the terms of any compromise of
any such suit, if the compromise was not contrary to the orders of the
---------------------- promisor, and was one which it would have been prudent for the promisee
to make in the absence of any contract of indemnity, or if the promisor
---------------------- authorised him to compromise the suit.
---------------------- The liability under contract of indemnity is considered as contingent
contract. It may happen or it may not happen. An insurance company may or
---------------------- may not be required to pay the claim.
---------------------- As per Section 31, a ‘contingent contract’ is a contract to do or not to do
something, if some event, collateral to such contract, does or does not happen.
----------------------
Contract of guarantee
----------------------
Whenever you approach a bank for loan, you might have heard that the
---------------------- banks ask for a guarantor. Whenever you have lost an original lorry receipt,
you might have been asked to furnish surety. If you have applied for any tender
---------------------- with a Government Department, they might have asked you to furnish a Bank
Guarantee. All these requirements make you to understand the meaning of
----------------------
Contract of guarantee.
---------------------- As per Section 126, a ‘contract of guarantee’ is a contract to perform the
---------------------- promise, or discharge the liability, of a third person in case of his default. The
person who gives the guarantee is called the ‘surety’, the person in respect of
---------------------- whose default the guarantee is given is called the ‘principal debtor’, and the
person to whom the guarantee is given is called the ‘creditor’.
----------------------
Normally a contract without consideration is void. In case of Contract
---------------------- of guarantee, the guarantor does not receive any consideration. Even then the
contract of guarantee is considered as valid because of Section 127.
----------------------
As per Section 127, anything done, or any promise made, for the benefit
---------------------- of the principal debtor, may be a sufficient consideration to the surety for giving
the guarantee.
----------------------
Liabilities of a surety
----------------------
Surety is liable to pay the amount to creditor on demand and on default by
---------------------- principal debtor. As per Section 128, the liability of the surety is co-extensive

with that of the principal debtor. It means the Guarantor is liable for the same Notes
sum for which the borrower is liable. Here the liability includes not only the
principal but also interest and other charges payable by the debtor. As per Section ----------------------
137, mere forbearance on the part of the creditor to sue the principal debtor or
to enforce any other remedy against him, does not discharge the surety. As per ----------------------
Section 138, where there are co-sureties, a release by the creditor of one of them ----------------------
does not discharge the others neither does it free the surety so released from his
responsibility to the other sureties. Principal Debtor and Guarantors are jointly ----------------------
and severally liable to the Principal Creditor. Creditor can file case against any
one or more of them and he may not file case against few others. If you have ----------------------
given guarantee to your friend for a loan taken by him from a bank, the bank ----------------------
can file case only against you without filing case against your friend.
----------------------
Rights of a Surety
a) Right to Information ----------------------
Surety is entitled to all information pertaining to the loan. As per Section ----------------------
142, any guarantee which has been obtained by means of misrepresentation
made by the creditor, or with his knowledge and assent, concerning a ----------------------
material part of the transaction, is invalid. As per Section 143, any
----------------------
guarantee which the creditor has obtained by means of keeping silence as
to material circumstances, is invalid ----------------------
b) Right of Consultation ----------------------
Creditor should consult surety if he wants to change the terms and
conditions of the loan. As per Section 133, any variance made without the ----------------------
surety’s consent, in the terms of the contract between the principal debtor ----------------------
and the creditor, discharges the surety as to transactions subsequent to
the variance. As per Section 134, the surety is discharged by any contract ----------------------
between the creditor and the principal debtor, by which the principal
debtor is released, or by any act or omission of the creditor, the legal ----------------------
consequence of which is the discharge of the principal debtor. As per ----------------------
Section 135, a contract between the creditor and the principal debtor, by
which the creditor makes a composition with, or promises to give time to, ----------------------
or not to sue, the principal debtor, discharges the surety, unless the surety
assents to such contract. ----------------------
c) Right of Subrogation ----------------------

After the surety pays the amount to creditor, he will step into the shoes of ----------------------
the creditor and he will be entitled to all the benefits to which the creditor
was entitled. As per Section 140, where a guaranteed debt has become ----------------------
due, or default of the principal debtor to perform a guaranteed duty has
----------------------
taken place, the surety upon payment or performance of all that he is
liable for, is invested with all the rights which the creditor had against the ----------------------
principal debtor. As per Section 141, a surety is entitled to the benefit of
every security which the creditor has against the principal debtor at the ----------------------
time when the contract of suretyship is entered into, whether the surety
----------------------
knows of the existence of such security or not; and if the creditor loses,

Notes or without the consent of the existence of such security or not; and if
the creditor loses, or without the consent of the surety, parts with such
---------------------- security, the surety is discharged to the extent of the value of the security.
---------------------- d) Right to Indemnity
As per Section 145, in every contract of guarantee there is an implied
----------------------
promise by the principal debtor to indemnify the surety, and the surety
---------------------- is entitled to recover from the principal debtor whatever sum he has
rightfully paid under the guarantee. As per Section 146, where two or
---------------------- more persons are co-sureties for the same debt or duty, the co-sureties are
liable, as between themselves, to pay each an equal share of the whole
----------------------
debt, or of that part of it which remains unpaid by the principal debtor.
---------------------- If you are a guarantor to a loan taken by your friend along with Mr. X and
if you have paid Rs.10,000/- to the bank, then you can recover R.5,000/- from
----------------------
Mr. X.
---------------------- Continuing guarantee
---------------------- As per Section 129, a guarantee which extends to a series of transaction,
is called, a continuing guarantee. If you are a guarantor to a cash credit
---------------------- facility availed by your friend then it is a case of continuing guarantee. As per
---------------------- Section 130, a continuing guarantee may be revoked by the surety, as to future
transactions, by notice to the creditor. After giving guarantee for your friend in
---------------------- respect of cash credit facility, you may withdraw the guarantee given by you.
In that case you will be liable for the debit balance outstanding on that day. You
---------------------- will not be liable for future withdrawals. You cannot revoke your guarantee
---------------------- given for term loans.
Contract of bailment
----------------------
As per Section 148, a ‘bailment’ is the delivery of goods by one person to
---------------------- another for some purpose, upon a contract that they shall, when the purpose is
accomplished, be returned or otherwise disposed off according to the directions
----------------------
of the person delivering them. The person delivering the goods is called the
---------------------- ‘bailor’. The person to whom they are delivered is called the ‘bailee’.
Delivery of goods to transport operator is an example of bailment.
----------------------
Storage of goods in a ware house is another example of bailment. In supply
---------------------- Chain Management parties repeatedly entered into this contract. As per Section
149, the delivery to the bailee may be made by doing anything which has the
---------------------- effect of putting the goods in the possession of the intended bailee or of any
person authorised to hold them on his behalf. As per Section 150, the bailor is
----------------------
bound to disclose to the bailee faults in the goods bailed, of which the bailor is
---------------------- aware, and which materially interfere with the use of them, or expose the bailee
to extraordinary risk; and if he does not make such disclosure, he is responsible
---------------------- for damage arising to the bailee directly from such faults.
----------------------
----------------------

Duties of the Bailee Notes
As per Section 151, the bailee is bound to take as much care of the goods
----------------------
bailed to him as a man of ordinary prudence would, under similar circumstances,
take of his own goods of the same bulk, quantity and value as the goods bailed. ----------------------
As per Section 160, it is the duty of the bailee to return, or deliver according
to the bailor’s directions, the goods bailed, without demand, as soon as the ----------------------
time for which they were bailed has expired, or the purpose for which they
----------------------
were bailed has been accomplished. As per Section 161, if by the fault of the
bailee, the goods are not returned, delivered or tendered at the proper time, he is ----------------------
responsible to the bailor for any loss, destruction or deterioration of the goods
from that time. ----------------------
As per Section 154, if the bailee makes any use of the goods bailed ----------------------
which is not according to the conditions of the bailment, he is liable to make
compensation to the bailor for any damage arising to the goods from or during ----------------------
such use of them.
----------------------
Rights of a bailee
----------------------
As per Section 152, the bailee, in the absence of any special contract, is
not responsible for the loss, destruction or deterioration of the thing bailed, if he ----------------------
has taken the amount of care of it
----------------------
As per Section 170, where the bailee has, in accordance with the purpose
of the bailment, rendered any service 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. This is called right of particular lien. If you ----------------------
have delivered some finished goods to Mr.Ashok for packaging, then Mr.Ashok
has right of lien on these goods and he may not return the goods to you unless ----------------------
his charges are paid by you.
----------------------
As per Section 171, Bankers, factor, wharfingers, attorneys of a High
Court and policy brokers may, in the absence of a contract to the contrary, retain ----------------------
as a security for a general balance of account, any goods bailed to them. If you
have Fixed Deposit with a bank and also a loan account and if there is default ----------------------
in loan amount, then the banker can refuse to repay the Fixed Deposit to you ----------------------
and the Banker has right to retain this amount as a security for the loan. This is
called Right of General Lien. Lien is an implied Pledge. ----------------------
As per Section 71, a person who finds goods belonging to another, and ----------------------
takes them into his custody, is subject to the same responsibility as a bailee, If a
visitor to your office forgets his bag in your office, you will become a bailee. ----------------------
Contract of Pledge ----------------------
As per Section 172, the bailment of goods as security for payment of a ----------------------
debt or performance of a promise is called “pledge”. The bailor is in this case
called the “pawnor”. The bailee is called “pawnee”. Suppose the goods are kept ----------------------
in a warhouse and finance is taken from bank against these goods then this is
a case of Pledge. Taking a loan from bank by delivering the gold as security is ----------------------

Notes another example of pledge. In case of pledge, the banker has the possession of
the security even though the ownership is with the borrower. Hence, the banker
---------------------- considers it a comparatively safe loan. In case of Gold loan the possession is
actually with the Bank and it is called actual possession. In case of ware house,
---------------------- the goods are in warehouse and the banker has warehouse receipt with him.
---------------------- This is called constructive possession.
Rights of a Pawnee
----------------------
As per Section 173, the pawnee may retain the goods pledged, not only for
---------------------- payment of the debt or the performance of the promise, but for the interests of
the debt, and all necessary expenses incurred by him in respect of the possession
----------------------
or for the preservation of the goods pledged.
---------------------- As per Section 174, the pawnee shall not, in the absence of a contract to
that effect, retain the goods pledged for any debt or promise of other than the
----------------------
debt or promise for which they are pledged; but such contract, in the absence
---------------------- of anything to the contrary, shall be presumed in regard to subsequent advances
made by the pawnee.
----------------------
Example
---------------------- You have taken a pledge loan of Rs. 10.00 lacs from Bank of Maharashtra
---------------------- against the security of goods kept in a ware house on 10-7-2007. On 10-8-2007
you took a clean overdraft of Rs. 2.00 lacs without offering any security. On
---------------------- 10-12-2007, you paid Rs. 10.00 lacs with interest towards the first loan and
requested the bank to release the goods from warehouse. The bank is entitled
---------------------- to retain the goods sufficient to cover the second overdraft of Rs. 2.00 lacs and
---------------------- they can release only the proportionate goods.
As per Section 175, the pawnee is entitled to receive from the pawnor
---------------------- extraordinary expenses incurred by him for the preservation of the goods
---------------------- pledged.
As per Section 176, if the pawnor makes default in payment of the debt,
----------------------
or performance, at the stipulated time, of the promise, in respect of which goods
---------------------- were pledged, the pawnee may bring a suit against the pawnor upon the debt
or promise, and retain the goods pledged as a collateral security; or he may
---------------------- sell the thing pledged, on giving the pawnor reasonable notice of the sale. If
the proceeds of such sale are less than the amount due in respect of the debt or
----------------------
promise, the pawnor is still liable to pay the balance. If the proceeds of the sale
---------------------- are greater than the amount so due, the pawnee shall pay over the surplus to the
pawnor.
----------------------
If you have sent some goods through a transport operator and the
---------------------- consignee does not take delivery of the goods after reasonable period, the
transport operator can auction the goods to recover his transportation charges
---------------------- and demurrages.
---------------------- As per Section 178, where a mercantile agent is, with the consent of the
owner, in possession of goods or the documents of title to goods, any pledge
---------------------- made by him, when acting in the ordinary course of business of a mercantile

agent, shall be as valid as if he were expressly authorised by the owner of the Notes
goods to make the same; provided that the pawnee acts in good faith and has not
at the time of the pledge notice that the pawnor has no authority to pledge. ----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. The basic reasons for keeping an inventory are economies of scale,
uncertainty and _____. ----------------------
2. Expired stock is also known as ______ inventory.
----------------------
3. While finalising accounts of an organisation, “Inventory of raw
material, finished goods” figure in the _____ side of Balance Sheet. ----------------------
----------------------
Activity 2 ----------------------
Collect a format of a Guarantee Bond from a bank. Write your observations ----------------------
pertaining to contract of guarantee.
----------------------
----------------------
1.5 CONTRACT OF AGENCY
----------------------
When a business man is doing the business very often he will be acting as
----------------------
agent of some body and also very often he will be dealing with the agents. He
may be also acting as an agent since he appoints agents to do certain things on ----------------------
his behalf.
----------------------
When you deposit a cheque in a bank, the bank is acting as your agent.
When you ask your supplier to send the documents through the bank, the ----------------------
posit man is acting an agent. Transport operator is acting as an agent. People
acting under power of attorney or mandate are also agents. It is very essential ----------------------
to understand the legal provisions of contract of agency. When one person is
----------------------
authorised to act on behalf of another it is called a contract of Agency.
As per Section 182, an ‘agent’ is a person employed to do any act for ----------------------
another in dealings with third persons. The person for whom such act is done, ----------------------
or represented, is called the ‘principal’.
As per Section 183, any person who is of the age of majority according to ----------------------
the law to which he is subjected to, and who is of sound mind, may employ an ----------------------
agent.
Minor can be an agent but he will not incur personal liability in case of ----------------------
any default by him. Hence, it is better not to appoint a minor as an agent. ----------------------
Rights/Authorities of an Agent
----------------------
The authority of an agent may be express or implied. As per Section 187, an
authority is said to be express when it is given by words spoken or written. An ----------------------

Notes authority is said to be implied when it is to be inferred from the circumstances
of the case; and things spoken or written, or the ordinary course of dealing, may
---------------------- be accounted circumstances of the case. An agent, having an authority to do
an act, has authority to do every lawful thing which is necessary in order to do
---------------------- such act.
---------------------- As per Section 188, an agent having an authority to carry on a business,
has authority to do every lawful thing necessary for the purpose, or usually
----------------------
done in the course of conducting such business. As per Section 189, an agent
---------------------- has authority, in an emergency, to do all such acts for the purpose of protecting
his principal from loss and would be done by a person or ordinary prudence, in
---------------------- his own case, under similar circumstances. As per Section 190, an agent cannot
lawfully employ another to perform acts which he has expressly or impliedly
----------------------
undertaken to perform personally.
---------------------- As per Section 217, an agent may retain, out of any sums received on
account of the principal in the business of the agency, all moneys due to himself
----------------------
in respect of advances made or expenses properly incurred by him in conducting
---------------------- such business, and also such remuneration as may be payable to him for acting
as agent.
----------------------
As per Section 221, in the absence of any contract to the contrary, an
---------------------- agent is entitled to retain goods, papers, and other property, whether movable or
immovable of the principal received by him, until the amount due to himself for
---------------------- commission, disbursements and services in respect of the same has been paid or
accounted for to him.
----------------------
As per Section 222, the employer of an agent is bound to indemnify him
---------------------- against the consequences of all lawful acts done by such agent in exercise of the
---------------------- authority conferred upon him
As per Section 230, in the absence of any contract 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
Duties of an Agent
----------------------
As per Section 211, an agent is bound to conduct the business of his
---------------------- principal according to the directions given by the principal, or in the absence of
any such directions according to the customs which prevails in doing business
----------------------
of the same kind at the place where the agent conducts such a business. When
---------------------- the agent acts otherwise, if any loss be sustained, he must make it good to his
principal and if any profit accrues, he must account for it.
----------------------
As per Section 212, an agent is bound to conduct the business of the
---------------------- agency with as much skill as is generally possessed by a person engaged in
similar business unless the principal has notice of his want of skill. The agent
---------------------- is always bound to act with reasonable diligence, and to use such skill as he
possesses; and to make compensation to his principal in respect of the direct
----------------------
consequences of his own neglect, want of skill, or misconduct, but not in respect
---------------------- of loss or damage which are indirectly or remotely caused by such neglect, want
of skill, or misconduct.
As per Section 213, an agent is bound to render proper accounts to his Notes
principal on demand. As per Section 214, it is the duty of an agent in case of
difficulty, to use all reasonable diligence in communicating with his principal, ----------------------
and in seeking to obtain his instructions.
----------------------
As per Section 216, if an agent, without the knowledge of his principal,
deals in the business of the agency on his own account instead of on account to ----------------------
his principal, the principal is entitled to claim from the agent any benefit which
----------------------
may have resulted to him from the transaction
As per Section 218, subject to such deductions, the agent is bound to pay ----------------------
to his principal all sums received on his account.
----------------------
As per Section 227, when an agent does more than he is authorised to
do, and when the part of what he does, which is within his authority, can be ----------------------
separated from the part which is beyond his authority, so much only of what he
----------------------
does as is within his authority is binding as between him and his principal.
Sub-agent ----------------------
As per Section 191, a “sub-agent” is a person employed by, and acting under ----------------------
the control of, the original agent in the business of the agency. As per Section 192,
where a sub-agent is properly appointed, the principal is, so far as regards third ----------------------
persons, represented by the sub-agent, and is bound by and responsible for his ----------------------
acts, as if he were an agent originally appointed by the principal.
Agent’s responsibility for sub-agents: The agent is responsible to the ----------------------
principal for the acts of the sub-agent. ----------------------
Sub-agent’s responsibility
----------------------
The sub-agent is responsible for his acts to the agent, but not to the
principal ----------------------
Agency by Ratification ----------------------
As per Section 196, where acts are done by one person on behalf of ----------------------
another, but without his knowledge or authority, he may elect to ratify or to
disown such acts. If he ratifies them, the same effects will follow as if they had ----------------------
been performed by his authority.
----------------------
As per Section 197, ratification may be expressed or may be implied in the
conduct of the person on whose behalf the acts are done. ----------------------
Agency by Estoppel ----------------------
If a person acts as an agent even though he is not appointed as an agent
----------------------
for a considerable time then he cannot take a stand that he is not an agent.
Example ----------------------
If you have taken finance from a bank against the security of your stock, ----------------------
the bank debits insurance premium to insure your stock on your behalf. After
doing this for say five years, in the 6th year the bank forgets to renew the ----------------------
insurance policy. Now the bank can not take a stand that it is not an agent of its ----------------------
borrower.

Notes The Bank is stopped from denying the agency.
Types of Agents
----------------------
1. Mercantile Agent Traders who sell goods of another person on
---------------------- commission basis.
---------------------- 2. Sub-agent An agent appointed by an agent.
3. Co-agent When principal appoints two or more agents, the
---------------------- agents are called co-agents.
---------------------- 4. Substituted Agent A new agent appointed in place of an old agent.
5. Consignee A stockist of owner of goods to dispose off them
---------------------- as per his order.
---------------------- 6. Forwarding Agent Agent involved in forwarding the export
goods.
---------------------- 7. Clearing Agent Agent involved in clearing imported goods.
---------------------- 8. Commission Agent An agent who sells goods of an other on
commission basis
---------------------- 9. Mandate holder A person holding a letter of mandate (authority)
---------------------- from another person to do certain acts on his
behalf.
---------------------- 10. P A Holder A person who is appointed through a Power
of Attorney to do certain acts on behalf of the
----------------------
principal.
---------------------- Termination of agency
---------------------- As per Section 201, an agency is terminated by the principal revoking
his authority, or by the agent renouncing the business of the agency; or by the
---------------------- business of the agency being completed; or by either the principal or agent
---------------------- dying or becoming of unsound mind; or by the principal being adjudicated an
insolvent under the provisions of any Act for the time being in force for the
---------------------- relief of insolvent debtors.
---------------------- As per Section 224, where one person employs another to do an act which
is criminal, the employer is not liable to the agent, either upon an express or an
---------------------- implied promise to indemnify him against the consequences of that Act.
----------------------
----------------------
Fill in the blanks.
----------------------
1. An ‘agent’ is a person employed to do any act for another in dealing
---------------------- with third persons. The person, for whom such act is done or
represented, is called the ______________.
----------------------
----------------------
----------------------

Notes
Activity 3
----------------------
Collect a format of a Power of Attorney from a share broker. Read the
----------------------
printed terms and conditions. Write your observations pertaining to contract
of Agency. ----------------------
----------------------
1.6 DISCHARGE OF A CONTRACT
----------------------
By discharge of a contract, it is meant an end of a contract. The normal
course of discharge is performance of their part by each party to a contract. ----------------------
Performance of a Contract ----------------------

As per Section 37, the parties to a contract must either perform, or offer to ----------------------
perform, their respective promises, unless such performance is dispensed with
or excused under the provisions of this Act, or of any other law. ----------------------
Promises bind the representatives of the promisor in case of the death of ----------------------
such promisors before performance, unless a contrary intention appears from
the contract. ----------------------
As per Section 38, where a promisor has made an offer of performance to ----------------------
the promisee, and the offer has not been accepted, the promisor is not responsible
for non-performance, nor does he thereby lose his rights under the contract. ----------------------
Every such offer must fulfil the following conditions ----------------------
(1) it must be unconditional; ----------------------
(2) it must be made at a proper time and place, and under such circumstances
----------------------
that the person to whom it is made may have a reasonable opportunity of
ascertaining that the person by whom it is been made is able and willing ----------------------
there and then to do the whole of what he is bound by his promise to do;
----------------------
(3) if the offer is an offer to deliver anything to the promisee, the promisee
must have a reasonable opportunity of seeing that the thing offered is the ----------------------
thing which the promisor is bound by his promise to deliver. An offer
to one of several joint promisees has the same legal consequences as an ----------------------
offer to all of them.
----------------------
As per Section 40, if it appears from the nature of the case that it was the
intention of the parties to any contract that any promise contained in it should ----------------------
be performed by the promisor himself, such promise must be performed by
----------------------
the promisor. In other cases, the promisor or his representatives may employ a
competent person to perform it. ----------------------
Example ----------------------
If you have appointed Mr. Harshal as driver for your lorry, it is expected
that Mr. Harshal himself should drive the vehicle, because it involves personal ----------------------
skill. Here, Mr. Harshal cannot delegate his work to another driver. ----------------------

Notes As per Section 42, when two or more persons have made a joint promise,
then, unless a contrary intention appears by the contract, all such persons,
---------------------- during their joint lives, and, after the death of any of them, his representative
jointly with the survivor or survivors, and, after the death of the last survivor the
---------------------- representatives of all jointly, must fulfil the promise.
---------------------- Example
---------------------- If there are three partners in a firm A, B & C and if they have taken
finance from the Bank, then they are called as joint promisors. If A dies, legal
---------------------- heirs of A along with B & C will be liable to the Bank.
---------------------- As per Section 43, when two or more persons make a joint promise, the
promisee may, in the absence of express agreement to the contrary, compel any
---------------------- one or more of such joint promisors to perform the whole promise.
---------------------- Example
In the above case, Bank can recover the money from either A or B or C.
---------------------- They need not recover proportionately from all the three.
---------------------- Each promisor may compel contribution: Each of two or more joint
promisors may compel every other joint promisor to contribute equally with
---------------------- himself to the performance of the promise, unless a contrary intention appears
---------------------- from the contract.
Sharing of loss by default in contribution: If any one of two or more joint
---------------------- promisors make default in such contribution, the remaining joint promisors
---------------------- must bear the loss arising from such default in equal shares.
Example
----------------------
In the above example if the bank recovers entire dues from A, then A can
---------------------- compel B & C to pay their share. If C cannot pay his share then his share will
be borne equally by A & B.
----------------------
As per Section 45, when a person has made a promise to two or more
---------------------- persons jointly, then unless contrary intention appears from the contract, the
right to claim performance rests, as between him and them, with them during
---------------------- their joint lives, and, after the death of any one of them, with the representative
---------------------- of such deceased person jointly with the survivor or survivors, and, after the
death of the last survivor, with the representatives of all jointly.
---------------------- Example
---------------------- In the above example, if the firm has kept fixed deposit with the bank,
they are called as joint promisees. They have to jointly receive the amount. To
----------------------
avoid this situation they have option to instruct the bank to make it payable to
---------------------- ‘Anyone or Survivor.’
APPROPRIATION OF PAYMENTS
----------------------
As per Section 59, where a debtor, owing several distinct debts to one
---------------------- person, makes a payment to him, either with express intimation, or under
circumstances implying, that the payment is to be applied to the discharge of
----------------------
some particular debt, the payment if accepted, must be applied accordingly.
As per Section 60, where the debtor has omitted to intimate, and there are Notes
no other circumstances indicating to which debt the payment is to be applied,
the creditor may apply it at his discretion to any lawful debt actually due and ----------------------
payable to him from the debtor, whether its recovery is or is not barred by the
law in force for the time being as to the limitation of suits. ----------------------
As per Section 61, where neither party makes any appropriation, the ----------------------
payment shall be applied in discharge of the debts in order of time, whether they
----------------------
are or are not barred by the law in force for the time being as to the limitations
of suits. If the debts are of equal standing, the payment shall be applied in ----------------------
discharge of each proportionately.
----------------------
Example
You have sent your goods through Ashok Transport Company as under ----------------------
Sr. No. Date of Transport Transportation Charges ----------------------

1 10-12-2007 Rs. 2,345/- ----------------------
2 12-12-2007 Rs. 4,346/-
3 14-12-2007 Rs. 6,365/- ----------------------
4 15-12-2007 Rs. 1,245/- ----------------------
Suppose you have sent a cheque for Rs.1,245/- on 20-12-2007 to Ashok
----------------------
Transport Company. You have got four different dues payable to Ashok
Transport Company. ----------------------
It is your choice to decide to which dues this cheque should be adjusted. If ----------------------
you have not indicated your choice, then it is the prerogative of Ashok Transport
Company to decide to which dues this cheque should be adjusted. ----------------------
If Ashok Transport Company has not decided then the cheque should ----------------------
necessarily be adjusted towards the dues dated 10-12-2007. It means if both
the payer and received do not exercise their choice, then the payment should be ----------------------
adjusted towards oldest dues.
----------------------
As per Section 72, a person to whom money has been paid, or anything
delivered, by mistake or under coercion, must repay or return it. ----------------------
Example ----------------------
You have to pay Rs.4925/- to Ashok Transport Company. By mistake you
----------------------
have paid Rs.9,425/-. It means you have paid Rs.4,500/- more. Ashok Transport
Company must refund this amount to you. If they do not refund, you can go to ----------------------
Court to legally recover this amount.
----------------------
Example
You have sent goods to Vishal Hosieries through Ashok Transport ----------------------
Company. Ashok Transport Company has delivered the goods to Vithal ----------------------
Hosieries. Vithal Hosieries must return the goods or pay the cost of the same to
Ashok Transport Company ----------------------
----------------------

Notes Summary
---------------------- Supply Chain includes the manufacturer, suppliers, transporters,
•
warehouses, retailers, wholesalers and customers themselves. All these
----------------------
people are entering into contracts with each other.
---------------------- Contract = Agreement + Enforceability
---------------------- Agreement = Offer + Acceptance
---------------------- For a contract to be legal and valid, it must fulfill the following conditions:
a. There should be two or more parties
----------------------
b. There should be agreement between the parties
----------------------
c. There should be free consent of parties
---------------------- d. There should be a lawful consideration
---------------------- e. There should be a lawful object
---------------------- f. The parties should be competent to contract
g. The agreements are not hereby expressly declared to be void
----------------------
h. They should fulfill norms under any other applicable Acts in respect
---------------------- of witness, documentation, registration and stamp duty etc.
---------------------- Communication of acceptance as against the Proposer: It is complete
when it is put in a course of transmission to him as to be out of the power
---------------------- of the acceptor.
---------------------- As against the Acceptor: When it comes to the knowledge of the proposer.
---------------------- A contract by which one party promises to save the other from loss caused
to him by the contract of the promisor himself, or by the conduct of any
---------------------- other person is called as Contract of indemnity. e.g. Insurance business
---------------------- The delivery of goods by one person to another for some purpose, upon a
contract that they shall, when the purpose is accomplished, be returned or
---------------------- otherwise disposed of according to the directions is called as Contract of
Bailment e.g. Cloak room in a railway station.
----------------------
A contract to perform the promise, or discharge the liability, of a third
---------------------- person in case of his default is called as Contract of Guarantee. e.g.
Guarantee to the loan taken by the banks.
----------------------
The bailment of goods as security for payment of a debt or performance
---------------------- of a promise is called as Pledge. e.g. Gold Loans, Godown loans.
---------------------- An ‘agent’ is a person employed to do any act for another in his dealings
with third persons.
----------------------
The payment has to appropriated as per the option of payer, then receiver.
---------------------- If both do not exercise the option, it should be appropriated as per order
of time.
----------------------

In case of joint promises, the liability is joint and several. It means promise Notes
can compel any one promisor to perform.
----------------------
Keywords ----------------------
• Acceptance : When the person to whom the proposal is made signifies ----------------------
his assent thereto.
----------------------
• Agent : An “agent” is a person employed to do any act for another in
dealings with third persons. ----------------------
• Agreement : Every promise and every set of promises forming the ----------------------
consideration for each other, is an agreement.
• Bailee : The person to whom the goods are delivered in a contract of ----------------------
bailment. ----------------------
• Bailor : The person delivering the goods in case of bailement.
----------------------
• Coercion : The committing, or threatening to commit, any act forbidden
by the Indian Penal Code. ----------------------
• Competence to Contract : Every person is competent to contract a) who ----------------------
is of the age of majority b) who is of sound mind c) who is not disqualified
from contracting. ----------------------
• Consent : Two or more persons are said to have consented when they ----------------------
agree upon the same thing in the same sense.
----------------------
• Consideration : When at the desire of the promisor, the promisee or any
other person has done or abstained from doing something, such act or ----------------------
abstinence or promise is called consideration.
----------------------
• Contingent Contract : A contract to do or not to do something, if some
event, collateral to such contract, does or does not happen. ----------------------
• Continuing guarantee : A guarantee which extends to a series of ----------------------
transaction.
----------------------
• Contract : An agreement enforceable by law.
• Contract of bailment : The delivery of goods by one person to another ----------------------
for some purpose, upon a contract that they shall, when the purpose is
----------------------
accomplished, be returned or otherwise disposed of according to the
directions. ----------------------
• Contract of guarantee : A contract to perform the promise, or discharge ----------------------
the liability, of a third person in case of his default.
• Contract of Indemnity : A contract by which one party promises to save ----------------------
the other from loss caused to him by the contract of the promisor himself, ----------------------
or by the conduct of any other person.
----------------------
• Express proposal : In so far as the proposal or acceptance of any promise
is made in words, the promise is said to be express. ----------------------

Notes • Fraud : Suggesting a fact which is not true, active concealment of a fact
etc with intent to deceive.
----------------------
• Free Consent : The consent is said to be free when it is not caused by
---------------------- coercion, Undue Influence, Fraud, Misrepresentation and Mistake.
• General lien : Right of Bankers etc to retain as a security for a general
----------------------
balance of account, any goods bailed to them.
---------------------- • Implied Proposal : In so far as such proposal or acceptance is made
otherwise than in words, the promise is said to be implied.
----------------------
• Insolvent : A person who has ceased to pay his debts in the ordinary
---------------------- course of business, or cannot pay his debts as they become due.
---------------------- • Lawful Consideration : The consideration which is not forbidden by
law.
----------------------
• Mercantile Agent : An agent having in the customary course of business
---------------------- as such agent authority either to sell/buy/consign goods.
---------------------- • Misrepresentation : Saying something as true which is not true but the
person believes that it is true.
----------------------
• Pawnee : The bailee in a pledge
---------------------- • Pawner : The bailor in a pledge
---------------------- • Pledge : The bailment of goods as security for payment of a debt or
performance of a promise.
----------------------
• Principal : The person for whom agent works or represents.
----------------------
• Principal debtor : The person in respect of whose default the guarantee.
---------------------- • Promise : A proposal when accepted becomes a promise. Promisee : The
person to whom the proposal is made. Promisor : The person who makes
----------------------
the proposal.
---------------------- • Proposal : When one person signifies to another his willingness to door
to abstain from doing anything, with a view to obtaining the assentto such
----------------------
act or abstinence, he is said to make a proposal
---------------------- • Reciprocal promises : Promises which form the consideration or part of
---------------------- the consideration for each other, are called reciprocal promises.
• Sound mind : A person is said to be of sound mind for the purposes
---------------------- of making a contract, if, at the time when he makes it, he is capable of
---------------------- understanding it and of forming a rational judgement as to its effect upon
his interests.
---------------------- • Surety : The person who gives the guarantee.
---------------------- • ndue Influence : Where the relations subsisting between the parties
U
are such that one of the parties is in a position to dominate the will of the
----------------------
other and uses that position to obtain an unfair advantage over the other.
----------------------

• Void Agreement : An agreement not enforceable by law. Notes
• Voidable Contract : An agreement enforceable at the option of one or
----------------------
more parties thereto, but not at the option of the other or others.
----------------------
Self-Assessment Questions ----------------------
1. Define the following: ----------------------
a. Agreement
----------------------
b. Contract
----------------------
c. Proposal
d. Acceptance ----------------------
e. Consideration ----------------------
f. Voidable Contract
----------------------
g. Consent
----------------------
h. Free Consent
i. Fraud ----------------------
j. Misrepresentation ----------------------
k. Coercion ----------------------
l. Undue influence
----------------------
m. Sound mind
----------------------
n. Competent to contract
2. What are the provisions of Indian Contract Act regarding communication ----------------------
of proposal, acceptance and revocation? Give examples. ----------------------
3. Explain the essentials of a valid contract.
----------------------
4. When is the consent said to be free?
5. What are the provisions of Indian Contract Act regarding the Contract of ----------------------
Indemnity? ----------------------
6. What are the provisions of Indian Contract Act regarding the Contract of
----------------------
Guarantee?
7. What are the provisions of Indian Contract Act regarding the Contract of ----------------------
Bailment?
----------------------
8. What are the provisions of Indian Contract Act regarding the Contract of
Pledge? ----------------------
9. What are the different types of Agents? ----------------------
10. What are the duties and rights of an Agent? ----------------------
11. What are the provisions of Indian Contract Act regarding Performance of
a Contract? ----------------------

Notes 12. What are the provisions of Indian Contract Act regarding Joint Promisors
and Joint Promisees?
----------------------
----------------------
---------------------- Check your Progress 1

----------------------
1. True
----------------------
---------------------- Multiple Choice Single Response.
---------------------- 1. As per Section 129, a guarantee, which extends to a series of transaction,
is called
----------------------
i. Continuing guarantee
---------------------- Fill in the blanks.
---------------------- 1. An ‘agent’ is a person employed to do any act for another in dealing with
third persons. The person, for whom such act is done or represented, is
---------------------- called the principal.
----------------------
Suggested Reading
----------------------
1. Kapoor, N.D. Mercantile Law.
----------------------
2. Saharay, H.K. Business and Economics Laws.
----------------------
3. Sujan, M.A. and Haish Sujan Marketing and the laws.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

The Sale of Goods Act, 1930
UNIT
2
Structure:
2.1 Introduction
2.2 Essentials of a Contract of Sale
2.3 Difference between Sale and Agreement to Sell
2.4 Conditions and Warranties
2.5 Rights of an Unpaid Seller
Summary
Keywords
Suggested Reading
The Sale of Goods Act, 1930 25

Notes
Objectives
----------------------
----------------------
• Explain the essentials of a valid Sales contract
----------------------
• Differentiate between Sale and Agreement to Sell
---------------------- • Discuss the rights of an unpaid seller
---------------------- • Define the transfer of ownership
----------------------
2.1 INTRODUCTION
----------------------
Supply Chain consists of buying of goods from suppliers of raw materials
---------------------- and selling of goods to retailers or wholesalers and customers. These transactions
are basically contract of sales. Therefore, it is essential that the people involved
---------------------- in Supply Chain Management should know the basics of the Sale of Goods Act,
---------------------- 1930.
---------------------- 2.2 ESSENTIALS OF A CONTRACT OF SALE

---------------------- When you place an order for purchase of raw material from a supplier,
---------------------- if the supplier accepts your order, it means your supplier has entered into a
contract of Sale with you for selling raw materials. What is the meaning of
---------------------- ‘Sale’? As per Section 4(1), a contract of sale of goods is a contract whereby
the seller transfers or agrees to transfer the property in goods to the buyer for a
---------------------- price. It can be shown as under:
---------------------- Seller Delivers goods to Buyer
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Buyer Pays price to Seller
---------------------- This leads us to a next question, ‘What is the meaning of Seller and
Buyer?’ As per Section 2(13), ‘seller’ means a person who sells or agrees to sell
---------------------- goods.
---------------------- As per Section 2(1), ‘buyer’ means a person who buys or agrees to buy
goods.
----------------------
What is the meaning of Goods? As per Section 2(7), ‘goods’ means every
---------------------- kind of moveable property other than actionable claims and money; and includes

stock and shares, growing crops, grass, and things attached to or forming a part Notes
of the land which are agreed to be severed before sale or under the contract of
sale. ----------------------
As per Section 2(2), ‘delivery’ means voluntary transfer of possession ----------------------
from one person to another. As per Section 2(10), ‘price’ means the money
consideration for sale of goods. ----------------------
There are two parties in a contract of sale. One party makes offer to sell ----------------------
the goods to another party. When the other party accepts to buy the goods at the
offered price then the contract of sale takes place. Contract of sale is basically ----------------------
a contract. Hence, all the essentials of a valid contract must be fulfilled so that
----------------------
the contract of sale can become a valid contract.
Example ----------------------
Mr. Shantilal offers to sell cotton yarn to Mr. Muruganathan at Rs.50 per ----------------------
kg and Mr. Muruganathan conveys his acceptance to buy the cotton yarn at this
rate, then it becomes a contract of sale. ----------------------
In this example, cotton yarn is the ‘Goods’ and Rs. 50 per kg is the price. ----------------------
As far as selling cotton yarn is concerned, Mr. Shantilal is the seller and Mr.
Muruganathan is the buyer. There may be a contract of sale between one part- ----------------------
owner and another. ----------------------
Example
----------------------
Mr. X is the owner of an agricultural land. X has died leaving behind two
sons Mr. Y and Mr. Z. Now Mr. Y and Mr. Z are the joint owners of the land. If ----------------------
they cultivate cotton on this land, then they will be joint owners of the cotton.
----------------------
In this case, Mr. Y can sell his share to Mr. Z or vice versa.
As per Section 4(2), a contract of sale may be absolute or conditional. ----------------------
‘Absolute’ means there are no conditions. ‘Conditional’ means some conditions
----------------------
are attached by either party or both the parties.
As per Section 4(1), a contract of sale is made by an offer to buy or sell ----------------------
goods for a price and the acceptance of such offer. The contract may provide for ----------------------
the immediate delivery of the goods or immediate payment of the price or both,
or for the delivery or payment by instalments, or that the delivery or payment or ----------------------
both shall be postponed.
----------------------
There are following combinations of a contract of sale.
----------------------
Sr. No. Delivery of goods Payment of Price Transfer of Ownership
1 Immediate Immediate Immediate ----------------------
2 Immediate Immediate On a future date
3 Immediate Instalments Immediate ----------------------
4 Immediate Instalments On a future date
----------------------
5 Instalments Immediate Immediate
6 Instalments Immediate On a future date ----------------------
7 Instalments Instalments Immediate
8 Instalments Instalments On a future date ----------------------

Notes As per Section 4(2), a contract of sale may be made in writing or by
word of mouth, or partly in writing and partly by word of mouth or may be
---------------------- implied from the conduct of the parties. Normally business transactions are
in writing through the Purchase Orders. Now a days, the purchase are made
---------------------- through e-mails, fax etc.
---------------------- As per Section 6(1), the goods which form the subject of a contract of sale
may be either existing goods, owned or possessed by the seller, or future goods.
----------------------
In the earlier example, Mr. Shanitlal may be in the possession of cotton
---------------------- yarn or he may acquire it after the agreement is finalised with Mr. Muruganathan.
If he is in the possession of cotton yarn, it is called existing goods. If he has to
----------------------
acquire cotton yarn after the agreement is finalised, it is called future goods.
---------------------- As per Section 7, where there is a contract for the sale of specific goods,
the contract is void if the goods without the knowledge of the seller have, at
----------------------
the time when the contract was made, perished or become so damaged as no
---------------------- longer to answer to their description in the contract. In the above example, if
Mr. Shantilal finds after a contract with Mr. Muruganathan that the stock of
---------------------- cotton yarn has become wet due to heavy rains, then the contract of sale with
Mr. Muruganathan will become void. It means contract is treated as cancelled. In
----------------------
this case Mr. Shantilal will not be liable for any damages for non performance.
---------------------- As per Section 9(1), the price in a contract of sale may be fixed by
---------------------- the contract or may be left to be fixed in manner thereby agreed or may be
determined by the course of dealing between the parties.
---------------------- As per Section 18, where there is a contract for the sale of unascertained
---------------------- goods, no property in the goods is transferred to the buyer unless and until
the goods are ascertained. If Mr. Shantilal has to acquire cotton yarn after the
---------------------- agreement is finalised with Mr. Muruganathan, then the question of transfer
of ownership of cotton yarn to Mr. Muruganathan does not arise till the cotton
---------------------- yarn is possessed by Mr. Shantilal.
---------------------- Example
---------------------- Mr. Muruganathan has placed an order with Mr. Shantilal for purchase of
50 tons of cotton yarn on 10-12-2007. Mr. Shantilal in turn has placed an order
---------------------- with Mr. Ashok on 12-12-2007. Mr. Ashok dispatched goods on 13-12-2007
by Lorry Transport for delivery to Mr. Shantilal. On the way, there was a rasta
----------------------
roko agitation by farmers and the cotton yarn were destroyed in the riots. Who
---------------------- has to bear the loss? Mr. Muruganathan, Mr. Shantilal or Mr. Ashok?
Between Mr. Ashok and Mr. Shantilal the ownership of the goods is
----------------------
transferred to Mr. Shantilal. Between Mr. Shantilal and Mr. Muruganathan,
---------------------- the ownership of the goods is not transferred to Mr. Muruganathan as it was
a case of future goods as far as Mr. Muruganathan is concerned. Hence,
---------------------- Mr.Shantilal is the owner of the goods at the time of riots. Hence, he has to
suffer the loss.
----------------------
----------------------

As per Section 19(1), where there is a contract for the sale of specific or Notes
ascertained goods the property in them is transferred to the buyer at such time
as the parties to the contract intend that it to be transferred. ----------------------
As per Section 19(2), for the purpose of ascertaining the intention of the ----------------------
parties regard shall be had to the terms of the contract, the conduct of the parties
and the circumstances of the case. ----------------------
As per Section 20, where there is an unconditional contract for the sale ----------------------
of specific goods in a deliverable state, the property in the goods passes to
the buyer when the contract is made, and it is immaterial whether the time of ----------------------
payment of the price or the time of delivery of the goods, or both, is postponed.
----------------------
Example
----------------------
Mr. Vithal had personally gone to the office of a paper mill to purchase
A4 size papers. He placed the order for purchase of 1000 packets (each packet ----------------------
containing 100 sheets). 1000 packets are kept ready for delivery by the paper
mill. Mr. Vithal had gone to bring a pick up van to carry the goods. At this point ----------------------
of time, Mr. Vithal had not yet paid the price. Paper mill had not delivered the ----------------------
goods to Mr. Vithal. The goods were in deliverable state. Hence, the ownership
of the goods was transferred to Mr. Vithal as the contract of sale had already ----------------------
taken place. Till the time Mr. Vithal took the delivery, paper mill would hold the
goods in the capacity of a bailee and not the owner. Mr. Vithal is the owner. If ----------------------
there is any loss to the paper and there is no negligence on the part of the paper ----------------------
mill, the loss had to be borne by Mr. Vithal.
As per Section 21, where there is a contract for the sale of specific goods ----------------------
and the seller is bound to do something to the goods for the purpose of putting ----------------------
them into a deliverable state, the property does not pass until such thing is done
and the buyer has notice thereof. ----------------------
In the above example, if the paper sheets are not packed into a package of ----------------------
100 sheets, then they are not in a deliverable state. In this case, the ownership is
not transferred to Mr. Vithal till the time such packaging is complete. ----------------------
As per Section 22, where there is a contract for the sale of specific goods ----------------------
in a deliverable state, but the seller is bound to weigh, measure, test or do some
other act or thing with reference to the goods for the purpose of ascertaining the ----------------------
price, the property does not pass until such act or thing is done and the buyer
----------------------
has notice thereof.
Mr. Vishal has placed an order to a sugar factory to buy 50 tons of sugar. ----------------------
The sugar has to be delivered in a gunny bag of 50 kg each. Till the time the
----------------------
sugar is weighed and kept ready for delivery, the risk of ownership is with the
sugar factory. Once, all the bags are ready, duly weighed and covered the risk ----------------------
of ownership will pass on to Mr. Vishal. The questions like whether Mr. Vishal
has paid money or not and whether Mr. Vishal has taken delivery or not are ----------------------
irrelevant and immaterial.
----------------------
----------------------

Notes As per Section 23(1), where there is a contract for the sale of unascertained
or future goods by description and goods of that description are in a deliverable
---------------------- state and are unconditionally appropriated to the contract, either by the seller
with the assent of the buyer or by the buyer with the assent of the seller, the
---------------------- property in the goods thereupon passes to the buyer. Such assent may be
---------------------- expressed or implied, and may be given either before or after the appropriation
is made.
----------------------
As per Section 23(2), where, in pursuance of the contract, the seller
---------------------- delivers the goods to the buyer or to a carrier or other bailee (whether named
by the buyer or not) for the purpose of transmission to the buyer, and does not
---------------------- reserve the right of disposal, he is deemed to have unconditionally appropriated
the goods to the contract.
----------------------
As per Section 24, when goods are delivered to the buyer on approval
---------------------- or ‘on sale or return’ or other similar terms, the property therein passes to the
buyer
----------------------
(a) when he signifies his approval or acceptance to the seller or does any
---------------------- other act adopting the transaction;
---------------------- (b) if he does not signify his approval or acceptance to the seller but retains
the goods without giving notice of rejection, then, if a time has been fixed
---------------------- for the return of the goods, on the expiration of such time, and, if no time
---------------------- has been fixed, on the expiration of a reasonable time.
As per Section 25(1), where there is a contract for the sale of specific
---------------------- goods or where goods are subsequently appropriated to the contract, the
---------------------- seller may, by the terms of the contract or appropriation, reserve the right
of disposal of the goods until certain conditions are fulfilled. In such case,
---------------------- notwithstanding the delivery of the goods to a buyer, or to a carrier or
other bailee for the purpose of transmission to the buyer, the property in
---------------------- the goods does not pass to the buyer until the conditions imposed by the
---------------------- seller are fulfilled.
As per Section 25(2), here goods are shipped or delivered to a railway
----------------------
administration for carriage by railway and by the bill of lading or railway
---------------------- receipt, as the case may be, the goods are deliverable to the order of the seller
or his agent, the seller is prima facie deemed to reserve right of disposal.
----------------------
As per Section 25(3), where the seller of goods draws on the buyer for
---------------------- the price and transmits to the buyer the bill of exchange together with the bill
of lading or, as the case may be, the railway receipt, to secure acceptance or
---------------------- payment of the bill of exchange, the buyer is bound to return the bill of lading
or the railway receipt if he does not honour the bill of exchange; and, if he
----------------------
wrongfully retains the bill lading or the railway receipt, the property in the
---------------------- goods does not pass to him.
As per Section 26, the goods remain at the seller’s risk until the property
----------------------
therein is transferred to the buyer, but when the property therein is transferred
---------------------- to the buyer, the goods are at the buyer’s risk whether delivery has been made

or not. After the property is transferred to the buyer, if the delivery of goods is Notes
not taken by the buyer, the seller will be deemed to be bailee. Where delivery
has been delayed through the fault of either buyer or seller, the goods are at the ----------------------
risk of the party in fault. The duties or liabilities of either a seller or a buyer as
a bailee of the goods of the other party will continue. ----------------------
As per Section 27, where goods are sold by a person who is not the owner ----------------------
thereof and who does not sell them under the authority or with the consent of
----------------------
the owner, the buyer acquires no better title to the goods than the seller had.
Therefore, it is essential to verify the ownership of the seller before buying any ----------------------
goods from him.
----------------------
Example
Mr. X is the owner of 100 dozen vests which he is personally carrying ----------------------
in a train. Mr. Y steals them and sells them to Mr. Z for consideration. Mr. Y
----------------------
lodges a police complaint. Police find that the goods described by Mr. X are in
the possession of Mr. Z. Mr. Z pleads that he has purchased them from Mr. Y. ----------------------
Since Mr. Z has purchased the goods from a person other than a owner or his
authorised representative, Mr. Z will not get ownership of the goods. He will ----------------------
have to return the goods to Mr. X. Mr. Z free to lodge a police complaint against
----------------------
Mr. Y. That is a different issue.
As per Section 27, where a mercantile agent is, with the consent of the ----------------------
owner, in possession of the goods or of a document of title to the goods, any sale ----------------------
made by him, when acting in the ordinary course of business of a mercantile
agent, shall be as valid as if he were expressly authorised by the owner of the ----------------------
goods to make the same; provided that the buyer acts in good faith and has not
at the time of the contract of sale noticed that the seller has not authority to sell. ----------------------
In the above example, if Mr. Y is a mercantile agent, then Mr. Z need not ----------------------
return the goods to Mr. X.
----------------------
As per Section 28, if one of the several joint owners of goods has the sole
possession of them by permission of the co-owners, the property in the goods ----------------------
is transferred to any person who buys them from such joint owner in good faith
and has, at the time of the contract of sale, not noticed that the seller has no ----------------------
authority to sell. ----------------------
As per Section 29, when the seller of goods has obtained possession
----------------------
thereof under a contract voidable under Section 19 or Section 19A of the Indian
Contract Act, 1872, but the contract has not rescinded at the time of the sale, the ----------------------
buyer acquires a good title to the goods, provided he buys them in good faith
and without notice of the seller’s defect of title. ----------------------
As per Section 30(1), where a person, having sold goods continues or is ----------------------
in possession of the goods or of the documents of title to the goods, the delivery
or transfer by that person or by a mercantile agent acting for him of the goods ----------------------
or documents of title under any sale, pledge or other disposition thereof to any
----------------------
person receiving the same in good faith and without notice of the previous sale
shall have the same effect as if the person making the delivery or transfer were ----------------------
expressly authorised by the owner of the goods to make the same.
Notes Example
Mr. Vithal has personally gone to the office of a paper mill to purchase
----------------------
A4 size papers. He placed the order for purchase of 1000 packets (each packet
---------------------- containing 100 sheets). 1000 packets were kept ready for delivery by the paper
mill. Mr. Vithal has gone to bring a pick up van to carry the goods. At this point
---------------------- of time Mr. Vithal has not yet paid the price. Paper mill has not yet delivered
the goods to Mr. Vithal. In the mean time Mr. Rahul came to the paper mill
----------------------
and offered to buy the same goods at a higher price. The sales manager at the
---------------------- paper mill accepted this offer and delivered the goods to Mr. Rahul. When, Mr.
Vithal returned with a pick up van to take the delivery of goods, he realised
---------------------- that the goods had been sold to somebody else. In this case, Mr. Vithal could
not recover the goods from Mr. Rahul because, there is no privity of contract
----------------------
between Mr. Vithal and Mr. Rahul. Moreover, Mr. Rahul was not aware of the
---------------------- sale between the paper mill and Mr. Vithal. As far as Mr. Rahul is concerned, he
is the owner of the goods. It is the paper mill which is at fault. Mr. Vithal can
---------------------- file a case against the paper mill. The goods were in deliverable state. Hence,
the ownership of the goods was transferred to Mr. Vithal, as the contract of sale
----------------------
had already taken place. Till the time Mr. Vithal took the delivery, paper mill
---------------------- was holding the goods in the capacity of a bailee and not the owner.
As per Section 30(2), where a person, having bought or agreed to buy
----------------------
goods, obtains with the consent of the seller, possession of the goods or the
---------------------- documents of title to the goods, the delivery or transfer by that person or by a
mercantile agent acting for him, of the goods or documents of title under any
---------------------- sale, pledge or other disposition thereof to any person receiving the same in
good faith and without notice of any lien or other right of the original seller in
----------------------
respect of the goods shall have effect as if such lien or right did not exist.
---------------------- As per Section 31, it is the duty of the seller to deliver the goods and of the
buyer to accept and pay for them, in accordance with the terms of the contract
----------------------
of sale.
---------------------- As per Section 32, unless otherwise agreed, delivery of the goods and
---------------------- payment of the price are concurrent conditions, that is to say, the seller shall be
ready and willing to give possession of the goods to the buyer in exchange for
---------------------- the price, and the buyer shall be ready and willing to pay the price in exchange
for possession of the goods.
----------------------
As per Section 33, delivery of goods sold may be made by doing anything
---------------------- which the parties agree shall be treated as delivery or which has the effect of
putting the goods in the possession of the buyer or of any person authorised to
---------------------- hold them on his behalf.
---------------------- As per Section 35, apart from any express contract, the seller of goods is
not bound to deliver them until the buyer applies for delivery.
----------------------
Example
----------------------
Mr. Shankar went to Tirupur on a personal visit. There he visited a hosiery
---------------------- manufacturing unit and found that the hosiery goods were cheap. He placed an

order for 100 dozen vests and 100 dozen briefs and paid the price by cheque. Notes
He said he will give instructions regarding transport of goods. In this case the
Hosiery unit need not remind Mr. Shankar about the dispatch of goods. It is ----------------------
the duty of Mr. Shankar to approach the Hosiery unit and give him instructions
regarding transport of goods. If Mr. Shankar fails to approach the hosiery unit, ----------------------
it is his fault. He cannot claim any compensation from the hosiery unit. ----------------------
As per Section 36(1), whether it is for the buyer to take possession of the
goods or for the seller to send them to the buyer is a question depending in each ----------------------
case on the contract, express or implied, between the parties. Apart from any ----------------------
such contract, goods sold are to be delivered at the place at which they are at
the time of the sale, and goods agreed to be sold are to be delivered at the place ----------------------
at which they are at the time of the agreement to sell, if not then in existence, at
the place at which they are manufactured or produced. ----------------------
Example: ----------------------
M/s Swarupa Pharmaceuticals have a sales office at Pune. Their ----------------------
manufacturing unit is situated at Chakan, some 30 km from Pune. M/s. Paras
Pharmaceuticals visited the sales office and placed the order for purchase of ----------------------
medicines worth Rs.1,00,000/-. In the absence of an agreement to the contrary,
the goods will be delivered at Chakan and not at Pune. ----------------------
As per Section 36(2), where under the contract of sale the seller is bound ----------------------
to send the goods to the buyer, but no time for sending them is fixed, the seller
is bound to send them within a reasonable time. ----------------------
Example ----------------------
Mr. Suresh placed an order for purchase of 100 units of 2008 diaries on ----------------------
10-11-2007. He placed another order for purchase of 200 units of 2008 diaries
on 10-12-2007. In case of both the orders Mr. Suresh requires the diaries one ----------------------
week before the year 2008 commences. Hence, the reasonable time for delivery
for both the orders will be based on the expected time of delivery and it should ----------------------
not be counted from the date of order. The same thing is applicable to seasonal ----------------------
goods like crackers for Diwali, raincoats, sweat shirts, textbooks etc. The
reasonable period should be decided taking into account the demand for the ----------------------
products and seasonal nature of the products.
----------------------
As per Section 36(3), where the goods at the time of sale are in the
possession of a third person, there is no delivery by a seller to a buyer unless ----------------------
and until such a third person acknowledges to the buyer that he holds the goods
on his behalf. This shall not affect the operation of the issue or transfer of any ----------------------
document of title to goods. ----------------------
As per Section 2(4), ‘document of title to goods’ includes bill of lading,
dock-warrant, warehouse keeper’s certificate, wharfingers’ certificate, railway ----------------------
receipt, multimodal transport document, warrant or order for the delivery of ----------------------
goods and any other document used in the ordinary course of business as proof
of the possession or control of goods or authorising or purporting to authorise, ----------------------
either by endorsement or by delivery, the possessor of the document to transfer
or receive goods thereby represented. ----------------------

Notes As per Section 36(4), demand or tender of delivery may be treated as
ineffectual unless made at a reasonable hour. What is a reasonable hour is a
---------------------- question of fact.
---------------------- As per Section 36(5), unless otherwise agreed, the expenses of and
incidental to putting the goods into a deliverable state shall be borne by the
---------------------- seller.
---------------------- As per Section 37(1), where the seller delivers to the buyer quantity of
goods less than he contracted to sell, the buyer may reject them, but if the buyer
---------------------- accepts the goods so delivered he shall pay for them at the contract rate.
---------------------- As per Section 37(2), where the seller delivers to the buyer a quantity of
goods larger than he contracted to sell, the buyer may accept the goods included
---------------------- in the contract and reject the rest, or he may reject the whole. If the buyer accepts
the whole of the goods so delivered, he shall pay for them at the contract rate.
----------------------
As per Section 37(3), where the seller delivers to the buyer the goods he
---------------------- contracted to sell mixed with goods of a different description not included in
---------------------- the contract, the buyer may accept the goods which are in accordance with the
contract and reject the rest, or may reject the whole.
---------------------- As per Section 38(1), unless otherwise agreed, the buyer of goods is not
---------------------- bound to accept delivery thereof by instalments.
As per Section 38(2), where there is a contract for the sale of goods to
---------------------- be delivered by stated instalments which are to be separately paid for, and
---------------------- the seller makes no delivery or defective delivery in respect of one or more
instalments, or the buyer neglects or refuses to take delivery of or pay for one
---------------------- or more instalments, it is a question in each case depending on the terms of the
contract and the circumstances of the case, whether the breach of contract is
---------------------- a repudiation of the whole contract, or whether it is a severable breach giving
---------------------- rise to a claim for compensation, but not to a right to treat the whole contract as
repudiated.
----------------------
As per Section 39(1), where the seller is authorised or required to send
---------------------- the goods to the buyer, delivery of the goods to a carrier, whether named by the
buyer or not, for the purpose of transmission to the buyer, or delivery of the
---------------------- goods to a wharfinger for safe custody, is prima facie deemed to be a delivery
of the goods to the buyer.
----------------------
As per Section 39(2), unless otherwise authorised by the buyer, the seller
---------------------- shall make such contract with the carrier or wharfinger on behalf of the buyer
as may be reasonable having regard to the nature of the goods and the other
----------------------
circumstances of the case. If the seller omits so to do, and the goods are lost
---------------------- or damaged in course of transit or whilst in the custody of the wharfinger, the
buyer may decline to treat the delivery to the carrier or wharfinger as a delivery
---------------------- to himself, or may hold the seller responsible in damages.
----------------------
----------------------

As per Section 39(3), unless otherwise agreed, where goods are sent by Notes
the seller to the buyer by a route involving sea transit, in circumstances in which
it is usual to insure, the seller shall give such notice to the buyer as may enable ----------------------
him to insure them during their sea transit and if the seller fails so to do, the
goods shall be deemed to be at his risk during such sea transit. ----------------------
As per Section 40, where the seller of goods agrees to deliver them at ----------------------
his own risk at a place other than that where they are when sold, the buyer
----------------------
shall, nevertheless, unless otherwise agreed, take any risk of deterioration in the
goods necessarily incident to the course of transit. ----------------------
As per Section 41(1), where goods are delivered to the buyer which he
----------------------
has not been previously examined, he is not deemed to have accepted them
unless and until he has had a reasonable opportunity of examining them for the ----------------------
purpose of ascertaining whether they are in conformity with the contract.
----------------------
As per Section 41(2), unless otherwise agreed, when the seller tenders
delivery of goods to the buyer, he is bound, on request, to afford the buyer a ----------------------
reasonable opportunity of examining the goods for the purpose of ascertaining
whether they are in conformity with the contract. ----------------------
As per Section 42, the buyer is deemed to have accepted the goods when ----------------------
he intimates to the seller that he has accepted them, or when the goods have been
delivered to him and he does any act in relation to them which is inconsistent ----------------------
with the ownership of the seller, or when, after the lapse of a reasonable time, ----------------------
he retains the goods without intimating to the seller that he has rejected them.
As per Section 43, unless otherwise agreed, where goods are delivered ----------------------
to the buyer and he refuses to accept them, having the right so to do, he is not ----------------------
bound to return them to the seller, but it is sufficient if he intimates to the seller
that he refuses to accept them. ----------------------
As per Section 44, when the seller is ready and willing to deliver the ----------------------
goods and requests the buyer to take delivery, and the buyer does not within a
reasonable time after such request take delivery of the goods, he is liable to the ----------------------
seller for any loss occasioned by his neglect or refusal to take delivery and also
for a reasonable charge for the care and custody of the goods. It shall not affect ----------------------
the rights of the seller where the neglect or refusal of the buyer to take delivery ----------------------
amounts to a repudiation of the contract.
----------------------
Check your Progress 1 ----------------------
State True or False. ----------------------
1. As per Section 4(2), a contract of sale may be made in writing or by
----------------------
word of mouth, or partly in writing and partly by word of mouth or
may be implied from the conduct of the parties. ----------------------
----------------------
----------------------

Notes
Activity 1
----------------------
Collect a copy of invoices from two separate organisations and note down
----------------------
the difference in the following details:
---------------------- l Name of the Seller
----------------------
l Name of the Buyer
l Price of the Goods
----------------------
---------------------- 2.3 DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL

---------------------- As per Section 4(3), where under a contract of sale the property in the
goods is transferred from the seller to the buyer, the contract is called a sale,
----------------------
but where the transfer of the property in the goods is to take place at a future
---------------------- time or subject to some condition thereafter to be fulfilled, the contract is called
an agreement to sell. Transfer of ownership is the real test of sale or agreement
---------------------- to sell. Payment of price and delivery of goods are not the criteria for deciding
whether a contract is a sale or agreement to sell.
----------------------
In following cases, it is a contract of sale.
----------------------
Sr. No. Delivery of goods Payment of Price Transfer of Ownership
---------------------- 1 Immediate Immediate Immediate
---------------------- 2 Immediate Instalments Immediate
3 Instalments Immediate Immediate
---------------------- 4 Instalments Instalments Immediate
---------------------- In the following cases it is an agreement to sell.
---------------------- Sr. No. Delivery of goods Payment of Price Transfer of Ownership
1 Immediate Immediate On a future date
----------------------
2 Immediate Instalments On a future date
---------------------- 3 Instalments Immediate On a future date
---------------------- 4 Instalments Instalments On a future date
The following are the main differences between sale and agreement to sell.
----------------------
S. No. Criteria sale Agreement to Sell
----------------------
1 Transfer of Ownership Immediate On a future date
---------------------- 2 Risk in case of damage to goods Of Buyer Of Seller
ready in a deliverable state
----------------------
3 Nature of contract Executed Executory
---------------------- 4 State of goods Existing Existing or Future
----------------------
----------------------

Examples of Contract of sales Notes
• You have purchased a book from a book shop by paying the price:
----------------------
• You have purchased a computer from a computer shop on instalments:
----------------------
• You have purchased a two wheeler under higher purchase agreement:
You have purchased a two wheeler by availing a loan from a Bank
• ----------------------
Examples of Agreement to sell ----------------------
You have sold your mango crop to a fruit vendor in the month of August
•
2007. Mangoes are expected to be plucked in March 2008. ----------------------
• You have placed an order for stitching of school uniform for your students. ----------------------
• You have placed an order for display sign board for your shop. ----------------------
• You have placed an order in April 2007 for buying 2008 diaries.
----------------------
• You have placed an order for manufacturing a show case for your shop.
----------------------
As per Section 4(4), an agreement to sell becomes a sale when the time
elapses or the conditions are fulfilled subject to which the property in the goods ----------------------
is to be transferred.
----------------------
As per Section 6(2), there may be a contract for the sale of goods the
acquisition of which by the seller depends upon a contingency which may or ----------------------
may not happen. As per Section 6(3), where by a contract of sale the seller
purports to effect a present sale of future goods, the contract operates as an ----------------------
agreement to sell the goods. ----------------------
As per Section 8, where there is an agreement to sell specific goods, and
----------------------
subsequently the goods without any fault on the part of the seller or buyer
perish or become so damaged as no longer to answer to their description in the ----------------------
agreement before the risk passes to the buyer, the agreement is thereby avoided.
----------------------
2.4 CONDITIONS AND WARRANTIES ----------------------
As per Section 12(1), a stipulation in a contract of sale with reference to ----------------------
goods which are the subject thereof may be a condition or a warranty.
----------------------
As per Section 12(2), a condition is a stipulation essential to the main
purpose of the contract, the breach of which gives rise to a right to treat the ----------------------
contract as repudiated.
----------------------
As per Section 12(3), a warranty is a stipulation collateral to the main
purpose of the contract, the breach of which gives rise to a claim for damages ----------------------
but not to a right to reject the goods and treat the contract as repudiated.
----------------------
As per Section 12(4), whether a stipulation in a contract of sale is a
condition or a warranty depends in each case on the construction of the contract. ----------------------
A stipulation may be a condition, though called a warranty in the contract.
----------------------
----------------------

Notes Example
Mrs. Sangeeta has purchased a computer. If a key button on the key board
----------------------
is not working properly, she cannot cancel the contract and she cannot ask for
---------------------- the replacement of whole computer. It is a case of warranty. She can claim
damages for the faulty key or she can ask the vendor to repair it free of cost. If
---------------------- the hard disk is not working properly, she can cancel the contract and she can
ask for the replacement of whole computer. It is a case of Condition. Many
----------------------
traders state that they give ‘Guarantee’ for certain period on their products. But,
---------------------- under the Sale of Goods Act there is no mention about ‘Guarantee’. The word
‘Guarantee’ is sometimes orally used t o mean Warranty.
----------------------
Rights to the buyer under Sale of Goods Act are in addition to rights
---------------------- under Consumer Protection Act.
As per Section 13(1), where a contract of sale is subject to any condition
----------------------
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.
----------------------
As per Section 13(2), where a contract of sale is not severable and the
---------------------- 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
As per Section 14, the following are the implied conditions and warrantties,
---------------------- unless the circumstances of the contract are such as to show a different intention
---------------------- there is
(a) an implied condition on the part of the seller that, in the case of a sale, he
---------------------- has a right to sell the goods and that, in case of an agreement to sell, he
---------------------- will have a right to sell the goods at the time when the property is to pass;
(b) an implied warranty that the buyer shall have and enjoy quiet possession
----------------------
of the goods;
---------------------- (c) an implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party not declared or known to the
----------------------
buyer before or at the time when the contract is made.
---------------------- As per Section 15, where there is a contract for the sale of goods by
---------------------- description, there is an implied condition that the goods shall correspond with
the description; and, if the sale is by sample as well as by description, it is not
---------------------- sufficient that the bulk of goods correspond with the sample if the goods do not
also correspond with the description
----------------------
As per Section 16, there is no implied warranty or condition as to the
---------------------- quality or fitness for any particular purpose of goods supplied under a contract
of sale, except as follows:-
----------------------
Where the buyer, expressly or by implication, makes known to the seller
•
---------------------- the particular purpose for which the goods are required, so as to show

that the buyer relies on the seller’s skill or judgment, and the goods are Notes
of a description which it is in the course of the seller’s business to supply
(whether he is the manufacturer or producer or not), there is an implied ----------------------
condition that the goods shall be reasonably fit for such purpose:
----------------------
Where goods are bought by description from a seller who deals in goods
•
of that description (whether he is the manufacturer or producer or not), ----------------------
there is an implied condition that the goods shall be of merchantable
----------------------
quality;
PROVIDED that, if the buyer has examined the goods, there shall be no ----------------------
implied condition as regards defects which such examination ought to
----------------------
have revealed.
An implied warranty or condition as to quality or fitness for a particular
• ----------------------
purpose may be annexed by the usage of trade.
----------------------
An express warranty or condition does not negative a warranty or
•
condition implied by this Act unless inconsistent therewith. ----------------------
As per Section 17(2), in the case of a contract for sale by sample there is an ----------------------
implied condition:
----------------------
(a) that the bulk shall correspond with the sample in quality;
----------------------
(b) that the buyer shall have a reasonable opportunity of comparing the bulk
with the sample; ----------------------
(c) that the goods shall be free from any defect, rendering them unmerchantable,
----------------------
which would not be apparent on reasonable examination of the sample.
Caveat Emptor ----------------------
Caveat Emptor means ‘Let the buyer beware’. It means, it is the duty of ----------------------
the buyer to verify and inspect the goods that he is buying and confirm whether
they are suitable for the purpose for which he is buying. ----------------------
Caveat Emptor is not applicable in case of implied warranties and implied ----------------------
conditions.
----------------------
Example
----------------------
Mr. Harshal purchased 2 briefs of 75 cm from a readymade shop. His
normal size was 100 cm. It is not the duty of the shopkeeper to remind Mr. ----------------------
Harshal that the size is not suitable for him. After 2 days, Mr. Harshal wanted
to return the briefs on the ground that the briefs are very small in size. The shop ----------------------
keeper is not bound to take back the goods.
----------------------
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
Multiple Choice Single Response.
----------------------
1. Which warranty or condition as to quality or fitness for a particular
---------------------- purpose may be annexed by the usage of trade?
---------------------- i. An implied warranty
ii. An express warranty
----------------------
iii. Implied condition
----------------------
iv. Contract
----------------------
---------------------- Activity 2
----------------------
Collect a copy of a Warranty Card given for an electronic item purchased
---------------------- by you or your relatives. Read the contents carefully. Write any two main
observations made by you.
----------------------
---------------------- 2.5 RIGHTS OF AN UNPAID SELLER

----------------------
When the goods are delivered to a buyer without receiving full payment,
---------------------- the seller is called an unpaid seller. In case of credit sales and instalment sales,
the seller is an unpaid seller. If a buyer has made payment by cheque and the
---------------------- cheque is bounced for any reason then the seller will be considered as unpaid
seller.
----------------------
As per Section 45(1), the seller of goods is deemed to be an ‘unpaid seller’
----------------------
(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.
---------------------- The term ‘seller’ includes any person who is in the position of a seller, as,
---------------------- for instance, an agent of the seller to whom the bill of lading has been endorsed,
or a consignor or agent who has himself paid, or is directly responsible for, the
---------------------- price.
---------------------- As per Section 46(1) the unpaid seller of goods has the following rights:-
a) a lien on the goods for the price while he is in possession of them;
----------------------
b) in case of the insolvency of the buyer a right of stopping the goods in
---------------------- transit after he has parted with the possession of them;
---------------------- c) a right of re-sale.
----------------------

Unpaid seller’s lien Notes
As per Section 47(1), the unpaid seller of goods who is in possession of
----------------------
them is entitled to retain possession of them until payment or tender of the price
in the following cases: ----------------------
(a) where the goods have been sold without any stipulation as to credit;
----------------------
(b) where the goods have been sold on credit, but the term of credit has
expired; ----------------------
(c) where the buyer becomes insolvent. ----------------------
As per Section 48, where an unpaid seller has made part delivery of the ----------------------
goods, he may exercise his right of lien on the remainder, unless such part
delivery has been made under such circumstances as to show an agreement to ----------------------
waive the lien.
----------------------
As per Section 49(1), the unpaid seller of goods loses his lien thereon-
----------------------
(a) when he delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the right of disposal of the ----------------------
goods;
----------------------
(b) when the buyer or his agent lawfully obtains possession of the goods;
(c) by waiver thereof ----------------------
Right of stoppage in transit
----------------------
As per Section 50, when the buyer of goods becomes insolvent, the unpaid
seller who has parted with the possession of the goods has the right of stopping ----------------------
them in transit, that is to say, he may resume possession of the goods as long as ----------------------
they are in the course of transit, and may retain them until payment or tender of
the price. ----------------------
As per Section 51(1), goods are deemed to be in course of transit from ----------------------
the time when they are delivered to a carrier or other bailee for the purpose
of transmission to the buyer, until the buyer or his agent in that behalf takes ----------------------
delivery of them from such carrier or other bailee.
----------------------
As per Section 51(3), after the arrival of the goods at the appointed
destination if the carrier or other bailee acknowledges to the buyer or his agent ----------------------
that he holds the goods on his behalf and continues in possession of them as
----------------------
bailee for the buyer or his agent, the transit is at an end and it is immaterial that
a further destination for the goods may have been indicated by the buyer. ----------------------
As per Section 51(4), if the goods are rejected by the buyer and the carrier
----------------------
or other bailee continues in possession of them, the transit is not deemed to be
at an end, even if the seller has refused to receive them back. ----------------------
As per Section 51(5), when goods are delivered to a ship chartered by the
----------------------
buyer, it is a question depending on the circumstances of the particular case,
whether they are in the possession of the master as a carrier or as agent of the ----------------------
buyer.
----------------------

Notes As per Section 51(6), where the carrier or other bailee wrongfully refuses
to deliver the goods to the buyer or his agent in that behalf, the transit is deemed
---------------------- to be at an end.
---------------------- As per Section 51(7), where part delivery of the goods has been made to
the buyer or his agent in that behalf, the remainder of the goods may be stopped
---------------------- in transit, unless such part delivery has been given in such circumstances as to
show an agreement to give up possession of the whole of the goods.
----------------------
As per Section 52(1), the unpaid seller may exercise his right of stoppage
---------------------- in transit either by taking actual possession of the goods, or by giving notice
of his claim to the carrier or other bailee in whose possession the goods are.
----------------------
Such notice may be given either to the person in actual possession of the goods
---------------------- or to his principal. In the latter case the notice, to be effectual, shall be given
at such time and in such circumstances, that the principal, by the exercise of
---------------------- reasonable diligence, may communicate it to his servant or agent in time to
prevent a delivery to the buyer.
----------------------
As per Section 52(2), when notice of stoppage in transit is given by the
---------------------- seller to the carrier or other bailee in possession of the goods, he shall re-deliver
the goods to, or according to the directions of, the seller. The expenses of such
----------------------
re-delivery shall be borne by the seller.
---------------------- As per Section 53(1), the unpaid seller’s right of lien or stoppage in transit
---------------------- is not affected by any sale or other disposition of the goods which the buyer
may have made, unless the seller has assented thereto.
---------------------- Where a document of title to goods has been issued or lawfully transferred
---------------------- to any person as buyer or owner of the goods, and that person transfers the
document to a person who takes the document in good faith and for consideration,
---------------------- then, if such last mentioned transfer was by way of sale, the unpaid seller’s right
of lien or stoppage in transit is defeated, and, if such last mentioned transfer
---------------------- was by way of pledge or other disposition for value, the unpaid seller’s right
---------------------- of lien or stoppage in transit can only be exercised subject to the rights of the
transferee.
---------------------- As per Section 53(2), where the transfer is by way of pledge, the unpaid
---------------------- seller may require the pledgee to have the amount secured by the pledge satisfied
in the first instance, as far as possible, out of any other goods or securities of the
---------------------- buyer in the hands of the pledgee and available against the buyer.
---------------------- As per Section 54(1), a contract of sale is not rescinded by the mere
exercise by an unpaid seller of his right of lien or stoppage in transit.
----------------------
As per Section 54(2), where the goods are of a perishable nature, or where
---------------------- the unpaid seller who has exercised his right of lien or stoppage in transit gives
notice to the buyer of his intention to re-sell, the unpaid seller may, if the buyer
---------------------- does not within a reasonable time pay or tender the price, re-sell the goods
within a reasonable time and recover from the original buyer damages for any
----------------------
loss occasioned by his breach of contract, but the buyer shall not be entitled
---------------------- to any profit which may occur on the re-sale. If such notice is not given, the

unpaid seller shall not be entitled to recover such damages and the buyer shall Notes
be entitled to the profit, if any, on the re-sale.
----------------------
As per Section 54(3), where an unpaid seller who has exercised his right
of lien or stoppage in transit re-sells the goods, the buyer acquires a good title ----------------------
thereto as against the original buyer, notwithstanding that no notice of the
re-sale has been given to the original buyer. ----------------------
As per Section 54(4), where the seller expressly reserves a right of re- ----------------------
sale in case the buyer should make default, and, on the buyer making default,
re-sells the goods, the original contract of sale is thereby rescinded, but without ----------------------
prejudice to any claim which the seller may have for damages.
----------------------
As per Section 55(1), where under a contract of sale the property in the
goods has passed to the buyer and the buyer wrongfully neglects or refuses to ----------------------
pay for the goods according to the terms of the contract, the seller may sue him
----------------------
for the price of the goods.
As per Section 55(2), where under a contract of sale the price is payable ----------------------
on a day certain irrespective of delivery and the buyer wrongfully neglects or ----------------------
refuses to pay such price, the seller may sue him for the price although the
property in the goods has not passed and the goods have not been appropriated ----------------------
to the contract.
----------------------
As per Section 56, where the buyer wrongfully neglects or refuses to
accept and pay for the goods, the seller may sue him for damages for non- ----------------------
acceptance.
----------------------
As per Section 57, where the seller wrongfully neglects or refuses to
deliver the goods to the buyer, the buyer may sue the seller for damages for ----------------------
non-delivery.
----------------------
As per Section 58, in any suit for breach of contract to deliver specific
or ascertained goods, the court may, if it thinks fit, on the application of the ----------------------
plaintiff, by its decree direct that the contract shall be performed specifically,
----------------------
without giving the defendant the option of retaining the goods on payment of
damages. ----------------------
As per Section 59(1), where there is a breach of warranty by the seller, or
----------------------
where the buyer elects or is compelled to treat any breach of a condition on the
part of the seller as a breach of warranty, the buyer is not by reason only of such ----------------------
breach of warranty entitled to reject the goods; but he may-
----------------------
(a) set up against the seller the breach of warranty in diminution or extinction
of the price, or ----------------------
(b) sue the seller for damages for breach of warranty. ----------------------
As per Section 60, where either party to a contract of sale repudiates the
contract before the date of delivery, the other may either treat the contract as ----------------------
subsisting and wait till the date of delivery, or he may treat the contract as ----------------------
rescinded and sue for damages for the breach.
----------------------

Notes As per Section 61(1), nothing in this Act shall affect the right of the seller
or the buyer to recover interest or special damages in any case whereby low
---------------------- interest or special damages may be recoverable, or to recover the money paid
where the consideration for the payment of it has failed.
----------------------
As per Section 61(2), the court may award interest at such rate as it thinks
---------------------- fit on the amount of the price
---------------------- (a) to the seller in a suit by him for the amount of the price-from the date of
the tender of the goods or from the date on which the price was payable;
----------------------
(b) to the buyer in a suit by him for the refund of the price in a case of a
---------------------- breach of the contract on the part of the seller-from the date on which the
payment was made.
----------------------
As per Section 64, in the case of sale by auction
---------------------- (1) where goods are put up for sale in lots, each lot is prima facie deemed to
---------------------- be the subject of a separate contract of sale;
(2) the sale is complete when the auctioneer announces its completion by
---------------------- the fall of the hammer or in other customary manner; and, until such
---------------------- announcement is made, any bidder may retract his bid;
(3) a right to bid may be reserved expressly by or on behalf of the seller and,
----------------------
where such right is expressly so reserved, but not otherwise, the seller or
---------------------- any one person on his behalf may, subject to the provisions hereinafter
contained, bid at the auction;
----------------------
(4) where the sale is not notified to be subject to a right to bid on behalf of
---------------------- the seller, it shall not be lawful for the seller to bid himself or to employ
any person to bid at such sale, or for the auctioneer knowingly to take any
---------------------- bid from the seller or any such person; and any sale contravening this rule
may be treated as fraudulent by the buyer;
----------------------
(5) the sale may be notified to be subject to a reserved or upset price;
----------------------
(6) if the seller makes use of pretended bidding to raise the price, the sale is
---------------------- voidable at the option of the buyer.
---------------------- As per Section 64A(1), unless a different intention appears from the terms
of the contract, in the event of any tax of the nature described in Sub-section
---------------------- (2) being imposed, increased, decreased or remitted in respect of any goods
after the making of any contract for the sale or purchase of such goods without
---------------------- stipulation as to the payment of tax, (a) if such imposition or increase so takes
---------------------- effect that the tax or increased tax, as the case may be, or any part of such tax
is paid or is payable, the seller may add so much to the contract price as will be
---------------------- equivalent to the amount paid or payable in respect of such tax or increase of
tax, and he shall be entitled to be paid and to sue for and recover such addition;
---------------------- and (b) if such decrease or remission so takes effect that the decreased tax only,
---------------------- or no tax, as the case may be, is paid or is payable, the buyer may deduct so
much from the contract price as will be equivalent to the decrease of tax or
---------------------- remitted tax, and he shall not be liable to pay, or be sued for, or in respect of,
such deduction.
(2) The provisions of sub-section (1) apply to the following taxes, namely Notes
(a) any duty of customs or excise on goods;
----------------------
(b) any tax on the sale or purchase of goods
----------------------
The unpaid seller can hypothecate his book debts/receivables to a banker
and raise finance against the amount receivable by him. The unpaid seller can ----------------------
sell his book debts or receivables to a factor authorising him to recover the
money from his debtors. ----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. If a buyer has made payment by cheque and the cheque is bounced for
any reason, then the seller will be considered as ____________. ----------------------
----------------------
Activity 2
----------------------
Collect a case law pertaining to non-payment or non-delivery from a journal ----------------------
or book or an advocate. Write the issue involved in the case and the decision
of the Court. ----------------------
----------------------
Summary ----------------------
• Supply Chain consists of buying of goods from suppliers of raw materials ----------------------
and selling of goods to retailers or wholesalers and customers. These
transactions are basically contract of sales. ----------------------
• A contract of sale of goods is a contract whereby the seller transfers or ----------------------
agrees to transfer the property in goods to the buyer for a price.
----------------------
• The contract may provide for the immediate delivery of the goods or
immediate payment of the price or both, or for the delivery or payment by ----------------------
instalments.
----------------------
• The ownership of the goods is transferred to buyer as soon as the contract
of sale takes place, irrespective of whether the goods are delivered or not ----------------------
or whether the price is paid or not.
----------------------
• As per Section 4(3), where under a contract of sale the property in the
goods is transferred from the seller to the buyer, the contract is called a ----------------------
sale, but where the transfer of the property in the goods is to take place
at a future time or subject to some condition thereafter to be fulfilled, the ----------------------
contract is called an agreement to sell. Transfer of ownership is the real ----------------------
test of sale or agreement to sell.
• A condition is a stipulation essential to the main purpose of the contract, ----------------------
the breach of which gives rise to a right to treat the contract as repudiated. ----------------------

Notes • A warranty is a stipulation collateral to the main purpose of the contract,
the breach of which gives rise to a claim for damages but not to a right to
---------------------- reject the goods and treat the contract as repudiated.
---------------------- • Caveat Emptor means ‘Let the buyer beware’. It means, it is the duty of
the buyer to verify and inspect the goods that he is buying.
----------------------
• When the goods are delivered to a buyer without receiving full payment,
---------------------- the seller is called an unpaid seller.
• The unpaid seller of goods has the following rights:
----------------------
a) a lien on the goods for the price while he is in possession of them;
----------------------
b) in case of the insolvency of the buyer a right of stopping the goods
---------------------- in transit after he has parted with the possession of them;
---------------------- c) a right of re-sale
----------------------
Keywords
----------------------
• Agreement to sell : Where the transfer of the property in the goods is to
---------------------- take place at a future time or subject to some condition thereafter to be
fulfilled, the contract is called an agreement to sell.
----------------------
• bailee : The person to whom the goods are delivered in a contract of
---------------------- bailment.
---------------------- • bill of Exchange : An instrument in writing containing an unconditional

order, signed by the maker, directing a certain person to pay a certain sum
---------------------- of money
---------------------- • buyer : A person who buys or agrees to buy goods;
• Condition : A stipulation essential to the main purpose of the contract,
----------------------
the breach of which gives rise to a right to treat the contract as repudiated.
---------------------- • Consideration : When at the desire of the promisor, the promisee or any
other person has done or abstained from doing something, such act or
----------------------
abstinence or promise is called consideration.
---------------------- • Contract : An agreement enforceable by law.
---------------------- • Contract of sale : A contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price.
----------------------
• Delivered state : The goods are in such state that the buyer would be
---------------------- bound to take delivery of them;
---------------------- • Delivery : Voluntary transfer of possession from one person to another;
dishonour of Cheque : Cheque is returned by the drawee bank for any
---------------------- reason. document of title to goods : Any document used in the ordinary
course of business as proof of the possession or control of goods.
----------------------
----------------------

• Endorsement : Signature of the marker or holder of an negotiable Notes
instrument for the purpose of negotiation on the back or face thereof.
• Future goods : Goods to be manufactured or produced or acquired by the ----------------------
seller after making of the contract of sale. ----------------------
• General lien : Right of Bankers etc. to retain as a security for a general
balance of account, any goods bailed to them. ----------------------
Goods : Every kind of moveable property other than actionable claims ----------------------
and money.
----------------------
• Mercantile Agent : An agent having in the customary course of business
as such agent authority either to sell/buy/consign goods. ----------------------
• Negotiable Instrument : Promissory note, Bill of Exchange or Cheque. ----------------------
An instrument in writing which creates rights and obligations and freely
transferable. ----------------------
• Pledge : The bailment of goods as security for payment of a debt or ----------------------
performance of a promise.
• Price : The money consideration for a sale of goods. ----------------------
• Property : The general property in goods, and not merely a special ----------------------
property;
----------------------
• Quality : The state or condition of goods
• Sale : Where under a contract of sale the property in the goods is ----------------------
transferred from the seller to the buyer, the contract is called a sale. ----------------------
• Seller : A person who sells or agrees to sell goods
----------------------
• pecific goods : Goods identified and agreed upon at the time a contract
S
of sale is made. ----------------------
• warranty : A warranty is a stipulation collateral to the main purpose of ----------------------
the contract, the breach of which gives rise to a claim for damages but not
to a right to reject the goods and treat the contract as repudiated. ----------------------
----------------------
----------------------
1. Define the following:
----------------------
a. Agreement to Sell
b. Sale ----------------------
c. Price ----------------------
d. Goods ----------------------
e. Condition
----------------------
f. Warranty
----------------------
g. Document of title to goods
h. Unpaid seller ----------------------

Notes 2. What are the provisions of Sale of Goods Act regarding contract of Sale?
Give examples.
----------------------
3. Explain the difference between the Sale and Agreement to sell.
---------------------- 4. What are the provisions of Sale of Goods Act regarding conditions and
warranty?
----------------------
5. What are the provisions of Sale of Goods Act regarding Rights of an
---------------------- unpaid seller?
---------------------- 6. Explain the principle of ‘Caveat Emptor’.
----------------------
----------------------
---------------------- State True or False.
---------------------- 1. True
----------------------
1. Which warranty or condition as to quality or fitness for a particular
---------------------- purpose may be annexed by the usage of trade?
---------------------- i. An implied warranty

Fill in the blanks.
----------------------
1. If a buyer has made payment by cheque and the cheque is bounced for any
---------------------- reason, then the seller will be considered as unpaid seller.
----------------------
Suggested Reading
----------------------
1. Bulchandani, K.R. Business Law. Himalaya Publishing House.
----------------------
2. Gulshan, S.S. Business Law. Delhi: Excel Books.
----------------------
3. Kapur, N.D. Elements of Mercantile Law. Sultan Chand.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Negotiable Instruments Act, 1930
UNIT
3
Structure:
3.1 Introduction
3.2 Characteristics of Negotiable Instruments
3.3 Modes of Negotiation
3.4 Duties and Liabilities of a Paying Banker
3.5 Duties and Liabilities of a Collecting Banker
3.6 Bouncing of a Cheque- a Criminal Offence
Summary
Keywords
Suggested Reading
Negotiable Instruments Act, 1930 49

Notes
Objectives
----------------------
----------------------
• Explain the characteristics of Negotiable Instruments
----------------------
• State the duties and liabilities of parties to Negotiable Instruments
---------------------- • Describe the duties and liabilities of a Paying banker
---------------------- • Specify the duties and liabilities of a Collecting banker
---------------------- • Enumerate the provisions in respect of bouncing of a cheque
---------------------- 3.1 INTRODUCTION

---------------------- When you place an order for purchase of raw material from a supplier, the
---------------------- supplier draws a bill on you along with lorry receipt and sends it to your bankers
for collection. This bill is called Bill of Exchange. You may make payment
---------------------- through Cheque or Demand draft. You will have to endorse the lorry receipt for
taking delivery of goods. The provisions in respect of Bill, Cheque, Demand
---------------------- draft and Endorsement are covered in Negotiable Instruments Act, 1881.
---------------------- Therefore, it is essential that the people involved in Supply Chain Management
should know the basics of the Negotiable Instruments Act, 1881. It is one of the
---------------------- oldest Acts in India.
----------------------
3.2 CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS
----------------------
The Negotiable Instruments Act does not define the Negotiable Instrument.
---------------------- However, it has named the negotiable instrument. As per Section 13, a
‘negotiable instrument’ means a promissory note, bill of exchange or cheque
---------------------- payable either to order or to bearer.
---------------------- What is the meaning of ‘Payable to Order’?
---------------------- A promissory note, bill of exchange or cheque is payable to order which

is expressed to be so payable to a particular person, and does not contain words
---------------------- prohibiting transfer or indicating an intention that it shall not be transferable.
Where a promissory note, bill of exchange or cheque, either originally or by
---------------------- endorsement, is expressed to be payable to the order of a specified person, and
---------------------- not to him or his order, it is nevertheless payable to him or his order at his
option.
---------------------- What is the meaning of ‘Payable to Bearer’?
---------------------- A promissory note, bill of exchange or cheque is payable to bearer which
is expressed to be so payable or on which the only or last endorsements is an
---------------------- endorsement in blank.
---------------------- As per Section (2), A negotiable instrument may be made payable to two
or more payees jointly, or it may be made payable in the alternative to one or
----------------------
two, or one or some of several payees

Even though the N I Act does not define negotiable instrument, based on Notes
the characteristics of the instrument we may attempt the following definition.
----------------------
A negotiable instrument is a written document creating rights for one
party and the obligation for another party expressed in terms of money, payable ----------------------
to a bearer or to the order of a person and easily transferable not withstanding
any defect in the title of the transferor. The following are the features of a ----------------------
negotiable instrument
----------------------
l A negotiable instrument is in writing
----------------------
l It creates right for one party
l It creates liability for another party ----------------------
l It is expressed in terms of money ----------------------

l It is payable to a bearer or to the order of a person ----------------------
It is
l easily transferable not withstanding any defect in the title of the
----------------------
transferor.
“Not withstanding any defect in the title of the transferor” is the speciality ----------------------
of a negotiable instrument.
----------------------
In normal course, if the transferor is having clear title the transferee gets
clear title. If the transferor is having defective title the transferee gets defective ----------------------
title. In case of a negotiable instrument transferee gets clear title even if the ----------------------
transferor is having defective title. This aspect is the main difference between a
negotiable instrument and other type of property. ----------------------
Example: ----------------------
Mr. Shantilal has lost a bearer cheque favouring himself for Rs.5,000/-
and a gold ring of worth Rs.5,000/-. Muruganathan found them. He gave the ----------------------
cheque and sold the ring to M/s Vishal Jewellers and purchased a gold chain ----------------------
worth Rs.10,000/-. Mr. Shantilal lodged a police complaint. On the basis of
encashment of cheque, the police came to know that the finder of the gold and ----------------------
cheque has gone to M/s. Vishal Jewellers. Now Police can recover the gold
ring from M/s. Vishal Jewellers even though they have purchased the same ----------------------
by giving proper price, because, in respect of gold ring, M/s. Vishal Jewellers ----------------------
purchased it from a non owner. Hence, they did not get good title to the gold
ring. As far as cheque is concerned, the Police could not recover Rs.5,000/- ----------------------
from M/s Vishal Jewellers, because, in respect of the cheque, they got a clear
title even though Mr. Muruganathan did not have the clear title to it. ----------------------
The following are the examples of Negotiable Instruments : ----------------------

Promissory Note, Bill of Exchange, Cheque, Demand draft, Traveller’s ----------------------
Cheque, Gift Cheque, Dividend warrant, Interest Warrant, Pay Order, Banker’s
Cheque. ----------------------
The following are the examples of those which are not Negotiable ----------------------
Instruments.
----------------------

Notes Stock Invest, National Saving Certificate, Fixed Deposit receipt, Share
Certificate, Withdrawl Slip, Bill of lading, Airway Bill, Railway receipt, Lorry
---------------------- receipt. Warehouse receipt.
---------------------- Section 118, lists the presumptions as to negotiable instruments.
Until the contrary is proved, the following presumptions shall be made:
----------------------
(a) of consideration - that every negotiable instrument was made or drawn for
---------------------- consideration, and that every such instrument, when it has been accepted,
indorsed, negotiated or transferred, was accepted, indorsed, negotiated or
----------------------
transferred for consideration;
---------------------- (b) as to date- that every negotiable instrument bearing a date was made or
---------------------- drawn on such date;
(c) as to time of acceptance - that every accepted bill of exchange was
---------------------- accepted within a reasonable time after its date and before its maturity;
---------------------- (d) as to time of transfer - that every transfer of a negotiable instrument was
made before its maturity;
----------------------
(e) as to order of endorsements - that the endorsements appearing upon a
---------------------- negotiable instrument were made in the order in which they appear
thereon;
----------------------
(f) as to stamps-that a lost promissory note, bill of exchange or cheque was
---------------------- duly stamped;
---------------------- (g) that holder is a holder in due course - that the holder of a negotiable
instrument is a holder in due course; provided that, where the instrument
---------------------- has been contained from its lawful owner, or from any person in lawful
---------------------- custody thereof, by means of an offence or fraud, or for unlawful
consideration, the burden of proving that the holder is a holder in due
---------------------- course lies upon him.
---------------------- Promissory Note

As per Section 4, a ‘promissory note’ is an instrument in writing (not
---------------------- being a bank-note or a currency-note) containing an unconditional undertaking
---------------------- signed by the maker, to pay a certain sum of money only to, or to the order of,
a certain person, or to the bearer of the instrument.
----------------------
The characteristics of a Promissory Note are as follows :
---------------------- l It is an instrument in writing.
---------------------- l It contains an unconditional undertaking (promise).
---------------------- l It is signed by the maker. Promisor is a certain person.

l The promise is to pay a certain sum of money.
----------------------
It is payable
l only to the order of a certain person or to the bearer of the
---------------------- instrument.
---------------------- l It is stamped as per Indian Stamp Act.

Defect in respect of any one or more aspects will render the promissory note as Notes
legally invalid and unenforceable in court of law.
----------------------
Examples of valid Promissory Notes are as follows
(a) “I promise to pay B or order Rs. 500”. ----------------------
(b) “I acknowledge myself to be indebted to B in Rs. 1,000, to be paid on ----------------------
demand, for value received.”
----------------------
Examples of invalid Promissory Notes
a) “Mr. B, I.O.U Rs. 1,000.” ----------------------
b) “I promise to pay B Rs. 500 and all other sums which shall be due to ----------------------
him.”
----------------------
c) “I promise to pay B Rs. 500 first deducting there out any money which he
may owe me.” ----------------------
d) “I promise to pay B Rs. 500 seven days after my marriage with C.” ----------------------
Whenever you take a loan from a bank or a financial institution or buy
goods on credit you may be required to sign the promissory note. Please ----------------------
ensure that the blanks in the format are duly filled in before you sign
----------------------
them.
Format of a Promissory note ----------------------
Date: 16-12-2007 Rs. 1,000/- ----------------------

On demand I Mr.Vithalsingh Hajeri promise to pay Bank of Maharashtra, ----------------------
Pune branch or order a sum of Rs.1,000/- (Rs. One thousand only) at Pune or
wherever demanded at a rate of interest of 12% per annum. ----------------------
Revenue Stamp ----------------------
(Signature)
----------------------
The promissory notes are of two types. ----------------------
a) Demand Promissory Note: Promise to pay on demand ----------------------
b) Usance Promissory Note: Promise to pay on a future date
----------------------
There are two parties in a promissory note.
----------------------
a) Maker or Promisor: The persons who make the promise.
b) Payee or Promisee: The person to whom the sum is payable. ----------------------
Bill of exchange ----------------------

As per Section 5, a ‘bill of exchange’ is an instrument in writing containing ----------------------
an unconditional order, signed by the maker, directing a certain person to pay a
certain sum of money only to, or to the order of, a certain person or to the bearer ----------------------
of the instrument.
----------------------
----------------------

Notes The characteristics of a Bill of exchange are as follows :
l It is an instrument in writing.
----------------------
l It contains an unconditional order.
----------------------
l It is signed by the drawer. Drawer is a certain person.
---------------------- l Drawee is a certain person.
---------------------- l The order is to pay a certain sum of money.
---------------------- It is payable
l only to the order of a certain person or to the bearer of the
instrument.
----------------------
l It is stamped as per Indian Stamp Act if applicable.
---------------------- Defect in respect of any one or more aspects will render the promissory
note as legally invalid and unenforceable in court of law.
----------------------
Illustration
----------------------
Manufacturer sells goods on credit to Wholesaler sells goods on credit to
----------------------
----------------------
----------------------
----------------------
Retailer
----------------------
(Creditor) (Debtor)
---------------------- Manafacturer has to receive money from Wholesaler has to receive money
from
----------------------
---------------------- (Creditor)
----------------------
----------------------
---------------------- Retailer (Debtor)
(Creditor) (Debtor)
----------------------
Manufacturer has to receive money from Wholesaler has to receive money from
----------------------
(Creditor)
----------------------
---------------------- Retailer (Debtor)
---------------------- As per the order from wholesaler, retailer directly makes payment to
Manufacturer.
----------------------
----------------------

Example Notes
A manufacturer sells goods on credit to a wholesaler. Wholesaler in turn
----------------------
sells goods on credit to a Retailer. There are three parties in this transaction
namely manufacturer, wholesaler and retailer. Between manufacturer and ----------------------
wholesaler, manufacturer is the creditor and wholesaler is the debtor. Between
wholesaler and retailer, wholesaler is the creditor and retailer is the debtor. ----------------------
Wholesaler is a common party. He has to receive money from retailer and he
----------------------
has to pay money to manufacturer. In stead of receiving money from retailer
and then sending it to wholesaler, he may ask retailer to directly make payment ----------------------
of certain sum to Wholesaler. For this purpose, he has to draw a bill ordering
retailer to make the payment to Wholesaler. This is the essence of Bill of ----------------------
exchange.
----------------------
M/s. Prabhakaran Hosieries from Tirupur sells hosiery goods to M/s Vishal
Garments at Pune. They send the goods through Vijayanand Roadlines. They ----------------------
send the Lorry receipt and the Bill of Exchange to Bank of Maharashtra, Pune
----------------------
Branch. M/s Vishal Garments have to make payament to Bank of Maharashtra,
Pune Branch and collect Bill and Lorry receipt endorsed in his favour. Then ----------------------
M/s Vishal Garments can collect the goods from Vijayanand Roadlines at
their Pune office. Bank of Maharashtra, Pune Branch will remit the amount to ----------------------
M/s. Prabhakaran Hosieries through DD on their Tirupur branch. In this case
----------------------
format of bill will be as under:
M/s. Prabhakaran Hosieries, ----------------------
PN Road, Tirupur ----------------------
Bill No. 123245 Date: 16-12-2007 Rs.10,000/-
----------------------
On demand pay to Bank of Maharashtra, Pune branch or order a sum of
Rs.10,000/- (Rs.Ten thousand only) for value received. ----------------------
For M/s. Prabhakaran Hosieries ----------------------
Signature
----------------------
Partner
To, ----------------------
M/s Vishal Garments,
----------------------
Anandnagar, Pune
----------------------
There are three parties in a Bill of Exchange.
1) Drawer: The person who draws the bill ----------------------
2) Drawee: The person on whom the bill is drawn and who has to make ----------------------
payment
----------------------
3) Payee: The person to whom the sum is payable.
In the above example: ----------------------
1) Drawer: M/s. Prabhakaran Hosieries ----------------------

2) Drawee: M/s Vishal Garments, Anandnagar, Pune ----------------------

Notes 3) Payee: Bank of Maharashtra, Pune branch
The Bills of Exchange are of the following types :
----------------------
4) Demand Bill: Bill payable on demand
----------------------
5) Usance Bill: Bill payable on a future date
---------------------- 6) Inland Bill: All parties are in India
---------------------- 7) Overseas Bill: Any one or more parties are outside India
---------------------- 8) Accommodation Bill: Bill not backed by any genuine transactions
9) Genuine Trade Bill: Bill backed by any genuine transactions
----------------------
10) Clean Bill: A bill not accompanied by any document of title to goods.
----------------------
11) Documentary Bill: A bill accompanied by any document of title to goods.
---------------------- Examples of a valid Bill of Exchange:
---------------------- “Mr.A, pay to B or order Rs. 500” Signed by C Examples of invalid Bill of
Exchange.
---------------------- “Mr.A, will you pay to B or order Rs. 500?” Signed by C
---------------------- “Mr.A, I shall be obliged if you pay to B or order Rs. 500?” Signed by C
---------------------- A promise or order to pay is not ‘conditional’, within the meaning of this section
and Section 4, by reason of the time for payment of the amount or any installment
---------------------- thereof being expressed to be on the lapse of certain period after the occurrence
of a specified event which, according to the ordinary expectation of mankind, is
----------------------
certain to happen, although the time of its happening may be uncertain.
---------------------- The sum payable may be ‘certain’, within the meaning of this section and
Section 4, although it includes future indicated rater of change, or is according
----------------------
to the course of exchange and although the instrument provides that, on default
---------------------- of payment of an installment, the balance unpaid shall become due.
---------------------- Thus, specifying instalments and rate of interest for the sum payable are not
treated as conditional or uncertain sums.
---------------------- Differences between promissory note and Bill of exchange
---------------------- S. N. Particulars Promissory note bill of exchange
1. Nature of Payment Promise to pay Order to pay
---------------------- 2. No. of parties Two Three
---------------------- 3. Drawer’s liability Primary Secondary
4. Stamp Duty Applicable in case of Applicable in case of
---------------------- both demand and usance only usance bills.
promissory notes
---------------------- 5. Usage Promissory notes are Bills are issued by
---------------------- obtained by Lenders Creditors on their
from their borrowers Debtors.
----------------------
----------------------

Cheque Notes
As per Section 6, a ‘cheque’ is a bill of exchange drawn on a specified
----------------------
banker and not expressed to be payable otherwise than on demand and it includes
the electronic image of a truncated cheque and a cheque in the electronic form. ----------------------
Explanation I – For the purposes of this section, the expressions are as follows :
----------------------
(a) ‘A cheque in the electronic form’ means a cheque which contains the
exact mirror image of a paper cheque, and is generated, written and signed ----------------------
in a secure system ensuring the minimum safety standards with the use of
----------------------
digital signature (with or without biometrics signature) and asymmetric
crypto system; ----------------------
(b) ‘A truncated cheque’ means a cheque which is truncated during the course ----------------------
of a clearing cycle, either by the clearing house or by the bank whether
paying or receiving payment, immediately on generation of an electronic ----------------------
image for transmission, substituting the further physical movement of the
cheque in writing. ----------------------
Explanation II – For the purposes of this section, the expression ‘clearing house’ ----------------------
means the clearing house managed by the Reserve Bank of India or a clearing
house recognised as such by the Reserve Bank of India. ----------------------
The characteristics of a cheque are as follows: ----------------------

1. It is an instrument in writing or electronic form. ----------------------
2. It contains an unconditional order.
----------------------
3. It is signed by the drawer i.e. account holder or his authorised agent
4. Drawee is always a branch of a bank. ----------------------
5. The order is to pay a certain sum of money. ----------------------
6. It is payable only to the order of a certain person or to the bearer of the
instrument. ----------------------
7. It is valid for 6 months if nothing is mentioned on the cheque from the ----------------------
date written on cheque.
8. In case of a Post dated cheque, status of the cheque will be that of a ----------------------
usance bill till the date comes. From the date appearing on the cheque, it
----------------------
becomes cheque.
Following is the format of a cheque. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes There are three parties in a cheque.
l Drawer: The person who issues the cheque i.e. Account Holder.
----------------------
Drawee:
l The Branch of a Bank on whom the cheque is drawn and who
---------------------- has to make payment
---------------------- l Payee: The person to whom the sum is payable.
---------------------- In the above example:

i. Drawer: Swaroopa Hajeri
----------------------
ii. Drawee: ICICI Bank, Shivajinagar Branch, Pune
----------------------
iii. Payee: Vishalsingh Hajeri
---------------------- Differences between Cheque and Bill of exchange
---------------------- S. N. Particulars Cheque Bill of exchange
1 Drawer Any Account holder A creditor
---------------------- 2 Drawee Any branch of any bank A debtor
3 Drawer’s liability Primary Secondary
----------------------
4 Stamp Duty Not applicable Applicable in case of
---------------------- only usance bills.
5 Usage Cheques are issued by Bills are drawn by
---------------------- Debtors to Creditors Creditors on their
Debtors
----------------------
6 Demand o r Usance Always payable on Payable on Demand or
---------------------- Demand on a future date.
Demand Draft
----------------------
It is an order to pay money, drawn by one office of a bank upon another office
---------------------- of the same bank for a sum of money payable to order on demand.
---------------------- Differences between a Cheque and a Demand Draft
---------------------- S. N. Particulars Cheque Demand Draft

1 Assurance of Payee gets payment only Payee gets payment
---------------------- Payment if there is balance in the definitely
drawer’s account
---------------------- 2 Consideration Presumed Specifically mentioned as
---------------------- ‘For Value Received’
3 Drawer Any Account holder Always a banker
---------------------- 4 Drawee Any branch of any bank Any branch of the same
bank which issued DD
---------------------- 5 Payable to Order or Bearer Always Order
---------------------- As per Section 7, the maker of a bill of exchange or Cheque is called the
‘drawer’; the person thereby directed to pay is called the ‘drawee’.
----------------------
----------------------
----------------------

“Drawee in case of need “: When the bill or in any endorsement thereon Notes
the name of any person is given in addition to the drawee to be resorted to in
case of need such person is called a “drawee in case of need”. ----------------------
‘Acceptor’: After the drawee of a bill has signed his assent upon the bill, ----------------------
or, if there are more parts thereof than one, upon one of such part, and delivered
the same, or given notice of such signing to the holder or to some person on his ----------------------
behalf, he is called the ‘acceptor’.
----------------------
‘Acceptor for honour’: When a bill of exchange has been noted or protested
for non-acceptance or for better security, and any person accepts it supra protest ----------------------
for honour of the drawer or of any one of the endorser, such person is called an
----------------------
‘acceptor for honour’.
‘Payee’: The person named in the instrument, to whom or to whose order ----------------------
the money is by the instrument directed to be paid, is called the ‘payee’.
----------------------
As per Section 8, the ‘holder’ of a promissory note, bill of exchange or
cheque means any person entitled in his own name to the possession thereof and ----------------------
to receive or recover the amount due thereon from the parties thereto. ----------------------
Where the note, bill or cheque is lost or destroyed, its holder is the person
so entitled at the time of such loss or destruction. ----------------------
As per Section 9, ‘Holder in due course’ means any person who for ----------------------
consideration became the possessor of a promissory note, bill of exchange
or cheque if payable to bearer, or the payee or indorse thereof, if payable to ----------------------
order before the amount mentioned in it became payable, and without having ----------------------
sufficient cause to believe that any defect existed in the title of the person from
whom he derived his title. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
----------------------
1. A ‘negotiable instrument’ means a promissory note, bill of exchange
---------------------- or cheque payable either to order or to bearer.
1. The person on whom the bill is drawn and who has to make Payment:
----------------------
i. Drawee
----------------------
ii. Drawer
---------------------- iii. Payee
---------------------- iv. Surety
----------------------
---------------------- Activity 1
---------------------- 1. Visit a bank or a financial institute. Collect the format of Promissory

Note used by them. Write any two of your observations.
----------------------
2. From the above example, name the following: Drawer, Drawee,
---------------------- Payee.
----------------------
3.3 MODES OF NEGOTIATION
----------------------
Negotiation is defined under Section 14. When a promise note, bill of
----------------------
exchange or cheque is transferred to any person, so as to continue the person
---------------------- the holder thereof, the instrument is said to be negotiated.
---------------------- Order cheques are negotiated by endorsement and delivery. Therefore,

you should know the meaning of endorsement.
---------------------- Endorsement is defined under Section 15 as : When the marker or holder
---------------------- of a negotiable instrument signs the same, otherwise than as such maker, for
the purpose of negotiation, on the back or face thereof or on a slip of paper
---------------------- annexed thereto, or so signs for the same purpose a stamped paper intended to
be completed as a negotiable instrument, he is said to indorse the same, and is
---------------------- called the endorser.
---------------------- Types of Endorsements:
---------------------- a) Endorsement in blank or General Endorsement
b) Endorsement in full or Special Endorsement
----------------------
c) Per Pro Endorsement
----------------------
d) Sans Recourse Endorsement
---------------------- e) Restrictive Endorsement

As per Section 16(1), if the endorser signs his name only, the endorsement Notes
is said to be ‘in blank’, and if he adds a direction to pay the amount mentioned
in the instrument to, or to the order of, a specified person, the endorsement is ----------------------
said to be ‘in full’, and the person so specified is called the ‘endorsee’ of the
instrument. ----------------------
If the cheque is payable to Mr. Vishal or order. ----------------------

Vishal simply signs on the back of the cheque without naming anybody. ----------------------
Vishal. This is an example of Blank Endorsement. If Vishal names Swaroopa
----------------------
as under:
Pay to Swaroopa or order ----------------------
Vishal. This is an example of Full Endorsement ----------------------

(2) The provisions of this Act relating to a payee shall apply with the necessary ----------------------
modifications to an endorsee.
----------------------
Per Pro endorsement is the endorsement done by an Agent on behalf of
the Principal. ----------------------
As per Section 27, every person competent to contract can appoint an
----------------------
agent acting in his name.
A general authority to transact business and to receive and discharge ----------------------
debts does not confer upon an agent the power of accepting or indorsing bills of ----------------------
exchange so as to bind his principal.
An authority to draw bills of exchange does not on itself impart an ----------------------
authority to endorse. ----------------------
An authority should be specifically given to an agent to draw, accept and
endorse if the principal intends to give such authority to his agent. ----------------------
Minor can be appointed as Agent to draw, accept and endorse the ----------------------
instruments. In this case, agent will not incur any personal liability.
----------------------
Sans Recourse Endorsement is the endorsement where the endorser is not
liable in case of dishonour of the instrument. ----------------------
Example ----------------------
Pay to Swaroopa or order ----------------------
Vishal (Without Recourse to me)
----------------------
Restrictive Endorsement: Further endorsement is restricted
----------------------
Example
Pay to Swaroopa only ----------------------
Vishal ----------------------
General rules regarding Endorsement ----------------------
Endorsement is not applicable to bearer instruments. Even if endorsements
l
----------------------

Notes are made in respect of bearer instruments, such endorsements will be
ignored and the instrument will be continued to be treated as bearer.
----------------------
l Endorsement is applicable to Order instruments.
---------------------- l Payee has the right to make first endorsement.
---------------------- If the
l endorsement is made in blank, the instrument which was originally
Order now becomes Bearer.
----------------------
l A bearer instrument is negotiated by delivery.
---------------------- l An Order instrument is negotiated by endorsement and delivery.
---------------------- l An Order cheque crossed Account Payee cannot be endorsed by payee.
---------------------- Endorser
l should sign as per the spelling in the instrument. Even if the
spelling is wrong, then he has to endorse as per wrong spelling and in
---------------------- bracket he can write correct spelling.
---------------------- l Endorsement need not be as per specimen signature.
---------------------- It is not
l the duty of Paying or Collecting banker to verify the signature of
the endorser.
---------------------- l An endorsement in blank can be converted into an endorsement in full.
---------------------- This does not require the signature of the endorser or drawer.
---------------------- l An endorsement in full can be converted into an endorsement in blank.
This requires the signature of the endorser.
----------------------
Endorser
l should not use the title like Dr., Prof. etc. while endorsing
---------------------- the cheque. Similary, he should not include the qualification in the
endorsement.
----------------------
Endorsement should be in proper sequence. A endorsing to B, B endorsing
l
---------------------- to C, C endorsing to D etc. It means endorsee in one transaction should
---------------------- become endorser in the next transaction.
If the
l serial number of endorsement is not written, then the order will be
---------------------- presumed as appearing on the cheque.
---------------------- Endorsement
l can be done on the face or back of the instruments. But, the
practice is to do it on the back side.
----------------------
If the
l space is not sufficient to do the endorsement, a piece of paper can
---------------------- be attached to the instrument and endorsement can be made on this paper.
This paper is called Allonge.
----------------------
Endorsement
l can be done by duly authorised agent. Agent has to show
---------------------- that he is endorsing in the capacity of Agent.
---------------------- If the
l payee has died, the legal heirs of the deceased payee can jointly
make the endorsement. They have to show that they are endorsing in the
---------------------- capacity of legal heirs.
----------------------

After doing the endorsement in favour of a person, if the instrument is not
l Notes
delivered then the endorsee does not get any rights.
----------------------
If the
l cheque is payable to a married woman in the name of her maiden
name, she should endorse in present in name after marriage and show ----------------------
maiden name also
----------------------
Examples of correct and incorrect endorsements
S. N. Payee Correct endorsement Incorrect endorsement ----------------------
1 Dr. Muruganathan Muruganathan Dr. Muruganathan ----------------------
2 S V Hazeri S V Hazeri (S V Hajeri) S V Hajeri
3 Mrs. Swarupa Swarupa Hajeri nee Swarupa Hajeri ----------------------
Bais Swarupa Bais
4 Sanjeevkumar Rajeev Rajeev ----------------------
(deceased) Legal Heir of Late
----------------------
Sanjeevkumar
5 Nellai Hosieries For Nellai Hosieries (Signature) Partner ----------------------
(Signature) Partner Nellai Hosieries
6 Vishal 1) Pay to Vithal or Pay to Harsh or Order ----------------------
Order Vishal Vithal
----------------------
2) Pay to Harsh or Pay to Vithal or Order
Order Vishal Vishal ----------------------
7 Branch Manager, For Bank of (Signature)
Bank of Maharashtra, (Signature) Branch Manager, Bank ----------------------
Maharashtra, Br. Manager, Pune Br. of Maharashtra, Pune
Pune ----------------------
Liabilities of parties to a Negotiable Instrument ----------------------

Liability of drawer : As per Section 30, the drawer of a bill of exchange ----------------------
or cheque is bound in case of dishonour by the drawee or acceptor thereof, to
compensate the holder, provided due notice of dishonour has been given to, or ----------------------
received by, the drawer as hereinafter provided.
----------------------
Liability of prior parties to holder in due course: As per Section 36, every
prior party to a negotiable instrument is liable thereon to a holder in due course ----------------------
until the instrument is duly satisfied.
----------------------
Negotiation back
----------------------
If payee or endorser becomes endorsee/holder in due course, it is called
Negotiation back. In this case al the intervening parties are not liable in case of ----------------------
dishonour of the instrument.
----------------------
Example
----------------------
Mr. A issues a cheque to B who endorses it to C. C endorses it to A. In
this case B & C are not liable if the cheque is bounced. ----------------------
Mr. A issues a cheque to B who endorses it to C. C endorses it to D, D
----------------------
endorses it to E and E endorses it to C. In this case D & E are not liable if the
cheque is bounced. A & B continue to be liable. ----------------------

Notes 3.4 DUTIES AND LIABILITIES OF A PAYING BANKER
---------------------- Liability of drawee of cheque i.e., Paying banker
---------------------- As per Section 31, the drawee of a cheque having sufficient funds of the
drawer in his hands properly applicable to the payment of such cheque must pay
---------------------- the cheque when duly required so to do, and, in default of such payment, must
---------------------- compensate the drawer for any loss or damage caused by such default
Example
----------------------
The branch of a bank on whom a cheque is drawn is called a drawee bank
---------------------- or a paying bank. Suppose you have an account with Bank of Maharashtra, Pune
branch and you have obtained a cheque book from them. Suppose you issue a
---------------------- cheque for Rs.1,000/- favouring BSNL. In this case, Bank of Maharashtra, Pune
---------------------- branch is called a drawee bank or a paying bank. If you have balance of more
than Rs.1,000/- in your account, and the cheque is in order in other respects,
---------------------- Bank of Maharashtra, Pune branch must pass this cheque. If the bank returns a
cheque unpaid due to a mistake on its part, then it is called wrongful dishonour.
---------------------- In such case, the drawee bank is liable to the drawer.
---------------------- It must be noted that, if the cheque is returned due to a mistake on the part
of the bank, the payee will be the immediate sufferer. Yet payee cannot claim
----------------------
compensation from Paying Bank. Right to claim compensation from bank is
---------------------- only with the account holder and not the payee.
Protection to Paying banker
----------------------
As per Section (1), where a cheque payable to order purports to be
---------------------- endorsed by or on behalf of he payee, the drawee is discharged by payment in
due course.
----------------------
As per Section (2), where a cheque is originally expressed to be payable
---------------------- to bearer, the drawee is discharged by payment in due course to the bearer
---------------------- thereof, notwithstanding any endorsement whether in full or in blank appearing
thereon, and notwithstanding that any such endorsement purports to restrict of
---------------------- exclude further negotiation.
---------------------- As per Section 85A, where any draft purports to be endorsed by or behalf
of the payee, the bank is discharged by payment in due course.
---------------------- This means, it is not the duty of paying banker to verify the genuineness of the
---------------------- endorsement. I
Example 1
----------------------
Mr.Vishal has issued an order cheque to Mr. Harshal. Mr. Rahul has
---------------------- stolen it and forged the signature of Mr. Harshal and endorsed it to Mr. Shankar.
Mr.Shankar has presented it to the paying bank. The paying bank does not know
----------------------
that Mr. Rahul has forged the signature of Mr. Harshal on the endorsement.
---------------------- Hence, the paying bank will not beheld liable if it passes the cheque.
----------------------

Material alteration Notes
Material alteration means any major change in the original intention of the
----------------------
parties.
Examples of Material alteration ----------------------
1. Converting an order cheque into a bearer cheque ----------------------
2. Canceling a crossing ----------------------
3. Alteration in Date, Amount or name of the Payee
----------------------
4. Converting Full Endorsement in to Blank endorsement All such alterations
require drawer’s full signature. ----------------------
Examples of Immaterial alteration ----------------------
1. Converting a bearer cheque into an order cheque
----------------------
2. Crossing an uncrossed cheque
----------------------
3. Converting General crossing into special crossing or not negotiable
crossing or Account Payee Crossing. ----------------------
4. Converting a Blank Endorsement in to a Full endorsement. ----------------------
5. Writing the date if the date is blank.
----------------------
6. Writing the name of the payee, if the space is blank.
----------------------
7. Writing the amount if the space is blank.
Immaterial alterations do not require a drawer’s signature. ----------------------
As per Section 87, any material alteration of a negotiable instrument ----------------------
renders the same void as against anyone who is a party thereto at the time of
making such alteration and does not consent thereto, unless it was made in ----------------------
order to carry out the common intention of the original parties; ----------------------
Alteration by endorsee: And any such alteration, if made by an endorsee,
discharges his endorser from all liability to him in respect of the consideration ----------------------
thereof. ----------------------
Payment of instrument on which alteration is not apparent
----------------------
As per Section 89(1), where a promissory note, bill of exchange or
cheque has been materially altered but does not appear to have been so altered, ----------------------
or where a cheque is presented for payment which does not at the time of
----------------------
presentation appear to be crossed or to have had a crossing which has been
obliterated, payment thereof by a person or banker liable to pay and paying ----------------------
the same according to the apparent tenor thereof at the time of payment and
otherwise in due course, shall discharge such person or banker liable to pay and ----------------------
paying the same according to the apparent tenor thereof at the time of payment
----------------------
and otherwise in due course, shall discharge such a person or banker from all
liability thereon, and such payment shall not be questioned by reasons of the ----------------------
instrument having been altered, or the cheque crossed.
----------------------

Notes As per Section 89(2), where the cheque is an electronic image of a
truncated cheque, any difference in apparent tenor of such electronic image and
---------------------- the truncated cheque shall be a material alteration and it shall be the duty of the
bank or the clearing house, as the case may be, to ensure the exactness of the
---------------------- apparent tenor of electronic image of the truncated cheque while truncating and
---------------------- transmitting the image.
As per Section 89(3), any bank or a clearing house which receives a
----------------------
transmitted electronic image of a truncated cheque, shall verify from the party
---------------------- who transmitted the image to it, that the image so transmitted to it and received
by it, is exactly the same.
----------------------
Example
---------------------- Mr. Abhijeet has issued a cheque favouring Mr. Subhas or bearer for
Rs.5,000/-. Mr. Vishal has stolen it and altered the payee’s name as Mr. Vishal
----------------------
and altered the amount to Rs.50,000/-. Alteration was not visible to naked eyes.
---------------------- Bank paid the amount of Rs.50,000/- to Mr. Vishal. Mr. Abhijeet claimed from
Bank Rs. 45,000/-. Paying Banker is not liable because the alteration is not
---------------------- visible to naked eyes. Normally Paying banker takes additional precaution of
screening the cheque through an Ultra Violet Ray Machine if the amount of
----------------------
cheque is very large or there is some doubt about the genuineness of the cheque.
---------------------- But this is not feasible in case of each and every cheque.
---------------------- This leads us to a question as to what is ‘payment in due course’

As per Section 10, ‘Payment in due course’ means payment in accordance
---------------------- with the apparent tenor of the instrument in good faith and without negligence
---------------------- to any person in possession thereof under circumstances which do not afford a
reasonable ground for believing that he is not entitled to receive payment of the
---------------------- amount therein mentioned.
---------------------- The paying banker is entitled to return the cheque in the following cases :
l There are no sufficient funds in the account of the drawer.
----------------------
l The cheque is undated, post dated or irregularly dated.
----------------------
l The cheque is stale or out of date i.e Validity period (6 months) is over
---------------------- l The cheque is not signed.
---------------------- l The signature does not tally with the specimen signature.
l Material Alteration is not confirmed with full signature of the drawer.
----------------------
l Endorsements are irregular or faulty.
----------------------
l Amount in words and figures differs.
---------------------- l Hand writing is illegible.
---------------------- l In case of joint operation, the cheque is signed by only one person.
---------------------- l The drawer has deceased.

l Payment stopped by the drawer.
----------------------
l Refer to Drawer.
Whenever a bank returns a cheque, he will issue a reason memo. Normally, it is Notes
a printed format contained the usual reasons for return. They indicate the serial
number of the reason. ----------------------
Crossing ----------------------
To prevent frauds in encashment of cheques, there is a system called
----------------------
Crossing. Crossing is an instruction to paying bank not to make cash payment
to payee. Payment should be made only through an account. Even if there is ----------------------
a fraud, the culprit can be traced, because he has an account, he has given
photograph, introduction and address proof. ----------------------
Types of Crossing: ----------------------
a) General Crossing ----------------------
b) Special Crossing
----------------------
c) Not Negotiable Crossing
----------------------
d) Account Payee Crossing
e) Double Crossing ----------------------
Cheque crossed generally ----------------------
As per Section 123, where a cheque bears across its face an addition of the words ----------------------
‘and company’ or any abbreviation thereof, between two parallel transverse
lines, that addition shall be deemed a crossing, and the cheque shall be deemed ----------------------
to be crossed generally.
----------------------
Example
----------------------
----------------------
And Company
----------------------
----------------------
Cheque crossed specially
----------------------
As per Section 124, where a cheque bears across its face an addition of the name
of a banker, either with or without the words ‘not negotiable’, that addition shall ----------------------
be deemed a crossing, and the cheque shall be deemed to be crossed specially,
and to be crossed to that banker. ----------------------
Example ----------------------
Bank of Maharashtra, Pune Branch
----------------------
As per Section 126, where a cheque is crossed generally, the banker on whom
it is drawn shall not pay it otherwise than to a banker. ----------------------
Payment of cheque crossed specially - Where a cheque is crossed specially, ----------------------
the banker on whom it is drawn shall not pay it otherwise than to the banker to
whom it is crossed, or his agent for collection. ----------------------
----------------------

Notes Cheque bearing ‘not negotiable’
As per Section 130, a person taking a cheque crossed generally or specially,
----------------------
bearing in either case the words ‘not negotiable’, shall not have and shall not be
---------------------- capable of giving, a better title to the cheque than that which the person from
whom he took it had.
----------------------
Not Negotiable
---------------------- Account Payee Crossing
---------------------- This type of crossing is not defined by Negotiable Instruments Act. It is very
much in practice. It increases the safety of a cheque and prevents frauds. It is
---------------------- an instruction to collecting bank to collect the amount of cheque only if the
---------------------- payee is having account with him. If the payee does not have an account with
any bank, he cannot encash the cheque. There is no difference between bearer
---------------------- or order once the account payee crossing is done.
---------------------- Account Payee Only

Account Payee and Not Negotiable Crossing are used in Combination to have
---------------------- highest safety.
---------------------- Account Payee Only
---------------------- Not Negotiable
After combining the cheques payable to bearer or order and crossed and
----------------------
uncrossed we can have the following types of cheques.
---------------------- S. N. Particulars Bearer Crossed or How paid?
---------------------- or Order Uncrossed
1. Uncrossed Bearer Uncrossed In cash to any bearer. Nor
---------------------- Bearer Cheque mally issued f o r withdrawing
cash for self. Unsafe if issued
---------------------- to others
---------------------- 2. Uncrossed Order Uncrossed In cash to a particular payee/
Order endorsee. Bank will have to
---------------------- Cheque identify the payee/endorsee
3. Crossed Bearer Bearer Crossed Payment through current
---------------------- Cheque account of any body or SB
---------------------- account of payee.
4. Crossed Order Order Crossed Payment through account of
---------------------- Cheque particular payee or endorsee.
Collecting Bank should
---------------------- have the account of payee or
endorsee
----------------------
5. Account Payee Bearer Account Payment through account of
---------------------- Bearer Cheque Payee particular payee. Collecting
Crossed Bank should have the
---------------------- account of payee.
----------------------

S. N. Particulars Bearer Crossed or How paid? Notes
or Order Uncrossed
6. Account Payee Order Account Payment through account of ----------------------
Order Cheque Payee particular payee. Collecting
----------------------
Crossed Bank should have the account
of payee. ----------------------
7. Specially Bearer Specially Payment through current
Crossed Bearer Crossed to a account of anybody or SB ----------------------
Cheque bank account of payee with the
----------------------
bank named in the crossing.
Other banks cannot collect ----------------------
this cheque.
8. Specially Order Specially Payment through account of ----------------------
Crossed Order Crossed to a particular payee or endorsee
----------------------
Cheque bank with the bank named in the
crossing. Other banks cannot ----------------------
collect this cheque
9. Not negotiable Bearer Not Payment through current ----------------------
crossed bearer negotiable account of any body or SB
----------------------
cheque crossed account of payee. If it is a
stolen cheque, the payee will ----------------------
have to refund the amount.
10. Not Order Not Payment through account of ----------------------
negotiable negotiable particular payee or endorsee.
----------------------
crossed Order crossed Collecting Bank shoul
cheque d have the account of payee ----------------------
or endorsee. If it is a stolen
cheque, the payee will have ----------------------
to refund the amount.
11. Account Order Not Payment through account of ----------------------
Payee Not negotiable particular payee. Collecting ----------------------
Negotiable crossed Bank should have th
crossed Order and e account of payee. If it is a ----------------------
cheque Account stolen cheque, the payee will
Payee have to refund the amount. ----------------------
Crossed ----------------------
Crossing under Serial No. 11 is the safest mode of issuing a cheque.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes Specimens of cheques
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Fig. 3.1 : Uncrossed Cheque Payable to bearer

----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 3.2 : generally crossed Cheque Payable to bearer
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Fig. 3.3 : Account Payee crossed Cheque Payable to bearer

----------------------
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 3.4 : Uncrossed Cheque Payable to Order ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 3.5 : Uncrossed Cheque Payable to Order
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 3.6 : Generally crossed Cheque Payable to Order ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 3.7 : Generally crossed Not Negotiable Cheque Payable to Order ----------------------

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Fig. 3.8 : Generally crossed Not Negotiable Cheque Payable to Order.
Crossing Cancelled
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 3.9 : Account Payee crossed Not Negotiable Cheque Payable to
---------------------- Order. safest
----------------------
----------------------
Fill in the blanks.
----------------------
1. To prevent ______________in encashment of cheques, there is a
---------------------- system called Crossing
----------------------
Activity 2
----------------------
---------------------- Collect a copy of a reason memo from a bank and list the reasons, which are
not given in the above list.
----------------------
---------------------- 3.5 DUTIES AND LIABILITIES OF A COLLECTING BANKER

---------------------- You have received a cheque from your customer. You deposit in your
---------------------- account with your banker. Then your bank collects it from the paying banker
and credits the amount to your account. In this case, the bank with which you
---------------------- are having an account is called collecting bank. If you issue a cheque to your

supplier then, your bank will be called as a Paying Bank. Hence, one bank can Notes
act as both Paying Bank and Collecting Bank.
----------------------
Section 131 gives protection to Collecting Bank.
As per Section 131, a banker who has in good faith and without negligence ----------------------
received payment for a customer of a cheque crossed generally or specially to
----------------------
himself shall not, in case the title to the cheque proves defective, incur any
liability to the true owner of the cheque by reason only of having received such ----------------------
payment.
----------------------
Explanation I : A banker receives payment of a crossed cheque for a
crossed cheque for a customer within the meaning of his section notwithstanding ----------------------
that he credits his customer’s accounts with the amount of the cheque before
receiving payment thereof. ----------------------
Explanation II : It shall be the duty of the banker who receives payment ----------------------
based on an electronic image of a truncated cheque held with him, to verify the
prima facie genuineness of the cheque to be truncated and any fraud, forgery or ----------------------
tampering apparent on the face of the instrument that can be verified with due ----------------------
diligence and ordinary care.
A collecting banker gets protection if he fulfils the following conditions: ----------------------
a) A collecting banker acts in good faith and without negligence ----------------------

b) Collects cheque for a customer ----------------------
c) Cheque is crossed generally or specially to himself
----------------------
If the banker does not follow the procedure for opening the account of a customer
and if the customer commits fraud, a banker will be considered as negligent ----------------------
and he will be held liable for the loss committed by the drawer. Therefore, ----------------------
Banks are very strict in following the procedures. These procedures are known
as Know Your Customer (KYC) norms. They collect Photographs, PAN Card ----------------------
and address proof from customer besides taking introduction from an existing
account holder : ----------------------
----------------------
----------------------
Multiple Choice Multiple Response.
----------------------
1. A collecting banker gets protection if he fulfills the following
conditions: ----------------------
i. He acts in good faith and without negligence ----------------------
ii. He collects cheque for a customer
----------------------
iii. Cheque is crossed generally or specially to himself
----------------------
iv. Cheque is not crossed
----------------------
----------------------

Notes
Activity 3
----------------------
Collect a case law pertaining to bouncing of a cheque from a journal or book
----------------------
or an advocate. Write the issue involved in the case and the decision of the
---------------------- Court.
----------------------
3.6 BOUNCING OF A CHEQUE – A CRIMINAL OFFENCE
----------------------
These provisions were incorporated in the year 1988 with a view to
----------------------
encourage the culture of use of cheques and enhancing the credibility of the
---------------------- instrument.
Section 138 deals with dishonour of cheque for insufficiency of funds in the
----------------------
accounts and circumstances under which it can become a criminal liability.
---------------------- Where any cheque drawn by a person on an account maintained by him
with a banker for payment of any amount of money to another person from
----------------------
out of that account for the discharge, in whole or in part, of any debt or other
---------------------- liability, is returned by the bank unpaid, either because of the amount of money
standing to the credit of that account is insufficient to honour the cheque or that
---------------------- it exceeds the amount arranged to be paid from that account by an agreement
made with that bank, such person shall be deemed to have committed an offence
----------------------
and shall without prejudice to any other provisions of this Act, be punished with
---------------------- imprisonment for ‘a term which may extend to two years’, or with fine which
may extend to twice the amount of the cheque, or with both:
----------------------
Provided that nothing contained in this section shall apply unless
---------------------- (a) the cheque has been presented to the bank within a period of six months
---------------------- from the date on which it is drawn or within the period of its validity,
whichever is earlier.
----------------------
(b) the payee or the holder induce course of the cheque, as the case may be,
---------------------- makes a demand for the payment of the said amount of money by giving
a notice, in writing, to the drawer, of the cheque, within thirty days of the
---------------------- receipt of information by him from the bank regarding the return of the
cheques as unpaid, and
----------------------
(c) the drawer of such cheque fails to make the payment of the said amount
---------------------- of money to the payee or, as the case may be, to the holder in due course
of the cheque, within fifteen days of the receipt of the said notice.
----------------------
Explanation: For the purpose of this section, ‘debt or other liability’
---------------------- means a legally enforceable debt or other liability
---------------------- As per Section 139, it shall be presumed, unless the Contrary is proved,
that the holder of a cheque received the cheque of the nature referred to in
---------------------- Section 138 for the discharge, in whole or in part, of any debt or other liability.
----------------------

As per Section 140, it shall not be a defence in a prosecution of an offence Notes
under Section 138 that the drawer had no reason to believe when he issued the
cheque that the cheque may be dishonoured on presentment for the reasons ----------------------
stated in that section.
----------------------
The following conditions should be fulfilled if the bouncing of a cheque has to
become criminal offence. ----------------------
1. Cheque should have been issued towards discharge of a debt or other ----------------------
liability. However payee need not prove that there was debt. The burden
of proof lies on the drawer to show that there was no debt or liability. ----------------------
2. Cheque should have been returned unpaid with the reason ‘Funds ----------------------
insufficient’. ‘Account Closed’, ‘Payment stopped by the drawer’,
‘Exceeds Arrangement’, ‘Not arranged for’ are equivalent to ‘Funds ----------------------
insufficient’. If the reason is ‘refer To Drawer’, it depends whether the
----------------------
balance was there in the account or not.
3. Cheque should have been presented within its validity period or 6 months ----------------------
from the date appearing on the cheque. The cheque can be presented ----------------------
many times as long as it is within validity period. It is not compulsory for
the payee to take criminal action on the first occasion. ----------------------
4. Payee/Holder in due course should have been issued notice to drawer ----------------------
within 30 days from the date of intimation of dishonour.
5. The drawer should have failed to make payment within 15 days from the ----------------------
date of receiving the notice. ----------------------
6. Payee/Holder in due course should have been filed a case in the Court
----------------------
within 30 days from the date of expiry of 15 days period available to
drawer for payment. ----------------------
Only if all the above conditions are fulfilled, then it will amount to
----------------------
criminal offence.
Punishment in case of bouncing of a cheque. ----------------------
Imprisonment up to 2 yers. Or Fine up to twice the amount of cheque or both. ----------------------
Example ----------------------
a) Mrs. Sangeeta issud a cheque to Mrs. Surekha on 1-12-2007 drawn on
----------------------
Bank of Maharashtra, Pune Branch for Rs.5,000/-
b) Mrs. Surekha deposited this cheque with HDFC Bank, Pune Branch on ----------------------
2-12-2007.
----------------------
c) HDFC Bank presented the cheque to Bank of Maharashtra, Pune Branch
on 4-12-2007. ----------------------
d) Bank of Maharashtra, Pune Branch returned the cheque to HDFC Bank, ----------------------
Pune Branch with a reason memo ‘Funds Insufficient’ on 6-12-2007.
----------------------
e) HDFC Bank, Pune Branch informed Mrs. Surekha that the cheque has
been returned unpaid on 7-12-2007. ----------------------

Notes f) Mrs. Surekha received this intimation on 8-12-2007. Now, Mrs. Surekha
has two options. i) To represent the cheque ii) To take action under Section
---------------------- 138 of NI Act. Let us assume that Mrs. Surekha decided to take action
under Section 138 of NI Act.
----------------------
g) Mrs. Surekha dispatched a notice to Mrs. Sangeeta on 25-12-2007
---------------------- demanding the payment of money. (The last day to issue notice was 18-
12-2007 + 30 days = 17-1-2008)
----------------------
h) Mrs. Sangeeta received this notice on 30-12-2007. She has time up to
---------------------- 14-1-2008 (30-12-2007 + 15 days = 14-1-2008) to make the payment
and avoid criminal action. This is a chance given to bona fide defaulters
----------------------
to make the payment. Let us assume that Mrs. Sangeeta has not paid the
---------------------- amount within 14-1-2008.
i) Mrs. Surekha filed a case at Judicial Magistrate of the first class on 25-1-
----------------------
2008. (The last day to file case was 14-1-2008 + 30 days = 13-2-2008)
----------------------
Format of Notice
---------------------- From:
Mrs. Surekha, Anandnagar, Pune
----------------------
To,
----------------------
Mrs. Sangeeta, Vithalwadi, Pune
---------------------- Dear Madam, ( By Regd AD Post) Reg:
----------------------
sub: dishonour of cheque issued by you
----------------------
This is to inform you that the Cheque. No 12345 dated 1-12-2007 issued
---------------------- by you in our favour drawn on Bank of Maharashtra, Pune Branch has been
dishonoured by your bank on 6-12-2007 with the reason ‘Insufficient Funds’.
----------------------
Please make the payment of Rs.5,000/- (Rs.Five thousand only) within 15
---------------------- days from the date of receipt of this notice.
---------------------- We shall be constrained take criminal action against you under Section 138 of
NI Act if we do not received the payment from you.
----------------------
Thanking you,
----------------------
Yours faithfully,
---------------------- Signature
---------------------- Notice should be sent by Registered Post. Even if the drawer refused to
take the cheque or the door is closed, it will be deemed that the notice is served
---------------------- on him. It is not necessary to send notice through Advocate.
---------------------- Offences by companies
---------------------- As per Section 141(1), if the person committing an offence under Section
138 is a company, every person who, at the time the offence was committed,
---------------------- was in charge of, and was responsible to the company for the conduct of

the business of the company, as well as the company, shall be deemed to be Notes
guilty of the offence and shall be liable to be proceeded against and punished
accordingly; ----------------------
Provided that nothing contained in this Sub-section shall render any person ----------------------
liable to punishment if he proves that the offence was committed without his
knowledge, or that he had exercised all due diligence to prevent the commission ----------------------
of such offence.
----------------------
Provided further that where a person is nominated as a Director of a
company by virtue of his holding any office or employment in the Central ----------------------
Government or State Government or a financial corporation owned or controlled
----------------------
by the Central Government or the State Government, as the case may be, he
shall not be liable for prosecution under this Chapter. ----------------------
(2) Notwithstanding anything contained in Sub-section (1), where any offence
----------------------
under this Act has been committed by a company and it is proved that the
offence has been committed with the consent or connivance of, or is attributed ----------------------
to, any neglect on the part of, any Director, Manager, Secretary, or other office
of the company, such director, manager, secretary or other officer shall also be ----------------------
deemed to be guilty of that offence and shall be liable to be proceeded against
----------------------
and punished accordingly.
Explanation: For the purpose of this Section. Company includes firms also. ----------------------
Cognizance of offences ----------------------
As per Section 142,
----------------------
(a) No court shall take cognizance of any offence punishable under Section
138 except upon a complaint, in writing, made by the payee or, as the case ----------------------
may be, the holder in due course of the cheque;
----------------------
(b) Such complaint is made within one month of the date on which the cause
of action arises under clause (C) of the proviso to Section 138: ----------------------
“Provided that the cognizance of a complaint may be taken by the Court ----------------------
after the prescribed period, if the complainant satisfies the Court that he
had sufficient cause for not making a complaint within such period. ----------------------
(c) No court inferior to that of a Magistrate or a Judicial Magistrate of the ----------------------
first class shall try any offence punishable under Section 138].
----------------------
As per Section 143(1), Judicial Magistrate of the first class or by a Metropolitan
Magistrate has power to try cases summarily. The maximum imprisonment will ----------------------
be one year and minimum fine will be Rs.5,000/- in case of summary trial.
----------------------
As per Section 143(2), the trial of a case under this Section shall, so far as
practicable, consistently with the interests of justice, be continued from day ----------------------
to day until its conclusion, unless the Court finds the adjournment of the trial
beyond the following day to be necessary for reasons to be recorded in writing. ----------------------
(3) Every trial under this section shall be conducted as expeditiously as possible ----------------------
and an endeavour shall be made to conclude the trial within six months from the
date of filing of the complaint. ----------------------

Notes Mode of service of summons
As per Section 144(1), notwithstanding anything contained in the Code of
----------------------
Criminal Procedure, 1973, (2 of 1974) and for the purposes of this Chapter, a
---------------------- Magistrate issuing a summons to an accused or a witness may direct a copy of
summons to be served at the place where such accused or witness ordinarily
---------------------- resides or carries on business or personally works for gain, by speed post or by
such courier services as are approved by a Court of Session.
----------------------
As per Section 144(2), where an acknowledgment purporting to be signed by the
---------------------- accused or the witness or an endorsement purported to be made by any person
authorised by the postal department or the courier services that the accused or
----------------------
the witness refused to take delivery of summons has been received, the Court
---------------------- issuing the summons may declare that the summons have been duly served.
Evidence on affidavit
----------------------
As per Section 145(1) Notwithstanding anything contained in the Code of
---------------------- Criminal Procedure, 1973, (2 of 1974.) the evidence of the complainant may
---------------------- be given by him on affidavit and may, subject to all just exceptions be read in
evidence in any enquiry, trial or other proceeding under the said Code. (2). The
---------------------- Court may, if it thinks fit, and shall, on the application of the prosecution or the
accused, summon and examine any person giving evidence on affidavit as to the
---------------------- facts contained therein.
---------------------- As per Section 146, the Court shall, in respect of every proceeding under this
Chapter, on production of bank’s slip or memo having thereon the official mark
---------------------- denoting that the cheque has been dishonoured, presume the fact of dishonour
---------------------- of such cheque, unless and until such fact is disproved.
As per Section 147, notwithstanding anything contained in the Code of Criminal
---------------------- Procedure, 1973, (2 of 1974) every offence punishable under this Act shall be
---------------------- compoundable.
---------------------- Summary
---------------------- l N I Act does not define negotiable instrument. The following are the
---------------------- features of a negotiable instrument:
a) A negotiable instrument is in writing
----------------------
b) It creates right for one party
----------------------
c) It creates liability for another party
---------------------- d) It is expressed in terms of money
---------------------- e) It is payable to bearer or to the order of a person
---------------------- f) It is easily transferable not withstanding any defect in the title of the
transferor.
----------------------
----------------------

Promissory Note, Bill of Exchange and Cheque are the three basic instruments. Notes
l Promissory Note is an instrument in writing containing an unconditional
undertaking to pay a certain sum of money. ----------------------
l Bill of Exchange is an instrument in writing containing an unconditional ----------------------

of money. ----------------------
l Cheque is a bill of exchange drawn on a specified banker and not expressed ----------------------
to be payable otherwise than on demand.
----------------------
l Demand Draft is an order by one branch of a bank to another branch of a
bank to pay certain sum for value received. ----------------------
l Bearer cheques are negotiated by only delivery. Order cheques are ----------------------
negotiated by endorsement and delivery.
----------------------
l Signature of the marker or holder of an negotiable instrument for the
purpose of negotiation on the back or face thereof is called as endorsement. ----------------------
Types of Endorsements
----------------------
a)
Endorsement in blank or General Endorsement : Payee signs
without naming anybody ----------------------
b) Endorsement in full or Special Endorsement: Payee names a person ----------------------
c) Per Pro Endorsement: For and on behalf of a principal
----------------------
d) Sans Recourse Endorsement: No liability for the endorser
----------------------
e) Restrictive Endorsement: Endorsee cannot further endorse
l Crossing is an instruction to paying bank not to make cash payment to ----------------------
payee. Payment should be made only through an account. Even if there is
----------------------
a fraud, the culprit can be traced, because he has an account, he has given
photograph, introduction and address proof. ----------------------
Types of Crossing
----------------------
a) General Crossing
----------------------
b) Special Crossing
c) Not Negotiable Crossing ----------------------
d) Account Payee Crossing ----------------------
l If a cheque bears across its face two parallel lines with or without the ----------------------
words “and company”, it is called as General Crossing.
l If a transferee does not get better title than that of transferor it is called as ----------------------
Not Negotiable Crossing. ----------------------
l Direction to the collecting bank to credit the amount to the account of
payee is called as Account Payee Crossing. ----------------------
l If the cheque is returned due to a mistake on the part of the bank, right to ----------------------
claim compensation from a bank is only with the account holder and not
the payee. ----------------------

Notes l Where a cheque payable to order purports to be endorsed by or on behalf
of the payee, the drawee is discharged by payment in due course.
----------------------
A collecting banker gets protection if he fulfils the following conditions:
---------------------- l A collecting banker acts in good faith and without negligence
---------------------- l Collects cheque for a customer
---------------------- l Cheque is crossed generally or specially to himself

l The following conditions should be fulfilled if the bouncing of a cheque
---------------------- has to become a criminal offence.
---------------------- i) Cheque should have been issued towards discharge of a debt or
other liability.
----------------------
ii) Cheque should have been returned unpaid with the reason
---------------------- ‘Funds insufficient’.
---------------------- iii) Cheque should have been presented within its validity period or 6
months from the date appearing on the cheque.
----------------------
iv) Payee/Holder in due course should have been issued notice to
---------------------- drawer within 30 days from the date of intimation of dishonour.
---------------------- v) The drawer should have failed to make payment within 15 days
from the date of receiving the notice.
---------------------- vi) Payee/Holder in due course should have been filed a case in the
---------------------- Court within 30 days from the date of expiry of 15 days period
available to drawer for payment.
----------------------
Punishment in case of bouncing of a cheque.
---------------------- Imprisonment up to 2 years or Fine up to twice the amount of cheque or both.
----------------------
Keywords
----------------------
l Acceptance of a bill : The drawee of a bill has signed his assent upon the
---------------------- bill.
---------------------- l Acceptor : The drawee after acceptance of a bill.
---------------------- l Acceptor for Honour : Any person who accepts it supra protest for
honour of the drawer or of any one of the endorser.
----------------------
l Accommodation bill : Bill of exchange drawn without a real transaction
---------------------- to help payee to raise finance from a bank.
l Account Payee Crossing : Direction to the collecting bank to credit the
----------------------
amount to the account of payee.
---------------------- l Agent : An ‘agent’ is a person employed to do any act for another, who is
---------------------- so in dealings with third persons. The person for whom such act is done,
or represented, is called the ‘principal’.
----------------------

l Allonge : A piece of paper attached to an instrument if the space is not Notes
sufficient for endorsement.
----------------------
l Bearer Cheque : Cheque payable to bearer. The word ‘Bearer’ is written
after the payee. ----------------------
l Bill of Exchange : An instrument in writing containing an unconditional
----------------------
of money ----------------------
l Blank endorsement : If the endorser signs his name only without naming
----------------------
any body.
l Cheque : Bill of exchange drawn on a specified banker and not expressed ----------------------
to be payable otherwise than on demand ----------------------
l Days of grace : 3 days added to the arithmatical due date to arrive at
actual due date ----------------------
l Demand bill : Bill payable on demand ----------------------

l Demand draft : An order by one branch of a bank to another branch of a ----------------------
bank to pay certain sum for value received.
----------------------
l Drawee : The person directed to pay
l Drawee in case of need : Name of any person which is given in addition ----------------------
to the drawee ----------------------
l Drawer : The maker of a bill of exchange or Cheque
----------------------
l Due date : The date on which a bill is due for payment
----------------------
l Endorsee : The person to whom a negotiable instrument has been
endorsed. ----------------------
l Endorsement : Signature of the marker or holder of an negotiable
----------------------
instrument for the purpose of negotiation on the back or face thereof.
l Endorser : The marker or holder of an negotiable instrument signs for ----------------------
the purpose of negotiation on the back or face thereof.
----------------------
l Exceeds arrangement : The unutilised portion of a cash credit limit is
not sufficient to pass a chque. ----------------------
l Foreign bill : A bill of exchange when any one or more of drawer/drawee/ ----------------------
payee reside in a foreign country.
----------------------
l Full Endorsement : Endorser adds a direction to pay the amount to, or to
the order of, a specified person ----------------------
l General Crossing : A cheque bears across its face an addition of the ----------------------
words “and company” or any abbreviation thereof, between two parallel
transverse lines. It is a direction to paying banker to pay through an ----------------------
account.
----------------------
l General lien : Right of Bankers etc to retain as a security for a general
balance of account, any goods bailed to them. ----------------------

Notes l Holder : Any person entitled in his own name to the possession thereof
and to receive or recover the amount due thereon.
----------------------
l Holder in due course : Any person who for consideration became
---------------------- the possessor or the payee or indorse of an instrument without having
sufficient cause to believe that any defect existed in the title of the person
---------------------- from whom he derived his title.
---------------------- l Inchoate instrument : Instrument which is incomplete except for
signature.
----------------------
l Inland bill : A bill drawn and payable in India.
---------------------- l Kite plying : Issueing accommodation bills/cheques not supported by
---------------------- transactions for raising finance from bank.
l Material Alteration : Alteration in date, amount, payee etc which makes
---------------------- a material difference and require drawer’s full signature.
---------------------- l Negotiable Instrument : Promissory note, Bill of Exchange or Cheque.
An instrument in writing which creates rights and obligations and freely
---------------------- transferable.
---------------------- l Negotiation : Transfer of ownership of a Negotiable instrument.
---------------------- l Negotiation back : Drawer/Payee/endorser becomes holder in due
course. A cheque transferred by Mr.X is again received by Mr.X after
---------------------- passing through several hands.
---------------------- l Not Negotiable Crossing : A transferee does not get better title than that
of transferor.
----------------------
l Order Cheque : Cheque payable to or to the order of a person named in
---------------------- it. The word “Order” is added after the name of payee.
---------------------- l Payee : The person named in the instrument, to whom or to whose order
the money is directed to be paid.
----------------------
l Payment in due course : Payment in accordance with the apparent tenor,
---------------------- in good faith and without negligence under circumstances which do not
afford a reasonable ground for believing that the payee is not entitled to
---------------------- receive payment of the amount therein mentioned.
---------------------- l Per Pro endorsement : Endorsement in the capacity of an agent. i.e. for
and on behalf of.
----------------------
l Post dated Cheque : A cheuqe which bears a future date.
---------------------- l Promissory Note : An instrument in writing containing an unconditional
---------------------- undertaking to pay a certain sum of money.
l Restrictive Endorsement : Word “Only” is added to the name of
---------------------- endorsee. Endorsee can not further transfer this cheque.
---------------------- l Sans Recourse endorsement : Endorser is not liable if the cheque is
bounced.
----------------------

l Special Crossing : A cheque bears across its face an addition of the name Notes
of a banker.
----------------------
l Stale Cheque : A cheque which is more than 6 months old or validity
period has expired. ----------------------
l Stop payment of a Cheque : A request by drawer to bank not to make
----------------------
payment of the cheque.
l Truncated Cheque : A cheque which is truncated during the course of a ----------------------
clearing cycle.
----------------------
l Usance bill : A bill payable on a future date.
----------------------
l Validity of a Cheque : The period upto which a cheque can be presented
for payment. ----------------------
----------------------
----------------------
----------------------
a. Promissory Note
b. Bill of Exchange ----------------------
c. Cheque ----------------------
d. Drawer ----------------------
e. Drawee
----------------------
f. Payee
----------------------
g. Holder
h. Holder in due course ----------------------
i. Payment in due course ----------------------

j. General Crossing ----------------------
k. Special Crossing
----------------------
l. Endorsement
----------------------
m. Payable to Order
n. Payable to Bearer ----------------------
2. What are the provisions of Negotiable Instruments Act regarding ----------------------

Endorsement? Give examples.
----------------------
3. What are the provisions of Negotiable Instruments Act regarding
Crossing? Give examples. ----------------------
4. What are the provisions of Negotiable Instruments Act regarding Material ----------------------
Alteration? Give examples.
----------------------
5. What are the provisions of Negotiable Instruments Act regarding duties
and liabilities of a paying banker? Give examples. ----------------------

Notes 6. What are the provisions of Negotiable Instruments Act regarding
Collecting Banker? Give examples.
----------------------
7. What are the provisions of Negotiable Instruments Act regarding
---------------------- Bouncing of a Cheque? Give examples.
---------------------- Answers to Check your Progress

---------------------- 1. True
----------------------
1. The person on whom the bill is drawn and who has to make Payment:
----------------------
i. Drawee
---------------------- 1. To prevent frauds in encashment of cheques, there is a system called
Crossing.
----------------------
---------------------- Multiple Choice Multiple Response.
---------------------- 1. A collecting banker gets protection if he fulfills the following conditions:
---------------------- i. He acts in good faith and without negligence
ii. He collects cheque for a customer
----------------------
iii. Cheque is crossed generally or specially to himself
----------------------
---------------------- Suggested Reading

---------------------- 1. Bulchandani, K.R. Business Law. Himalaya Publishing House.
---------------------- 2. Gulshan, S.S. Business Law. Delhi: Excel Books.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

The Consumer Protection Act, 1986
UNIT
4
Structure:
4.1 Introduction
4.3 District Forum
4.4 State Commission
4.5 National Commission
Summary
Keywords
Suggested Reading
The Consumer Protection Act, 1986 85

Notes
Objectives
----------------------
----------------------
• Identify the areas of consumer complaints
----------------------
• Describe the machinery for redressal of consumer grievances
---------------------- • State the procedure for redressal of consumer grievances
----------------------
4.1 INTRODUCTION
----------------------
Within each organisation, the supply chain includes all functions
---------------------- involved in fulfilling customer request. It includes the manufacturer, suppliers,
---------------------- transporters, warehouses, retailers, wholesalers and customers themselves. In
respect of Manufacturer you are a consumer and in respect of you customer you
---------------------- are service provided. Therefore, it is essential that the people involved in Supply
Chain Management should know the basics of The Consumer Protection Act,
---------------------- 1986.
----------------------
----------------------
Since the Act is all about consumer rights, the first thing that you should
---------------------- know is the meaning of consumer.
---------------------- Who is a Consumer?
---------------------- As per Section 2 (1) (b) iv, a Consumer is a person who buys goods or
services for a price. It means the people availing free services are not covered
---------------------- under Consumer Protection Act. Personal and private services are not covered
under the act. Ou are not the consumer of your maid seravent. Only the persons
---------------------- giving service to general public are covered under the act. Consideration can be
---------------------- indirect.
Example: A depositor in a bank does not pay any commission to bank.
----------------------
But the difference between the interest paid on deposit and the interest received
---------------------- on loans is considered as indirect consideration. Whether the consideration
is adequate or inadequate is not a question. Consumer includes a prospective
---------------------- consumer.
---------------------- Example: A person goes to a hotel to have his dinner. He finds that the
premises are highly unhygienic. He is considered a consumer even though he
---------------------- has not yet ordered for the dinner.
---------------------- What is a complaint?
---------------------- Any allegation in writing made by a complainant against unfair trade

practice or defective goods or deficiency of service is called a complaint. The
---------------------- allegation may pertain to misleading advertisement, or incomplete information
about the goods or services or suppressing vital information. Complain should
---------------------- be very specific and should not make some sense. It should not be vague and
general.
There is no specific format for writing the complaint. It can be written in regional Notes
language, or Hindi or English.
----------------------
What is the meaning of deficiency of service?
Any shortcoming in the manner or method of service is called deficiency of ----------------------
service.
----------------------
Examples
----------------------
A transport operator delivers goods on time but mishandles your goods while
loading or unloading the goods. ----------------------
A transport operator handles with care your goods while loading or unloading ----------------------
the goods but does not deliver on time.
A transport operator handles with care your goods while loading or unloading ----------------------
the goods and delivers on time but demands higher charges than the contractual ----------------------
one.
----------------------
What is the meaning of defect in goods?
Any fault or imperfection or short coming in goods is called defect in goods. It ----------------------
may be in respect of quantity, or quality or price or non suitability to the stated
----------------------
purpose.
Examples ----------------------
Quantity weighs 995 kg as against a bill for 1000 kg. ----------------------
Quality of the goods is inferior compared to the sample shown. ----------------------
A projector to be attached to a computer is not compatible to the computer.
----------------------
Who can lodge the complaint?
----------------------
A consumer who makes a complaint is called as Complainant.
Affected consumer himself, or group of consumers or a recognised association ----------------------
of consumers or State Government or Central Government can lodge the ----------------------
complaint.
When to lodge the complaint? ----------------------
The complaint should be lodged within 2 years from the date of cause of action. ----------------------
Where to lodge the complaint? ----------------------
It depends upon the geographical and pecuniary jurisdiction of consumer courts.
----------------------
(i) If the claim amount is up to Rs. 20.00 lacs, the complaint should be lodged
with District Forum of the concerned district. ----------------------
(ii) If the claim amount is more than Rs. 20.00 lacs and less than 1 Crore, ----------------------
the complaint should be lodged with State Commission of the concerned
state. ----------------------
(iii) If the claim amount is 1 Crore or more, the complaint should be lodged ----------------------
with National Commission.
----------------------

Notes
----------------------
----------------------
1. A complaint may be vague and general.
----------------------
---------------------- Activity 1
----------------------
Visit a District Forum and interact with the staff in the forum. Find out the
---------------------- number of cases pending at the time of your visit.
----------------------
---------------------- 4.3 DISTRICT FORUM

---------------------- As per Section 10(1), each District Forum shall consist of:
---------------------- (a) a person who is, or has been, or is qualified to be a District Judge, who
shall be its President;
----------------------
(b)
two other members, who shall be persons of ability, integrity and
---------------------- standing, and have adequate knowledge or experience of, or have shown
capacity in dealing with, problems relating to economics, law, commerce,
---------------------- accountancy, industry, public affairs or administration, one of whom shall
be a woman.
----------------------
(1) Every appointment under Sub-section (1) shall be made by the State
---------------------- Government on the recommendation of a selection committee consisting
of the following, namely
----------------------
(i) The President of the State Commission-Chairman,
----------------------
(ii) Secretary, Law Department of the State-Member,
---------------------- (iii) Secretary in-charge of the Department dealing with consumer
---------------------- affairs in the State-Member.
(2) Every member of the District Forum shall hold office for a term of five
----------------------
years or up to the age of 65 years, whichever is earlier, and shall not be
---------------------- eligible for re-appointment:
PROVIDED that a member may resign his office in writing under his hand
----------------------
addressed to the State Government and on such resignation being accepted,
---------------------- his office shall become vacant and may be filled by the appointment of a
person possessing any of the qualifications mentioned in Sub-section (1)
---------------------- in relation to the category of the member who has resigned.
---------------------- (3) The salary or honorarium and other allowances payable to, and the other
terms and conditions of service of the members of the District Forum
---------------------- shall be such as may be prescribed by the State Government.
----------------------

Jurisdiction of the district Forum Notes
As per Section 11(1), the District Forum shall have jurisdiction to entertain
----------------------
complaints where the value of the goods or services and the compensation, if
any, claimed does not exceed rupees twenty lakhs. ----------------------
(2) A complaint shall be instituted in a District Forum within the local limits
----------------------
of whose jurisdiction-
(a) the opposite party or each or any of the opposite parties, where there ----------------------
are more than one, at the time of the institution of the complaint,
----------------------
actually and voluntarily resides or carries on business, or has a
branch office or personally works for gain; or ----------------------
(b) in whose jurisdiction the cause of action, wholly or in part, arises. ----------------------
Manner in which complaint shall be made
----------------------
As per Section 12, a complaint in relation to any goods sold or delivered or
agreed to be sold or delivered or any service provided or agreed to be provided, ----------------------
may be filed with a District Forum, by
----------------------
(a) the consumer to whom such goods are sold or delivered or agreed to be
sold or delivered or such service provided or agreed to be provided; ----------------------
(b) any recognised consumers association whether the consumer to whom the ----------------------
goods sold or delivered or service provided or agreed to be provided is a
member of such association or not; or ----------------------
(c) one or more consumers, where there are numerous consumers having the ----------------------
same interest, with the permission of the District Forum, on behalf of, or
for the benefit of, all consumers so interested; or ----------------------
(d) the Central or the State Government ----------------------
Procedure on receipt of complaint ----------------------
As per Section 13(1), the District Forum shall, on receipt of a complaint, if it
----------------------
relates to any goods:
----------------------
(a) refer to a copy of the complaint to the opposite party mentioned in the
complaint directing him to give his version of the case within a period of ----------------------
thirty days or such extended period not exceeding fifteen days as may be
granted by the District Forum; ----------------------
(b) where the opposite party on receipt of a complaint referred to him under ----------------------
clause (a) denies or disputes the allegations contained in the complaint,
or omits or fails to take any action to represent his case within the time ----------------------
given by the District Forum, the District Forum shall proceed to settle the ----------------------
consumer dispute in the manner specified in clauses (c) to (g);
(c) where the complaint alleges a defect in the goods which cannot be ----------------------
determined without proper analysis or test of the goods, the District ----------------------
Forum shall obtain a sample of the goods from the complainant, seal it
and authenticate it in the manner prescribed and refer the sample so sealed ----------------------

Notes to the appropriate laboratory along with a direction that such laboratory
make an analysis with a view to finding out whether such goods suffer
---------------------- from any defect alleged in the complaint or suffer from any other defect
and to report its findings thereon to the District Forum within a period
---------------------- of forty-five days of the receipt of the reference or within such extended
---------------------- period as may be granted by the District Forum;
(d) before any sample of the goods is referred to any appropriate laboratory
----------------------
under clause (c) the District Forum may require the complainant to deposit
---------------------- to the credit of the Forum such fees as may be specified, for payment to
the appropriate laboratory for carrying out the necessary analysis or test
---------------------- in relation to the goods in question;
---------------------- (e) the District Forum shall remit the amount deposited to its credit under
clause (d) to the appropriate laboratory to enable it to carry out the
---------------------- analysis or test mentioned in clause (c) and on receipt of the report from
the appropriate laboratory, the District Forum shall forward a copy of the
----------------------
report along with such remarks as the District Forum may feel appropriate
---------------------- to the opposite party;
(f) if any of the parties disputes the correctness of the findings of the
----------------------
appropriate laboratory, or disputes the correctness of the methods of
---------------------- analysis or test adopted by the appropriate laboratory, the District Forum
shall require the opposite party or the complainant to submit in writing his
---------------------- objections in regard to the report made by the appropriate laboratory;
---------------------- (g)
the District Forum shall thereafter give a reasonable opportunity to
the complainant as well as the opposite party of being heard as to the
---------------------- correctness or otherwise of the report made by the appropriate laboratory
---------------------- and also as to the objection made in relation thereto under clause (f) and
issue an appropriate order under Section 14.
---------------------- (2) The District Forum shall, if the complaint received by it under Section 12
---------------------- relates to goods in respect of which the procedure specified in Sub-section
(1) cannot be followed, or if the complaint relates to any services -
---------------------- (a) refer a copy of such complaint to the opposite party directing him
---------------------- to give his version of the case within a period of thirty days or such
extended period not exceeding fifteen days as may be granted by
---------------------- the District Forum;
---------------------- (b) where the opposite party, on receipt of a copy of the complaint,
referred to him under clause (a) denies or disputes the allegations
---------------------- contained in the complaint, or omits or fails to take any action to
represent his case within the time given by the District Forum, the
----------------------
District Forum shall proceed to settle the consumer dispute,
---------------------- (i)
on the basis of evidence brought to its notice by the
complainant and the opposite party, where the opposite party
----------------------
denies or disputes the allegation contained in the complaint,
---------------------- or

(ii) on the basis of evidence brought to its notice by the complainant Notes
where the opposite party omits or fails to take any action to
represent his case within the time given by the Forum. ----------------------
(3) No proceedings complying with the procedure laid down in Sub-sections ----------------------
(1) and (2) shall be called in question in any court on the ground that the
principles of natural justice have not been complied with. ----------------------
(4) For the purposes of this section, the District Forum shall have the same ----------------------
powers as are vested in a civil court under the Code of Civil Procedure,
1908 (5 of 1908) while trying a suit in respect of the following matters, ----------------------
namely,
----------------------
(i)
the summoning and enforcing attendance of any defendant or
witness and examining the witness on oath; ----------------------
(ii) the discovery and production of any document or other material ----------------------
object producible as evidence;
----------------------
(iii) the reception of evidence on affidavits;
(iv) the requisitioning of the report of the concerned analysis or test ----------------------
from the appropriate laboratory or from any other relevant source; ----------------------
(v) issuing of any commission for the examination of any witness; and
----------------------
(vi) any other matter which may be prescribed.
----------------------
(5) Every proceeding before the District Forum shall be deemed to be a
judicial proceeding within the meaning of Sections 193 and 228 of the ----------------------
Indian Penal Code (45 of 1860), and the District Forum shall be deemed
to be a civil court for the purposes of Section 195 and Chapter XXVI of ----------------------
the Code of Criminal Procedure, 1973 (2 of 1974). ----------------------
(6) Where the complainant is a consumer referred to in sub-clause (iv) of
clause (b) of Sub-section (1) of Section 2, the provisions of Rule 8 of ----------------------
Order I of Schedule I to the Code of Civil Procedure, 1908 (5 of 1908) ----------------------
shall apply subject to the modification that every reference therein to a
suit or decree shall be construed as a reference to a complaint or the order ----------------------
of the District Forum thereon.
----------------------
Finding of the district Forum
----------------------
As per Section 14, if the District Forum is satisfied that the goods complained
against suffer from any of the defects specified in the complaint or that any ----------------------
of the allegations contained in the complaint about the services are proved, it
shall issue an order to the opposite party directing him to do one or more of the ----------------------
following things, namely,
----------------------
(a) to remove the defect pointed out by the appropriate laboratory from the
goods in question; ----------------------
(b) to replace the goods with new goods of similar description which shall be ----------------------
free from any defect;
----------------------

Notes (c) to return to the complainant the price, or, as the case may be, the charges
paid by the complainant;
----------------------
(d) to pay such amount as may be awarded by it as compensation to the
---------------------- consumer for any loss or injury suffered by the consumer due to the
negligence of the opposite party.
----------------------
(e) to remove the defects or deficiencies in the services in question;
---------------------- (f) to discontinue the unfair trade practice or the restrictive trade practice or
not to repeat them;
----------------------
(g) not to offer the hazardous goods for sale;
----------------------
(h) to withdraw the hazardous goods from being offered for sale;
---------------------- (i) to provide for adequate costs to parties.]
---------------------- (2) Every proceeding referred to in Sub-section (1) shall be conducted by the
President of the District Forum and at least one member thereof sitting
----------------------
together:
---------------------- PROVIDED that where the member, for any reason, is unable to conduct
the proceeding till it is completed, the President and the other member
----------------------
shall conduct such proceeding de novo:
---------------------- (2A) Every order made by the District Forum under Sub-section (1) shall be
---------------------- signed by its President and the member or members who conducted the
proceedings:
---------------------- PROVIDED that where the proceeding is conducted by the President and one
---------------------- member and they differ on any point or points, they shall state the point or
points on which they differ and refer the same to the other member for hearing
---------------------- on such point or points and the opinion of the majority shall be the order of the
District Forum.
----------------------
Appeal
----------------------
As per Section 15, any person aggrieved by an order made by the District
---------------------- Forum may prefer an appeal against such an order to the State Commission
within a period of thirty days from the date of the order, in such form and
---------------------- manner as may be prescribed:
---------------------- PROVIDED that the State Commission may entertain an appeal after the
expiry of the said period of thirty days if it is satisfied that there was sufficient
---------------------- cause for not finding it within that period.
----------------------
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
----------------------
1. As per Section 11(1), the District Forum shall have jurisdiction
to entertain complaints where the value of the goods or services ----------------------
and the compensation, if any, claimed does not exceed rupees
______________. ----------------------
i. Twenty Lakhs ----------------------

ii. Ten Lakhs ----------------------
iii. Fifteen Lakhs
----------------------
iv. Seven Lakhs
----------------------
4.4 STATE COMMISSION ----------------------
Composition of the state Commission ----------------------
As per Section 16 ----------------------

(1) each State Commission shall consist of ----------------------
(a) a person who is or has been a Judge of a High Court, appointed by the
----------------------
State Government, who shall be its President:
PROVIDED that no appointment under this clause shall be made except ----------------------
after consultation with the Chief Justice of the High Court. ----------------------
(b)
two other members, who shall be persons of ability, integrity and
standing and have adequate knowledge or experience of, or have shown ----------------------
capacity in dealing with, problems relating to economics, law, commerce, ----------------------
accountancy, industry, public affairs or administration, one of whom shall
be a woman: ----------------------
PROVIDED that every appointment under this clause shall be made by ----------------------
the State Government on the recommendation of a selection committee
consisting of the following, namely, ----------------------
(i) President of the State Commission-Chairman, ----------------------
(ii) Secretary of the Law Department of the State-Member
----------------------
(iii) Secretary in-charge of the department dealing with consumer affairs
in the State-Member. ----------------------
(2) The salary or honorarium and other allowances payable to, and the other ----------------------
terms and conditions of service of the members of the State Commission
shall be such as may be prescribed by the State Government. ----------------------
(3) Every member of the State Commission shall hold office for a term of five ----------------------
years or up to the age of sixty-seven years, whichever is earlier and shall
not be eligible for re-appointment. ----------------------

Notes (4) Notwithstanding anything contained in Sub-section (3), a person appointed
as a President or as a member before the commencement of the Consumer
---------------------- Protection (Amendment) Act, 1993, shall continue to hold such office as
President or member, as the case may be, till the completion of his term.
----------------------
Jurisdiction of the state Commission
----------------------
As per Section 17, the State Commission shall have jurisdiction
---------------------- (a) to entertain
---------------------- (i)
complaints where the value of the goods or services and
compensation, if any, claimed exceeds rupees twenty lakhs but does
---------------------- not exceed rupees 1 Crore; and
---------------------- (ii) appeals against the orders of any District Forum within the State;
and
----------------------
(b) to call for the records and pass appropriate orders in any consumer dispute
---------------------- which is pending before or has been decided by any District Forum within
the State where it appears to the State Commission that such District
---------------------- Forum has exercised a jurisdiction not vested in it by law, or has failed to
---------------------- exercise a jurisdiction so vested or has acted in exercise on its jurisdiction
illegally or with material irregularity.
----------------------
Procedure applicable to state Commission
---------------------- As per Section 18, the provisions of Sections 12, 13 and 14 and the rules made
thereunder for the disposal of complaint by the Districts Forum shall, with such
----------------------
modification as may be necessary, be applicable to the disposal of disputes by
---------------------- the State Commission:
---------------------- Vacancy in the office of the President

As per Section 18A, when the office of the President of the District Forum or of
---------------------- the State Commission, as the case may be, is vacant or when any such President
---------------------- is, by reason of absence or otherwise, unable to perform the duties of his office,
the duties of the office shall be performed by such person, who is qualified to be
---------------------- appointed as President of the District Forum or, as the case may be, of the State
Commission, as the State Government may appoint for the purpose.
----------------------
Appeals
----------------------
As per Section 19, any person aggrieved by an order made by the State
---------------------- Commission in exercise of its powers conferred by Sub-clause (i) of clause
(a) of Section 17 may prefer an appeal against such order to the National
---------------------- Commission within a period of thirty days from the date of the order in such
form and manner as may be prescribed:
----------------------
PROVIDED that the National Commission may entertain an appeal after the
---------------------- expiry of the said period of thirty days if it is satisfied that there was sufficient
cause for not filing it within that period.
----------------------
----------------------

4.5 NATIONAL COMMISSION Notes
Composition of the National Commission ----------------------

As per Section 20(1), the National Commission shall consist of ----------------------
(a) a person who is or has been a Judge of the Supreme Court, to be appointed ----------------------
by the Central Government, who shall be its President:
----------------------
PROVIDED that no appointment under this clause shall be made except
after consultation with the Chief Justice of India; ----------------------
(b) four other members who shall be persons of ability, integrity and standing
----------------------
and have an adequate knowledge or experience of, or have shown
capacity in dealing with problems relating to economics, law, commerce, ----------------------
accountancy, industry, public affairs or administration, one of whom shall
be a woman: ----------------------
PROVIDED that every appointment under this clause shall be made by the ----------------------
Central Government on the recommendation of a selection committee consisting
of the following, namely, ----------------------
(a) a person who is a Judge of the Supreme Court, to be nominated by the ----------------------
Chief Justice of India-Chairman,
----------------------
(b) the Secretary in the Department of Legal Affairs in the Government of
India-Member. ----------------------
(2) The salary or honorarium and other allowances payable to and the other ----------------------
terms and conditions of service of the members of the National Commission
shall be such as may be prescribed by the Central Government. ----------------------
(3) Every member of the National Commission shall hold office for a term of ----------------------
five years or up to the age of seventy years, whichever is earlier and shall
not be eligible for re-appointment. ----------------------
(4) Notwithstanding anything contained in sub-section (3), a person appointed ----------------------
as a President or as a member before the commencement of the Consumer
Protection (Amendment) Act, 1993, shall continue to hold such office as ----------------------
President or member, as the case may be, till the completion of his term.
----------------------
Jurisdiction of the National Commission
----------------------
As per Section 21, the National Commission shall have jurisdiction
(a) to entertain ----------------------
(i)
complaints where the value of the goods or services and ----------------------
cornpensation, if any, claimed exceeds One Crore; and
----------------------
(ii) appeals against the orders of any State Commission; and
----------------------
(b) to call for the records and pass appropriate orders in any consumer dispute
which is pending before or has been decided by any State Commission ----------------------
where it appears to the National Commission that such State Commission
has exercised a jurisdiction not vested in it by law, or has failed to exercise ----------------------

Notes a jurisdiction so vested, or has acted in the exercise of its jurisdiction
illegally or with material irregularity.
----------------------
Power of and procedure applicable to the National Commission
---------------------- As per Section 22, the National Commission shall, in the disposal of any
complaints or of any proceedings before it, have
----------------------
(a) the powers of a civil court as specified in Sub-sections (4), (5) and (6) of
---------------------- Section 13;
---------------------- (b) the power to issue an order to the opposite party directing him to do any
one or more of the things referred to in clauses (a) to (i) of Sub-section
---------------------- (1) of Section 14, and follow such procedure as may be prescribed by the
---------------------- Central Government.
Appeal
----------------------
As per Section 23, any person, aggrieved by an order made by the National
---------------------- Commission in exercise of its powers conferred by sub-clause (i) of clause (a)
of Section 21, may prefer an appeal against such order to the Supreme Court
---------------------- within a period of thirty days from the date of the order:
---------------------- PROVIDED that the Supreme Court may entertain an appeal after the
expiry of the said period of thirty days if it is satisfied that there was sufficient
----------------------
cause for not filing it within that period.
---------------------- Finality of order
---------------------- As per Section 24, every order of a District Forum, State Commission or
the National Commission shall, if no appeal has been preferred against such
---------------------- order under the provisions of this Act, be final.
---------------------- Limitation period
---------------------- As per Section 24A,

(1) The District Forum, the State Commission or the National Commission
----------------------
shall not admit a complaint unless it is filed within two years from the
---------------------- date on which the cause of action has arisen.
(2)
Notwithstanding anything contained in Sub-section (1), a complaint
----------------------
may be entertained after the period specified in Sub-section (1), if the
---------------------- complainant satisfies the District Forum, the State Commission or the
National Commission, as the case may be, that he had sufficient cause for
---------------------- not filing the complaint within such period:
---------------------- PROVIDED that no such complaint shall be entertained unless the
National Commission, the State Commission or the District Forum, as
---------------------- the case may be, records its reasons for condoning such delay.
---------------------- Administrative control
---------------------- As per Section 24B,
----------------------

(1) The National Commission shall have administrative control over all the Notes
State Commissions in the following matters, namely,
----------------------
(i) calling for periodical returns regarding the institution, disposal,
pendency of cases; ----------------------
(ii) issuance of instructions regarding adoption of uniform procedure
----------------------
in the hearing of matters, prior service of copies of documents
produced by one party to the opposite parties, furnishing of English ----------------------
translation of judgments written in any language, speedy grant of
copies of documents; ----------------------
(iii) generally overseeing the functioning of the State Commissions or ----------------------
the District Fora to ensure that the objects and purposes of the Act
are best served without in any way interfering with their quasi- ----------------------
judicial freedom.
----------------------
(2) The State Commission shall have administrative controls over all the
District Fora within its jurisdiction in all matters referred to in Sub-section ----------------------
(1). ----------------------
Enforcement of orders by the Forum, the state Commission or the National
----------------------
Commission
----------------------
As per Section 25, every order made by the District Forum, the State
Commission or the National Commission, may be enforced by the District ----------------------
Forum, the State Commission or the National Commission as the case may
be, in the same manner as if it were a decree or order made by a court in a ----------------------
suit pending therein and it shall be lawful for the District Forum, the State
----------------------
Commission or the National Commission to send, in the event of its inability to
execute it, such order to the court within the local limits of whose jurisdiction- ----------------------
(a) in the case of an order against a company, the registered office of the
----------------------
company is situated, or
(b) in the case of an order against any other person, the place where the ----------------------
person concerned voluntarily resides or carries on business or personally ----------------------
works for gain, is situated, and thereupon, the court to which the order is
so sent, shall execute the order as if it were a decree or order sent to it for ----------------------
execution.
----------------------
Dismissal of frivolous or vexatious complaints
As per Section 26, where a complaint instituted before the District Forum, ----------------------
the State Commission or, as the case may be, the National Commission, is ----------------------
found to be frivolous or vexatious, it shall, for reasons to be recorded in writing,
dismiss the complaint and make an order that the complainant shall pay to the ----------------------
opposite party such cost, not exceeding ten thousand rupees, as may be specified
in the order. ----------------------
----------------------
----------------------

Notes Penalties
As per Section 27, where a trader or a person against whom a complaint
----------------------
is made or the complainant fails or omits to comply with any order made by
---------------------- the District Forum, the State Commission or the National Commission, as the
case may be, such trader or person or complainant shall be punishable with
---------------------- imprisonment for a term which shall not be less than one month but which may
extend to three years, or with fine which shall not be less than two thousand
----------------------
rupees but which may extend to ten thousand rupees, or with both:
---------------------- PROVIDED that the District Forum, the State Commission or the National
Commission, as the case may be, may, if it is satisfied that the circumstances
----------------------
of any case so require, impose a sentence of imprisonment or fine, or both,
---------------------- for a term lesser than minimum term and the amount lesser than the minimum
amount, specified in this section.
----------------------
Comparative Study of District, State and National Forum
---------------------- S.N. Particulars District State National
---------------------- Forum Commission Commission
1 Claim amount Up to 20 lacs > 20 Lacs to 1 Crore > 1 Crore
---------------------- 2 Entertaining Not Appeals against Appeals against
Appeal Applicable decision of DF decision of State
---------------------- Com
---------------------- 3 President District High Court Supreme Court
equivalent to Judge Judge Judge
---------------------- 4 No. of members two two four
5 Of which one one one
---------------------- woman
6 If not satisfied Appeal to State Appeal to National Appeal to
----------------------
with the order Commission Commission Supreme Court.
----------------------
Summary
----------------------
l A Consumer is a person who buys goods or services after paying the
---------------------- consideration. It means the people availing free services are not covered
---------------------- under consumer protection act. Personal and private services are not
covered under the act. Consumer includes a prospective consumer. Any
---------------------- allegation of defect in goods or deficiency in service made in writing is
called a complaint. Any imperfection in the manner of service is called
---------------------- deficiency of service. Any shortage in the quality or quantity of goods,
---------------------- overpricing and not suitability of the good for the stated purpose is called
defect in goods. Affected consumer himself, or group of consumers or an
---------------------- association of consumers or State Government or Central Government
can lodge the complaint. The complaint should be lodged within 2 years
---------------------- from the date of cause of action.
----------------------
----------------------

l The geographical and pecuniary jurisdiction of consumer courts are as Notes
under.
----------------------
If the
l claim amount is up to Rs. 20 lacs, the complaint should be lodged
with District Forum of the concerned district. ----------------------
If the
l claim amount is more than Rs. 20 lacs and less than 1 Crore, the
----------------------
complaint should be lodged with State Commission of the concerned
state. ----------------------
If the
l claim amount is 1 crore or more, the complaint should be lodged
----------------------
with National Commission.
l A party to the dispute may either implement the order make an appeal ----------------------
within 30 days. If nothing is done it will be treated a contempt of court. ----------------------
Then the punishment will be as under:-
Imprisonment: minimum 1 month and maximum 3 years ----------------------
Fine: Minimum Rs.2,000/- and Maximum Rs.10,000/- ----------------------

----------------------
Keywords
----------------------
l Complainant : A consumer who makes a complaint.
----------------------
l Complaint : Any allegation in writing made by a complainant against
unfair trade practice or defective goods or deficiency of service. ----------------------
l Consumer : A person who buys goods or services for a price. ----------------------
l Defect in goods : Any fault or imperfection or shortcoming in goods.
----------------------
l Deficiency of service : Any shortcoming in the manner/method of service.
----------------------
l
Goods : Every kind of moveable property other than actionable claims
and money. ----------------------
l Price : The money consideration for a sale of goods. ----------------------
----------------------
a. Consumer ----------------------
b. Complaint ----------------------
c. Consideration
----------------------
d. Deficiency of Service
----------------------
e. Defect in Goods
2. What are the provisions of The Consumer Protection Act, 1986 regarding ----------------------
the District Forum? ----------------------
3. What are the provisions of The Consumer Protection Act, 1986 regarding
the State Commission? ----------------------

Notes 4. What are the provisions of The Consumer Protection Act, 1986 regarding
the National Commission?
----------------------
---------------------- the orders passed by consumer Courts?
----------------------
the appeal against the decisions of consumer Courts?
----------------------
----------------------
----------------------
----------------------
1. False
---------------------- 1. As per Section 11(1), the District Forum shall have jurisdiction to
entertain complaints where the value of the goods or services and the
---------------------- compensation, if any, claimed does not exceed rupees .
---------------------- i. Twenty Lakhs
----------------------
Suggested Reading
----------------------
1. Datey, V. Students Guide to Corporate Law. New Delhi: Taxman.
---------------------- 2. Goel, P.K. Business Law. Biztantra.
---------------------- 3. Shukla, M.C. A Manual of Mercantile Law. Chand & Co.
---------------------- 4. Singh, Dr. Avtar. Company Laws. Eastern Book Company.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

The Standards of Weights and Measures Act, 1976
UNIT
5
Structure:
5.1 Introduction
5.3 Establishment of Standards of Weights and Measures
5.4 Inter-state Trade or Commerce
5.5 Import and Export of Weights and Measures
5.6 Offences and their Trial
5.7 Other Provisions of the Act
Summary
Keywords
Suggested Reading
The Standards of Weights and Measures Act, 1976 101

Notes
Objectives
----------------------
----------------------
• Enumerate the standards for weights
----------------------
• Discuss the standards for measurements
---------------------- • Explain the offences under the Act
----------------------
5.1 INTRODUCTION
----------------------
Supply Chain includes the manufacturer, suppliers, transporters,
---------------------- warehouses, retailers, wholesalers and customers themselves. At every stage
---------------------- the goods are transported. These goods are packed into different units before
they are transported. They should be packed as per the standards of weights
---------------------- and measurements. Therefore, it is essential that the people involved in Supply
Chain Management should know the basics of the standards of weights and
---------------------- measures act, 1976. The objective of the act is to establish standards of weights
---------------------- and measures, to regulate trade or commerce in weights, measures and other
goods which are sold or distributed by weight, measure or number, to provide
---------------------- for matters connected therewith or incidental thereto.
----------------------
----------------------
Section 2 of the Act defines the following:
---------------------- (a) ‘calibration’ means all the operations which are necessary for the purpose
---------------------- of determining the values of the errors of a weight or measure and, if
necessary, to determine the other metrological properties of such weight
---------------------- or measure, and include the actual fixing of the positions of the gauge
marks or scale marks of a weight or measure, or in some cases, of certain
---------------------- principal marks only, in relation to the corresponding values of the
---------------------- quantity to be measured;
(b) ‘commodity in packaged form’ means commodity packaged whether in
---------------------- any bottle, tin, wrapper or otherwise, in units suitable for sale, whether
---------------------- wholesale or retail;
(c) ‘dealer’, in relation to any weight or measure, means a person who, or a
----------------------
firm or a Hindu undivided family which, carried on, directly or otherwise,
---------------------- the business of buying, selling, supplying or distributing any such weight
or measure, whether for cash or for deferred payment or for commission,
---------------------- remuneration or other valuable consideration;
---------------------- (d)
‘false package’ means any package which does not conform to the
provisions of this Act or any rule or order made there under in relation to
---------------------- such package;
----------------------

(e) ‘false weight or measure’ means any weight or measure which does not Notes
conform to the standards established by or under this Act in relation to
that weight or measure; ----------------------
(f) ‘inter-state trade or commerce’, in relation to any weight or measure or ----------------------
other goods which are bought, sold, supplied, distributed or delivered by
weight, measure or number, means the purchase, sale, supply, distribution ----------------------
or delivery which
----------------------
(i) occasions the movement of such weight, measure or other goods
from one State to another, or ----------------------
(ii) is effected by a transfer of documents of title to such weight, measure ----------------------
or other goods during its movement from one State to another.
----------------------
(g) ‘label’ means any written, marked, stamped, printed, or graphic matter
affixed to, or appearing upon, any commodity or package containing any ----------------------
commodity;
----------------------
(h) ‘manufacturer’ in relation to any weight or measure, means a person who,
or a firm or a Hindu undivided family which. ----------------------
(i) makes or manufacturers such weight or measure. ----------------------
(ii) makes or manufactures one or more parts, and acquires the other
----------------------
parts, of such weight or measure and, after assembling those parts,
claims the end product to be a weight or measure manufactured by ----------------------
himself or itself, as the case may be.
----------------------
(iii) does not make or manufacture any part of such weight or measure
but assembles parts thereof made or manufactured by others and ----------------------
claims the end product to be a weight or measure manufactured by
himself or itself, as the case may be. ----------------------
(iv) puts, or causes to be put, his own mark on any complete weight ----------------------
or measure made or manufactured by any other person and claims
such product to be a weight or measure made or manufactured by ----------------------
himself or itself, as the case may be. ----------------------
(i) ‘premises’ includes
----------------------
(i) a place where any business industry, production or trade is carried
on by a person, whether by himself or through an agent, by whatever ----------------------
name called.
----------------------
(ii) a warehouse, go-down or other place where any weight measure or
other goods are stored or exhibited. ----------------------
(iii) a place where any books of account or other documents pertaining ----------------------
to any trade or transaction are kept.
----------------------
(iv) a dwelling house, if any part thereof is used for the purpose of
carrying on any business, industry, production or trade. ----------------------
----------------------

Notes (j) ‘reference standard’ means the set of standard weight or measure which is
made or manufactured by or on behalf of the Central Government for the
---------------------- verification of any secondary standard;
---------------------- (k) ‘repairer’ includes a person who adjusts, cleans, lubricates or paints
any weight or measure or renders any other service to such weight or
---------------------- measure to ensure that such weight or measure conforms to the standards
established by or under this Act;
----------------------
(l) ‘seal’ means a device or process by which a stamp is made, and includes
---------------------- any wire or other accessory which is used for ensuring the integrity of any
stamp;
----------------------
(m) ‘secondary standard’ means the set of standard weight or measure which is
---------------------- made or manufactured by or on behalf of the Central or State Government
for the verification of any working standard;
---------------------- (n) ‘stamp’ means a mark, which is made on, or in relation to, any weight or
---------------------- measure with a view to-
(i) certifying that such weight or measure conforms to the standard
---------------------- specified by or under this Act, or
---------------------- (ii)
indicating that any mark which was previously made thereon
certifying that such weight or measure conforms to the standards
---------------------- specified by or under this Act, has been obliterated.
---------------------- (o) ‘transaction’ means
(i) any contract, whether for sale, purchase, exchange or any other
----------------------
purpose, or
---------------------- (ii) any assessment of royalty, toll, duty or other dues, or
---------------------- (iii) the assessment of any work done, wages due or services rendered;
(a) ‘unverified weight or measure’ means a weight or measure
---------------------- which, being required to be verified and stamped under this
Act, has not been so verified and stamped;
----------------------
(b) ‘verification’, with its grammatical variations and cognate
---------------------- expressions, includes, in relation to any weight or measure,
the process of comparing, checking, testing or adjusting such
----------------------
weight or measure with a view to ensuring that such weight
---------------------- or measure conforms to the standards established by or under
this Act, and also includes re-verification and calibration;
---------------------- (c)
‘weighing or measuring instrument’ means any object,
---------------------- instrument, apparatus or device, or any combination thereof,
which is, or is intended to be, used, exclusively or additionally,
---------------------- for the purpose of making any weighment or measurement,
and includes any appliance, accessory or a part associated
---------------------- with any such object, instrument, apparatus or device;
---------------------- (d) ‘weight or measure’ means a weight or measure specified
by or under this Act, and includes a weighing or measuring
---------------------- instrument;

(e)
‘working standard’ means the set of standard weight or Notes
measure which is made or manufactured by or on behalf of
Government for the verification of any standard weight or ----------------------
measure, other than a national prototype or national reference
or secondary standard. ----------------------
----------------------
----------------------
----------------------
1. ‘Label’ means any written, marked, stamped, printed or graphic matter
affixed to or appearing upon any commodity or package containing ----------------------
any commodity.
----------------------
----------------------
Activity 1
----------------------
Find out which types of organisations use the following concepts in their
routine work: ----------------------
a. Calibration ----------------------
b. Manufacturer ----------------------
c. Weighing or Measuring Instrument
----------------------
5.3 ESTABLISHMENT OF STANDARDS OF WEIGHTS ----------------------

AND MEASURES
----------------------
Standard units ----------------------
4. (1) Every unit of weight or measures shall be based on the units of the
metric system. ----------------------
(2) For the purposes of Sub-section (1), ----------------------
(a) the international system of units as recommended by the General
Conference on Weights and Measures, and ----------------------
(b) such additional units as may be recommended by the International ----------------------
Organisation of Legal Metrology, shall be the units of the metric
system. ----------------------
5. (1) The base unit of length shall be the metre. ----------------------
6. (1) The base unit of mass shall be the kilogram.
----------------------
7. (1) The base unit of time shall be the second.
8. (1) The base unit of electric current shall be the ampere. ----------------------
9. (1) The base unit of thermodynamic temperature shall be the kelvin. (3) ----------------------
The kelvin shall also be used for expressing the interval or difference of
temperature. (4) Zero Degree Celsius corresponds to 273.15 kelvin. The ----------------------
degree Celsius may also be used for expressing the interval or difference
of temperature, unit degree Celsius being equal to unit kelvin. ----------------------

Notes 10. (1) The base unit of luminous intensity shall be the candela.
11. (1) The base unit of amount of substance shall be the mole. (3) When the
---------------------- mole is used, the elementary entities shall invariably be specified and
may be atoms, molecules, ions, electrons, other particle, or specified
----------------------
groups of such particles.
---------------------- 12. (1) The Central Government may, by rules made in this behalf, specify
the base units and also specify in relation to the base units of weight or
---------------------- measure, such supplementary, derived, or other units or standard symbols
---------------------- or definitions as the General Conference on Weights and Measures or the
International Organisation of Legal Metrology may recommend.
---------------------- (2) The Central Government may, by rules made in this behalf, specify,
---------------------- such multiples and sub-multiples of, and physical constants, and
ratios or coefficients in relation to, units of weight or measure as the
---------------------- General Conference on Weights and Measures or the International
Organisation of Legal Metrology may recommend.
----------------------
(3) The Central Government may, by notification, declare, for such
---------------------- period as it may consider necessary such special units of weight or
measure as the General Conference on Weights and Measures or the
---------------------- International Organisation of Legal Metrology may recommend.
---------------------- 13. (1) The base unit of numeration shall be the unit of the international
form of Indian numerals.
----------------------
(2) Every numeration shall be made in accordance with the decimal
---------------------- system.
(3) The decimal multiples and sub-multiples of the numerals shall be
----------------------
of such denominations and be written in such manner as the Central
---------------------- Government may, after previous publication, specify by rules made
in this behalf: Provided that no such rule shall be made before
---------------------- the expiry of six months from the date on which the draft of the
proposed rules was first published in the Official Gazette.
----------------------
14. (1) The base unit of mass specified in Section 6 and base units of
---------------------- measures specified in Section 5 and Sections 7 to 11 (both inclusive)
and the supplementary and other units specified by rules made under
----------------------
Section 12, shall be the standard units of weight or measure, as the
---------------------- case may be.
(2) The units of numeration specified by or under Section 13 shall be
----------------------
the standard units of numeration.
---------------------- Unit Abbreviation
Mass Kilogram (kg), gram (g), milligram (mg)
----------------------
Length Metre (m), centimeter (cm), milli meter (mm)
---------------------- Area Square metre (m2)
Capacity Kilo litre (kl), litre (l or L), milli litre (ml)
---------------------- Temperature Degree Celsius (°C) of Degree Kelvin (°K)
Volume Cubic metre (m3) , Cubic Centi-metre (cm3) cubic milli metre
---------------------- (m m3)

Physical representation of standard units Notes
15. (1) For the purpose of deriving the value of the kilogram, the Central
----------------------
Government shall cause to be prepared a national prototype of
the kilogram and shall cause its accuracy to be certified by the ----------------------
International Bureau of Weights and Measures in terms of the
international prototype of the kilogram and shall deposit the same ----------------------
in such custody and at such place as that Government may think fit.
----------------------
16. (1) For the purpose of deriving the value of the base units, other than
the base unit of mass, the Central Government shall cause to be ----------------------
prepared such objects or equipments, or both, as may be necessary
----------------------
for the purpose and shall cause the accuracy of such objects or
equipments, or both, to be certified by the International Bureau ----------------------
of Weights and Measures at such periodical intervals as may be
prescribed, and, shall, after such certification, deposit such objects ----------------------
or equipments, or both, in such custody and at such place as that
----------------------
Government may think fit.
17. Every national prototype specified in Section 15 and every object or ----------------------
equipment, or both, referred to in Section 16, shall be kept in such manner
----------------------
and under such conditions as may be prescribed.
18. (1) Every (a) reference standard, (b) secondary standard, and (c) ----------------------
working standard, shall conform to the standards established by or ----------------------
under this Act and be verified and authenticated at such periodical
intervals and in such manner as may be prescribed. ----------------------
19. (1) The Central Government shall, in relation to any weight or measure, ----------------------
prescribe the physical characteristics, configuration, constructional
details, materials, equipment, performance, tolerances, methods or ----------------------
procedures of tests in accordance with the recommendations made
by the International Organisation of Legal Metrology : ----------------------
Standards of Weights and Measures ----------------------

20. (1) Any weight or measure which conforms to the standard unit of such ----------------------
weight or measure and also conforms to such of the provisions of
Sections 15 to 19 (both inclusive) as are applicable to it shall be the ----------------------
standard weight or measure.
----------------------
(2) Any numeral which conforms to the provisions of Section 13 shall
be the standard numeral. ----------------------
21. No weight, measure or numeral, other than the standard weight, measure ----------------------
or numeral, shall be used as a standard weight, measure or numeral.
----------------------
22. No weight or measure shall be made or manufactured unless it conforms
to the standards of weight or measure established by or under this Act: ----------------------
23. No weight, measure or other goods shall bear thereon any inscription or ----------------------
indication of weight, measure or number except in accordance with the
----------------------

Notes standard unit of such weight, measure or numeration established by or
under this Act:
----------------------
Custody and verification of standard equipments
---------------------- 24. (1) The Central Government shall cause to be prepared and keep in its
custody as many sets of reference standards as it may be necessary
----------------------
and shall supply to each State Government as many sets of reference
---------------------- standards as it may think fit.
(2) The Central Government shall keep in its custody such number of
----------------------
reference standards as may be necessary.
---------------------- (3) Every reference Standard referred to in Sub-section (2) shall be kept
---------------------- at such place and such custody as may be prescribed and no such
reference standards shall be deemed to be a reference standard and
---------------------- shall by used as such unless it has been verified and authenticated
in accordance with the rules made under this Act.
----------------------
25. The Central Government shall cause to be prepared as many sets of
---------------------- secondary standard or working standard as it may think necessary and
shall keep such sets of secondary standard or working standard at such
---------------------- place and in such custody as may be prescribed.
---------------------- 26. (1) Every secondary standard referred to in Section 25 shall be verified
with the reference standard on payment of such fee by such authority
---------------------- as may be prescribed and shall if found on such verification
---------------------- to conform to the standards established by or under this Act, be
stamped by that authority.
----------------------
(2) Every working standard referred to in Section 25 shall be verified
---------------------- with the secondary standard which has been stamped in accordance
with the provisions of Sub-section (1), on payment of such fee, by
---------------------- such authority as may be prescribed and shall, if found on such
verification to conform to the standards established by or under this
----------------------
Act, be stamped by that authority.
---------------------- (3) Where any secondary standard or working standard is stamped in
accordance with the provisions of Sub-section (1), or Sub-section
----------------------
(2), as the case may be, a certificate shall be separately given
---------------------- showing the date on which such weight or measure was stamped.
---------------------- (4) Every secondary standard or working standard which is not verified
and stamped in accordance with the provisions of Sub-section (1)
---------------------- or Sub-section (2) as the case may be, shall be not be deemed to be
a secondary standard or working standard and shall not be used as
---------------------- such.
---------------------- 27. Where the Central Government is of the opinion that by reason of the
size or nature of any secondary standard of working standard referred
---------------------- to in Section 25, it is not desirable or practicable to put a stamp thereon,
it may direct that instead of putting a stamp on such secondary standard
----------------------
or working standard, a certificate may be issued to the effect that such

secondary standard or working standard conforms to the standards Notes
established by or under this Act and every secondary standard or working
standard so certified shall be deemed to have been duly stamped under ----------------------
this Act on the date on which such certificate was issued.
----------------------
Appointment and powers of director and other staff
----------------------
28. (1) The Central Government may appoint a Director of Legal Metrology
and as many Additional, Joint, Deputy or Assistant Directors and ----------------------
other officers and staff as may be necessary for exercising the
powers and efficiently discharging the duties conferred or imposed ----------------------
on them by or under this Act.
----------------------
(6) No Suit, prosecution or other legal proceeding shall lie against
the Director, Additional, Joint Deputy or Assistant Director or any ----------------------
other officer authorised to perform any duty by or under this Act in
----------------------
respect of anything which is in good faith done or intended to be
done under this Act or any rule or order made there under. ----------------------
(9) The Director and every other officer authorised by or under this Act ----------------------
to perform any duty shall be deemed to be a public servant within
the meaning of section 21 of the Indian Penal Code. ----------------------
29. (1) The Director, or any person authorised to exercise the powers or ----------------------
discharge the functions of the Director, may, if he has any reason to
believe, whether from any information given to him by any person ----------------------
and taken down in writing or from personal knowledge or otherwise,
that any weight or measure or other goods in relation to which any ----------------------
inter-State trade or commerce has taken place or is intended to take ----------------------
place and in respect of which an offence punishable under this Act
appears to have been, or is likely to be, committed are either kept ----------------------
or concealed in any premises or are in the course of transportation
from one State to another, ----------------------
(a) enter at any reasonable time into any such premises and ----------------------
search for and inspect any weight, measure or other goods
in relation to which inter-State trade or commerce has taken ----------------------
place, or is intended to take place, and any record, register or ----------------------
other document relating thereto;
----------------------
(b) seize any weight, measure or other goods and any record,
register or other document or article which he has reason ----------------------
to believe may furnish evidence indicating that an offence
punishable under this Act has been, or is likely to be, ----------------------
committed in the course of, or in relation to, any inter State
----------------------
trade or commerce.
(2) Where any goods seized under Sub-section (1) are subject to speedy ----------------------
or natural decay, the Director or the authorised person may dispose
----------------------
of such goods in such manner as may be prescribed.
----------------------

Notes (3) Every search or seizure made under this section shall be carried
out in accordance with the provisions of the Code of Criminal
---------------------- Procedure 1973, relating to searches and seizures made under that
Code.
----------------------
30. (1) Every false or unverified weight or measure, and every false
---------------------- package, used in the course of, or in relation to, any inter-State
trade or commerce and seized under Section 29, shall be liable to be
----------------------
forfeited to the Central Government :
---------------------- Provided that such unverified weight or measure shall not be
forfeited to Government if the person from whom such weight or
----------------------
measure was seized gets the same verified and stamped within such
---------------------- time as may be prescribed.
(2) The seized articles/goods shall be disposed off in the manner
----------------------
prescribed.
---------------------- 31. (1) The Central Government may, by rules made in this behalf, direct
---------------------- that in respect of the class of goods or undertakings or users specified
therein, no transaction, dealing for contract shall be made or had
---------------------- except by such weight, measure or number as may be specified in
the said rules.
----------------------
32. No person shall, in relation to any goods, thing or service
---------------------- (a) quote, or make announcement of, whether by word of mouth or
---------------------- otherwise, any price or charge, or
(b) issue or exhibit any price list, invoice, cash memo or other document,
----------------------
or
----------------------
(c) prepare or publish any advertisement, poster or other document, or
---------------------- (d) indicate the weight, measure or number of the net contents of any
---------------------- package on the package itself or on any label, carton or other thing,
or
---------------------- (e) express, in relation to any transaction, industrial production or
---------------------- protection, any quantity or dimension, otherwise than in accordance
with the standard unit of weight, measure or numeration.
----------------------
33. Any custom, usage, practice or method of whatever nature which permits
---------------------- a person to demand, receive, or cause to be demanded or received, any,
quantity of article, thing or service (to which this Part applies) in excess
---------------------- of, or less than, the quantity specified by weight, measure or number in
the contract or other agreement in relation to the said article, thing or
----------------------
service shall be void.
---------------------- 34. (1) Every person who
---------------------- (a) makes, manufactures, sells, distributes or otherwise disposes of
any weight or measure or other goods which are sold, delivered or
---------------------- distributed by weight, measure or number, or

(b) repairs any weight or measure, which this Part applies, shall maintain Notes
such records and registers as may be prescribed and if required so to
do by the Director, shall produce such records and registers before ----------------------
the Director or such other officer as the Director may authorise in
this behalf, for inspection. ----------------------
(2)
Notwithstanding anything contained in Sub-section (1), if the ----------------------
Director is of opinion that having regard to the nature or volume
----------------------
of the business carried on by any maker, manufacturer, dealer or
repairer, it is necessary so to do, he may, by order exempt such ----------------------
maker, manufacturer, dealer or repairer from the operation of that
sub-section. ----------------------
----------------------
----------------------
----------------------
1. The base unit of luminous intensity is:
i. Candela ----------------------
ii. Ampere ----------------------

iii. Metre ----------------------
iv. Kelvin
----------------------
----------------------
Activity 2
----------------------
Visit a provision stores in your area and look at the weighing and measuring
----------------------
instruments used by the shopkeeper. Write any two observations made by
you. ----------------------
----------------------
5.4 INTER-STATE TRADE OR COMMERCE
----------------------
31. The provisions shall apply to
----------------------
(a) every weight or measure which is, or is intended to be,
----------------------
(i) made or manufactured for the purpose of inter-State trade or
commerce, ----------------------
(ii) used, sold, distributed, delivered or otherwise transferred in the ----------------------
course of inter-State trade or commerce;
(b) goods which are, or are intended to be, sold, distributed, delivered or ----------------------
otherwise transferred by weight, measure or number in the course of ----------------------
inter-State trade or commerce;
----------------------
(c) every service which is rendered by weight, measure or number in relation
to, or in the course of, inter-State trade or commerce. ----------------------

Notes 36 (1) Save as otherwise provided in this section, this chapter shall not
apply to—
----------------------
(a) any weight or measure which, being subject to verification and stamping
---------------------- under the State law as in force immediately before the commencement of
this Act, is in use at such commencement;
----------------------
(b) any cast iron, brass, bullion, or carat weight or any beam scale, except
---------------------- those specified by rules made in this behalf;
(c) length measures (not being measuring tapes) ordinarily used in retail
----------------------
trade for measuring textiles or timber;
---------------------- (d) capacity measures, not exceeding twenty litres in capacity, which
---------------------- ordinarily used in retail trade for measuring kerosene, milk or potable
liquors;
---------------------- (e)
any weighing or measuring instrument or device which is made or
---------------------- manufactured exclusively for domestic use;
(2) Where any officer of the Central or State Government charged with the
---------------------- duty of implementing the law relating to weights and measures has any
---------------------- reason to believe that the model of any weight or measure referred to
in Sub-section (1) requires a test by the prescribed authority, he may
---------------------- acquire one such weight or measure from the market and forward it to the
prescribed authority for test, the fees for which shall be payable by the
---------------------- Government employing the officer by whom such weight or measure has
---------------------- been forwarded for test.
(3) Every person shall, before making or manufacturing any weight or measure
----------------------
to which this Part applies, submit for approval of the prescribed authority,
---------------------- such number of models, drawings and other information relating to such
weight or measure as may be prescribed :
----------------------
(4) The prescribed authority shall levy and collect such fees for the testing
---------------------- of any model, submitted under this section for approval, as may be
prescribed.
----------------------
(5) The prescribed authority shall test the models submitted to it with a view
---------------------- to--
---------------------- (a)
ascertaining whether such models conform to the standards
established by or under this Act;
---------------------- (b) finding out the ability of such models to maintain accuracy over
---------------------- periods of sustained use; and
(c) determining the performance of such models under such varied
----------------------
conditions as may be prescribed.
---------------------- (6)
The prescribed authority shall submit to the Central Government a
detailed report on the performance of the model submitted to it together
----------------------
with its recommendations with regard to the desirability or otherwise of
---------------------- issuing a certificate of approval in respect of that model.

(7) The Central Government may, if it is satisfied after considering the report Notes
submitted to it by the prescribed authority that the aforesaid model is in
conformity with the provisions of this Act or any rule made there under ----------------------
and is likely to maintain accuracy over periods of sustained use and to
render accurate service under varied conditions, issue a certificate of ----------------------
approval in respect of that model. ----------------------
(8) Every certificate of approval of a model shall be published in the Official
----------------------
Gazette and shall also be published in such other manner as the Central
Government may think fit. ----------------------
(9) The Central Government may, if it is satisfied that the product made or
----------------------
manufactured in accordance with the model which was approved by it has
failed to render the expected performance or to conform to the standards ----------------------
established by or under this Act, revoke the certificate of approval issued
by it under Sub-section (7): ----------------------
(10) If for any reason any material of the approved model of a weight or ----------------------
measure to which this Part applies becomes non-available in India, the
manufacturer may continue the manufacture of such weight or measure ----------------------
with such substitute materials as may be, in his opinion, most suitable for
----------------------
the manufacture of such weight or measure but where the manufacturer
does so, he shall send such substitute materials to the prescribed authority ----------------------
for test.
----------------------
(11) If the prescribed authority is of opinion that the substitute material referred
to in Sub-section (10) is not suitable and that there is available in India ----------------------
any other material which is more suitable, that authority shall intimate
its findings to the Central Government and also to the manufacturer, ----------------------
and thereupon the manufacturer shall not manufacture the weight or ----------------------
measure with any material other than the material recommended by the
prescribed authority, until the material which was originally approved by ----------------------
the prescribed authority becomes available in India :
----------------------
(12) Where the model of any weight or measure to which this Part applies
has been approved, the models of different denominations of such ----------------------
weight or measure shall not require any approval if such denominations
are manufactured in accordance with the same principles according to ----------------------
which, and the same materials with which, the approved model has been ----------------------
manufactured.
37 (1) Before issuing a licence to make a manufacture any weight or ----------------------
measure to which this Part applies, the State Government shall ----------------------
satisfy itself that a certificate of approval of the model of such
weight or measure has been granted by the Central Government ----------------------
under Section 36.
----------------------
(2) Where any certificate of approval of any model has been revoked by
the Central Government, the licence issued by the State Government ----------------------
for the making or manufacturing of any weight or measure in
----------------------
accordance with such model shall stand suspended:

Notes 38. Every weight or measure to which this Part applies and for which a
model has been approved shall bear thereon, in such manner as may be
---------------------- prescribed, the number of the approved model and the number of the
certificate by or under which such model was approved:
----------------------
39. (1) No person shall
----------------------
(a) make, manufacture, pack, sell, or cause to be packed or sold; or
---------------------- (b) distribute, deliver, or cause to be distributed or delivered; or
---------------------- (c) offer, expose or possess for sale,
---------------------- any commodity in packaged form to which this Part applies unless such
package bears thereon or on a label securely attached thereto a definite, plain
---------------------- and conspicuous declaration, as prescribed, of
---------------------- (i) the identity of the commodity in the package;
(ii) the net quantity, in terms of the standard unit of weight or measure, or the
----------------------
commodity in the package;
---------------------- (iii) where the commodity is packaged or sold by number, the accurate number
of the commodity contained in the package;
----------------------
(iv) the Unit sale price of the package
----------------------
(v) the sale price of the package
---------------------- (2) Every package shall bear thereon the name and address of the manufacturer.
---------------------- If manufacturer is not the packer, then name and address of the packer
shall be given.
----------------------
(3) Where the package of a commodity to which this Part applies or the
---------------------- label thereon bears a representation as to the number of servings, of the
commodity continued therein, such package or label shall also bear a
---------------------- statement as to the net quantity (in terms of weight, measure or number)
of each such serving.
----------------------
(4) The statement on a package or label as to the net weight, measure or
---------------------- number of the contents thereof shall not include any expression which
tends to quality such weight, measure or number:
----------------------
Provided that the Central Government may, by rules, specify the commodities,
---------------------- the weight or measure of which is likely to increase or decrease beyond the
prescribed tolerance limits by reason of climatic variations; and it shall be
----------------------
lawful for the manufacturer or packer of the commodity so specified to qualify
---------------------- the statement as to the net content of such commodity by the use of the words
‘when packed’.
----------------------
(5) Where the Central Government has reason to believe that there is undue
---------------------- proliferation of weight, measure or number in which any commodity
is, or reasonably comparable commodities are, being packed for sale,
---------------------- distribution or delivery and such undue proliferation impairs in the
---------------------- opinion of that Government, the reasonable ability of the consumer to
make a comparative assessment of the prices after considering the net
quantity or number of such commodity, that Government may direct the Notes
manufacturers and also the packers or distributors to sell, distribute or
deliver such commodity in such standard quantities or number as may be ----------------------
prescribed.
----------------------
(6) Whenever the retail price or quantity of a commodity in packaged form
to which this Chapter applies, is stated in any advertisement, there shall ----------------------
be included in the advertisement a conspicuous declaration as to the net
quantity or number of the commodity contained in the package or the ----------------------
retail sale price thereof respectively. ----------------------
No person shall sell, distribute or deliver for sale a package containing a
----------------------
commodity which filled less than the prescribed capacity of such package
except where it is proved by such person that the package was so filled ----------------------
with a view to—
----------------------
(a) giving protection to the contents of such package, or
(b) meeting the requirements of machines used for enclosing the contents of ----------------------
such package.
----------------------
(8) The Central Government may, by rules, specify such reasonable variations
in the net contents of the commodity in a package as may be caused by the ----------------------
method of packing or the ordinary exposure which may be undergone by
----------------------
such commodity after it has been introduced in trade or commerce.
(9) The Central Government may, by rules, specify the classes of commodities ----------------------
or packages in relation to which all or any of the provisions of this section
----------------------
shall not apply or shall apply with such exceptions or modifications as
may be specified therein. ----------------------
Verification and stamping of weights and measures sent from one State to
----------------------
another
40. (a)
‘Controller’ means the person appointed as such by the State ----------------------
Government under the State law;
----------------------
(b) ‘Inspector’means the person appointed as such by the State
Government under the State law; ----------------------
(c) ‘local Inspector’ means as Inspector within the local limits of ----------------------
whose jurisdiction any weight or measure is made, manufactured,
received, delivered or kept for sale or use; ----------------------
(d) ‘State law’ means the law enacted by the Legislature of a State ----------------------
and for the time being in force in that State, with regard to the
enforcement of the standards of weight or measure established by ----------------------
or under this Act; ----------------------
(e) ‘transferee state’ means the State in which any weight or measure is
delivered or received for sale or use therein from any other State; ----------------------
(f) ‘transferor state’ means the State from which any weight or measure ----------------------
made or manufactured therein, or kept therein for sale or use, is sent
to, or delivered in any other State. ----------------------

Notes 41 (1) Where any weight or measure, sent from a transferor State for
delivery, sale or use in a transferee State, is such that-
----------------------
(a) it is not required to be dismantled before its dispatch to the transferee
---------------------- State and is not likely to lose its accuracy by reason of such dispatch, it
shall be known, for the purposes of this Chapter, as a weight or measure
---------------------- of the first category;
---------------------- (b) it is required to be dismantled before its dispatch to the transferee State
and re-assembled and installed for use in the transferee State, it shall be
---------------------- known, for the purposes of this Chapter, as a weight or measure of the
second category.
----------------------
(3) Weight or measure of the first category shall, before it is dispatched to any
---------------------- transferee State, be produced before the local Inspector in the transferor
State and if such Inspector is, after verification of such weight or measure,
----------------------
satisfied that such weight or measure conforms to the standards established
---------------------- by or under this Act, stamp the same with such special seal as may be
specified by rules made under this Act.
----------------------
(4) A weight or measure of the second category shall not be verified and
---------------------- stamped in the transferor State but shall be verified and stamped, after its
reassembly and installation for use, by the local Inspector in the transferee
---------------------- State.
---------------------- (5) The fees for the verification and stamping of every weight or measure of
---------------------- (a) the first category shall be levied and collected by the transferor State;
(b) the second category shall be levied and collected by the transferee State,
----------------------
in accordance with such scales as may be specified by rules made under
---------------------- this Act.
(6) A weight or measure, whether of the first or second category, shall not
----------------------
require periodical re-verification if it is exclusively intended for domestic
---------------------- use and is not used by any member of the medical profession in the course
of such profession.
----------------------
(7) No weight or measure, whether of the first or of the second category, shall
---------------------- be verified and stamped unless fees for such verification and stamping
have been paid in accordance with the scales specified under Sub-section
---------------------- (5).
---------------------- 42. (1) Every weight or measure of the first category which is stamped
with the special seal referred to in Sub-section (3) of section 40
---------------------- shall be presumed to be correct throughout the territory of India and
---------------------- shall not be required, until its re-verification in the transferee State
becomes due by elapse of time, to be verified or stamped in the
---------------------- transferee State
---------------------- Provided that where the local Inspector in the transferee State has
any reason to believe that any weight or measure of the first category
---------------------- has lost its accuracy in transit or has, for any other reason, ceased

to conform to the standards of weight or measure established by or Notes
under this Act, he may, for reasons to be recorded by him in writing
and communicated to the Controller of the transferor State, through ----------------------
the Controller of the transferee State -
----------------------
(a) verify such weight or measure; and
----------------------
(b) if, on verification, such weight or measure is found to be
inaccurate-- ----------------------
(i) cause such adjustment as is necessary to be made so
----------------------
as to make it conform to the standard established by or
under this Act, or ----------------------
(ii) where he is of opinion that such adjustment is not ----------------------
possible, reject it and obliterate the stamp thereon :
(2) In computing the time when the re-verification of a weight or measure ----------------------
of the first category shall become due in the transferee State, the period ----------------------
during which such weight or measure remains unsold or undistributed in
the transferee State, shall be excluded. ----------------------
43. No weight or measure of the first category shall be used, sold, purchased, ----------------------
delivered or otherwise transferred in any transferee State unless such
weight or measure bears thereon the stamp made with the special seal ----------------------
referred to in sub-section (3) of section 40.
----------------------
44 (1) Every person in a transferee State who receives or delivers for sale
or use therein any weight or measure of the second category shall, ----------------------
after its reassembly and installation for use, have such weight or
----------------------
measure verified and stamped by the local Inspector in the transferee
State. ----------------------
(2) The local Inspector in the transferee State shall verify every weight
----------------------
or measure of the second category and shall if he is satisfied that
such weight or measure conforms to the standards established by or ----------------------
under this Act, stamp the same with the seal prescribed by or under
the State law in force in the transferee State. ----------------------
45. Where any weight or measure, which being in use in a transferee State, ----------------------
is sent to, or delivered in, any other State for sale or use in such other
State, then, such other State shall also be deemed to be the transferee ----------------------
State in relation to such weight or measure and the provisions of this ----------------------
Chapter shall, so far as may be, apply to the weight or measure sent to, or
delivered in, such other State. ----------------------
46. Every manufacturer, dealer or other person in a transferor State, who sends ----------------------
to, or delivers in, any transferee State any weight or measure, whether of
the first or of the second category, shall ----------------------
(a)
submit such periodical returns as may be prescribed, to the ----------------------
Controller of the transferor State with regard to such dispatch,
delivery or transfer and specify in such returns the particulars of ----------------------

Notes the weight or measure which has been sent to, or delivered in, the
transferee State;
----------------------
(b) specify in such periodical returns the particulars of the person to
---------------------- whom such weight or measure has been sent, or delivered in the
transferee State; and
----------------------
(c) forward a copy of such periodical returns to the Controller of the
---------------------- transferee State.

----------------------
Fill in the blanks.
---------------------- 1. _________________ means the State in which any weight or measure
---------------------- is delivered or received for sale or use therein from any other State.
----------------------
Activity 3
----------------------
Visit the Government Office concerned with weighing and measuring
----------------------
instruments in your district.
----------------------
---------------------- 5.5 IMPORT AND EXPORT OF WEIGHTS AND

MEASURES
----------------------
Registration of exporters and importers
----------------------
47 (1) No dealer or manufacturer shall export or import any weight or
---------------------- measure unless he is registered under this section as such exporter
or importer, as the case may be.
----------------------
(2) Every person who intends to commence or continue business as an
---------------------- exporter or importer of any weight or measure shall make, within
---------------------- such time from the commencement of this Act as may be prescribed,
an application for the inclusion of his name in the register to be
---------------------- maintained for the purpose.
---------------------- (3) The application referred to in Sub-section (2) shall be made to the
Director and every such application shall be made in such form,
---------------------- in such manner and on payment of such fees, not exceeding one
thousand rupees, as may be prescribed.
----------------------
(4) On receipt of an application referred to in Sub-section (2), the
---------------------- Director shall, if he is satisfied after such inquiry as he may think
fit, that it is expedient in the public interest so to do, include the
---------------------- name of the applicant in the register referred to in Sub-section (2)
---------------------- and issue to the applicant a certificate to the effect that his name
has been so included and send a copy of the said certificate to the
---------------------- Controller of Legal Metrology in the State in which such exporter
or importer is carrying on his business.
(5) A certificate granted under Sub-section (4) shall be valid for the period Notes
specified therein and may be renewed, from time to time, for such further
period as may be prescribed. ----------------------
Export and import of weights, measures and commodities in packaged ----------------------
form
----------------------
48 (1) The Central Government may allow, on application to the Director,
the export of any weight or measure which has been made or ----------------------
manufactured exclusively for export, notwithstanding that such
weight or measure does not conform to the standards established by ----------------------
or under this Act.
----------------------
(2) Where any commodity in packaged form is exported and the person
to whom such export is to be made so requires, the exporter may, in ----------------------
addition to specifying the net contents of such package in terms of
----------------------
the standards unit of weight or measure established by or under this
Act, also specify the weight or the net contents thereof in terms of ----------------------
such units of weight or measure as may be specified by the person
to whom such commodity is to be exported. ----------------------
(3)
Notwithstanding anything contained elsewhere in this Act, in ----------------------
relation to any goods which are exported
----------------------
(a) quotation of any price;
(b) issue of any price list, invoice or cash memo; ----------------------
(c) indication of the weight or measure or number of net contents of ----------------------

package on any label, carton or other thing;
----------------------
(d) expression of any dimension, may be made in accordance with any
other system of weight, measure or numeration if the person to ----------------------
whom the export is to be made so requires.
----------------------
49 (1)
Save as otherwise provided in Sub-section (2) no weight or
measure, whether singly or as a part or component of any machine ----------------------
or machinery, shall be imported unless it conforms to the standards ----------------------
of weights or measure established by or under this Act.
(2) Where any commodity, machinery or any part or component of any ----------------------
machinery is imported from a country in which the metric system ----------------------
of weight or measure is not in force, or in which such system
being in force, such commodity, machinery, part or component of ----------------------
any machinery has not been made or manufactured in accordance
with such system, the importer shall, before making such import, ----------------------
make an endeavor to obtain, on such commodity, machinery, part ----------------------
or component, and also on the drawings thereof, the weight or
measurement thereof expressed in terms of the standard unit of ----------------------
weight or measure established by or under this Act.
----------------------
----------------------

Notes 5.6 OFFENCES AND THEIR TRIAL
---------------------- 50. Whoever uses any weight or measure or makes any numeration otherwise
than in accordance with the standards of weight or measure or the
---------------------- standards of numeration, as the case may be, established by or under this
Act, shall be punished with imprisonment for a term which may extend
----------------------
to six months, or with fine which may extend to one thousand rupees, or
---------------------- with both, and, for the second or subsequent offence, with imprisonment
for a term which may extend to two years and also with fine.
----------------------
51. Whoever tampers with, or alters, in any way, any reference standard,
---------------------- secondary standard, or working standard except where such alteration is
made for the correction of any error noticed therein on verification, shall
---------------------- be punished with imprisonment for a term which may extend to two years,
or with fine which may extend to five thousand rupees, or with both.
----------------------
52. Except where any weight or measure is made or manufactured, with the
---------------------- permission of the Central Government, exclusively for export, every
person who makes or manufactures any weight or measure which does
---------------------- not conform to the standards of weight or measure established by or under
---------------------- this Act, shall, where such offence is not punishable under any other law
relating to weights and measures for the time being in force, be punished
---------------------- with imprisonment for a term which may extend to one year or with fine
which may extend to two thousand rupees, or with both, and, for the
---------------------- second or subsequent offence with imprisonment for a term which may
---------------------- extend to three years and also with fine.
53. Except where any weight or measure is made or manufactured, with
---------------------- the permission of the Central Government, exclusively for export every
person who makes or manufactures any weight or measure which bears
----------------------
thereon any inscription of weight, measure or number which does not
---------------------- conform to the standards of weight, measure or numeration established by
or under this Act, shall, where such offence is not punishable under any
---------------------- other law relating to weights and measures for the time being in force, be
punished with imprisonment for a term which may extend to one year, or
----------------------
with fine which may extend to two thousand rupees, or with both, and, for
---------------------- the second or subsequent offence, with imprisonment for a term which
may extend to three years and also with fine.
---------------------- 54. Whoever obstructs the Director or any person authorised to exercise the
---------------------- powers or discharge the functions of the Director (hereafter, in this Part,
referred to as the ‘authorised officer’) in the exercise of his powers or
---------------------- discharge of his functions as such Director or authorised officer, or with
intent to prevent or deter the Director or such authorised officer from
---------------------- exercising his powers or discharging his functions, or in consequence of
---------------------- any thing done or attempted to be done by the Director or such authorised
officer in the lawful exercise of his powers or discharge of his functions as
---------------------- such, shall be punished with imprisonment for a term which may extend to
two years, and, for the second or subsequent offence, with imprisonment
---------------------- for a term which may extend to five years.

55. Whoever in the course of any inter-State trade or commerce, makes any Notes
transaction, deal or contract in contravention of the provisions of Section
32 shall be punished with fine which may extend to two thousand rupees, ----------------------
and for second or subsequent offence, with imprisonment for a term
which may extend to one year and also with fine. ----------------------
56. Whoever, in the course of any inter-State trade or commerce, contravenes ----------------------
the provisions of Section 33 shall be punished with fine which may extend
----------------------
to two thousand rupees, and, for the second or subsequent offence, with
imprisonment for a term which may extend to three years and also with ----------------------
fine.
----------------------
57. Whoever, in the course of any inter-State trade or commerce,
(i) sells, delivers, or causes to be sold or delivered, to the purchaser ----------------------
any quantity or number of any article or thing, less than the quantity
----------------------
or number contracted for or paid for; or
(ii) renders any service by weight, measure or number, less than the ----------------------
service contracted for or paid for; or ----------------------
(iii) demands, or causes to be demanded, or receives, or causes to be
received, while buying any article or thing, any quantity or number ----------------------
of goods in excess of the quantity or number contracted for or paid ----------------------
for; or
(iv) obtains any service in excess of the service contracted for or paid ----------------------
for, shall be punished with fine which may extend to five thousand ----------------------
rupees, and, for the second or subsequent offence, with imprisonment
for a term which may extend to five years and also with fine. ----------------------
58. Whoever, being required by or under this Act so to do, without any ----------------------
reasonable excuse, omits or fails to maintain any record or register,
or being required by the Director or the authorised officer, to produce ----------------------
any record or register for his inspection, omits or fails, without any
----------------------
reasonable excuse, so to do, shall be punished with fine which may extend
to one thousand rupees, and, for the second or subsequent offence, with ----------------------
imprisonment for a term which may extend to six months and also with
fine. ----------------------
59. Whoever, being required by Section 36 to submit the model of any weight ----------------------
or measure for approval, omits, or fails, without any reasonable excuse,
so to do, shall be punished with fine which may extend to five thousand ----------------------
rupees, and, for the second or subsequent offence, with imprisonment for
----------------------
a term which may extend to five years and also with fine.
60. (1) Whoever makes or manufactures any weight or measure which ----------------------
is, or is intended to be, sold, distributed, delivered or otherwise ----------------------
transferred in the course of inter-State trade or commerce, shall,
unless a certificate of approval of the model of such weight or ----------------------
measure granted under Section 36 is in force, be punished with
imprisonment for a term which may extend to two years and shall ----------------------

Notes also be liable to fine, and, for the second or subsequent offence,
with for a term which may extend to five years and also with fine.
----------------------
(2) Whoever, without any reasonable excuse, manufactures any weight
---------------------- or measure in accordance with an approved model with any material
other than the material approved or recommended by the prescribed
---------------------- authority, shall be punished with imprisonment for a term which
may extend to five years and also with fine.
----------------------
61. Whoever makes or manufactures any weight or measure without
---------------------- complying with the equipments of Section 38 shall be punished with
fine which may extend to five thousand rupees, and, for the second or
----------------------
subsequent offence, with imprisonment for a term which may extend to
---------------------- five years and also with fine.
62. Whoever, in the course of inter-State trade or commerce, sells, distributes,
----------------------
delivers or otherwise transfers any weight or measure which does not
---------------------- conform to the standards of weight or measure established by or under
this Act or which has not been duly verified under any other law relating
---------------------- to weights and measures for the time being in force, shall be punished
with fine which may extend to ten thousand rupees, and, for the second or
----------------------
subsequent offence, with imprisonment for a term which may extend to
---------------------- seven years and also with fine.
---------------------- 63. Whoever, in the course of inter-State trade or commerce, sells, distributes,
delivers or otherwise transfers, or causes to be sold, distributed, delivered
---------------------- or otherwise transferred any commodity in a packaged form which does
not conform to the provisions of this Act or any rule made there under,
---------------------- shall be punished with fine which may extent to five thousand rupees,
---------------------- and, for the second or subsequent offence, with imprisonment for a term
which may extend to five years and also with fine.
---------------------- 64. Whoever exports or imports any weight or measure without being
---------------------- registered under this Act shall be punished with fine which may extend
to one thousand rupees, and, for the second or subsequent offence, with
---------------------- imprisonment for a term which may extend to six months and also with
fine.
----------------------
65. Every person who exports any weight or measure or commodity in
---------------------- packaged form which does not conform to the standards of weight or
measure established by or under this Act shall, except where such export
---------------------- has been made with the previous approval of the Central Government, be
---------------------- punished with fine which may extend to five thousand rupees, and for the
second or offence with imprisonment for a term which may extend to five
---------------------- years and also with fine.
---------------------- 66. Whoever contravenes, without any reasonable excuse, the provisions of
Section 49, shall be punished with fine, which may extend to five thousand
---------------------- rupees, and, for the second or subsequent offence, with imprisonment for
a term which may extend to five years and also with fine.
----------------------

67. Whoever, contravenes any provisions of this Act for the contravention Notes
of which no punishment has been separately provided in any of the
provisions of this Act, shall be punished with fine which may extend to ----------------------
two thousand rupees.
----------------------
68. (1) If any person, in the course of inter-State trade or commerce,
uses, or causes to be used, sells, distributes, delivers or otherwise ----------------------
transfers, or causes to be sold, distributed, delivered or otherwise
transferred, any false or unverified weight or measure, it shall be ----------------------
presumed, until the contrary is proved, that he had done so with ----------------------
the knowledge that the weight or measure was a false or unverified
weight or measure. ----------------------
(2) If any person makes or manufactures or has in his possession, ----------------------
custody or control any false or unverified weight or measure in
such circumstances as to indicate that such weight or measure is ----------------------
likely to be used in the course of inter-State trade or commerce, it
----------------------
shall be presumed, until the contrary is proved, that such false or
unverified weight or measure was made, manufactured, possessed, ----------------------
held or controlled by such person with the knowledge that the same
would be, or is intended to be, used in the course of inter-State trade ----------------------
or commerce.
----------------------
69. Whoever personates, in any way, the Director, or any authorised officer,
shall be punished with imprisonment for a term which may extend to ----------------------
three years.
----------------------
70. (1) Whoever gives information to the Director or the authorised officer
which he may require or ask for in the course of his duty and which ----------------------
such person either knows or has reason to believe to be false shall
----------------------
be punished with imprisonment for a term which may extend to six
months, or with fine which may extend to one thousand rupees, or ----------------------
with both.
----------------------
(2) Whoever, being required by or under this Act so to do, submits a
return which is false in material particulars, shall be punished with ----------------------
fine which may extend to two thousand rupees, and, for the second
or subsequent offence, with imprisonment for a term which may ----------------------
extend to one year and also with fine.
----------------------
71. (1) An authorised officer who knows that there are no reasonable
grounds for so doing, and yet ----------------------
(a) searches, or causes to be searched, any house, conveyance or ----------------------
place; or
----------------------
(b) searches any person; or
(c) seizes any weight, measure or other moveable property. ----------------------
shall, for every such offence, be punished with imprisonment for a ----------------------
term which may extend to one year, or with fine which may extend
to two thousand rupees, or with both. ----------------------

Notes (2) If a local Inspector, as defined in Section 40,
(a) without any reasonable cause verifies any weight or measure of first
----------------------
category, within the meaning of Section 41,
---------------------- (b) without any reasonable cause obliterates any stamp on any such
weight or measure, in contravention of the provisions of the first
----------------------
proviso to Section 42, he shall, for every such offence be punished
---------------------- with imprisonment for a term which may extend to one year, or with
fine which may extend to two thousand rupees, or with both.
----------------------
72. Notwithstanding anything contained in the Code of Criminal Procedure,
---------------------- 1973 (2 of 1974zo)
---------------------- (a) no court shall take cognizance of an offence punishable under this
Act except upon a complaint, in writing, made by-
---------------------- (i) the Director;
---------------------- (ii) any other authorised officer;
---------------------- (iii) any person aggrieved; or
(iv)
a recognised consumer association whether the person
----------------------
aggrieved is a member of such association or not.
---------------------- (b) no court inferior to that of a Metropolitan Magistrate or a Judicial
---------------------- Magistrate of the first class shall try any offence under this Act;
(c) an offence punishable under Section 50, Section 52, Section 53,
---------------------- Section 56, Section 58, Section 60, Section 61, Section 63, Section
---------------------- 64, Section 65 or Section 66, may be tried summarily by a Magistrate
and no sentence of imprisonment for a term exceeding one year
---------------------- shall be passed in the case of any conviction for an offence which is
summarily tried under this section.
----------------------
73. (1) Any offence punishable under Section 50, Section 55, Section 56,
---------------------- Section 57, Section 58, Section 59, Section 60, Section 63, Section
64, Section 65, Section 66 or Section 67 may, either before or after
---------------------- the institution of the prosecution, be compounded by the Director
---------------------- or such other officer as may be specially authorised by him in this
behalf, on payment for credit to the Government of such sum as the
---------------------- Director or such other officer may specify:
---------------------- Provided that such sum shall not, in any case, exceed the maximum
amount of the fine, which may be imposed under this Act for the
---------------------- offence so compounded.
---------------------- (2) Nothing in Sub-section (1) shall apply to a person who commits the
same or similar offence within a period of three years from the date
---------------------- on which the first offence, committed by him, was compounded.
----------------------
----------------------

Explanation : Notes
For the purposes of this sub-section, any second or subsequent offence
----------------------
committed after the expiry of a period of three years from the date on which
the offence was previously compounded, shall be deemed to be a first offence. ----------------------
(3) Where an offence has been compounded under Sub-section (1), no
----------------------
proceeding or further proceeding, as the case may be, shall be taken
against the offender in respect of the offence so compounded, and the ----------------------
offender, if in custody, shall be discharged forthwith.
----------------------
(4) No offence under this Act shall be compounded except as provided by
this section. ----------------------
74. (1) If an offence under this Act is committed by a company, every ----------------------
person who, at the time the offence was committed was in charge
of, and was responsible to the company for the conduct of the ----------------------
business of the company as well as the company, shall be deemed to
be guilty of the offence and shall be liable to be proceeded against ----------------------
and punished accordingly: ----------------------
Provided that nothing contained in this sub-section shall render any
such person liable to punishment if he proves that the offence was ----------------------
committed without his knowledge or that he had exercised all due ----------------------
diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in Sub-section (1), where an ----------------------
offence under this Act has been committed by a company and it ----------------------
is proved that the offence has been committed with the consent or
connivance of, or is attributable to the neglect on the part of, any ----------------------
director, manager, secretary or other officer, such director, manager,
secretary or other officer shall also be deemed to be guilty of that ----------------------
offence and shall be liable to be proceeded against and punished ----------------------
accordingly.
----------------------
(3) Where any company is convicted under this Act for contravention
of any of the provisions thereof, it shall be competent for the court ----------------------
convicting the company to cause the name and place of business of
the company, nature of the contravention, the fact that the company ----------------------
has been so convicted and such other particulars as the court may
----------------------
consider to be appropriate in the circumstances of the case, to be
published at the expense of the company in such newspapers or in ----------------------
such other manner as the court may direct.
----------------------
(4) No publication under Sub-section (3) shall be made until the period
for preferring an appeal against the orders of the court has expired ----------------------
without any appeal having been preferred, or such an appeal, having
been preferred, has been disposed of. ----------------------
(5) The expenses of any publication under Sub-section (3) shall be ----------------------
recoverable from the company as if it were a fine imposed by the
court. ----------------------

Notes 75. The provisions of the Indian Penal Code, in so far as such provisions
relate to offences with regard to weights and measures, shall not apply to
---------------------- any offence which is punishable under this Act.
----------------------
----------------------
----------------------
1. No court shall take cognizance of an offence punishable under this
---------------------- Act except upon a complaint, in writing, made by:
i. The Director
----------------------
ii. Any other authorised officer
----------------------
iii. Any person aggrieved
----------------------
iv. Any manager
----------------------
---------------------- Activity 4
---------------------- State the punishments for non-standardised weights or measures.
----------------------
---------------------- 5.7 OTHER PROVISIONS OF THE ACT

---------------------- Training Institute
---------------------- 76 (1) There shall be established by the Central Government an Institute
to be known as the ‘Indian Institute of Legal Metrology’ (hereafter
---------------------- referred to as the ‘Institute’) for imparting training in legal metrology
and other allied branches of knowledge.
----------------------
77. Where the Central Government is of opinion that in addition to the
---------------------- training imparted at the Institute, it is necessary to impart to an employee,
not below the rank of an Inspector, further specialised training which
----------------------
is not provided for at the Institute, it may send such employee to such
---------------------- other place, authority or institution as it may think fit for receiving such
specialised training.
----------------------
78. The Central Government shall make, or cause to be made, such surveys
---------------------- and collect, or cause to be collected, such statistics as it may consider
necessary with a view to ascertaining the extent to which any standard of
---------------------- weight, measure or numeration established by or under this Act has been
---------------------- implemented in any area or in relation to any class of undertakings, users
or goods and it shall be the duty of every person using weight or measure
---------------------- or making any numeration to render such assistance as the person making
such survey or collecting such statistics may require.
----------------------
79. (1) The value expressed in terms of any unit of weight or measure other
---------------------- than in terms of the standard units of weight or measure may be

converted into the value expressed in terms of a standard unit of Notes
weight or measure at the rate specified in the Schedule.
----------------------
(2) All references in any enactment or in any notification, rule or
order made under any enactment, or in any contract, deed or other ----------------------
instrument, for the time being in force, to a value expressed in terms
of any unit of weight, measure or numeration other than that of a ----------------------
standard unit of weight, measure or numeration shall be construed
----------------------
as references to that value expressed in terms of standard units of
weight, measure or numeration, as the case may be, converted at the ----------------------
rates specified in the Schedule.
----------------------
80. (1) No unit of weight, measure or numeration shall, after the
commencement of this Act, be stated in any enactment, notification, ----------------------
rule, order, contract, deed or other instrument in terms of any unit of
weight, measure or numeration other than that of a standard unit of ----------------------
weight, measure or numeration.
----------------------
(2) On and from the commencement of this Act, no weight, measure
or number other than the standard weight, measure or number shall ----------------------
be used in, or form the basis of, any contract or other agreement in
----------------------
relation to any inter State or international trade or commerce:
(3) Any contract or other agreement in contravention of the provisions ----------------------
of Sub-section (2) shall be void. ----------------------
(4)
No written record of the results of any measurement shall be
maintained in any unit other than the standard unit of weight, ----------------------
measure or numeration established by or under this Act. ----------------------
81. (1) Subject to the provisions of Sub-section (2), any person aggrieved
by an order made under Section 30 or Section 36, may prefer an ----------------------
appeal against such order to the Director, or where the order has ----------------------
been made by the Director to the Central Government.
----------------------
(2) Every such appeal shall be preferred within sixty days from the date
on which the impugned order was made : ----------------------
Provided that the appellate authority may, if it is satisfied that the
----------------------
appellant was prevented by sufficient cause from preferring the
appeal within the said period of sixty days, permit the appellant to ----------------------
prefer the appeal within a further period of sixty days.
----------------------
(3) On receipt of any such appeal, the appellate authority shall, after
giving the parties to the appeal a reasonable opportunity of being ----------------------
heard and after making such inquiry as it deems proper, make
such order, as it may think fit, confirming, modifying or reversing ----------------------
the order appealed against or may send back the case with such ----------------------
direction as it may think fit for a fresh order after taking additional
evidence, if necessary. ----------------------
----------------------

Notes (4) Every appeal shall be preferred on payment of such fee, as may be
prescribed.
----------------------
(5) The Central Government may, on its own motion or otherwise,
---------------------- call for and examine the record of any proceeding (including a
proceeding in appeal) in which any decision or order has been made,
---------------------- for the purpose of satisfying itself as to the correctness, legality or
propriety of such decision or order and may pass such order thereon
----------------------
as it may think fit:
---------------------- Provided that no decision or order shall be varied under this sub-
section so as to prejudicially affect any person unless such person
----------------------
has been given a reasonable opportunity of showing cause against
---------------------- the proposed action.
82. (1) The Central Government may, by rules made under Section
----------------------
83, having regard to time and labour involved, specify fees, not
---------------------- exceeding
---------------------- (a) five thousand rupees, for the approval of the model of any
weight or measure intended to be made or manufactured for
---------------------- sale, purchase, distribution or delivery in the course of any
inter-State trade or commerce;
----------------------
(b) one thousand rupees for the verification and stamping of a
---------------------- weight or measure of the first category within the meaning of
Section 41;
----------------------
(c) five thousand rupees for the verification and stamping of a
---------------------- weight or measure of the second category, with in the meaning
of Section 41;
----------------------
(d) o ne rupee for every 100 words or less for the grant of copies
---------------------- of any document, not being a document of confidential
nature;
----------------------
(e) ten rupees for the registration of exporters or importers or
---------------------- weights and measures;
---------------------- (f) twenty-five thousand rupees for any appeal preferred under
this Act.
----------------------
(2) No approval, verification or stamping shall be made copy granted,
---------------------- registration made or appeal entertained unless the fee prescribed
there for under Sub-section (1) has been paid.
----------------------
83. (1) The Central Government may, by notification, make rules for
---------------------- carrying out the provisions of this Act.
---------------------- (2) In particular, and without prejudice to the generality of the foregoing
power, such rules may provide for all or any of the following
---------------------- matters, namely :
----------------------

(a) supplementary, derived, special or other units of weight or Notes
measure, standard symbols or definitions, as recommended
by the General Conference on Weights and Measures or the ----------------------
International Organization of Legal Metrology;
----------------------
(b) multiples and sub-multiples of, and physical constants, ratios
or co-efficient in relation to units of weight or measure, ----------------------
as recommended by the General Conference on Weights
----------------------
and Measures or the International Organisation of Legal
Metrology; ----------------------
(c) denominations of decimal multiples and sub-multiples of
----------------------
numerals and the manner in which they shall be written;
(d) periodicals intervals at which the accuracy of the objects or ----------------------
equipments referred to in Sub-section (1) or Sub-section (2)
----------------------
of Section 16 shall be certified;
(e) the manner in which and the conditions under which every ----------------------
national prototype, referred to in Section 15, and every object ----------------------
or equipment referred to in Section 16, shall be kept;
(f) the manner in which and the conditions under which every ----------------------
reference standard, secondary standard or working standard ----------------------
shall be kept;
(g) the place at which, the authority by which, the manner in ----------------------
which, and the periodical intervals at which, every reference ----------------------
standard, secondary standard and working standard shall be
verified and authenticated; ----------------------
(h) the custody in which every reference standard, secondary ----------------------
standard or working standard shall be kept;
----------------------
(i) the physical characteristics, configuration, constructional
details, materials, equipment, performance, tolerances, ----------------------
methods or procedures of tests, in relation to weights or
measures; ----------------------
(j) the conditions, limitations and restrictions under which non- ----------------------
standard weights or measures may be manufactured for export
or may be exported; ----------------------
(k) the manner of disposal of any commodity which is subject to ----------------------
speedy or natural decay;
----------------------
(l) class of goods or undertakings in relation to which, or class of
users in relation to whom, no transaction, dealing or contract ----------------------
shall be made or had except by specified weight, measure or
number; ----------------------
(m) registers and records to be maintained by persons referred to ----------------------

in section 35;
----------------------

Notes (n) the authority to whom models are to be submitted for approval;
(o) the number of models, drawings and other information which
----------------------
are to be submitted for the approval of the model;
---------------------- (p) the conditions under which the performance of any model is
to be tested;
----------------------
(q) the manner in which the number of model and certificate shall
---------------------- be inscribed on every weight or measure;
---------------------- (r) the manner of declaration of the contents of a package and
specification of the unit of weight, measure or number in
---------------------- accordance with which the retail sale price shall be declared
---------------------- on the package;
(s) the standard quantities or number in which commodities may
---------------------- be packed;
---------------------- (t) the capacity up to which a package shall be filled;
---------------------- (u) the reasonable variations in the net contents of a packaged
commodity which may be caused by the method of packing
---------------------- or ordinary exposure;
---------------------- (v) the classes of weights or measures which would fall in the
first category or the second category;
----------------------
(w) the special seal by which weights or measures of the first
---------------------- category shall be stamped;
---------------------- (x) periodical returns to be submitted by every manufacturer

dealer or other person in a transferor State;
---------------------- (y) the form and manner in which, and the time within which,
---------------------- applications for inclusion of a name in the register of exporters
and importers of weights and measures shall be made;
----------------------
(z) the period for which certificate of registration of an exporter
---------------------- or importer of weights or measures may be renewed;
(za) the courses and curricular for, and the period of, training at
----------------------
the Institute;
---------------------- (zb) the minimum qualifications for admission to the Institute;
---------------------- (zc) the scales in accordance with which fees may be collected
under Section 82;
----------------------
(zd) any other matter which is required to be, or may be, prescribed.
---------------------- (3) In making any rule under this section, the Central Government may
---------------------- provide that a breach thereof shall be punishable with fine which may
extend to two thousand rupees.
----------------------
----------------------

(4) Every rule made by the Central Government under this Act shall be laid, Notes
as soon as may be after it is made, before each House of Parliament, while
it is in session, for a total period of thirty days which may be comprised in ----------------------
one session or in two or more successive sessions, and if, before the expiry
of the session immediately following the session or the successive sessions ----------------------
aforesaid, both Houses agree in making any modification in the rule or both ----------------------
Houses agree that the rule should not be made, the rule shall thereafter
have effect only in such modified form or be of no effect, as the case may ----------------------
be; so, however, that any such modification or annulment shall be without
prejudice to the validity of anything previously done under that rule. ----------------------
----------------------
Summary
----------------------
• The goods should be packed as per the standards of weights and
measurements. ----------------------
• Verification means the process of comparing, checking, testing or ----------------------

adjusting such weight or measure with a view to ensuring that such
weight or measure conforms to the standards. The base unit of length is ----------------------
the metre. The base unit of mass is the kilogram. The base unit of time is ----------------------
the second. The base unit of electric current is the ampere. The base unit
of thermodynamic temperature is the kelvin. The Central Government ----------------------
shall cause to be prepared and keep in its custody as many sets of
reference standards as it may be necessary. The Central Government may ----------------------
appoint a Director of Legal Metrology and other officers and staff for ----------------------
exercising the powers and efficiently discharging the duties under this
Act. Any weight or measure which conforms to the standard unit of such ----------------------
weight or measure shall be the standard weight or measure. Every person
who makes, manufactures, sells, distributes or otherwise disposes of any ----------------------
weight or measure or other goods which are sold, delivered or distributed ----------------------
by weight, measure or number, or repairs any weight or measure, shall
maintain records and registers for inspection. Whoever uses any weight or ----------------------
measure or makes any numeration otherwise than in accordance with the
standards of weight or measure or the standards of numeration, shall be ----------------------
punished with imprisonment for a term which may extend to six months, ----------------------
or with fine which may extend to one thousand rupees, or with both. For
the second or subsequent offence imprisonment for a term which may ----------------------
extend to two years.
----------------------
Unit Abbreviation
----------------------
Mass Kilogram (kg), gram (g), milligram (mg)
Length Metre (m), centimetre (cm), milli metre (mm) ----------------------
Area Square metre (m2)
----------------------
Capacity Kilo litre (kl), litre (l or L), milli litre (ml)
Temperature Degree Celsius (°C) of Degree Kelvin (°K) ----------------------
Volume Cubic metre (m ), cubic centi-metre (cm 3) cubic milli
3
----------------------
metre (m m3)

Notes Keywords
----------------------
Verification : The process of comparing, checking, testing or adjusting
•
---------------------- such weight or measure with a view to ensuring that such weight or
measure conforms to the standards
----------------------
• Calibration: All the operations which are necessary for the purpose of
---------------------- determining the values of the errors of a weight or measure
• Commodity in packaged form : Commodity packaged whether in
----------------------
any bottle, tin, wrapper or otherwise, in units suitable for sale, whether
---------------------- wholesale or retail.
---------------------- Dealer : A persons who carries on the business of buying, selling,

•
supplying or distributing any such weight or measure.
---------------------- • Label : Any written, marked, stamped, printed, or graphic matter
---------------------- affixed to, or appearing upon, any commodity or package containing any
commodity;
---------------------- • Seal : A device or process by which a stamp is made, and includes any
---------------------- wire or other accessory which is used for ensuring the integrity of any
stamp;
----------------------
• Secondary standard : The set of standard weight or measure which is
---------------------- made or manufactured by or on behalf of the Central or State Government
for the verification of any working standard;
----------------------
• Stamp : A mark, which is made on, or in relation to, any weight or
---------------------- measure with a view to certifying that such weight or measure conforms
to the standard specified.
----------------------
• Weighing or measuring instrument : Any object, instrument, apparatus
---------------------- or device, or any combination thereof, which is, or is intended to be, used,
exclusively or additionally, for the purpose of making any weighment or
---------------------- measurement.
---------------------- • Working standard : The set of standard weight or measure which is
made or manufactured by or on behalf of Government for the verification
---------------------- of any standard weight or measure.
----------------------
----------------------
1. Define the following.
----------------------
a. Weighing or measuring instrument
----------------------
b. Verification
---------------------- c. Working standard d) Calibration
---------------------- 2. State the base units for different weights and measures.
---------------------- 3. What are the provisions of the act regarding Standards of Weights and
Measures?
4. What are the provisions of the act regarding appointment of authorities? 5. Notes
What are the provisions of the act regarding Custody and verification of
standard equipment? ----------------------
6. What are the provisions of the act regarding verification and stamping of ----------------------
weights and measures sent from one State to another?
----------------------
7. What are the provisions of the act regarding Export and Import of weights
and measures? ----------------------
8. What are the provisions of the act regarding offences and punishments?
----------------------
Answers to Check your Progress ----------------------

1. True ----------------------
----------------------
----------------------
1. The base unit of luminous intensity is:
i. Candela ----------------------
Fill in the blanks. ----------------------
1.
Transferee state means the State in which any weight or measure is
delivered or received for sale or use therein from any other State. ----------------------

Multiple Choice Multiple Response. ----------------------
1. No court shall take cognizance of an offence punishable under this Act
----------------------
except upon a complaint, in writing, made by:
i. The Director ----------------------
ii. Any other authorised officer ----------------------

iii. Any person aggrieved ----------------------
----------------------
Suggested Reading
----------------------
2. Gulshan, S.S. Business Law. Delhi: Excel Books. ----------------------
3. Kapur, N.D. Elements of Mercantile Law. Sultan Chand. ----------------------
----------------------
----------------------

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Insurance Laws
UNIT
6
Structure:
6.1 Introduction
6.2 Definitions of Important Insurance Terms
6.3 Marine Cargo Policy
6.4 Export Credit Guarantee
Summary
Keywords
Suggested Reading
Insurance Laws 135

Notes
Objectives
----------------------
----------------------
• Explain the important insurance terms
----------------------
• Discuss the Marine Insurance schemes
---------------------- • Elaborate on the Export Insurance schemes
----------------------
6.1 INTRODUCTION
----------------------
The business of insurance is related to the protection of
---------------------- the economic values of assets. Assets generate income or
---------------------- benefits to their owners. An accident or natural calamity
or some other unfortunate event may destroy it or make
---------------------- it non functional. Insurance is a mechanism that helps to
reduce the effect of such adverse situations for a small
---------------------- price called premium. The first insurance policy was
---------------------- issued in England, in 1583. In India, insurance began
in 1870. Bombay mutual assurance society Ltd. was the first Indian insurance
---------------------- company.
----------------------
6.2 DEFINITIONS OF IMPORTANT INSURANCE TERMS
----------------------
Accident : Any Unforeseen and unexpected event is considered as an accident.
---------------------- For insurance purposes, it has to be due to external, physical and violent means.
---------------------- Accidental bodily Injury : Injury to the body as the result of an accident
Accident, Hit and Run : Accidental Death or injury arising out of the use
---------------------- of a motor vehicle(s) the identity whereof cannot be ascertained inspite of
---------------------- reasonable efforts for the purpose.
Accidental Death Benefit : A monetary compensation in addition to the face
----------------------
amount of a life insurance policy, payable if the insured dies as the result of an
---------------------- accident. Sometimes referred to as “double indemnity.”
Acquisition Costs : The insurer’s cost of putting new business in force,
----------------------
including the agent’s commission, the cost of clerical work, fees for medical
---------------------- examinations and inspection reports, sales promotion expense, etc.
Act of god : Any accidental act which could not have been prevented by any
----------------------
amount of human care and fore thought.
---------------------- Actual Total Loss : It is a loss where the goods are completely lost and become
---------------------- irrecoverable.
Ad valorem duty : Duty evaluated on percentage of cargo value.
----------------------
Additional cover : An insurance policy extended to cover additional risk perils
---------------------- such as strikes. Riots and Civil commotion etc. on payment of extra premium.

Agent : An insurance company representative licensed by the state who Notes
solicits, negotiates or effects contracts of insurance, and provides service to the
policyholder for the insurer. ----------------------
Aggravation of risk : To make the existing risk worse, more troublesome, etc. ----------------------
Aggregate Indemnity : The maximum amount that may be collected for any
----------------------
disability or period of disability under the policy.
Agreed value policy : Policy which undertakes to pay a specified amount in ----------------------
case of total loss. Under this case the policy does not take into account the
----------------------
current market value.
All-risks Policy : Coverage by an insurance contract that promises to cover all ----------------------
losses except those losses specifically excluded in the policy. Also known as ----------------------
open peril coverage.
Arbitration : A form of quasi-judicial dispute resolution where an unbiased ----------------------
person or panel gives an opinion about quantum of loss. ----------------------
Assessor : A person who estimates the value of goods for the purpose of
apportioning the sum payable by the underwriters to settle the claims. Also ----------------------
called as Surveyor. ----------------------
Assignment : The legal transfer of one person’s interest in an insurance policy
----------------------
to another person.
Assured : Party indemnified or promised to be indemnified against loss by ----------------------
means of insurance.
----------------------
Award : The decision in arbitration
----------------------
Bailee : One who has custody of the property of another. Bailees “for hire” have
certain responsibilities to care for the property of others that is in their custody. ----------------------
Basic Limit : Usually refers to Liability of insurer indicating the lowest amount ----------------------
for which a policy can be written. This amount is either prescribed by law or
company policy. ----------------------
Basic Rate : The standard charge for a given type of risk for basic limit. ----------------------
Beneficiary : An individual designated in a will to receive an inheritance, or the
----------------------
individual designated to receive the proceeds of an insurance policy, retirement
account, trust, or other asset. ----------------------
Bill of Exchange : It is the bill drawn by exporter against the importer.
----------------------
Bill of Lading : Receipt for goods shipped on board a ship signed by the person
who contracts to carry them, and stating the terms on which the goods are ----------------------
carried. ----------------------
Bonus : The Bonus system awards discounts for claim-free driving for a certain
continuous period. This goes on increasing up to a certain limit for continuous ----------------------
claim free years. ----------------------
----------------------
Insurance Laws 137

Notes Cargo Insurance : Type of insurance that protects the shipper/owner of the
goods against financial loss if the goods are damaged or lost while in transit in
---------------------- between place of commencement and destination.
---------------------- Certificate of Insurance : A document issued to a member of a group insurance
plan, describing the insurance benefits and principal provisions of the policy in
---------------------- brief.
---------------------- Cession : The amount of a risk which the insurance company reinsures: the
amount passed on to the reinsurer.
----------------------
Claim : It is a notification to an insurance company that payment of an amount
---------------------- is due under the terms of a policy by the insured.
---------------------- Claim Amount : It is the amount payable by the insurer under a policy on a
claim arising.
---------------------- Claims Cohort : A group of claims with a common period of origin. The period
---------------------- is usually a calendar year, but may be shorter. The origin may be defined by the
date of the occurrence of claim or alternatively by the date of reporting.
---------------------- Clause : Sentences and paragraphs describing coverage’s, exclusions, duties of
---------------------- an insured, and termination of coverage, and other such parts of the insurance
policy.
----------------------
Co-insurance : A means of spreading the risk on larger insurances between two
---------------------- or more direct insurers.
Co-Insurers : Two or more insurers jointly covering the same risk.
----------------------
Comprehensive : A loosely used term signifying broad or extensive coverage
---------------------- of insurance.
---------------------- Compulsory Insurance : Any form of insurance which is required by law e.g.
Motor third party insurance, Public Liability Act Insurance.
----------------------
Contract of Insurance : An agreement between the insurer and one or more
---------------------- parties, called the insured, whereby the insurer undertakes in return for the
payment of a certain consideration, called the premium, to pay to the insured a
---------------------- certain sum of money or to grant certain compensation on the happening of a
---------------------- specified event.
Contractual liability : Legal liability assumed under contract.
----------------------
Contributory negligence : The lack of ordinary care on the part of an insured
---------------------- person, which combined with the defendant’s negligence and contributed the
injury as a proximate cause. In some jurisdictions, contributory negligence on
----------------------
the part of an injured party will defeat his or her claim.
---------------------- Cover note : A cover note is a document issued in advance pending the issue
of the policy, and is normally required if the policy cannot for some reason or
----------------------
other be issued straight away. Cover notes can also be issued during the course
---------------------- of negotiations to provide cover on a provisional basis. A cover note is not a
stamped document but is honored, all the same , by all parties concerned.
----------------------

Coverage : The scope of protection provided under a contract of insurance; any Notes
of several risks covered by a policy.
----------------------
Credit insurance : A form of guarantee to manufacturers and wholesalers
against loss resulting from default on the part of debtors. ----------------------
Cumulative bonus : The percentage at which the sum insured gets increased
----------------------
annually, without additional premium, e.g. Personal Accident Insurance,
Mediclaim Insurance. ----------------------
Days of grace or grace Period : Period of time after the due date of a premium
----------------------
during which the policy remains in force (when both coverage of risk is available
and also the premium can be paid without any late fees). ----------------------
Effective date : The date upon which the policy is put in force, the inception ----------------------
date
Employers liability : Legal liability imposed on an employer making him ----------------------
or her responsible to pay damages to an employee injured by the employer’s ----------------------
negligence. Generally, replaced by ‘workers compensation’, which pays the
employee whether the employer has been negligent or not. ----------------------
Extended coverage insurance : Protection for the insured against loss or ----------------------
damage of his property caused by windstorm, hail, smoke, explosion, riot, riot
attending a strike, civil commotion, vehicle and aircraft: this is provided in ----------------------
conjunction with the fire insurance policy.
----------------------
Facultative Obligatory Treaty (Also semi-obligatory Treaty) : A reinsurance
contact under which the ceding company may cede exposures or risks of a ----------------------
defined class that the reinsurer must accept if ceded.
----------------------
Facultative Treaty : A reinsurance contract under which the ceding company
has the option to cede and the reinsurer has the option to accept or decline ----------------------
classified risks of a specific business line. The contract merely reflects how
----------------------
individual facultative reinsurance shall be handled.
Fidelity bond : A form of protection which reimburses an employer for losses ----------------------
caused by dishonest or fraudulent, acts of employees.
----------------------
Financial Loss Insurance : Insurance of legal liability for financial loss not
involving bodily injury or loss of or damage to property ----------------------
Fire : A combustion accompanied by a flame or glow, which escapes its normal ----------------------
limits to cause damage.
----------------------
Fire insurance : Coverage for losses caused by fire and lightning, as well as the
resultant damage caused by smoke and water ----------------------
Floater Policy : A policy under the terms of which protection follows moveable ----------------------
property, covering it wherever it may be
----------------------
Flood : Overflow of water from its natural boundaries. More specifically defined
by the National Flood Act of 1968 as ‘a general and temporary condition of ----------------------
partial or complete inundation of normally dry land areas from (1) the overflow
----------------------
Insurance Laws 139

Notes of inland or tidal waters or (2) the unusual and rapid accumulation or runoff of
surface waters from any source’.
----------------------
FOB (f.o.b.) : Abbreviation for free-on-board, used in commerce to describe the
---------------------- value of goods at point of embarkation, excluding transport and insurance costs.
Export values are usually expressed f.o.b. for customs and excise purposes,
---------------------- while imports are usually valued cost insurance and freight or charged in full.
---------------------- Franchise : Deductible in which the insurer has no liability if the loss is under a
certain amount, but once this amount is exceeded; the entire loss is paid in full.
----------------------
General average (in marine insurance) : A loss that must be borne partly
---------------------- by someone other than the owner of the goods that were lost or destroyed: for
example, if it is necessary to jettison cargo to save a ship, the owners of the ship
---------------------- and the rest of the cargo that is saved will share in the loss of the goods that
were intentionally sacrificed.
----------------------
General Damages : Damages awarded to an injured persons for intangible loss
---------------------- which cannot be measured directly by rupees. Popularly known as “pain and
---------------------- suffering.” General damages are distringuished from special damages which
are awarded from actual economic loss, such asmedical costs, loss of income,
---------------------- etc.
---------------------- Grace Period : The period of time following the due date of a policy premium
during which the payment of the premium will continue the policy and during
---------------------- which the policy is in full force and effect
---------------------- Graded Commission : A reduced commission justified by the size of the
premium
----------------------
Gross Negligence : Intentional failure to perform a duty, reckless disregard of
---------------------- the consequences as affecting the life or property of another
Gross Premium : The premium paid by the policyholder.
----------------------
Gross Profit : The figure calculated by adding turnover to closing stock and
---------------------- work in progress and subtracting from this amount the sum of the opening stock
---------------------- and work in progress and the variables selected by the insured (usually defined
as specified working expenses).
---------------------- Group Insurance : Any insurance plan under which a number of employees
---------------------- and their dependants are insured under a single policy, issued to their employer,
with individual certificates given to each insured employee; the most commonly
---------------------- written lines are life and accident and health
---------------------- Hail Insurance : Form of insurance that protects against loss of crops from
hail.
----------------------
Hazard : A condition that creates or increases the probability of a loss
---------------------- Health Insurance : A generic term applying to all types of insurance
indemnifying or reimbursing for losses caused by bodily accident or sickness or
----------------------
for expenses of medical treatment necessitated by sickness or accidental bodily
---------------------- injury.

House breaking : When the theft is committed entering into or out of the Notes
premises stealthily
----------------------
Housekeeping : The general care, cleanliness and maintenance of an insured
property ----------------------
Householders Policy : A package of insurance providing homeowners with a
----------------------
broad range of property and liability coverages.
Hull insurance (in ocean marine and aviation insurance) : Coverage for ----------------------
physical damage to a vessel or aircraft
----------------------
Hurricane : A tropical storm marked by extremely low barometric pressure
and circular winds with a velocity of 120 miles an hour or more. ----------------------
IBNR (Incurred but not Reported) provision : Provision for claims incurred ----------------------
but not reported by the balance-sheet date. That is, it is anticipated that there
would be a number of policies that have, but for the advice of the claim to the ----------------------
insurer, occurred and therefore are likely to result in a liability on the insurer. ----------------------
The magnitude of this provision can be expected to reduce as the time since the
insurance risk on the contract expired extends. The magnitude is also likely to ----------------------
vary depending on the type of insurance risk covered by any particular class of ----------------------
insurance contract.
----------------------
Illegal Contract : It is a contract, which is contrary to law and against the
interests of public. It cannot be sustained and does not have legal effect. ----------------------
Imputed Negligence : Case in which responsibility for damage can be
----------------------
transferred from the negligent party to another person, such as an employer
Incurred Claims : Incurred claims equal the claims paid during the policy year ----------------------
plus the claim reserves as of the end of the policy year, minus the corresponding
----------------------
reserves as of the beginning of the policy year. The difference between the year
end and beginning of the year claim reserves is called the increase in reserves ----------------------
and may be added directly to the paid claims to produce the incurred claims.
----------------------
Incurred Loss Ratio : The percentage of losses incurred to premiums earned.
Indemnification : Compensation to the victim of a loss, in whole or in part, by ----------------------
payment, repair, or replacement. ----------------------
Indemnify : Legal principle that specifies an insured should not collect more
----------------------
than the actual cash value of a loss but should be restored to approximately the
same financial position as existed before the loss. ----------------------
Indemnity Period : The period, beginning with the date of the damage, during
----------------------
which the turnover of the business is affected by the damage. It lasts until the
turnover recovers and reaches the point at which it would have been had the ----------------------
loss not occurred, or the expiry of the maximum indemnity period -the number
of months selected by the insured -whichever occurs first. ----------------------
Indemnity principle : Of a general legal principle related to insurance which ----------------------
holds that the individual recovering under an insurance policy should be restored
to the approximate financial position he or she was in prior to the loss. ----------------------
Insurance Laws 141

Notes Independent adjuster : One who adjusts losses on behalf of companies but is
not employed by any one. He or she is paid by fee for each loss adjusted.
----------------------
Indirect Loss (Or damage) : Loss resulting from a peril, but not caused directly
---------------------- and immediately thereby. For example: Loss of property due to fire is a direct
loss, while the loss of rental income as the result of the fire would be an indirect
---------------------- loss.
---------------------- Inherent vice : A characteristic depreciation such as the fading of ink, a cracking
of parchment, the graying of hair.
----------------------
Insurable interest : An interest which might be damaged if the peril insured
---------------------- against occurs: the possibility of a financial loss to an individual which can be
protected against through insurance.
----------------------
Insurance : An economic device whereby the individual substitutes a certain
---------------------- cost (the premium) for a large uncertain financial loss (the contingency insured
against) which would exist if it were not for the insurance contract: an economic
---------------------- device for reducing and eliminating risk through the process of combining a
---------------------- sufficient number of homogeneous exposures into a group in order to make the
losses predictable for the group as a whole.
---------------------- Insurance Company :
---------------------- a) An organisation chartered to operate as an insurer.
---------------------- b) Any corporation primarily engaged in the business of furnishing insurance
protection to the public
----------------------
Insurance Entities : Any corporate body or individual which is operating as an
---------------------- insurer, reinsurer or insurance intermediary and which is subject to insurance
regulation
----------------------
Insurance Product : An insurance product is defined as a product that is
---------------------- provided by an insurance company.
---------------------- Insurance Policy : Legal document issued to the insured setting out the terms
of the contract of insurance.
---------------------- Insured : The person to whom or on whose behalf benefits are payable under
---------------------- the policy
Insurer : A licensed legal entity, which underwrites insurance, including a
----------------------
mutual insurance company (but note the exemption of pure reinsurers)
---------------------- Intermediary : Any person who, or organisation which, gives advice by way
of directly offering, advertising or on a person-to-person basis in respect of
----------------------
an insurance product and includes the promotion of such a product or the
---------------------- facilitation of an agreement or contract between an insurer and a customer.
Intermediaries are generally divided into separate classes. The most common
---------------------- types are ‘independent intermediaries’ who represent the buyer in dealings with
the insurer (also known as independent brokers) and ‘agents’ (which generally
----------------------
include multiple agents and sub-agents) who represent the insurer.
----------------------

Irrevocable beneficiary : Beneficiary designation allowing no change to be Notes
made in the beneficiary of an insurance policy without the consent of the named
beneficiary. ----------------------
Jettison : Act of throwing overboard part of a vessel’s cargo or hull in hopes of ----------------------
saving a ship from sinking.
----------------------
Jewelers block Insurance : An all risk insurance contract that provides
jewellers with coverage to losses, which they would be exposed. ----------------------
Joint-and-several Liability : A legal principle that permits the injured party
----------------------
in a tort action to recover the entire amount of compensation due for injuries
from any tort feasor who is able to pay, regardless of the degree of that party’s ----------------------
negligence
----------------------
Key-Person Insurance : Insurance designed to protect a business firm against
the loss of income resulting from the death or disability of a key employee ----------------------
Lapse : Termination of a policy due to failure by the insured to pay the premium
----------------------
as required
Larceny : The unlawful taking, carrying, leading or riding away of another ----------------------
person’s property
----------------------
Law of large numbers : While it is impossible to prdict either the time or
the loss amount of adverse events in relation to individuals, the averages for a ----------------------
sufficiently large set (of insureds) exhibit certain patterns of loss frequency and
----------------------
loss extent.
Legal Costs : The costs of defending a claim from a third party and claimant’s ----------------------
costs for which an insured is liable, are usually covered by a liability policy.
----------------------
Legal liability : Any liability imposed on a person by a court of law
----------------------
Lessee : The person to whom a lease is granted, commonly called the tenant.
Lessor : The person granting a lease, also known as the landlord ----------------------
Letter of Credit (LOC) : Within the context of reinsurance, a banking ----------------------
instrument established on a ‘standby’ basis to secure recoverables from non-
admitted reinsurers to enable the ceding company to reduce the provision for ----------------------
unauthorised reinsurance in its statutory statement ----------------------
Liability : Any legally enforceable obligation
----------------------
Liability Insurance : Insurance covering the policyholder’s legal liability
resulting from injuries to other persons or damage to their property. Liability ----------------------
Insurance. Provides protection for the insured against loss arising out of legal
liability to third parties ----------------------
Licensing : The incorporation of a company in the jurisdiction or the approval ----------------------

given to a company to underwrite insurance in the jurisdiction. These are
recognised to be separate approvals and may be made in separate jurisdictions ----------------------
Line : One line is equal to the ceding company ‘s retention. A proportional ----------------------
treaty may have a total capacity expressed as x lines and a reinsurer’s share may
be y lines. ----------------------
Insurance Laws 143

Notes Line of business : The general classification of business as utilised in the
insurance industry, i.e. fire, allied lines, homeowners, etc.
----------------------
Lloyds : A voluntary unincorporated association of individuals organised
---------------------- for the purpose of writing insurance; normally refers to Lloyd’s of London, a
group of individual underwriters and syndicates that underwrite insurance risks
---------------------- severally, using facilities maintained by the Lloyd’s of London Corporation.
---------------------- Load : To add charges to an insurance premium.
Loss Adjuster : An independent professional appointed by the insurers to settle
----------------------
claims.
---------------------- Loss of Profits : A synonym for business interruption insurance.
---------------------- Loss Ratio : The proportionate relationship of incurred losses to earned
premiums expressed as a percentage.
----------------------
Manual : A book of rates, rules, and coverages usually available for each kind
---------------------- of insurance
---------------------- Margin of solvency : The total assets of an insurance company must exceed its
liabilities (other than share capital) by a relevant amount, known as the margin
---------------------- of solvency
---------------------- Marine : Pertaining to the sea or to transportation: usually divided as to ‘ocean
marine’ and ‘inland marine’; the insurance covering transportation risks
----------------------
Marine Insurance : A form of insurance primarily concerned with means of
---------------------- transportation and communication, and with goods in transit
---------------------- Market Value : The price for which something would sell, especially the value
of certain types of assets, such as stocks and bonds. It is based on what they
---------------------- would sell for under current market conditions. For example, common stock
market value would be the price of the stock as of a specified date
----------------------
Material damage Policy : The policy covering damage to property (usually a
---------------------- commercial fire policy) as the result of which damage a business interruption
claim may result. It is a condition of business interruption insurance that a
---------------------- material damage policy must be and remain in force
---------------------- Material Fact : Information about the subject of insurance that if known would
change the underwriting basis of the insurance, and which would cause the
----------------------
insurer to refuse the application or charge a higher rate
---------------------- Misrepresentation : Act of making, issuing, circulating or causing to be issued
or circulated an estimate, an illustration, a circular or a statement of any kind
----------------------
that does not represent the correct policy terms, dividends or share of surplus or
---------------------- the name or title for any policy or class of policies that does not in fact reflect
its true nature.
----------------------
Moral Hazard : Moral Hazard refers to increase in probability of loss that
---------------------- results from dishonesty in the character of the insured person. Thus, it is the
dishonest tendencies on the part of the insured person that may induce that
---------------------- person to attempt to defraud the insurance company.

Morale Hazard : An attitude that increases the probability of loss from a peril. Notes
The attitude of, “It’s insured; so why worry?” is an example of a morale hazard.
----------------------
Mortgage : A deposit or conditional transfer to secure the performance of some
act: the person who makes the transfer is called the ‘mortgagor’, the other party, ----------------------
the ‘mortgagee’; sometimes an intermediary called a ‘trustee’ is appointed.
----------------------
Mortgagor : A borrower who takes out a mortgage
MPL (Maximum Probable Loss) : The largest loss thought probable under a ----------------------
given insurance policy. Normally applied to material damage risks where the
----------------------
total sum insured is not considered to be at risk from one loss event
Multi-Peril Policy : A package policy which provides protection against a ----------------------
number of separate perils. Multi-peril policies are not necessarily multiple line ----------------------
policies, since the combined perils may be all within one insurance line
Named Perils Policy : Coverage in a property policy that provides protection ----------------------
against loss from only the perils specifically listed in the policy rather than ----------------------
protection from physical loss. Examples of named perils are fire, windstorm,
theft, smoke, etc. ----------------------
Negligence : Failure to use that care which a reasonable and prudent person ----------------------
would have used under the same or similar circumstance. Negligence may be
constituted by acts of either omission or commission or both. ----------------------
Net Premium : A portion of the premium rate designed to cover benefits of the ----------------------
policy, but not expenses, contingencies, or profit.
----------------------
Net Premiums Earned : Net premiums written adjusted for the increase or
decrease during the year of the liability for unearned premiums ----------------------
Net Premiums written : This item represents gross premiums written (direct
----------------------
and reinsurance assumed) less reinsurance ceded.
Net Retention : The final amount of insurance retained by the company after ----------------------
reinsuring such amounts as it did not wish to retain ----------------------
No Claims bonus : A reduction in the price of an insurance policy because no
claims have been made on it ----------------------
No-Fault : A type of insurance mechanism whereby the right to sue another ----------------------
party for damages caused by negligence is limited and, in exchange, expanded
----------------------
first party benefits are offered. Mainly used in Vehicles insurance Policy.
Nominee : Nominee is the person who is nominated to receive the amount ----------------------
under a policy and to give a valid discharge to the insurer on settlement of claim
----------------------
under a life insurance policy
Obligatory Treaty : A reinsurance contract under which business must be ----------------------
ceded in accordance with contract terms and must be accepted by the reinsurer
----------------------
Occupational Hazards : Occupations which expose the insured to greater than
normal physical danger by the very nature of the work in which the insured is ----------------------
engaged, and the varying periods of absence from the occupation, due to the ----------------------
disability, that can be expected
Insurance Laws 145

Notes Ombudsman : An authority established either by the company or the
Government for the quick redressal of grievances
----------------------
Open cover : Gives to insured automatic insurance protection so that there is
---------------------- no risk of any shipments remaining uninsured through oversight
Open Form : A continuous policy written on a reporting basis
----------------------
Operative Clause : Defines the class and nature of business covered by a
---------------------- specific reinsurance treaty
---------------------- Package Policy : A combination of two or more individual polices into a single
policy. A householders policy, for example, is a package policy.
----------------------
Partial disability : The result of an illness or injury which prevents an insurd
---------------------- from performing on or more of the functions of his/her regular job
---------------------- Particular Average : A term meaning an accidental and usually a partial loss
suffered by one interest and not chargeable against others
----------------------
Peril : The event insured against; the cause of possible loss
---------------------- Personal Injury : In law, a term used to embrace a broad range of torts that
includes bodily injury, libel, slander, discrimination and similar offences. Also
----------------------
a standard insurance coverage that protects against a more limited group of torts
---------------------- (false arrest, detention or imprisonment, malicious prosecution, wrongful entry
or eviction, and libel, slander, or defamation)
----------------------
Physical damage : Damage to or loss of an automobile resulting from a named
---------------------- peril
---------------------- Physical Hazard : A condition of the subject of insurance which creates or

increases the chance of loss, such as structural defects, occupancy, or similar
---------------------- conditions
---------------------- Pilferage : Petty theft, especially theft of articles in less than package lots.
Policy : The legal document issued by the company to the policyholder, which
----------------------
outlines the conditions and terms of the insurance; also called the policy contract
---------------------- for the contract
Policyholder : The person (or persons) whose risk of financial loss from an
----------------------
insured peril is protected by the policy.
---------------------- Policyholder’s funds : Monies set aside by insurers to cover outstanding
liabilities to Policyholders. Also known as technical reserves
----------------------
Policy Period : The term for which insurance remains in force, sometimes
---------------------- definite, sometimes not.
---------------------- Policyholder’s surplus : Amount over and above liabilities available for an
insurer to meet future obligations to its policyholders
----------------------
Policy Term : The period for which an insurance policy provides coverage
----------------------
Policyholder : A person who pays a premium to an insurance company in
---------------------- exchange for the insurance protection provided by a policy of insurance

Pool : A risk sharing mechanism in which the members of a group agree to be Notes
collectively responsible for losses
----------------------
Premium : The sum paid by a policyholder to keep an insurance policy in
force. It is the amount paid to secure an insurance policy ----------------------
Premium Notice : Notice of a premium due, sent out by the company or one of
----------------------
its agencies to an insured. Synonym for “ Renewal Notice”.
Principal : The applicant for, or subject of, insurance; the one from whom an ----------------------
agent derives his or her authority
----------------------
Pro Rata Cancellation : Cancellation with a return of premium charged for the
period of time the policy was in force equal to the ratio of the total premium to ----------------------
the total policy period ----------------------
Product Liability Insurance : Protection against financial loss arising out of
the legal liability incurred by a manufacturer, merchant, or distributor because ----------------------
of injury or damage resulting from the use of a covered product. ----------------------
Professional Indemnity : It is a cover granted to professionals like Doctors
covering their legal liability for any claims arising out of professional misconduct ----------------------
Property Insurance : Insurance providing financial protection against the loss ----------------------
of, or damage to, real and personal property caused by such perils as fire, theft,
----------------------
windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious
mischief, riot and civil commotion, and smoke ----------------------
Proposal : A person interested in taking out insurance has to make an offer
----------------------
by means of a proposal. This is an application for the cover required, or for
obtaining quotations of the premium chargeable ----------------------
Proposal Form : It is a form which is to be completed for securing an insurance
----------------------
policy
Proposer : Proposer is a person who proposes the insurance policy ----------------------
Prospectus : A form, which is often a part of the proposal form, giving details ----------------------
of the cover available with particulars of extra benefits and rebates.
----------------------
Protection and Indemnity (P & I) Insurance : Liability insurance coverage
in an ocean marine policy ----------------------
Provision for unexpired risks : Amount set aside on the balance sheet in ----------------------
addition to unearned premiums with respect to risks to be borne by the insurance
undertaking after the end of the financial year, in order to pro-vide for all claims ----------------------
and expenses in connection with insurance contracts in force in excess of the
----------------------
related unearned premiums and any premiums receivable on those contracts.
Provisions : The terms or conditions of an insurance policy ----------------------
Proximate Cause : The dominating cause of loss or damage; an unbroken ----------------------
chain of events between the occurrence and damage.
----------------------
Public Liability/Third Party Liability : The insured’s liability at law (excluding
liability to an employee arising out of employer/employee relationship) to pay ----------------------
Insurance Laws 147

Notes compensation for death, injury or illness sustained by any person or damage to
property caused by explosion or collapse of boiler and pressure plant or use of
---------------------- lilting and handling plant
---------------------- Punitive damages : Damages awarded separately and in addition to the
compensatory damages, usually on account of malicious or wanton misconduct,
---------------------- to serve as a punishment for the wrongdoer and possibly as a deterrent to others
---------------------- Pure Risk : A condition in which there is the possibility of loss or no loss only
Quota share Reinsurance : It is an automatic reinsurance, whereby the
----------------------
ceding company is bound to cede a fixed percentage of every risk written by it
---------------------- irrespective of the size or quality of the risk.
---------------------- Quote : An estimate of the cost of insurance, based on information supplied to

the insurance company by the applicant.
---------------------- Rate : The pricing factor upon which the insurance buyer’s premium is based
---------------------- Recurring Clause : A provision in some health insurance policies, which
specifies an period of time during which the recurrence of a condition is
---------------------- considered a continuation of a prior period of disability or hospital confinement
---------------------- Reimbursement : The payment of the expenses actually incurred as a result
of a accident or sickness, but not to exceed any amount specified in the policy
----------------------
Reinstatement : The restoration of a lapsed policy
----------------------
Reinsurance : Insurance placed by an underwriter in another company to cut
---------------------- down the amount of the risk assumed under the original insurance
---------------------- Renewal : Continuance of coverage under a policy beyond its original term by
the insurer’s acceptance of the premium for a new policy term.
---------------------- Renewal Notice : The notice sent to the policyholder to remind him that an
---------------------- insurance is due for renewal by insurers.
Renewal Receipt : The written evidence that a renewal premium has been paid.
----------------------
Repatriation Expenses : (Under Overseas Mediclaim Policy) Expenses
---------------------- incurred to travel back to home country following sickness abroad
---------------------- Replacement Cost : The cost to repair or replace property at construction costs
prevailing at time of loss; the cost to repair or rebuild property without any
---------------------- depreciation.
---------------------- Representation : Statements made by an applicant in the application that he
represents as being substantially true to the best of his or her knowledge and
---------------------- belief, but which are not warranted as exact in every detail.
---------------------- Rescission : Termination of an insurance contract by the insurer on the grounds
of material misstatement on the application for insurance.
----------------------
Reserve : Liability set up for particular purposes.
----------------------
Respondentia : An early form of marine insurance on cargo; similar to
---------------------- bottomry, the equivalent on hulls

Restoration : Reinstatement, as the amount of coverage after a loss Notes
Retention : The act of retaining an exposure to loss: also that part of the
----------------------
exposure that is retained.
Retrocession : The amount of risk that a reinsurance company reinsures; the ----------------------
amount of a cession which the reinsurer passes on.
----------------------
Retrospective date : The first date for which claims will be paid under a claims-
made policy of liability insurance. ----------------------
Return Premium : An amount due the insured upon cancellation of a policy ----------------------
Revocable Beneficiary : A beneficiary designation that may be changed by the ----------------------
policyowner without the consent of the existing beneficiary
Rider : Usually known as an endorsement, a rider is an amendment to the ----------------------
policy used to add or delete coverage ----------------------
Risk : It can be a potential source of loss or the subject matter of insurance itself
----------------------
Risk Management : A scientific approach to the problem of dealing with the
pure risks facing an individual or an organisation in which insurance is viewed ----------------------
as simply one of several approaches for dealing with such risks.
----------------------
Robbery : The unlawful taking of property by violence or threat of violence
----------------------
Running down Clause : Additional coverage, which can be added to, an Ocean
Marine Hull policy to provide protection for damage to another ship caused by ----------------------
collision.
----------------------
Salvage : Recovery made by an insurance company by the sale of property
which has been taken over from that insured as a part of loss settlement. The ----------------------
remains of damaged vehicle or any other property.
----------------------
Schedule : A list of coverages or amounts concerning things or persons insured.
----------------------
Self-Insurance : A form of risk financing through which a firm assumes all or
a part of its own losses. ----------------------
Settlement : A policy benefit of claim payment.
----------------------
Short period rates : Percentage of annual premiums charged for short period
policies. ----------------------
Short Rate Cancellation : Cancellation with a less than proportionate return of ----------------------
premium: also known as Pro Rata Cancellation.
----------------------
Social Insurance : Compulsory insurance, in which the benefits are prescribed
by law and in which the primary emphasis is on social adequacy rather than ----------------------
equity.
----------------------
Solvency Margin : Surplus of assets over liabilities
----------------------
Special Damages : Amount awarded in litigation to compensate for specific
identifiable economic loss ----------------------
Speculative Risk : A condition in which there is a possibility of loss or gain
----------------------
Insurance Laws 149

Notes Sprinkler Leakage Insurance : Insurance against loss from accidental leakage
or discharge from a sprinkler system due to some cause other than a hostile fire
---------------------- or certain other specified causes
---------------------- Standing Charges : Expenses which still have to be met even if a business
cannot earn its full income owing to fire or other damage. These expenses do
---------------------- not diminish proportionately as a result of the damage.
---------------------- Statutory Inspections : Plant inspections which are required by law to be
carried out at stipulated intervals by a competent person who must also prepare
---------------------- a report in a prescribed form detailing the condition of the plant.
---------------------- Strict Liability : Liability for damages even though fault or negligence cannot
be proven
----------------------
Subrogation : It is defined as the transfer of rights and remedies of the insured
---------------------- to insurers who have indemnified the insured in respect of the loss
---------------------- Subsidence : Occurs when the ground under a building moves downwards,
often as a result of drying out too much
---------------------- Sum Insured : The limit of liability of the insurers under a policy.
---------------------- Surety Bond : An agreement providing for monetary compensation should
there be a failure to perform certain specified acts within a stated period: the
----------------------
surety company, for example, becomes responsible for fulfillment of a contract
---------------------- if the contractor defaults.
Surplus : An amount by which the value of an insurer’s assets exceeds their
----------------------
liabilities.
---------------------- Surrender Value : Surrender value is the amount payable to the policy holder
on his surrendering his right under a policy and terminating the contract of
----------------------
insurance.
---------------------- Surrounding Property : Property belonging to the insured or in his custody or
---------------------- control except for the plant causing the damage or property being lifted.
Surveyor : The company official who inspects property proposed and makes
---------------------- recommendations as to rating and loss reduction.
---------------------- Tail Coverage : An extended reporting period extension under claims-made
liability policies that provides coverage for losses that are reported after
----------------------
termination of the policy.
---------------------- Technical Provision : Amount set aside on the balance sheet to meet liabilities
arising out of insurance contracts, including claims provision (whether reported
----------------------
or not), provision for unearned premiums, provision for unexpired risks.
---------------------- Tenants Liability : Cover for damage to rented buildings.
---------------------- Theft : The unlawful taking of property of another: the term includes such
crimes as burglary, larceny and robbery.
----------------------
Third Party : Someone other than the insured and insurance company
----------------------

Third Party Claim : A demand made by a person against a policyholder and Notes
any payment that will be made by that company
----------------------
Third Party Liability : Liability incurred by the insured to another party but
excluding contractual liability ----------------------
Tornado : A whirling wind over land, accompanied by a funnel-shaped cloud.
----------------------
It is usually very violent and destructive in a narrow path, often for many miles
Tort : A civil wrong, other than a breach of contract, for which a court of law ----------------------
will afford legal relied
----------------------
Total disability : An illness or injury which prevents an insured person from
continuously performing every duty pertaining to his/her occupation or engaging ----------------------
in any other type of work ----------------------
Total Loss : The complete loss or destruction of all the property insured under
a particular policy ----------------------
Treaty : A reinsurance contract under which the reinsured company agrees to ----------------------
cede and the reinsurer agrees to assume risks of a particular class or classes of
business ----------------------
Turnover : The money earned for goods supplied or services rendered in the ----------------------
course of the business at the premises specified in the policy
----------------------
Uberrimae Fidei : Uberrimae Fidei means ‘Utmost Good Faith’. The basis of
all insurance contracts - both parties to the contract are bound to exercise good ----------------------
faith and do so by a full disclosure of all information material to the proposed
----------------------
contract.
Umbrella Liability : Insures losses in excess of amounts covered by other ----------------------
liability insurance policies; also protects the insured in many situations not
----------------------
covered by the usual liability policies
Under-insurance : The situation where the Sum Insured is less than the total ----------------------
value of property at risk. ----------------------
Underwriter : The company receiving premiums and accepting to cover the
risk. Also, the person employed by the company who decides whether the ----------------------
company should accept a particular proposal for insurance or application for ----------------------
revival
----------------------
Underwriting : The process of selecting risks for insurance and determining
in what amounts and on what terms the insurance company will accept the risk. ----------------------
Underwriting Profit or Loss : The amount of money, which an insurance
----------------------
company gains or loses as a result of its insurance operations
Unearned premium : That portion of the original premium for which protection ----------------------
has not yet been provided because the policy still has some time to run before
----------------------
expiration.
Unenforceable Contract : This is one, which lacks some evidential features. ----------------------
The contract is a valid one otherwise, but could not be enforced in a court of law ----------------------
Insurance Laws 151

Notes Uninsurable Risk : Risks not acceptable for insurance due to excessive risk.
Utmost good Faith : A duty imposed on both parties to an insurance contract.
----------------------
The legal duty implies full disclosure of all facts material to the contract during
---------------------- negotiations of the contract
Valuation : Estimation of the value of an item, usually by appraisal
----------------------
Valued Policy : An insurance contract in which the value of the thing insured
---------------------- and the amount to be paid in case of total loss is settled at the time of making
the policy
----------------------
Vicarious Liability : In law, liability arising out of imputed negligence
----------------------
Void : Of no force or effect: null
---------------------- Void Contract : A contract obtained by fraud is a void contract
---------------------- Voidable Contract : A contract, which is valid until it is treated as void by the
aggrieved party, is a voidable contract
----------------------
Warranty : A statement concerning the condition of the item to be insured
---------------------- which is made for the purpose of permitting the underwriter to evaluate the risk;
if found to be false, it provides the basis for voidance of the policy
----------------------
Weekly benefits (for Personal Accident Insurance) : They are paid for the
---------------------- period of temporary total disablement following an injury which is admissible
under the policy
----------------------
Workers Compensation : A system of providing for the cost of medical care
---------------------- and weekly payments to injured employees or to dependants of those killed in
---------------------- the course of or arising out of their employment in industry in which Absolute
Liability is imposed on the employer, requiring him or her to pay benefits
---------------------- prescribed by law.
---------------------- Written Premiums : The premiums on all policies which a company has issued
in some period of time.
----------------------
----------------------

1. Insurable interest is an interest, which might be damaged if the peril
----------------------
insured against occurs.
----------------------
---------------------- Activity 1
----------------------
Write down the name of the insurance policy that you have made for yourself.
----------------------
----------------------
----------------------

6.3 MARINE CARGO POLICY Notes
This policy covers goods, freight and other interests ----------------------

against loss or damage to goods whilst being transported
by rail, road, sea and/or air. Different policies are avail- ----------------------
able depending on the type of coverage required ranging ----------------------
from an ALL RISK cover to a restricted FIRE RISK
ONLY cover. This policy is freely assignable and is basi- ----------------------
cally an agreed value policy.
----------------------
Transportation of goods can be broadly classified into three categories:
i. Inland Transport ----------------------
ii. Import ----------------------
iii. Export ----------------------
The types of policies issued to cover these transits are:
----------------------
For Inland Transit
----------------------
a. Specific Policy - For covering a specific single transit
b. Open Policy - For covering transit of regular consignments over the ----------------------
same route. The policy can be taken for an amount equivalent to three ----------------------
months despatches and premium paid in advance.As each consignment
is despatched, a declaration giving details of the despatch including GR/ ----------------------
RR No. is to be sent to the insurer and the sum insured gets reduced by
the amount of the declared despatch.The sum insured can be increased ----------------------
any number of times during the policy period of one year;but care should ----------------------
be taken to ensure that adequate sum insured is available to cover the
consignment to be despatched. ----------------------
c. Special Declaration Policy - For covering inland transit of goods wherein ----------------------
the value of goods transported during one year exceeds Rs.2 crores.
Although the premium for the estimated annual turnover [i.e.the estimated ----------------------
value of goods likely to be transported during the year] has to be paid in
advance,attractive discounts in premium are available. ----------------------
Multi-transit Policy - For covering multiple transits of the same

d. ----------------------
consignment including intermediate storage and processing. For
e.g. covering goods from raw material supplier’s warehouse to final ----------------------
distributor’s godown of final product. ----------------------
For Import/Export
----------------------
a. Specific Policy - For covering a specific import/export consignment.
----------------------
b. Open cover - This policy which is issued for a policy period of one year
indicates the rates, terms and conditions agreed upon by the insured and ----------------------
insurer to cover the consignments to be imported or exported. A declaration
is to be made to the insurance company as and when a consignment is to ----------------------
be sent along with the premium at the agreed rate. The insurance co. will
----------------------
then issue a certificate covering the declared consignment.
Insurance Laws 153

Notes c. Custom duty cover - This policy covers loss of custom duty paid in case
goods arrive in damaged condition. This policy can be taken even if the
---------------------- overseas transit has been covered by an insurance company abroad, but it
has to be taken before the goods arrive in India.
----------------------
Inland transit policies can be extended to cover the following perils on
---------------------- payment of additional premium :
---------------------- i. SRCC - Strike, riot and civil commotion (including terrorist act)
ii. FOB - Where the inland transit is required to be extended to cover the
----------------------
goods till they are loaded on board the vessel , this extension can be taken.
---------------------- Export /Import policies can be extended to cover War and /or SRCC perils on
---------------------- payment of an additional premium.
The contract of sale would determine who buys the policy. The most common
---------------------- contracts are :
---------------------- l FOB (Free on Board)
---------------------- l C & F (Cost & Freight)
l CIF (Cost, Insurance & Freight)
----------------------
In FOB AND C&F contracts, the buyer is responsible for insurance.
---------------------- Whereas in CIF contracts the seller is responsible for insurance from his
---------------------- own premises to that of the purchaser.
The sum insured or value of the policy would depend upon the type of
---------------------- contract. Usually, in addition to the contract value 10/15% is added to
---------------------- take care of incidental cost.
The following steps should be taken in event of a loss or damage to goods
---------------------- insured :
---------------------- i. Take immediate steps to minimise loss.
---------------------- ii. Inform nearest office of the insurance company or claim settling agent
mentioned on the policy.
----------------------
iii. In case of damage to goods whilst on ship or port , arrange for joint ship
---------------------- survey or port survey.
---------------------- iv. Lodge monetary claim with carrier within stipulated time period.
v. Submit duly assigned insurance policy/certificate along with the original
---------------------- invoice and other documents required to substantiate the claim such as :
---------------------- a. Bill of Lading / AWB/GR
---------------------- b. Packing list
c. Copies of correspondence exchanged with carriers.
----------------------
d. Copy of notice served on carriers along with acknowledgment/
---------------------- receipt.
---------------------- e. Shortage/Damage Certificate issued by carriers.

vi. Survey fees is to be paid to the surveyor appointed by the insurance Notes
company. This fees will be reimbursed along with the claim if the claim
is otherwise admissible. ----------------------
----------------------
----------------------
----------------------
1. Which policy covers loss of custom duty paid in case goods arrive
in damaged condition? This policy can be taken even if the overseas ----------------------
transit has been covered by an insurance company abroad, but it has
to be taken before the goods arrive in India. ----------------------
i. Custom duty cover ----------------------
ii. Open cover ----------------------
iii. Open policy
----------------------
iv. Specific policy
----------------------
Activity 2 ----------------------
----------------------
Visit an office of any General Insurance company. Collect the brochures
about their marine insurance scheme. Write down the features of the scheme ----------------------
in brief.
----------------------
6.4 EXPORT CREDIT GUARANTEE ----------------------
----------------------
Export Credit Guarantee Corporation of India Limited (ECGC), was established
in the year 1957 by the Government of India to strengthen the export promotion ----------------------
drive by covering the risk of exporting on credit. Since its inception, ECGC has
strengthened India’s exports by covering the risk of exporting on credit, and, ----------------------
today has more than 13,000 policyholders. Currently, it has 24 diverse products
----------------------
in its portfolio customised to suit the requirements of various kinds of exporters
and banks. ----------------------
ECGC
----------------------
Provides
l a range of credit risk insurance covers to exporters against loss
in export of goods and services. ----------------------
Offers
l guarantees to banks and financial institutions to enable exporters ----------------------
obtain better facilities from them.
----------------------
Provides
l Overseas Investment Insurance to Indian companies investing
in joint ventures abroad in the form of equity or loan. ----------------------
l Offers insurance protection to exporters against payment risks ----------------------
l Provides guidance in export-related activities
----------------------
Insurance Laws 155

Notes makes
l available information on different countries with its own credit
ratings
----------------------
l makes it easy to obtain export finance from banks/financial institutions
---------------------- l assists exporters in recovering bad debts
---------------------- l information on credit-worthiness of overseas buyers
---------------------- Credit insurance policies

SCR or Standard Policy
----------------------
To cover risks in respect of all shipments on short-term credit by exporters with
---------------------- anticipated annual turnover of more than Rs. 50 lacs.
---------------------- Turnover Policy
A variation of SCR policy with additional discounts and incentives available to
----------------------
exporters who pay a premium of not less than Rs. 10 lacs per year.
---------------------- Small Exporters Policy
---------------------- Similar to SCR Policy, but for exporters with anticipated annual turnover of
Rs. 50 lacs or less.
----------------------
Specific Shipment Policy (Short term)
----------------------
To cover risks in respect of a specific shipment or shipments against a specific
---------------------- contract.
Buyerwise Policy
----------------------
To cover risks in respect of all shipment to one or a few buyers.
----------------------
Specific Policy for Supply Contract
---------------------- To cover risks in respect of export of capital goods or turnkey projects involving
---------------------- medium/long term credit.
Insurance cover for Buyer’s Credit and Line of Credit
----------------------
To cover risks in respect of credit extended by a Bank in India to an overseas
---------------------- buyer for paying for machinery and equipments to be imported from India or
credit extended by a bank in India to an overseas institution for facilitating
----------------------
imports from India.
---------------------- Services Policy
---------------------- To cover risk of non-payment to Indian companies entering into contract with
foreign principals for providing them with technical or professional services.
----------------------
Construction Works Policy
---------------------- To provide cover to an Indian Contractor who executes a civil construction job
---------------------- abroad
Maturity Factoring
----------------------
Undertaking to pay the amount due for a shipment on the maturity of the credit
---------------------- period.

Guarantees to banks Notes
Packing Credit Guarantee
----------------------
To enable Banks to provide preshipment advances to exporters for the
manufacture, processing, purchasing or packing of goods meant for export ----------------------
against a firm order.
----------------------
Export Production Finance Guarantee
----------------------
To enable Banks to sanction advances at the pre-shipment stage to the full extent
of cost of production when it exceeds the f.o.b. value of the contract/order, the ----------------------
difference representing incentives receivable.
----------------------
Post-Shipment Credit Guarantee
To enable Banks to extend post-shipment finance to exporters through purchase, ----------------------
negotiation or discount of export bills or advances against such bills. ----------------------
Export Finance Guarantee
----------------------
Covers post-shipment advances granted by Banks to exporters against export
incentive receivable in the form of cash assistance, duty drawback, etc. ----------------------
Export Performance Guarantee ----------------------
A counter-guarantee to protect a Bank against losses that it may suffer on ----------------------
account of guarantees given by it on behalf of exporters.
Export Finance (Overseas Lending) Guarantee ----------------------
To protect a Bank financing an overseas project by providing a foreign currency ----------------------

loan to the contractor from the risk of non-payment by the contractor.
----------------------
SPECIAL SCHEMES
----------------------
Transfer Guarantee
To safeguard Banks in India against losses on account failure of a foreign Bank ----------------------
to reimburse it with the amount paid to an exporter, when the Indian Bank has ----------------------
added confirmation to a letter of credit opened by the foreign bank.
Overseas Investment Insurance ----------------------
To cover the risks on account of war, expropriation or restriction on remittances ----------------------

to Indian investments made by way of equity capital or untied loan for the
purpose of setting up or expansion of overseas projects. ----------------------
Exchange Fluctuations Risk Cover ----------------------

To provide protection from exchange rate fluctuation to exporters of capital ----------------------
goods, civil engineering contractors and consultants who have to receive
payments over a period of years for their exports, construction works or services. ----------------------
----------------------
----------------------
----------------------
Insurance Laws 157

Notes
----------------------
Fill in the blanks.
----------------------
1. ______________ is meant to protect a bank against losses that it may
---------------------- suffer on account of guarantees given by it on behalf of exporters.
----------------------
---------------------- Activity 3
---------------------- Visit the website www.ecgc.org and collect the details of the policies offered
by them to exporters. Give the list of policies offered.
----------------------
----------------------
Summary
----------------------
l In this unit, we have learnt all the Insurance related terms. Marine cargo
---------------------- policy covers goods, freight and other interests against loss or damage to
goods whilst being transported by rail, road, sea and/or air.
----------------------
l ECGC Provides a range of credit risk insurance covers to exporters against
---------------------- loss in export of goods and services and offers guarantees to banks and
financial institutions.
----------------------
---------------------- Keywords
---------------------- l Additional cover : An insurance policy extended to cover additional risk
---------------------- perils such as strikes. Riots and Civil commotion etc. on payment of extra
premium.
---------------------- l Aggregate Indemnity : The maximum amount that may be collected for
---------------------- any disability or period of disability under the policy.
l Cargo Insurance : Type of insurance that protects the shipper/owner of
---------------------- the goods against financial loss if the goods are damaged or lost while in
---------------------- transit in between place of commencement and destination.
l over Note : A cover note is a document issued in advance pending the
C
----------------------
issue of the policy, and is normally required if the policy cannot for some
---------------------- reason or other be issued straight away. Cover notes can also be issued
during the course of negotiations to provide cover on a provisional basis.
---------------------- A cover note is not a stamped document but is honored, all the same , by
all parties concerned.
----------------------
l Fire insurance : Coverage for losses caused by fire and lightning, as well
---------------------- as the resultant damage caused by smoke and water.
---------------------- l Marine : Pertaining to the sea or to transportation: usually divided as to
‘ocean marine’ and ‘inland marine’; the insurance covering transportation
---------------------- risks.

l Marine Insurance : A form of insurance primarily concerned with means Notes
of transportation and communication, and with goods in transit.
----------------------
a. Marine Insurance ----------------------
b. Cargo Insurance
----------------------
c. Multi transit policy
----------------------
2. State the salient features of Marine Insurance.
3. State the policies offered by Export Credit Guarantee Corporation to ----------------------
Exporters.
----------------------
4. State the policies offered by Export Credit Guarantee Corporation to
bankers extending export credit. ----------------------
----------------------
----------------------
----------------------
1. True ----------------------

Multiple Choice Single Response. ----------------------
1. Which policy covers loss of custom duty paid in case goods arrive in
----------------------
damaged condition? This policy can be taken even if the overseas transit
has been covered by an insurance company abroad, but it has to be taken ----------------------
before the goods arrive in India.
----------------------
i. Custom duty cover

1.
A counter-guarantee is meant to protect a bank against losses that it may ----------------------
suffer on account of guarantees given by it on behalf of exporters.
----------------------
Suggested Reading ----------------------
1. Bulchandani, K.R. Business Law. Himalaya Publishing House. ----------------------
----------------------
----------------------
Insurance Laws 159

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Insurance Cover
UNIT
7
Structure:
7.1 Introduction
7.2 Indian Insurance Industry
7.3 Life Insurance
7.4 Health Insurance
7.5 Motor Vehicle Insurance
7.6 Shopkeeper’s Policy
Summary
Keywords
Suggested Reading
Insurance Cover 161

Notes
Objectives
----------------------
----------------------
• Analyse the Life Insurance schemes
----------------------
• Enumerate the Health Insurance schemes
---------------------- • Discuss the General Insurance schemes
----------------------
7.1 INTRODUCTION
----------------------
Insurance is a tool to manage the risk. Risk means uncertainty. It means
---------------------- what you get may be different from what you expect. Risk means the possibility
of loss or damage to the asset. Insurance does not prevent loss. It compensates
---------------------- the loss. People who are exposed to risk come together and contribute certain
---------------------- sums called premium which is used to compensate the losses suffered by any of
them. The risk is spread among the community. The likely big loss for any one
---------------------- is reduced to manageable small losses for all. Insurance is considered as a social
security tool.
----------------------
In 1956 Life insurance business was nationalized and LIC was found. In
---------------------- 1999, the monopoly of LIC and GIC was ended and insurance sector was open
to private sector.
----------------------
---------------------- 7.2 INDIAN INSURANCE INDUSTRY

---------------------- Insurance industry, as on 1.4.2000, comprised mainly two players and both
were the state insurers:
----------------------
Life Insurers : Life Insurance Corporation of India (LIC)
----------------------
General Insurers : General Insurance Corporation of India (GIC) GIC had
---------------------- four subsidiary companies namely.
• The Oriental Insurance Company Limited
----------------------
• The New India Assurance Company Limited
----------------------
• National Insurance Company Limited
---------------------- • United India Insurance Company Limited
---------------------- With effect from Dec’2000, these subsidiaries have been de-linked from the
parent company and made as independent insurance companies.
----------------------
After the opening up of the Insurance Industry to the private sector as a result of
---------------------- financial sector reforms a lot of private sector players have entered the industry.
Insurance Industry had the following new entrants.
----------------------
Life Insurers
----------------------
HDFC Standard Life Insurance Company Ltd.
---------------------- Max New York Life Insurance Co. Ltd.

ICICI Prudential Life Insurance Company Ltd. Notes
Kotak Mahindra Old Mutual Life Insurance Ltd.
----------------------
Birla Sun Life Insurance Company Ltd.
----------------------
Tata AIG Life Insurance Company Ltd.
SBI Life Insurance Company Limited . ----------------------
ING Vysya Life Insurance Co Private Ltd. ----------------------

Bajaj Allianz Life Insurance Company Ltd. ----------------------
Metlife India Insurance Company Pvt. Ltd.
----------------------
Future Generali India Life Insurance Co Ltd.
----------------------
IDBI Fortis Life Insurance Company Ltd.
AMP Sanmar Life Insurance Company Ltd. ----------------------
Aviva Life Insurance Co. India Pvt. Ltd. ----------------------

Sahara India Insurance Company Ltd. ----------------------
General Insurers
----------------------
Royal Sundaram Alliance Insurance Co. Ltd.
----------------------
Reliance General Insurance Company Ltd.
IFFCO Tokio General Insurance Co. Ltd. ----------------------
TATA AIG General Insurance Company Ltd. ----------------------

Bajaj Allianz General Insurance Co. Ltd. ----------------------
ICICI Lombard General Insurance Co. Ltd.
----------------------
Apollo DKV Insurance Company Ltd.
----------------------
Future General India Insurance Co. Ltd.
Universal Sompo General Insurance Co. Ltd. ----------------------
Cholamandalam General Insurance Co. Ltd. ----------------------

Export Credit Guarantee Corporation Ltd. ----------------------
HDFC-Chubb General Insurance Co. Ltd.
----------------------
Shriram Life Insurance Company Ltd.
----------------------
INSURANCE BUSINESS
Insurance business is divided into four classes : ----------------------
1) Life Insurance ----------------------

2) Fire Insurance ----------------------
3) Marine Insurance and
----------------------
4) Miscellaneous Insurance
----------------------
Insurance Cover 163

Notes Life Insurers transact life insurance business; General Insurers transact the rest.
No composites are permitted as per law.
----------------------
LEGISLATION
----------------------
Insurance is a federal subject in India. The primary legislation that deals with
---------------------- insurance business in India is:
---------------------- Insurance Act, 1938, and Insurance Regulatory & Development Authority Act,
1999.
---------------------- Insurance products
---------------------- Life Insurance
---------------------- Popular Products: Endowment Assurance (Participating), and Money Back
(Participating). More than 80% of the life insurance business is from these
---------------------- products.
---------------------- General Insurance
---------------------- Fire and Miscellaneous insurance businesses are predominant. Tariff Advisory
Committee (TAC) lays down tariff rates for some of the general insurance
---------------------- products (Please visit website of GIC for details.)
---------------------- 2001 onwards new products have been launched by life insurers. These include
linked-products. For details, please visit the websites of life insurers.
---------------------- Customer protection
---------------------- Insurance Industry has Ombudsmen in 12 cities. Each Ombudsman is
empowered to redress customer grievances in respect of insurance contracts on
----------------------
personal lines where the insured amount is less than Rs. 20 lakhs, in accordance
---------------------- with the Ombudsman Scheme. Addresses can be obtained from the offices of
LIC and other insurers.
----------------------
---------------------- 7.3 LIFE INSURANCE
---------------------- This is an attempt to acquaint students with some of the

concepts of life insurance, with special reference to LIC.
----------------------
It should, however, be clearly understood that the following content is by no
----------------------
means an exhaustive description of the terms and conditions of an LIC policy, its
---------------------- benefits or privileges. For more details, please contact our branch or divisional
office. Any LIC Agent will be glad to help you choose the life insurance plan to
---------------------- meet your needs and render policy servicing.
---------------------- What is Life Insurance?
---------------------- Life insurance is a contract that pledges payment of an amount to the person
assured (or his nominee) on the happening of the event insured against.
----------------------
----------------------

The contract is valid for payment of the insured amount during: Notes
l The date of maturity, or
----------------------
l Specified dates at periodic intervals, or
----------------------
l Unfortunate death, if it occurs earlier
Among other things, the contract also provides for the payment of premium ----------------------
periodically to the Corporation by the policyholder. Life insurance is universally ----------------------
acknowledged to be an institution, which eliminates ‘risk’, substituting certainty
for uncertainty and comes to the timely aid of the family in the unfortunate ----------------------
event of death of the breadwinner.
----------------------
By and large, life insurance is a civilisation’s partial solution to the problems
caused by death. Life insurance, in short, is concerned with two hazards that ----------------------
stand across the life-path of every person:
----------------------
a) That of dying prematurely leaving a dependent family to fend for itself.
b) That of living till old age without visible means of support. ----------------------
Life Insurance Vs. Other savings ----------------------
Contract Of Insurance
----------------------
A contract of insurance is a contract of utmost good faith technically known as
uberrima fides. The doctrine of disclosing all material facts is embodied in this ----------------------
important principle, which applies to all forms of insurance. ----------------------
At the time of taking a policy, policyholder should ensure that all questions in the
proposal form are correctly answered. Any misrepresentation, non- disclosure ----------------------
or fraud in any document leading to the acceptance of the risk would render the ----------------------
insurance contract null and void.
Protection ----------------------
Savings through life insurance guarantee full protection against risk of death of ----------------------
the saver. Also, in case of demise, life insurance assures payment of the entire
----------------------
amount assured (with bonuses wherever applicable) whereas in other savings
schemes, only the amount saved (with interest) is payable. ----------------------
Aid to Thrift
----------------------
Life insurance encourages ‘thrift’. It allows long-term savings since payments
can be made effortlessly because of the ‘easy instalment’ facility built into the ----------------------
scheme. (Premium payment for insurance is either monthly, quarterly, half
----------------------
yearly or yearly).
Example: The Salary Saving Scheme popularly known as SSS, provides a ----------------------
convenient method of paying premium each month by deduction from one’s ----------------------
salary.
In this case, the employer directly pays the deducted premium to LIC. The ----------------------
Salary Saving Scheme is ideal for any institution or establishment subject to ----------------------
specified terms and conditions.
----------------------
Insurance Cover 165

Notes Liquidity
In case of insurance, it is easy to acquire loans on the sole security of any policy
----------------------
that has acquired loan value. Besides, a life insurance policy is also generally
---------------------- accepted as security, even for a commercial loan.
Tax Relief
----------------------
Life Insurance is the best way to enjoy tax deductions on income tax and wealth
---------------------- tax. This is available for amounts paid by way of premium for life insurance
subject to income tax rates in force. Assessees can also avail of provisions in
----------------------
the law for tax relief. In such cases the assured in effect pays a lower premium
---------------------- for insurance than otherwise.
---------------------- Money When You Need It

A policy that has a suitable insurance plan or a combination of different plans
---------------------- can be effectively used to meet certain monetary needs that may arise from
---------------------- time-to-time.
Children’s education, start-in-life or marriage provision or even periodical
---------------------- needs for cash over a stretch of time can be less stressful with the help of these
---------------------- policies.
Alternatively, policy money can be made available at the time of one’s retirement
----------------------
from service and used for any specific purpose, such as, purchase of a house
---------------------- or for other investments. Also, loans are granted to policyholders for house
building or for purchase of flats (subject to certain conditions).
----------------------
Who can buy a Policy?
---------------------- Any person who has attained majority and is eligible to enter into a valid contract
---------------------- can insure himself/herself and those in whom he/she has insurable interest.
Policies can also be taken, subject to certain conditions, on the life of one’s
---------------------- spouse or children. While underwriting proposals, certain factors such as the
---------------------- policyholder’s state of health, the proponent’s income and other relevant factors
are considered by the Corporation.
---------------------- Insurance For Women
---------------------- Prior to nationalisation (1956), many private insurance companies would offer
insurance to female lives with some extra premium or on restrictive conditions.
----------------------
However, after nationalisation of life insurance, the terms under which life
---------------------- insurance is granted to female lives have been reviewed from time-to-time. At
present, women who work and earn an income are treated at par with men. In
---------------------- other cases, a restrictive clause is imposed, only if the age of the female is up to
30 years and if she does not have an income attracting Income Tax.
----------------------
Medical and Non-Medical Schemes
----------------------
Life insurance is normally offered after a medical examination of the life to be
---------------------- assured. However, to facilitate greater spread of insurance and also to avoid
inconvenience, LIC has been extending insurance cover without any medical
---------------------- examination, subject to certain conditions.

With Profit and Without Profit Plans Notes
An insurance policy can be ‘with’ or ‘without’ profit. In the former, bonuses
----------------------
disclosed, if any, after periodical valuations are allotted to the policy and are
payable along with the contracted amount. In ‘without’ profit plan the contracted ----------------------
amount is paid without any addition. The premium rate charged for a ‘with’
profit policy is therefore higher than for a ‘without’ profit policy. ----------------------
Keyman Insurance ----------------------
Keyman insurance is taken by a business firm on the life of key employee(s) to
----------------------
protect the firm against financial losses, which may occur due to the premature
demise of the Keyman. ----------------------
----------------------
1. Life Insurance is the best way to enjoy tax deductions on income tax ----------------------
and wealth tax. ----------------------
----------------------
Activity 1
----------------------
Visit an office of LIC or another Life Insurance company. Collect the
brochures about their schemes. Write in short the features of any one scheme. ----------------------
----------------------
7.4 HEALTH INSURANCE ----------------------
Health plus medical expenses policy : salient features ----------------------

The policy covers reimbursement of hospitalisation expenses only for illness/ ----------------------
diseases contracted or injury sustained by the Insured person.
----------------------
In the event of any claim becoming admissible under the policy, the Company
will pay to the Insured person the amount of such expenses as are reasonably ----------------------
and necessarily incurred in respect thereof any where in India by or on behalf
of such insured person but not exceeding in any one period of Insurance the ----------------------
amounts mentioned in the Table of Benefits. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Insurance Cover 167

Notes SECTION I
Table of Benefits
----------------------
HOSPITALISATION BENEFITS LIMITS
---------------------- 1. i. Room, Board & Nursing Expenses Up to 1% of SI per day
as provided by the hospital/nursing
----------------------
home including registration and Up to 2% of SI per day
---------------------- service charges.
ii. If admitted into IC Unit Up to 30% of SI per illness/injury
---------------------- All admissible claims under
(i) and
----------------------
(ii) during the policy period
---------------------- Surgeon, Anaesthetist, Medical Up to 30% of SI per illness/injury
Practitioner, Consultants, Specialists
---------------------- Fees.
2. Emergency Ambulance charges upto Up to 40% of SI per illness/injury
----------------------
Rs.1000/-
---------------------- Anaesthesia, Blood, Oxygen, Operation
Theatre Charges, Surgical Appliances,
---------------------- Medicines & Drugs, Diagnostic Materials
and X-ray, Dialysis, Chemotherapy,
----------------------
Radiotherapy, Cost of Pacemaker,
---------------------- Artificial Limbs and any medical
expenses incurred which is integral part
---------------------- of the operation.
---------------------- Note:
1. The Hospitalisation expenses incurred for treatment of any one illness
----------------------
under agreed package charges will be restricted to 80% of the sum insured
---------------------- or actuals whichever is less .
2. Hospitalisation expenses of person donating an organ during the course
----------------------
of organ transplant will also be payable subject to the above sub limits
---------------------- applicable to the insured person within the overall sum insured of the
insured person.
----------------------
3. Hospitalisation Treatment taken in Nepal and Bhutan will be considered
---------------------- under the policy provided prior approval has been taken from the
Company.
----------------------
4. Ayurvedic Medical Treatment expenses per illness shall be restricted to
---------------------- 20% of Sum Insured or Rs. 25000/- whichever is less.
---------------------- EXCLUSIONS
The Company shall not be liable to make any payment under this policy in respect
----------------------
of any expenses whatsoever incurred by any Insured Person in connection with
---------------------- or in respect of: All diseases/injuries which are pre-existing when the cover
incepts for the first time.
----------------------

During the first two years of the operation of insurance cover, the expenses Notes
Incurred on treatment of diseases such as Cataract, Benign Prostrate Hypertropy,
Hysterectomy for Menorrhagia, or Fibromyoma, Hernia, Hydrocele, Congenital ----------------------
Internal disease/defect, Fistula in anus, piles, Arthrities, Gout and Rheumatism,
Joint Replacements, Sinusitis and related disorders are not payable. These ----------------------
expenses can be considered after two years provided the treatment is not for ----------------------
pre-existing disease.
----------------------
Injury/disease directly or indirectly caused by or arising from or attributable
to War invasion, Act of foreign enemy, War like operations (whether war be ----------------------
declared or not)
----------------------
Circumcision unless necessary for treatment of a disease not excluded hereunder
or as may be necessitated due to an accident, vaccination (other than anti rabbies ----------------------
vaccination) or innoculation or change of life or cosmetic or aesthetic treatment
of any description, plastic surgery other than as may be necessitated due to an ----------------------
accident or as part of any illness. Cost of spectacles and contact lenses, hearing
----------------------
aids.
Any dental treatment or surgery which is a corrective, cosmectic or aesthetic ----------------------
procedure, including wear and tear, unless arising from disease or injury and which
----------------------
requires hospitalisation for treatment. Convalescence, general debility, ‘Run-
down’ condition or rest cure, obesity, Congenital external disease or anomalies, ----------------------
sterility, veneral disease, intentional self injury and use of intoxication drugs/
alcohol. All expenses arising out of any condition directly or indirectly caused ----------------------
to or associated with Human T-Cell Lymphotropic Virus Type III (HTLB-III) or
----------------------
Lymphotropathy Associated Virus (LAV) or the MutantsDerivative or Variation
Deficiency syndrome or any syndrome or condition of a similar kind commonly ----------------------
referred to as AIDS.
----------------------
Charges incurred at Hospital or Nursing Home primarily for diagnosis, X-Ray
or Laboratory examination not consistent with incidental to the diagnosis and ----------------------
treatment of positive existence or presence of any ailment, sickness or injury,
for which confinement is required at a Hospital/Nursing Home. ----------------------
Expenses on vitamins and tonics unless forming part of treatment for injury ----------------------
or disease as certified by the attending physician. Injury or Disease directly or
indirectly caused by or contributed to by nuclear weapons/materials. ----------------------
Treatment arising from or traceable to pregnancy, childbirth, miscarriage, ----------------------

abortion or complications of any of these including caesarean section. However,
this exclusion will not apply to abdominal operation for extra uterine pregnancy ----------------------
(Ecotopic Pragnancy), which is proved by submission of ultra Sonographic ----------------------
Report and Certification by Gynecologist that it is a life threatening.
----------------------
Naturopathy Treatment :
External Medical Equipment of any kind used at home as post hospitalisation ----------------------
care including cost of instrument used in treatment of Sleep Apnea Syndrome
----------------------
(C.P.A.P.) and continuous Peritoneal Ambulatory dialysis (C.P.A.D.) and Oxygen
Concentra-tor for Bronchial Asthamatic condition. Travel or transportation ----------------------
Insurance Cover 169

Notes expenses other than Emergency Ambulance Services in connection with any
admissible claim limited to Rupees 1000/- or 1% of the sum insured whichever
---------------------- is less.
---------------------- Age Limit : The cover is available between the age of 3 months to 70 yrs.
Children are covered only when one or both parents are covered simultaneously.
---------------------- Persons above the age of 45 yrs have to undergo medical selection procedure as
required by the company at their own expenses.
----------------------
Pre Acceptance Medical checkup : The company may require submission of
---------------------- Medical reports when the proposer is 45 years and above from a designated
center, cost of the same to be borne by the proposer. This requirement is for
----------------------
fresh proposal or when the sum insured is enhanced at the time of renewal or
---------------------- when there is a break in insurance for 15 days.
Family Discount : A discount of 10% in the total premium will be considered
----------------------
only when the insurance is taken by any one or more of the following from the
---------------------- proposers family.
---------------------- l Spouse
l Dependent children (i.e. legitimate or legally adopted children)
----------------------
l Dependent Parents
----------------------
N.B. : 1. Family discount will not be applicable to dependent parents premium
---------------------- when their age is above 60 years
2. This discount will be applicable only on Section I premium.
----------------------
How to Apply for Insurance : The proposer has to complete the proposal form
---------------------- and submit insured person’s details for each of the member to be enrolled under
---------------------- the scheme
Notice of Claim : Preliminary notice of claim with particulars relating to
---------------------- Policy Numbers, Name of insured person in respect of whom claim is made,
---------------------- Nature of disease/illness/injury and Name and Address of the attending medical
practitioner/Hospital/Nursing Home should be given to the Insurance Company
---------------------- within seven days from the date of Hospitalisation.
---------------------- Waiver : Waiver of period of intimation may be considered in extreme cases of

hardships where it is proved to the satisfaction of the company that under the
---------------------- circumstances in which the insured was placed, it was not possible for him or
any other person to give such notice or file claim within the prescribed time limit.
---------------------- Final claim along with hospital receipted original bills/cash memos, claim form
---------------------- and list of documents as listed in the claim form etc. should be submitted to the
company after completion of treatment but not later than 30 days of discharge
---------------------- from the Hospital. Also give the Company such additional information and
assistance as the Company may require in dealing with the claim.
----------------------
Payment of claim : All admissible claims shall be payable in Indian currency
---------------------- only.
----------------------

Sum insured : The Companies liability in respect of all claims admitted during Notes
the period of Insurance shall not exceed the sum insured opted by the insured
person under Section I or Section II as applicable. ----------------------
Cancellation Clause : The Company may at any time cancel this Policy by ----------------------
sending the Insured 30 days notice by registered letter at the Insured’s last
known address and in such event the Company shall refund to the Insured a pro- ----------------------
rata premium for un-expired Period of Insurance. The company shall however,
----------------------
remain liable for any claim which arose prior to the date of cancellation. The
Insured may at any time cancel this Policy and in such event the Company shall ----------------------
allow refund of premium at Company ‘s short period rate only (table given here
below) provided no claim has occurred up to the date of cancellation. ----------------------
Period on Risk Rate of Premium to be charsed ----------------------
Up to one month 1/4th of the annual rate
----------------------
Up to three months 1/2 of the annual rate
----------------------
Up to six months 3/4th of the annual rate
Exceeding six months Full annual rate ----------------------
Renewal of Policy : The Company shall be under no obligation to renew the ----------------------
policy on the expiring terms. The Company reserves the right to offer revised
----------------------
rates, terms and conditions, at renewal. If the policy is to be renewed for
enhanced sum insured then the restriction as applicable to a fresh policy will ----------------------
apply to additional sum insured as if a separate policy has been issued for the
difference. In other words, the enhanced sum insured will not be available for ----------------------
an illness, disease, injury already contracted under the original policy.
----------------------
Medical Expenses Incurred under two Policy Periods : A policy shall reimburse
only those expenses which are incurred during the policy year. ----------------------
However, if a claim spreads over two policy periods, the total benefit will not ----------------------
exceed the sum insured of the policy during which the insured person was
admitted to hospital. ----------------------
Cumulative Bonus : Sum Insured under the policy shall be increased by 5% ----------------------
at each renewal in respect of each claim free year of insurance, subject to
maximum of 50%. ----------------------
In case of a claim under the policy in respect of insured person who has earned ----------------------
the cumulative bonus the increased percentage will be reduced by 10% of sum
insured at the next renewal. However, basic sum insured will be maintained and ----------------------
will not be reduced. Cumulative bonus will be lost if policy is not renewed on ----------------------
the date of expiry unless the delay is condoned up to maximum of 15 days and
waived by the company. ----------------------
Cost of health Check up ----------------------
In addition to cumulative bonus the Insured shall be entitled for reimbursement
----------------------
of cost of medical check up once at the end of a block of every four underwriting
years provided there are no claims reported during the block. The cost so ----------------------
Insurance Cover 171

Notes reimbursable shall not exceed the amount equal to 1% of the average Sum
Insured excluding CB during the block of four claim free underwriting years.
---------------------- Important
---------------------- Both Health Check up and Cumulative Bonus provisions are applicable only in
respect of continuous insurance without break excepting however, in exceptional
---------------------- circumstances the break should be condoned by the Company up to maximum
---------------------- of 15 days subject to medical examination and exclusion of disease/ sickness/
injury originating or suffered during the break period.
---------------------- Period of Policy
---------------------- This insurance policy is issued for a period of one year and subject to review
continuation of insurance cover will be available if the renewal premium is paid
---------------------- in time.
----------------------
----------------------
Fill in the blanks.
----------------------
1. Health plus medical expenses policy covers reimbursement of
---------------------- hospitalisation expenses only for illness or diseases contracted or
injury sustained by the ___________.
----------------------
----------------------
Activity 2
----------------------
Visit an office of New India Assurance Company or another General Insurance
----------------------
company. Collect the brochures of their health schemes. Summarise the
---------------------- features of any one scheme.
----------------------
7.5 MOTOR VEHICLE INSURANCE
----------------------
Motor Vehicle insurance is compulsory.
---------------------- Salient features of Motor Vehicle insurance are as follows :
---------------------- Items Covered : Motor vehicle which includes private cars, motorised two
wheelers and commercial vehicles excluding vehicles running on rails.
----------------------
Who can Insure ? Owners of the vehicle, financiers or lessee, who have
---------------------- insurable interest in a motor vehicle.
Insured’s Declared Value (IDV) :
----------------------
(a) In case of vehicle not exceeding 5 years of age, the IDV has to be arrived
---------------------- at by applying the percentage of depreciation specified in the tariff on the
showroom price of the particular make and model of the vehicle.
----------------------
(b) In case of vehicles exceeding 5 years of age and Obsolete models
---------------------- (manufacture of those vehicles which have been stopped by the
manufacturers), they have to be insured for the prevailing market value of
---------------------- the same as agreed to between the insurer and the insured.

(a) Package Policy - section I Notes
Section I (Own Damage - OD) of Package Policy:
----------------------
Section I of package policy covers loss or damage to the vehicle and / or
accessories due to ----------------------
a) Accidental external means ----------------------
b) Fire, Self ignition, lightning ----------------------
c) Burglary, house breaking or theft
----------------------
d) Terrorist activity
----------------------
e) Riot, Strike and Malicious Damage
f) Earthquake ----------------------
g) Flood, cyclone and Inundation etc. ----------------------
h) While in transit by rail, road, air, elevator, lift or inland waterways ----------------------
i) Landslide or workslide
----------------------
None of the above perils can be excluded from the scope of a policy. Loss or
damage to accessories by burglary/house breaking/theft ----------------------
i) For private car it is covered ----------------------
ii) In case of Motorised Two Wheelers this can be covered on payment of an
----------------------
additional premium at 3% of the IDV of such accessories
iii) Loss or damage to Lamp, Tyres, mudguard and / or bonner side parts, ----------------------
bumpers etc., can be covered on payment of additional premium. This is
----------------------
applicatble only to Commercial Vehicles.
If the vehicle is disabled in an accident, cover is provided for the reasonable cost ----------------------
of its removal to nearest repairers and the cost of reasonable repairs immediately
----------------------
necessary subject to the limit provided for.
(a) Package Policy - section II ----------------------
Section II (Liability) of Package Policy : ----------------------
i) Liability to third parties bodily injury and or death and property damage
----------------------
ii) Personal accident cover for the owner driver for a specified sum insured
----------------------
The following are payable under Section II of the Package Policy subject to the
limit of liability laid down in the Motor Vehicles Act : ----------------------
l The insured’s legal liability for death / disability of third party
----------------------
l Loss or damage to third party property
----------------------
l Claimant’s cost as decided by the court
l All costs and expenses incurred with company’s written consent ----------------------
In case
l of death of an Insured person, entitled to indemnity for a liability ----------------------
incurred under this policy, his legal representative will be indemnified in
place of insured, if he observed all conditions as the insured himself. ----------------------
Insurance Cover 173

Notes What is not payable under the policy ?
l Contractual liability
----------------------
l War perils, nuclear perils and drunken driving
----------------------
Consequentail
l loss, Depreciation, Wear and tear, mechanical or electrical
---------------------- break down
---------------------- Damage
l suffered due to driving the vehicle under the influence of
intoxicating liquor or drugs
---------------------- l Claims arising outside the geographical area specified in the policy
---------------------- Claims arising whilst the vehicle is used in contravention of the limitations
l
as to use
----------------------
Claims
l arising when the vehicle is driven by a person without valid
---------------------- driving licence
---------------------- (b) Liability Only Policy : As per Section II of the Package Policy
---------------------- Discounts
The following are the discounts available on the premium payable :
----------------------
Vintage
l Cars - Cars manufactured prior to 31.12. 40 and duly certified by
---------------------- the Vintage and Classic Cars Club of India :
---------------------- A discount
l of 25% on the OD rates is available. Policies issued covering
these vehicles are Agreed Value Policies
----------------------
No Claim bonus
---------------------- Ranging from 20% to 50% depending on the number of claim free years.
---------------------- l Automobile Association Membership Discount :
---------------------- Discount of 5% on the Own Damage premium subject to a maximum of

Rs. 200/- for private cars and Rs. 50/- for Motorised Two wheelers only.
---------------------- l Discount for Anti Theft Devices
---------------------- A discount of 2.5% on the OD component of premium subject to a maximum
of Rs. 200/. Device approved by the ARAI, Pune - installation of the same in
----------------------
vehicle certified by the Automobile Association of India.
---------------------- Concession
l for vehicles laid up for continuous periods exceeding 2
months
----------------------
50%
l discount on the OD premium on the vehicle specialy designed /
---------------------- modified for use of the blind, handicapped and mentally challenged
---------------------- persons
l Use of vehicles within Insured’s premises/sites :
----------------------
A discount of 33 1/1 % on the tariff rates is permissible.
----------------------
Extension of Cover on payment of additional premium additional premium is
---------------------- payable to extend the cover under the Package and Liability Only policies in
case of the following:
The
l geographical area may be extended to include a) Bangladesh Notes
b) Bhutan c) Nepal d) Pakistan e) Sri Lanka f) Maldives by charging
additional premium of Rs. 500/- per vehicle in case of package policy and ----------------------
Rs.100/- per vehicle in case of Liability only Policy.
----------------------
Personal
l Accident covers are available to names and unnamed persons
travelling in the Motor Vehicles including employees. ----------------------
In case
l of vehicles belonging to Embassies / Consulates etc., where the ----------------------
“import duty” element is not included in the IDV the premium for Own
Damage shall be loaded by 30%. ----------------------
Electrical/Electronic
l Fittings : Electrical/Electronic Fittings which do not ----------------------
form part of the vehicle manufactured and imported have to be specifically
covered separately by paying additional premium of 4% on the value of ----------------------
such fittings.
----------------------
CNG/LPG-Bi-fuel
l Kits : Vehicles fitted with CNG/LPG Bi-fuel kits have
to be separately declared and premium is chargeable at 4% on the value ----------------------
of such kit. ----------------------
Fibre
l Glass Fuel Tanks : An additional premium of Rs.50/- for OD cover
for all vehicles except Miscellaneous Type of Commercial Vehicles: For ----------------------
Miscellaneous Type of Commercial Vehicle, it is Rs. 100/-. ----------------------
Other Information
----------------------
(I) Transfers
----------------------
In case of change of ownership, please ensure to effect the transfer of
Insurance policy within 14 days from the date of transfers of ownership. ----------------------
(II) Change of Vehicles ----------------------
A vehicle can be substituted by another vehicle for the same class, for the
balance period of a policy subject to adjustment of premium, if any, on ----------------------
prorata basis from the date of substitution. ----------------------
Note : Particulars of cover, liability and exclusion given above are not complete
or exhaustive. Nearest branch or office of an insurance company may be ----------------------
approached for complete details. ----------------------
7.6 SHOPKEEPER’S POLICY ----------------------
This is a package policy specially designed for small shopkeepers. ----------------------

It is a single policy combining the various insurance requirements
----------------------
of shopkeepers. Discount in premium is available if a minimum
number of four sections is selected including Section I (b). Only ----------------------
one policy can be taken by one shopkeeper for each shop in a
specific location having separate books of accounts. ----------------------
----------------------
----------------------
Insurance Cover 175

Notes The policy comprises following 11 sections :
Section I - building and Contents
----------------------
Covers shop building and/or contents therein against loss or damage caused by
---------------------- Fire & Allied perils i.e.
---------------------- a. Fire, lightning, explosion of gas in domestic appliances
---------------------- b. Bursting and overflowing of water tanks, apparatus or pipes

c. Aircraft or articles dropped therefrom
----------------------
d. Riot, strike, malicious damage, terrorist act
----------------------
e. Earthquake-Fire and/or shock, subsidence and landslide (including
---------------------- rockslide)
f. Flood, Inundation, Storm, Tempest, Typhoon, Hurricane, Tornado or
----------------------
Cyclone.
---------------------- g. Impact damage by rail/road vehicle not belonging to the insured.
---------------------- Section II - burglary and Housebreaking
---------------------- Covers contents of insured shop premises(excluding money and valuables)

against loss or damage by burglary and/or housebreaking.
----------------------
Section III - Money Insurance
---------------------- Covers loss of money in transit, loss of money/valuables whilst contained in a
locked safe, loss of money contained in cashier’s till and/or counter by burglary/
----------------------
housebreaking.
---------------------- Section IV - Pedal - Cycles
---------------------- Covers loss/damage to pedal cycles belonging to insured by :
---------------------- a. Fire, lightning or external explosion.

b. Riot, strike, malicious or terrorist act.
----------------------
c. Burglary and/or Housebreaking or theft
----------------------
d. Accidental external means
---------------------- e. Flood, cyclone, storm, tempest, and other similar convulsions of nature
---------------------- and atmospheric disturbance
f. Earthquake Fire and shock
----------------------
This section also covers legal liability of insured for death/injury to third parties
---------------------- or damage to their property arising out of use of the insured pedal cycles.
---------------------- Section V - Plate glass
Covers loss of or damage to fixed plate glass in insured’s shop by accidental
----------------------
means.
----------------------
----------------------

Section VI - Neon sign/glow sign Notes
Covers loss of or damage to neon sign/ glow sign by :
----------------------
a. Accidental external means
----------------------
b. Fire, lightning or external explosion or theft.
c. Riot, strike, malicious or terrorist act ----------------------
d. Flood, inundation, storm, tempest, typhoon, hurricane, tornado, cyclone. ----------------------
Section VII - baggage ----------------------
Covers loss or damage to accompanied personal baggage of insured or baggage
----------------------
in connection with his trade, whilst anywhere in India, by accident or misfortune.
Section VIII - Personal Accident ----------------------
Covers insured and spouse and/or his children, named in the schedule and ----------------------
aged between 5&70 years, against bodily injury caused solely and directly by
accident and resulting in death or permanent total or partial disablement or ----------------------
temporary total disablement within 12 calendar months of such injury.
----------------------
Section IX - Fidelity guarantee
----------------------
Covers direct pecuniary loss suffered by the insured due to fraud or dishonesty
committed by any of insured’s salaried employees. ----------------------
Section X - Public Liability ----------------------
Covers the following :
----------------------
a. Legal liability in respect of accidental death or bodily injury to a third
party or accidental damage to their property during performance of any ----------------------
act in connection with insured’s business.
----------------------
b. Compensation to insured’s employees under Workmen’s Compensation
Act or Common Law. ----------------------
Section XI - Loss of Profit ----------------------
Covers loss of profit due to interruption of business consequent upon loss or ----------------------
damage sustained by property insured under Section I of the policy due to
insured perils. ----------------------
It is necessary to opt for a minimum of 4 sections for this policy to be issued of ----------------------
which Sections I & II are compulsory
----------------------
This policy can be taken by small shopkeepers whose shop building value and
contents value does not exceed Rs. 10 lacs. In case it exceeds Rs.10 lacs, this ----------------------
policy cannot be given. This policy is meant for shops only. Mere registration
under Shops and Establishment Act does not entitle the premises to be insured ----------------------
under this policy. Hence, Restaurants and Tea /Coffee shops cannot be insured
----------------------
under this policy. However, shops selling goods where minor repair work is
carried on incidental to the main business of selling, can take this policy. ----------------------
The shop building should be insured on market value basis i.e. depreciated
----------------------
value basis. The contents should be insured on cost price basis. The sum insured
Insurance Cover 177

Notes for contents under Section I & II should be identical. The sum insured under
Sections III, V, VI, VII, IX, X & XI is limited to specified percentage of the sum
---------------------- insured for contents
---------------------- In case of any incident giving rise to a claim under this policy, please take the
following steps:
----------------------
l Take necessary steps to minimize the loss/damage.
---------------------- l In case of fire, inform fire brigade immediately.
---------------------- In case
l of theft, larceny or burglary inform the police immediately along
with a list of items stolen and their approximate value.
----------------------
l Inform insurance company by phone or fax and in writing.
---------------------- Extend
l full co-operation to the surveyor appointed by the insurance Co.
---------------------- and provide necessary documents to substantiate the loss. A claim form
issued by the company is also to be submitted.
----------------------
In case any rights of recovery exist against any other party responsible for
l
---------------------- the loss, your rights of recovery have to be subrogated to the insurance
company on payment of claim.
----------------------
Note: Policy details given are indicative, not exhaustive. Please contact nearest
---------------------- New India Assurance office for further details.
---------------------- Summary
----------------------
Insurance is a mechanism that helps to reduce the effect of losses for a small
l
---------------------- price called premium. Insurance does not prevent loss but compensates
the loss. The likely big loss for any one is reduced to manageable small
---------------------- losses for all.
---------------------- l Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC) were the main players. GIC had four subsidiary
---------------------- companies namely
---------------------- a) The Oriental Insurance Company Limited
---------------------- b) The New India Assurance Company Limited,

c) National Insurance Company Limited
----------------------
d) United India Insurance Company Limited
----------------------
l After liberalisation of Insurance sector in the year 1999, several players
---------------------- have entered the insurance industry thereby increasing the competition.
l Life insurance is a contract that pledges payment of an amount to the
----------------------
person assured (or his nominee) on the happening of the event insured
---------------------- against. Endowments policies, Money back policies, Unit linked insurance
plans and term plans without return of premium are the major categories
---------------------- of life insurance policies.
----------------------

l The Health policy covers reimbursement of hospitalisation expenses only Notes
for illness/diseases contracted or injury sustained by the Insured person.
Motor Vehicle insurance is compulsory. ----------------------
----------------------
Keywords
----------------------
l Accident : Any Unforeseen and unexpected event is considered an
accident. For insurance purposes, it has to be due to external, physical ----------------------
and violent means.
----------------------
l ccidental Death Benefit : A monetary compensation in addition to the
A
face amount of a life insurance policy, payable if the insured dies as the ----------------------
result of an accident. Sometimes referred to as “double indemnity.”
----------------------
l Actual Total Loss : It is a loss where the goods are completely lost and
become irrecoverable. ----------------------
l Additional cover : An insurance policy extended to cover additional risk ----------------------

perils such as strikes. Riots and Civil commotion etc. on payment of extra
premium. ----------------------
l Aggregate Indemnity : The maximum amount that may be collected for ----------------------
any disability or period of disability under the policy.
----------------------
l Agreed value policy : Policy which undertakes to pay a specified amount
in case of total loss. Under this case the policy does not take into account ----------------------
the current market value.
----------------------
l Assignment : The legal transfer of one person’s interest in an insurance
policy to another person. ----------------------
l Assured : Party indemnified or promised to be indemnified against loss ----------------------
by means of insurance.
----------------------
l Basic Rate : The standard charge for a given type of risk for basic limit.
l Bonus : The Bonus system awards discounts for claim-free driving for a ----------------------
certain continuous period. This goes on increasing up to a certain limit for ----------------------
continuous claim free years.
----------------------
l ertificate of Insurance : A document issued to a member of a group
C
insurance plan, describing the insurance benefits and principal provisions ----------------------
of the policy in brief.
----------------------
l Clause : Sentences and paragraphs describing coverage’s, exclusions,
duties of an insured, and termination of coverage, and other such parts of ----------------------
the insurance policy.
----------------------
l Contract of Insurance : An agreement between the insurer and one or
more parties, called the insured, whereby the insurer undertakes in return ----------------------
for the payment of a certain consideration, called the premium, to pay to
the insured a certain sum of money or to grant certain compensation on ----------------------
the happening of a specified event.
----------------------
Insurance Cover 179

Notes l Cover Note : A cover note is a document issued in advance pending the
issue of the policy, and is normally required if the policy cannot for some
---------------------- reason or other be issued straight away. Cover notes can also be issued
during the course of negotiations to provide cover on a provisional basis.
---------------------- A cover note is not a stamped document but is honored, all the same, by
---------------------- all parties concerned.
l Disability : Inability to perform all or part of one’s occupational duties
----------------------
because of an accident or illness: see Total Disability and Partial Disability.
---------------------- l Fidelity bond : A form of protection which reimburses an employer for
losses caused by dishonest or fraudulent, acts of employees.
----------------------
l Fire insurance : Coverage for losses caused by fire and lightning, as well
---------------------- as the resultant damage caused by smoke and water.
---------------------- l Health insurance : A generic term applying to all types of insurance
indemnifying or reimbursing for losses caused by bodily accident or
---------------------- sickness or for expenses of medical treatment necessitated by sickness or
---------------------- accidental bodily injury.
l Householders Policy : A package of insurance providing homeowners
---------------------- with a broad range of property and liability coverages.
---------------------- l Insurance : An economic device whereby the individual substitutes a
small certain cost (the premium) for a large uncertain financial loss (the
---------------------- contingency insured against) which would exist if it were not for the
---------------------- insurance contract: an economic device for reducing and eliminating risk
through the process of combining a sufficient number of homogeneous
---------------------- exposures into a group in order to make the losses predictable for the
group as a whole.
----------------------
l Insurance Product : An insurance product is defined as a product that is
---------------------- provided by an insurance company.
---------------------- l Insurance Policy : Legal document issued to the insured setting out the
terms of the contract of insurance.
----------------------
l Insured : The person to whom or on whose behalf benefits are payable
---------------------- under the policy.
---------------------- l Insurer : A licensed legal entity, which underwrites insurance, including

a mutual insurance company (but note the exemption of pure reinsurers).
---------------------- l Market Value : The price for which something would sell, especially the
---------------------- value of certain types of assets, such as stocks and bonds. It is based on
what they would sell for under current market conditions. For example,
---------------------- common stock market value would be the price of the stock as of a
specified date.
----------------------
l Ombudsman : An authority established either by the company or the
---------------------- Government for the quick redressal of grievances.
----------------------

l Policyholder : The person (or persons) whose risk of financial loss from Notes
an insured peril is protected by the policy.
----------------------
l Premium : The sum paid by a policyholder to keep an insurance policy
in force. It is the amount paid to secure an insurance policy. ----------------------
l Proposal : A person interested in taking out insurance has to make an
----------------------
offer by means of a proposal. This is an application for the cover required,
or for obtaining quotations of the premium chargeable. ----------------------
l Proposal Form : It is a form which is to be completed for securing an
----------------------
insurance policy. It can be a potential source of loss or the subject matter
of insurance itself. ----------------------
l Risk Management : A scientific approach to the problem of dealing with
----------------------
the pure risks facing an individual or an organisation in which insurance
is viewed as simply one of several approaches for dealing with such risks. ----------------------
l Sum Insured : The limit of liability of the insurers under a policy. ----------------------
l Surrender Value : Surrender value is the amount payable to the policy
holder on his surrendering his right under a policy and terminating the ----------------------
contract of insurance ----------------------
l Third party : Someone other than the insured and insurance company
----------------------
l Third party claim : A demand made by a person against a policyholder
and any payment that will be made by that company. ----------------------
l Third Party Liability : Liability incurred by the insured to another party ----------------------
but excluding contractual liability.
----------------------
l Underwriting : The process of selecting risks for insurance and
determining in what amounts and on what terms the insurance company ----------------------
will accept the risk.
----------------------
l Valuation : Estimation of the value of an item, usually by appraisal.
----------------------
a. Underwriting ----------------------
b. Health Insurance
----------------------
c. Life Insurance
----------------------
d. Claim
e. Surrender Value ----------------------
f. Insurable interest ----------------------
----------------------
----------------------
Insurance Cover 181

Notes 2. Write a short note on Indian Insurance Industry.
3. Narrate in brief the different Life Insurance policies.
----------------------
4. State the role of Insurance business in the economy.
----------------------
5. State the salient features of a Health Insurance scheme.
---------------------- 6. State the salient features of a Motor Vehicle Insurance.
---------------------- 7. State the salient features of a Shopkeeper’s Policy.
----------------------
----------------------
---------------------- 1. True
Fill in the blanks.
----------------------
1. Health plus medical expenses policy covers reimbursement of
---------------------- hospitalisation expenses only for illness or diseases contracted or injury
---------------------- sustained by the insured person.

----------------------
---------------------- 3. Kapur, N.D. Elements of Mercantile Law. Sultan Chand.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Income Tax Act
UNIT
8
Structure:
8.1 Introduction
8.3 Income from Salary
8.4 Income from House Property
8.5 Income from Business
8.6 Income from Capital Gain
8.7 Income from Other Sources
8.8 Fringe Benefit Tax
8.9 Tax Deduction at Source
8.10 Filing of Returns
Summary
Keywords
Suggested Reading
Income Tax Act 183

Notes
Objectives
----------------------
----------------------
• Assess the tax liability of salaried persons
----------------------
• Describe the taxable income from business
---------------------- • Explain the provisions regarding tax deduction at source (TDS)
---------------------- • Discuss the provisions regarding fringe benefit tax
---------------------- 8.1 INTRODUCTION

---------------------- While running an organisation an entrepreneur has to employ labours to
---------------------- carry out his business. He pays salary to them and also pays service charges to
transport operators and rent to premises owners. On such payment, he has to
---------------------- deduct tax at source. Otherwise, he will be liable to pay the tax from his own
pocket.
----------------------
The Finance Act, 2005 has provided that w.e.f. 01.04.2006, every person
---------------------- shall file a return of income on or before the relevant due date if his total income
without giving effect to the provisions of Chapter VI-A exceeds the maximum
----------------------
amount not chargeable to tax. Return showing income below taxable limit
---------------------- is a valid return (CIT v Ranchhoddas Karosands [1959(361ITR 869 (SC)].
Therefore, it is essential that every businessman should know the provisions of
---------------------- Income Tax Act.
----------------------
----------------------
As per Section 2 (9) Assessment Year is the year in which the income of
---------------------- the previous year is to be assessed. Previous Year means the Year preceding the
Assessment Year.
----------------------
As per Section 3 income of the previous year is taxed in the immediately
---------------------- following assessment year. In respect of Income received from 1-4-2006 to
31- 3-2007, the tax has to be paid in the year 1-4-2007 to 31-3-2008. In this
---------------------- case, 2006-07 is called as Previous Year and 2007-08 is called as Assessment
---------------------- Year. Previous Year is the Income Year and Assessment Year is the Tax Year.
As per Section 2 (9) Assessee means a person who is liable to pay income
---------------------- tax. As per Section 6, individuals are either a) Resident and ordinarily Resident
---------------------- b) Resident but not ordinarily Resident or c) Non-Resident.
As per Section 9, Tax is payable on the following heads of income :
----------------------
l Salary
---------------------- l Income from house property
---------------------- l Profits and gains of business or profession
l Capital gains
---------------------- l Income from other sources

‘Perquisite’ is defined in the Section17 (2) of the Income tax Act as including: Notes
a) Value of rent-free/concessional rent accommodation provided by the
employer. ----------------------
b) Any sum paid by employer in respect of an obligation which was actually ----------------------
payable by the assessee.
----------------------
c) Value of any benefit/amenity granted free or at concessional rate to
specified employees etc. ----------------------
Permanent Account Number ----------------------
PAN or Permanent Account Number is a number allotted to a person by the
Assessing Officer for the purpose of identification. PAN of the new series has ----------------------
10 alphanumeric characters and is issued in the form of laminated card. ----------------------
Section 139A of the Income Tax Act provides that every person whose total
income exceeds the maximum amount not chargeable to tax or every person ----------------------
who carries on any business or profession whose total turnover or gross receipts ----------------------
exceed Rs.5 lakhs in any previous year or any person required to a file a return
of income u/s 139(4A) shall apply for PAN. Besides, any person not fulfilling ----------------------
the above conditions may also apply for allotment of PAN. With effect from
----------------------
01.06.2000, the Central Government may be notification specify any class/
classes of person including importers and exporters, whether or not any tax ----------------------
is payable by them, and such persons shall also then apply to the Assessing
Officer for allotment of PAN. ----------------------
W.e.f. 01.04.2006 a person liable to furnish a return of fringe benefits under the ----------------------
newly introduced Section 115WD of the I.T. Act is also required to apply for
allotment of PAN. Of course, if such a person already has been allotted a PAN, ----------------------
he shall not be required to obtain another PAN. ----------------------
Transactions in which quoting of pan is mandatory
----------------------
l Purchase and sale of immovable property.
l Purchase and sale of motor vehicles. ----------------------
l Transaction in shares exceeding Rs.50,000. ----------------------

l Opening of new bank accounts. ----------------------
l Fixed deposits of more than Rs.50,000.
----------------------
l Application for allotment of telephone connections.
l Payment to hotels exceeding Rs.25,000. ----------------------
Provided
l that till such time PAN is allotted to a person, he may quote his ----------------------
General Index Register Number or GIR No.
----------------------
How to apply for PAN?
Application for allotment of PAN is to be made in Form 49A. Following points ----------------------
must be noted while filling the above form:- ----------------------
a. Application form must be typewritten or handwritten in black ink in
BLOCK LETTERS. ----------------------
Income Tax Act 185

Notes b. Two black & white photographs are to be annexed.
c. While selecting the “Address for Communication”, due care should be
----------------------
exercised as all communications thereafter would be sent as indicated
---------------------- address.
d. In the space given for “Father’s Name”. Only the father’s name should be
----------------------
given. Married ladies may note that husband’s name is not required and
---------------------- should not be given.
e. Due care should be exercised to fill the correct date of birth.
----------------------
f. The form should be signed in English or any of the Indian Languages
---------------------- in the 2 specified places. In case of thumb impressions attestation by a
---------------------- Gazetted Officer is necessary.
The rates for charging income tax from A.Y. 2007-08 shall be as follows :
----------------------
I. In case of individual (other than II and III below) and HUF :
----------------------
(i) Where the total income does not NIL
---------------------- exceed Rs.1,10,000/-.
(ii) Where the total income exceeds 10% of the amount in excess
---------------------- Rs.1,10,000/- but does not exceed of Rs.1,10,000/-.
Rs.1,50,000/-.
----------------------
(iii) Where the total income exceeds Rs.4,000/- + 20% of the amount
---------------------- Rs.1,50,000/- but does not exceed by which total income exceeds
Rs.2,50,000/-. Rs.2,50,000/-.
---------------------- (iv) Where the total income exceeds Rs.24,000/- + 30% of the
Rs.2,50,000/-. amount by which total income
----------------------
exceeds Rs.2,50,000/-.
---------------------- II. In case of individual being a woman resident in India and below 65 years
at any time during the previous year :
----------------------
(i) Where the total income does NIL
---------------------- not exceed Rs.1,45,000/-.
(ii) Where total income exceeds 10% of the amount by which
----------------------
Rs.1,45,000/- but does not the total income exceeds
---------------------- exceed Rs.1,50,000/-. Rs.1,45,000/-.
(iii) Where the total income exceeds Rs.500/- + 20% of the amount
---------------------- Rs.1,50,000/- but does not by which total income exceeds
exceed Rs.2,50,000/-. Rs.1,50,000/-.
----------------------
(iv) Where the total income exceeds Rs.20,500/- + 30% of the
---------------------- Rs.2,50,000/-. amount by which the total
income exceeds Rs.2,50,000/-.
----------------------
----------------------
----------------------
----------------------

III. In case of an individual resident who is of the age of 65 years or more at Notes
any time during the previous year :
----------------------
(i) Where the total income does not NIL
exceed Rs.1,95,000/-. ----------------------
(ii) Where the total income exceeds 20% of the amount by which
Rs.1,95,000/- but does not the total income exceeds ----------------------
exceed Rs.2,50,000/- Rs.1,95,000/-.
----------------------
(iii) Where the total income exceeds Rs.11,000/- + 30% of the amount
Rs.2,50,000/-. by which the total income ----------------------
exceeds Rs.2,50,000/-.
----------------------
For the AY 2008-09 surcharge is nil up to taxable income of Rs.10,00,000/-.
For taxable income above Rs.10,00,000/- the surcharge is 10% of income ----------------------
tax. Education Cess is 3% of Income tax and Surcharge.
----------------------
IV. The tax rate for firms is a flat 30% of taxable income. The above slabs are
not applicable for the firms. Surcharge is 10% of Income tax. Education ----------------------
Cess is 3% of Income tax and Surcharge.
----------------------
V. The tax rate for domestic companies is a flat 30% of taxable income. The
above slabs are not applicable for the corporate assessees. Surcharge is ----------------------
10% of Income tax. Education Cess is 3% of Income tax and Surcharge.
----------------------
8.3 INCOME FROM SALARY ----------------------
An employer has to deduct income tax at source from the salary payable ----------------------
to employees. Therefore it is important to know whether there is Employer-
employee relationship. The nature and extent of control which is the basis ----------------------
requisite to establish employer-employee relationship would vary from
----------------------
business to business. The test which is uniformly applied in order to determine
the relationship is the existence of a ‘right to control’ in respect of the manner ----------------------
in which the work is to be done. (Dharangadhra Commercial Works v State of
Saurashtra 1957 SCR 152). ----------------------
Salary is the remuneration received by or accruing to an individual, ----------------------
periodically, for service rendered as a result of an express or implied contract.
The actual receipt of salary in the previous year is not material as far as its ----------------------
taxability is concerned. The existence of employer-employee relationship is
----------------------
the sine-qua-non for taxing a particular receipt under the head ‘salaries.’ For
instance, the salary received by a partner from his partnership firm carrying on a ----------------------
business is not chargeable as ‘Salaries’ but as ‘Profits and Gains from Business
and Profession’. Similarly, salary received by a person as MP or MLA is taxable ----------------------
as ‘Income from other sources’, but if a person received salary as Minister of
----------------------
State/Central Government, the same shall be charged to tax under the head
‘Salaries’. Pension received by an assessee from his former employer is taxable ----------------------
as ‘Salaries’ whereas pension received on his death by members of his family
(Family Pension) is taxed as ‘Income from other sources’. ----------------------
----------------------
Income Tax Act 187

Notes What does ‘salary’ include?
Section 17(1) of the Income Tax Act gives an inclusive and not exhaustive
----------------------
definition of ‘Salaries’ including therein (i) Wages (ii) Annuity or pension
---------------------- (iii) Gratuity (iv) Fees, Commission, perquisites or profits in lieu of salary
(v) Advance of Salary(vi) Receipt from Provident Fund (vii) Contribution of
---------------------- employer to a Recognised Provident Fund in excess of the prescribed limit
(viii) Leave Encashment (ix) Compensation as a result of variation in Service
----------------------
contract etc.
---------------------- Deduction from salary income
---------------------- The following two deductions from salary income are admissible as per Section
16 of the Income-tax Act
----------------------
Professional/Employment tax levied by the State Govt.
---------------------- Entertainment Allowance : Deduction in respect of this is available to a
---------------------- government employee to the extent of Rs. 5000/- or 20% of his salary, whichever
is less.
---------------------- Perquisites
---------------------- ‘Perquisite’ may be defined as any casual emolument or benefit attached to an
office or position in addition to salary or wages.
----------------------
‘Perquisite’ is defined in the Section17(2) of the Income Tax Act as including:
----------------------
Value
l of rent-free/concessional rent accommodation provided by the
---------------------- employer.
---------------------- Any sum paid by employer in respect of an obligation which was actually
l
payable by the assessee.
---------------------- Value
l of any benefit/amenity granted free or at concessional rate to
---------------------- specified employees etc.
Valuation of Perquisites
----------------------
As a general rule, the taxable value of perquisites in the hands of the
---------------------- employees is its cost to the employer. However, specific rules for valuation of
certain perquisites have been laid down in Rule 3 of the I.T. Rules. These, as
----------------------
revised by CBDT notification dated 25.9.2001, are briefly given below.
---------------------- Valuation of residential accommodation provided by the employer:
---------------------- Union or State Government Employees- The value of perquisite is the
license fee as determined by the Govt. as reduced by the rent actually paid by
---------------------- the employee.
---------------------- Non Govt. Employees :
---------------------- The value of perquisite is an amount equal to 10% of the salary (15% of
salary in cities where population as per 1991 census is below 4 lacs). In case the
---------------------- accommodation provided is not owned by the employer, but is taken on lease
or rent, then the value of the perquisite would be the actual amount of lease rent
---------------------- paid/payable by the employer or 20% of the salary, whichever is lower. In both

above cases, the value of the perquisite would be reduced by the rent, if any, Notes
actually paid by the employee.
----------------------
Value of Furnished Accommodation:
The value would be the value of unfurnished accommodation as computed ----------------------
above, increased by 10% per annum of the cost of furniture (including TV/
----------------------
radio/refrigerator/AC/other gadgets). In case such furniture is hired from a third
party, the value of unfurnished accommodation would be increased by the hire ----------------------
charges paid/payable by the employer. However, any payment recovered from
the employee towards the above would be reduced from this amount. ----------------------
Value of hotel accommodation provided by the employer : ----------------------
The value of perquisite arising out of the above would be 24% of salary ----------------------
or the actual charges paid or payable to the hotel, whichever is lower. The above
would be reduced by any rent actually paid by the employee. It may be noted ----------------------
that no perquisite would arise, if the employee is provided such accommodation
on transfer from one place to another for a period of 15 days or less. ----------------------
Perquisite of motor car provided by the employer: ----------------------

If it is used wholly and exclusively for the official purpose, the value of ----------------------
the perquisite would be nil. Rule 3(2) (B) provides that the value would be taken
as nil provided the following documents are maintained by the employer:- ----------------------
(i)
Complete details of journey undertaken (including date of journey, ----------------------
destination, mileage etc.)
----------------------
(ii) Certificate by the employee that the expenses were incurred wholly and
exclusively for official purposes. ----------------------
(iii) Certificate by the supervising authority that the expenses were incurred ----------------------
wholly and exclusively for official purposes. If it is used exclusively
for private purpose of the employee or any member of his household, ----------------------
the value of the perquisite would be the actual expenses incurred by the
employer on the running/maintenance of the car, remuneration paid to the ----------------------
chauffeur and normal wear and tear of the car. For the purpose of this sub- ----------------------
rule, the normal wear and tear of a car shall be taken as 10% per annum
of the actual cost. If it is used for both personal and official purposes, ----------------------
the value of the perquisite would be Rs.1200 (Rs.1600 if the car has H.P.
greater than 16) plus Rs.600 for chauffeur, if any. In case, the expenses ----------------------
on running/maintenance relating to personal use are met by the employee, ----------------------
the value of the perquisite would be Rs.400 (Rs.600 if car has H.P. greater
than 16) plus Rs. 600 for chauffeur. In case the motor car is owned by the ----------------------
employee but the running/maintenance charge and chauffeur’s salary, if
any, are met by the employer, then the value of the perquisite would be: ----------------------
(i) Nil, if the vehicle is used only for official purposes and the ----------------------
documents listed at (a) above are maintained.
----------------------
(ii) If used for both personal and official purposes, the value would
be the actual expenses incurred by the employer as reduced by an ----------------------
Income Tax Act 189

Notes amount of Rs.1200 (Rs.1600 if car has H.P.greater than 16) plus
600 in case any driver has been engaged.
----------------------
Now, this valuation is discontinued.
---------------------- Perquisite arising out of supply of gas, electric energy or water:
---------------------- This shall be determined as the amount paid by the employer to the agency
supplying the same. If the supply is from the employer’s own resources, the
---------------------- value of the perquisite would be the manufacturing cost per unit incurred by the
employer.
----------------------
Free/Concessional Educational Facility:
----------------------
Value of the perquisite would be the expenditure incurred by the employer. If
---------------------- the education institution is maintained and owned by the employer, the value
would be nil if the value of the benefit per child is below Rs. 1000/- P.M. or else
---------------------- the reasonable cost of such education in a similar institution or near the locality.
---------------------- Free/Concessional journeys provided by an undertaking engaged in carriage
of passengers or good:
----------------------
Value of perquisite would be the value at which such amenity is offered to
---------------------- general public as reduced by any amount, if recovered from the employee.
---------------------- Provision for sweeper, gardener, watchman or personal attendant:
---------------------- The value of benefit resulting from provision of any of these shall be the actual
cost borne by the employer in this respect as reduced by any amount paid by the
---------------------- employee for such services.
---------------------- Value of certain other fringe benefits

Interest free/concessional loans :
----------------------
The value of the perquisite shall be the sum equal to the simple interest computed
---------------------- @ 10% per annum in respect of house or conveyance loans and @ 13% per
annum for loans as reduced by any interest actually paid by the employee.
----------------------
Value of free meals :
----------------------
Free meals shall be the expenditure incurred by the employer. However, free
---------------------- meals provided during office hours or through non-transferable paid vouchers
usual only at eating joints shall be exempt upto Rs.50/- per meal.
----------------------
Value of gift or voucher or token :
---------------------- Received by the employee from the employer would be the sum equal to the
---------------------- amount of such gift. However, if the aggregate value of such gifts during the
year is below Rs. 5000/-, the perquisite shall be taken as nil.
---------------------- Credit card provided by employer :
---------------------- The value of the perquisite shall be the amount of expenses including membership
fees and annual fees incurred by the employee. However, if the same is used
----------------------
exclusively for official purposes, the value of the perk shall be nil.
----------------------

Club membership provided by employer : Notes
The value of the perquisite shall be the amount of all expenses incurred by the
----------------------
employer or reimbursed to the employee including the annual fees. However, if
the same is incurred exclusively for official purposes, the value of the perquisite ----------------------
shall be nil.
----------------------
The value of any other benefit or amenity provided by the employer shall be
determined on the basis of cost to the employer under an arms’ length transaction ----------------------
as reduced by the employee’s contribution.
----------------------
Perquisites exempt from income tax
Some instances of perquisites exempt from tax are given below: ----------------------
Provision of medical facilities (Proviso to Sec. 17(2)) : ----------------------

Value of medical treatment in any hospital maintained by the Government or any ----------------------
local authority or by the employer or approved by the employer or approved by
the Chief Commissioner of Income-tax. Besides, any sum paid by the employer ----------------------
towards medical reimbursement other than as discussed above is exempt upto
Rs.15,000/-. ----------------------
Perquisites allowed outside India by the Government to a citizen of India for ----------------------
rendering services outside India (Sec.10(7)).
----------------------
Rent free official residence provided to a judge of High Court or Supreme Court
or an Officer of Parliament, Union Minister or Leader of Opposition. ----------------------
No perquisite shall arise if interest free/concessional loans are made available ----------------------
for medical treatment of specified diseases in Rule 3A or where the loan is petty
not exceeding in the aggregate Rs. 20,000/-. ----------------------
No perquisite shall arise in relation to expenses on telephones including a ----------------------
mobile phone incurred on behalf of the employee by the employer.
----------------------
Allowances
----------------------
Allowance is defined as a fixed quantity of money or other substance given
regularly in addition to salary for meeting specific requirements of the ----------------------
employees.
----------------------
House Rent Allowance : Provided that expenditure on rent is actually incurred,
exemption available shall be the least of the following : ----------------------
a) HRA received.
----------------------
b) Rent paid less 10% of salary
----------------------
c) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi).
Salary here means Basic + Dearness Allowance, if dearness allowance is ----------------------
provided by the terms of employment.
----------------------
Mrs.Swarupa has received a House Rent Allowance of Rs.96,000/- during
2006-07. She has paid a rent of Rs. 1,60,000/-. Her salary (basic and DA) is ----------------------
Rs. 4,50,000/-. Calculate whether her tax liability in respect of HRA.
----------------------
Income Tax Act 191

Notes Taxable portion of HRA
S.N. Particulars Amount
---------------------- 1 Salary (Basic + DA) 450,000
2 HRA received 96,000 a
----------------------
3 Rent paid 160,000
---------------------- 4 10% of salary. (4= 1 X 10/100) 45,000
5 Rent paid less 10% of salary. (5 = 3-4) 115,000 b
---------------------- 6 40% of Salary (6= 1 X 40/100) 180,000 c
7 Lowest of a or b or c 96000
---------------------- 8 Taxable portion of HRA 0
---------------------- Leave Travel Allowance:
---------------------- The amount actually incurred on performance of travel on leave to any place in
India by the shortest route to that place is exempt. This is subject to a maximum
---------------------- of the air economy fare or AC 1st Class fare (if journey is performed by mode
other than air) by such route, provided that the exemption shall be available
---------------------- only in respect of two journeys performed in a block of 4 calendar years.
---------------------- Certain allowance given by the employer to the employee are exempt u/s 10(14).
w.e.f. 1.7.1995, all these exempt allowance are detailed in Rule 2BB of Income-
----------------------
tax rules and are briefly given below
---------------------- For the purpose of Section 10(14)(i), the following allowances are exempt,
subject to actual expenses incurred:
----------------------
l Allowance granted to meet cost of travel on tour or transfer.
----------------------
Allowance
l granted on tour or journey in connection with transfer to meet
---------------------- the daily charges incurred by the employee.
---------------------- Allowance granted to meet conveyance expenses incurred in performance

l
of duty, provided no free conveyance is provided.
---------------------- Allowance
l granted to meet expense incurred on a helper engaged for
---------------------- performance of official duty.
Academic,
l research or training allowance granted in educational or
----------------------
research institutions.
---------------------- Allowance
l granted to meet expenditure on purchase/maintenance of
uniform.
----------------------
The following investment/payments are eligible for deduction u/s 80C.
----------------------
Nature of Investment
---------------------- Life Insurance Premium. Policy in the name of self, or spouse or child
---------------------- Sum paid under contract for deferred annuity.
---------------------- Sum deducted from salary payable to Govt. servant for securing deferred
annuity for self-spouse or child
----------------------
Contribution made under Employee’s Provident Fund Scheme
---------------------- Contribution to PPF

Contribution by employee to a Recognised Provident Fund. Notes
Sum deposited in 10 year/15year account of Post Office Saving Bank
----------------------
Subscription to any notified securities/notified deposits scheme.
----------------------
Subscription to any notified savings certificate, Unit Linked Savings certificates.
Contribution to Unit Linked Insurance Plan of LIC Mutual Fund ----------------------
Contribution to notified deposit scheme/pension fund set up by the National ----------------------
Housing Scheme.
Certain payment made by way of instalment or part payment of loan taken for ----------------------
purchase/construction of residential house property. ----------------------
Contribution to notified annuity Plan of LIC (e.g., Jeevan Dhara) or Units of
UTI/notified Mutual Fund. ----------------------
Subscription to units of a Mutual Fund notified u/s 10(23D) ----------------------

Subscription to deposit scheme of a public sector, company engaged in providing ----------------------
housing finance.
----------------------
Subscription to equity shares/ debentures forming part of any approved eligible
issue of capital made by a public company or public financial institutions. ----------------------
Tuition fees paid at the time of admission or otherwise to any school, college, ----------------------
university or other educational institution situated within India for the purpose
of full time education of any two children. ----------------------
Deductions Allowed ----------------------
Section Nature of deduction
80CCC Payment of premium for annuity plan of LIC or any other insurer ----------------------
Deduction is available upto a maximum of Rs.10,000/- ----------------------
80CCD Deposit made by a Central government servant in his pension
account to the extent of 10% of his salary. ----------------------
80D Payment of medical insurance premium. Deduction is available
upto Rs.10,000/ ----------------------
80DD Deduction of Rs.50,000/- in respect of (a) expenditure incurred on
----------------------
medical treatment, (including nursing), training and rehabilitation of
handicapped dependant relative. (b) Payment or deposit to specified ----------------------
scheme for maintenance of dependant handicapped relative. Further,
if the dependant is a person with severe disability a deduction of ----------------------
Rs.75,000/- shall be available under this section.
80DDB Deduction upto Rs.40,000 in respect of medical expenditure incurred. ----------------------
80E Deduction in respect of repayment of loan or interest on such loan ----------------------
taken for higher studies upto Rs.40,000 per year.
80G Donation to certain funds, charitable institutions etc. ----------------------
80GG Deduction available is the least of (i) Rent paid less 10% of total
income(ii) Rs.2000 per month (iii) 25% of total income. ----------------------
80U Deduction of Rs.50,000/- to an individual who suffers from a
physical disability(including blindness) or mental retardation. ----------------------
Further, if the individual is a person with severe disability, deduction ----------------------
of Rs.75,000/- shall be available u/s 80U.
Income Tax Act 193

Notes Salary and allowances which are fully taxable:
Basic Pay, Dearness Allowance, City Compensatory Allowance, Bonus,
----------------------
Overtime, Commission etc.
---------------------- Allowances which are fully exempt from tax.
---------------------- Reimbursement of traveling, and boarding expenses, Meals, withdrwal of
Provident Fund etc.
----------------------
Salary and allowances which are taxable subject to certain conditions.
---------------------- House Rent Allowance, Gratuity, Employer’s contribution to Provident Fund,
---------------------- Perquisites like Rent free/concessional accommodation, Encashment of Leave
etc.
---------------------- Example:
---------------------- Mr.Vishal has received a gross salary of Rs.4.00 lacs during 2006-07. He has
invested Rs.20,000 in PPF a/c. He has paid an insurance premium of Rs.15,000/-
----------------------
He has availed the housing loan which is self occupied. The principal paid
---------------------- towards the loan is Rs.45,000/- and interest paid is Rs.35,000/-. Profession Tax
deducted is Rs.2,500/- and Compulsory Provident Fund deducted is Rs.25,000/-
----------------------
Calculate his tax liability.
---------------------- Computation of Income Tax liability of Mr.Vishal
---------------------- PAN NO. ABCDE1234P AY 2008-09
S.No Particulars Amount
----------------------
1 Salary income 400,000
---------------------- 2 Less Profession Tax 2500 397,500
3 Income from house property -35,000
---------------------- (Interest on Housing Loan)
4 Other income
---------------------- a) Dividend from mutual funds/shares 3,000
b) LT gains from mutual funds 0
---------------------- c) Interest on PPF 5,000
sub total 8,000
---------------------- less income exempted 8,000
Other income taxable 0
----------------------
5 Taxable income 362,500
---------------------- 6 Deduction u/s 80 c
a) PPF 20,000
---------------------- b) Provident Fund 25,000
c) Insurance premium 15,000
---------------------- d) Instalment on Housing Loan 45,000 -100,000
7 Net taxable income 262,500
---------------------- 8 Tax payable*
Tax 27,750
---------------------- Cess 833
---------------------- Total Tax payable 28,583
9 Proportionate tax to be deducted from 2,382
---------------------- vishal’s salary every month
*Calculation of income tax
S.N. Slab Amount Rate of Amount of Notes
falling in this Tax (%) Tax.
slab ----------------------
1 Up to 1,10,000 110,000 0 0
----------------------
2 1,10,001 to 1,50,000 40,000 10 4,000
3 1,50,001 to 2,50,000 100,000 20 20,000 ----------------------
4 Above 2,50,000 12,500 30 3,750
5 Total 262,500 27,750 ----------------------
6 Add Surcharge 0 10 0
7 Tax + Surcharge 27,750 ----------------------
8 Education Cess 3 833 ----------------------
9 Total tax including surcharge 28,583
and education cess ----------------------
----------------------
1. Assessment Year is the year in which the income of the previous year ----------------------
is to be assessed. ----------------------
----------------------
Activity 1
----------------------
Mr. Sangamesh has received a gross salary of Rs.6.00 lacs during 2006-07.
----------------------
He has invested Rs.50,000 in PPF a/c. He has paid an insurance premium
of Rs.25,000/-. Profession Tax deducted is Rs.2,500/- and Compulsory ----------------------
Provident Fund deducted is Rs. 48,000/-. Calculate his tax liability.
----------------------
8.4 INCOME FROM HOUSE PROPERTY ----------------------
Under the Income Tax Act what is taxed under the head ‘House Property’ is the ----------------------
inherent capacity of the property to earn income called the Annual Value of the
property. The above is taxed in the hands of the owner of the property ----------------------
Computation of annual value ----------------------
Gross Annual Value (GAV) is the highest of ----------------------
(a) Rent received or receivable
----------------------
(b) Fair Market Value
----------------------
(c) Municipal Valuation
If however, the Rent Control Act is applicable, the G.A.V. is the standard rent ----------------------
or rent received, whichever is higher.
----------------------
It may be noted that if the let out property was vacant for whole or any part
of the previous year and owning to such vacancy the actual rent received or ----------------------
receivable is less than the sum referred to in clause(a) above, then the amount ----------------------
actually received/receivable shall be taken into account while computing the
Income Tax Act 195

Notes GAV if any portion of the rent is unrealisable, (condition of unrealisability of
rent are laid down in Rule 4 of I.T. Rules) then the same shall not be included in
---------------------- the actual rent received/receivable while computing the GAV.
---------------------- Net Annual Value (NAV) is the GAV less the municipal taxes paid by the owner,
provided that the taxes were paid during the year.
----------------------
ANNUAL VALUE is the NAV less the deductions available u/s 24.
---------------------- Deductions u/s 24 are exhaustive and no other deductions are available:
---------------------- A sum equal to 30% of the annual value as computed above.
---------------------- Interest on money borrowed for acquisition/construction/repair/renovation of

property is deductible on accrual basis. Interest paid during the pre construction/
---------------------- acquisition period will be allowed in five successive financial years starting with
the financial year in which construction/acquisition is completed. This deduction
---------------------- is also available in respect of a self occupied property and can be claimed up
---------------------- to maximum of Rs.1,50,000/- provided that the acquisition/construction of the
property must be completed within three years from the end of the financial
---------------------- year in which the capital was borrowed
---------------------- Some notable points
In case of one self occupied property, the annual value is taken as nil. Deduction
----------------------
u/s 24 for interest paid may still be claimed there from. The resulting loss may
---------------------- be set off against income under other heads but cannot be carried forward.
If more than one property is owned and all are used for self occupation purposes
----------------------
only, then any one can be opted as self occupied, the others are deemed to be
---------------------- let out.
---------------------- Annual value of one house away from workplace which is not let out can be
taken as NIL provided that it is the only house owned and it is not let out If a
---------------------- let out property is partly self occupied or is self occupied for a part of the year,
then the value in proportion to the portion of self occupied property or period
---------------------- of self occupation, as the case may be is to be excluded from the annual value.
---------------------- A new Section 25B has been inserted with effect from assessment year 2001-
2002 which provides that where the assessee, being the owner of any property
---------------------- consisting of any building or lands appurtenant there to which may have been
---------------------- let to a tenant, receives any arrears of rent not charged to income tax for any
previous year, then such arrears shall be taxed as the income of the previous
---------------------- year in which the same is received after deducting there from a sum equal to
30% of the amount of arrears in respect of repairs/collection charges. It may be
---------------------- noted that the above provision shall apply whether or not the assessee remains
---------------------- the owner of the property in the year of receipt of such arrears.
Example
----------------------
Mr. Harshal has purchased a House by availing Housing Loan from Bank of
---------------------- Maharashtra. He pays annual instalment of Rs.1,20,000/- . The Interest debited
to his housing loan during 2006-07 is Rs.50,000/- Municipal Valuation of the
----------------------
house is Rs.60,000 and Fair Rent is Rs.66,000/-. Standard Rent is Rs.48,000/-

He has given the house on rental basis at a rent of Rs.6,500 PM. He has paid Notes
Rs.10,000 towards municipal taxes. He has spent Rs.5,000 towards minor
repairs. Calculate his taxable income from House Property. ----------------------
Answer : ----------------------
Income from house Property
----------------------
1 Municipal Value 60,000 ----------------------
2 Fair Rent of the property 66,000 ----------------------
3 Higher of 1 & 2 66,000
4 Standard Rent 48,000 ----------------------
5 Lower of 3 & 4 48,000
----------------------
6 Rent received/Receivable 78,000
7 Gross Annual Value ----------------------
Higher of 5 and 6 78,000
----------------------
8 Municipal taxes paid 10,000
9 Net Annual Value 68,000 ----------------------
10 30% under Section 24 20,400
11 Annual Value 47,600 ----------------------
12 Interest on housing loan 50,000 ----------------------
13 Income from house Property -2,400
Property income exempt from tax ----------------------
Income from farm house (Sec.2(1A)(C) read with Sec. 10(1). ----------------------
Annual value of any one palace of an ex-ruler (Sec.10(19A)) ----------------------
Property income of a local authority (Sec.10(20), university/educational
----------------------
institution (Sec.10(22), approved scientific research association (Sec.10(23),
trade union (Sec.10(22A), political party (Sec.13A). ----------------------
Property used for own business or profession (Sec.22) ----------------------
One self occupied property (Sec.23(2)).
----------------------
House property held for charitable purposes (Sec.11).
----------------------
8.5 INCOME FROM BUSINESS ----------------------
A businessman prepares his profit and loss statement as per the standard ----------------------
accounting principals. Under Income Tax Act, certain expenses are not allowed.
Also, there is a ceiling on certain expenses. Therefore, there is a necessity to ----------------------
make adjustments to the profit as shown in the profit and loss account. The
format for the same is given below. ----------------------
----------------------
----------------------
----------------------
Income Tax Act 197

Notes Income from business of M/s XYZ for the year Amount
A Profit as per the P & L statement
---------------------- B Additions
B1 Expenses not allowed as per IT Act
----------------------
1
---------------------- 2
B2 Expenses beyond limit under IT Act
---------------------- 1
2
---------------------- B3 Income not taken into account
---------------------- 1
2
---------------------- Sub Total B (Total Additions)
C Deductions
---------------------- C1 Expenses allowed but not debited in P / L account
C2 Non business income included in P / L account
----------------------
1
---------------------- 2
Sub Total C (Total Deductions)
----------------------
D Taxable income from business ( D=A+B-C)
----------------------
Expenses which are allowed as follows :
---------------------- 1) Section 30: Rents, Rates, Taxes, Repairs and insurance for building.
---------------------- 2) Section 31: Insurance of machinery, plant and furniture.
---------------------- 3) Section 32: Depreciation as per rates under Income Tax Act.
---------------------- 4)
Section 35: Expenditure on Scientific Research, Copy Rights, Patents &
Know How
---------------------- 5) Section 35 D: Ammortisation of Preliminary Expenses in five years.
---------------------- 6) Section 35 DD: Ammortisation of expenditure under VRS in five years.
---------------------- 7) Donations for Rural development, conservation of natural resources.
8) Section 36: Salary, bonus, commission to employees. Contribution to
----------------------
Recognised Provident Fund, Superannuation Fund, Gratuity Fund, Staff
---------------------- Welfare Schemes and insurance of health of employees etc .
9) Section 36 (1): Interest on borrowed capital
----------------------
10) Bad Debts
----------------------
11) Advertisement
---------------------- 12) Banking Cash Transaction tax
---------------------- 13) Family Planning Expenditure
----------------------
----------------------

Expenses which are not allowed Notes
1) Income tax, Fringe Benefit Tax, Wealth Tax, Security Transaction Tax.
----------------------
2) Expenditure above Rs.20,000/- made otherwise than by crossed cheque
or demand draft. ----------------------
3) Provision for Bad Debts ----------------------
The lists are illustrative. ----------------------
Example
----------------------
Vishal and Vithal are partners of Vivi traders. They have contributed a capital
of Rs.1.00 lac and Rs.2.00 lac respectively. Following is the extract from their ----------------------
profit & Loss statement for the period from 1-4-06 to 31-3-07.
----------------------
a. Gross Profit : 5,00,000/-
b. Dividend from mutual fund : 10,000/- ----------------------
c. Interest on Bank Deposit : 5,000/- ----------------------
d. Total : 5,15,000/-
Expenses ----------------------
a. Interest on Capital : 60,000/-
----------------------
b. Depreciation on furniture : 10,000/-
c. Loss of goods due to fire : 10,000/- ----------------------
d. Salary and wages : 1,00,000/-
e. Other administrative expenses : 50,000/- ----------------------
f. Provision for Bad Debt : 30,000/- ----------------------
g. Advance tax paid : 15,000/-
h. Net profit : 2,40,000/- ----------------------
Additional information: ----------------------
Depreciation is charged at 20% on straight line method. Insurance Company
----------------------
has sanctioned a claim of Rs.5,000/- on 25-3-2007 but the amount is received
after 1-4-2007. Goods worth Rs.10,000/- have been taken by partners for their ----------------------
personal use. No entry is passed for the same. Calculate the Taxable income
from Business. ----------------------
Answer ----------------------
Income from business of M/s. Vivi Traders Amount
----------------------
A Profit as per the P & L statement 240,000
B Additions ----------------------
B1 Expenses not allowed as per IT Act
1 Provision for Bad Debt 30,000 ----------------------
2 Advance tax paid 15,000
45,000 ----------------------
B2 1 Expenses beyond limit under IT Act ----------------------
Excess Interest on Capital
Actually debited in P / L statement 60,000 ----------------------
Ceiling amount (max. 10 % interest allowed) 30,000 30,000
2 Excess Depreciation ----------------------
Income Tax Act 199

Notes Income from business of M/s. Vivi Traders Amount
Actually debited in P / L statement 10,000
---------------------- Ceiling amount (Rate 10 % as per IT act) 5,000 5,000
----------------------
B3 Income not taken into account
---------------------- 1 Insurance Claim sanctioned 5,000
2 Goods taken by partners for personal use 10,000 15,000
----------------------
Sub Total B (total additions) 95,000
----------------------
---------------------- C Deductions
---------------------- C1 Expenses allowed but not debited in P / L 0

account
---------------------- C2 Non business income included in P / L account
1 Dividend from mutual fund 10,000
----------------------
2 Interest on Bank Deposit 5,000 15,000
----------------------
Sub Total C (total deductions) 15,000
----------------------
D Taxable income from business ( D=A+B-C) 320,000
----------------------
Income Tax calculation
----------------------
Particulars Amount
---------------------- 1. Taxable income from business: 320,000
2. Tax at 30%: 96,000
---------------------- 3. Add : Surcharge at 10%: 9,600
---------------------- 4. Sub total: 105,600
5. Add: Education Cess at 3%: 3,168
---------------------- 6. Total Tax: 108,768
----------------------
----------------------
Fill in the blanks.
----------------------
1. A businessman prepares his profit and loss statement as per the
---------------------- ___________.
----------------------
---------------------- Activity 2
---------------------- List any five expenses, which are allowed under IT Act.
----------------------
----------------------
----------------------

8.6 INCOME FROM CAPITAL GAIN Notes
Capital gains ----------------------
Profit or gains arising from the transfer of a capital asset during the previous ----------------------
year is taxable as “Capital Gains” under Section 45(1) of the Income Tax Act,
the taxability of capital gains is in the year of transfer of the capital asset. ----------------------
Capital asset ----------------------
As defined in Section 2(14) of the Income Tax Act, it means property of any
----------------------
kind held by the assessee except:
a) Stock in trade, consumable stores or raw materials held for the purpose of ----------------------
business or profession.
----------------------
b) Personal effects, being moveable property (excluding Jewellery) held for
personal use. ----------------------
c) Agricultural land, except land situated within or in area up to 8 kms, from ----------------------
a municipality, municipal corporation, notified area committee, town
committee or a cantonment board with population of at least 10,000. ----------------------
d) Six and half percent Gold Bonds, National Defense Bonds and Special ----------------------
Bearer Bonds.
----------------------
Type of capital gains
----------------------
When a capital asset is transferred by an assessee after having held it for
at least 36 months, the capital gains arising from this transfer is known as Long ----------------------
Term Capital Gains. In case of shares of a company or unit of UTI or a unit of
a Mutual Fund, the minimum period of holding for long term capital gains to ----------------------
arise is 12 months. If the period of holding is less than above, the capital gains
----------------------
arising there from are known as Short Term Capital Gains. It may be mentioned
here that Long Term Capital Gains are taxed at a flat rate of 20%, the benefit of ----------------------
indexing the cost of acquisition is available and a number of exemptions there
from are also available, specified in Section 54 to Section 54G of the Income ----------------------
Tax Act. The Finance Act 1999 has provided that in case of transfer of a long
----------------------
term capital asset, being listed securities, if the tax payable exceeds 10% of the
amount of capital gains computed without indexing the cost of acquisition, then ----------------------
such excess would be ignored for the purpose of computing the tax payable by
the assessee. ----------------------
Computation of capital gains (Sec.48) ----------------------
Capital gain is computed by deducting from the full value consideration, for the
----------------------
transfer of a capital asset, the following:-
Cost of Acquisition of the Asset (COA) : In case of Long Capital Gains, the ----------------------
cost of acquisition is indexed by a factor which is equal to the ratio of the cost ----------------------
inflation index of the year of transfer to the cost inflation index of the year
of acquisition of the asset. Normally, the cost of acquisition is the cost that a ----------------------
person has incurred to acquire the capital asset. However in certain cases, it is
taken as following:- ----------------------
Income Tax Act 201

Notes When
l the capital asset becomes a property of an assessee under a gift or
will or by succession or inheritance or on partition of Hindu Undivided
---------------------- Family or on distribution of assets, or dissolution of a firm, or liquidation
of a company, the COA shall be the cost for which the previous owner
---------------------- acquired it, as increased by the cost of improvement till the date of
---------------------- acquisition of the asset by the assessee.
l When shares in an amalgamated Indian company had become the property
---------------------- of the assessee in a scheme of amalgamation, the COA shall be the cost of
acquisition of shares in the amalgamating company.
----------------------
l Where the capital asset is goodwill of a business, tenancy right, stage
---------------------- carriage permits or loom hours the COA is the purchase price paid, if any
or else nil.
----------------------
l The COA of rights shares is the amount which is paid by the subscriber to
---------------------- get them. In case of bonus shares, the COA is nil.
l If a capital asset has become the property of the assessee before 1.4.81,
----------------------
the assessee may choose either the fair market value as on 1.4.81 or the
---------------------- actual cost of acquisition of the asset as the COA.
l Cost of improvement, if any such cost was incurred. In case of long term
---------------------- capital assets, the indexed cost of improvement will be taken.
---------------------- l Expenses connected exclusively with the transfer such as brokerage etc.
---------------------- Format for Calculation of LT Capital gain

---------------------- 1 Year of Acquisition
---------------------- 2 Index No. for the Year of Acquisition
3 Purchase Price
---------------------- 4 Incidental expenses for purchase
5 Total purchase consideration ( 5=3+4)
---------------------- 6 Year of Improvement
7 Index No. for the Year of Improvement
----------------------
8 Amount spent on improvement
---------------------- 9 Year of Sale
10 Index No. for the Year of Sale
---------------------- 11 Amount of sale
12 Expenses towards sale
---------------------- 13 Net amount received on sale (13 = 11-12)
---------------------- 14 Indexed cost of Acquisition (14 = 5 X 10/2)
15 Indexed cost of Improvement (15 = 8 X 10/7)
---------------------- 16 Total indexed cost ( 16 = 14 + 15)
17 Capital Gain ( 17 = 13-16)
----------------------
Mr.Shantilal has purchased a house for Rs.3.00 lacs during 1994-95. He
---------------------- has incurred a cost of Rs.15,000/- towards the purchase. He has spent Rs.10,000
towards stamp duty. He has spent Rs.2.00 lac on improvement of the house
---------------------- in the year 2002-03. He has sold the house in the year 2006-07 for Rs. 10.00
Lacs. Calculate the capital gain. (Cost inflation index during 1994-05 is 259, for
----------------------
2002-03 is 447 and for 2006-07 is 519)
Answer Notes
Calculation of LT Capital Gain
----------------------
S.No. Particulars Amount
1 Year of Acquisition 1994-95 ----------------------
2 Index No. for the Year of Acquisition 259 ----------------------
3 Purchase Price 300,000
4 Incedental expenses for purchase 25,000 ----------------------
5 Total purchase consideration ( 5=3+4) 325,000
6 Year of Improvement 2002-03 ----------------------
7 Index No. for the Year of Improvement 447 ----------------------
8 Amount spent on improvement 200,000
9 Year of Sale 2006-07 ----------------------
10 Index No. for the Year of Sale 519
11 Amount of sale 1,000,000 ----------------------
12 Expenses towards sale 0 ----------------------
13 Net amount received on sale (13 = 11-12) 1,000,000
14 Indexed cost of Acquisition (14 = 5 X 10/2) 651,255 ----------------------
15 Indexed cost of Improvement (15 = 8 X 10/7) 232,215
16 Total indexed cost ( 16 = 14 + 15) 883,470 ----------------------
17 Capital Gain ( 17 = 13-16) 116,530 ----------------------
Example 2
----------------------
Mr.Chandan has purchased Shares of State Bank of India for Rs.10,000 on
15-4-2007 and sold the same on 1-2-2008 for Rs.15,000. He has purchased ----------------------
Shares of Bank of Maharashtra for Rs.15,000 on 15-9-2006 and sold the same
----------------------
on 1-2-2008 for Rs.10,000. What is his tax liability on capital gain?
SBI shares: Short Term Capital Gain of Rs.5,000/- Tax 10% of Rs.5,000/- ----------------------
= Rs.500/-
----------------------
BOM shares : Long Term Capital Loss of Rs.5,000/-. This loss cannot be set off
against Short Term Capital Gain. ----------------------
Important exemptions from long term capital gains ----------------------

Section 54: In case the asset transferred is a long term capital asset being a ----------------------
residential house, and if out of the capital gains, a new residential house is
constructed within 3 years, or purchased 1 year before or 2 years after the ----------------------
date of transfer, then exemption on the LTCG is available on the amount of
investment in the new asset to the extent of the capital gains. It may be noted ----------------------
that the amount of capital gains not appropriated towards purchase or a public ----------------------
This amount should subsequently be used for construction may be deposited in
the Capital Gains Account Scheme of sector bank before the due date of filing ----------------------
of Income Tax Return. Purchase or construction of a new house within 3 years.
----------------------
Section 54F: When the asset transferred is a long term capital asset other than
a residential house, and if out of the consideration, investment in purchase or ----------------------
construction of a residential house is made within the specified time as in Sec.
----------------------
54, then exemption from the capital gains will be available as
Income Tax Act 203

Notes (i) If cost of new asset is greater than the net consideration received, the
entire capital gain is exempt.
----------------------
(ii) Otherwise, Exemption = Capital Gains x Cost of new asset/Net
---------------------- consideration. It may be noted that this exemption is not available, if
on the date of transfer, the assessee owns any house other than the new
---------------------- asset. It may be noted that the Finance Act 2000 has provided that with
effect from assessment year 2001-2002, the above exemption shall not
----------------------
be available if assessee owns more than one residential house, other than
---------------------- new asset, on the date of transfer. Investment in the Capital Gains Account
Scheme may be made as in Sec.54.
----------------------
Section 54EA: If any long term capital asset is transferred before 1.4.2000 and
---------------------- out of the consideration, investment in specified bonds/debentures/shares is
made within 6 months of the date of transfer, then exemption from capital gains
---------------------- is available as computed in Section 54F.
---------------------- Section 54EB: If any long term capital asset is transferred before 1.4.2000 and
investment specified assets is made within a period of 6 months from the date of
---------------------- transfer, then exemption would be available as computed in Section54F.
----------------------
8.7 INCOME FROM OTHER SOURCES
----------------------
As per Section 77, the following sources of income are liable for income
---------------------- tax.
---------------------- Dividends, Interest, winning from lotteries, rental income from machinery
or furniture, gifts exceeding 50,000/- from a person other than a relative.
----------------------
---------------------- 8.8 FRINGE BENEFIT TAX
---------------------- The Finance Act, 2005 has introduced a new tax called ‘income-tax fringe
benefits’ w.e.f. 01.04.2006. This shall be in the form of additional income tax
---------------------- levied on fringe benefits provided or deemed to have been provided by an
employer to his employees during the previous year.
----------------------
The tax on fringe benefits shall be levied at the rate of 30% on the value of
---------------------- fringe benefits provided
---------------------- Liability of pay :
---------------------- The liability to pay this tax is to be borne by the employer including
i) a company
----------------------
ii) a firm
----------------------
iii) an association of persons or body of individuals excluding any fund or
---------------------- trust or institution eligible for exemption u/s 10(23C) or 12AA.
---------------------- iv) a local authority.

v) an artificial juridical person
----------------------

What is included in ‘Fringe Benefits’ ? Notes
Fringe benefits have been defined as including any consideration for employment
----------------------
provided by way of
----------------------
a) any privilege, service, facility or amenity provided by an employer
directly or indirectly including reimbursements. ----------------------
b) any fee or concessional ticket provided by the employer for private ----------------------
journeys of his employees or their family members.
c) any contribution by the employer to an approved super annuation fund for ----------------------
employees. ----------------------
Further, fringe benefits shall be deemed to have been provided if the employer
has incurred any expense or made any payments for various purposes namely, ----------------------
entertainment, provision of hospitality, conference, sales, promotion including ----------------------
publicity, employees welfare, conveyance, tour & travel, use of hotel, boarding
& lodging. ----------------------
----------------------
----------------------
----------------------
1. Fringe benefits have been defined as including any consideration for
employment provided by way of: ----------------------
i. Any privilege, service, facility or amenity provided by an ----------------------
employer directly or indirectly, including reimbursements
ii. Any free or concessional ticket provided by the employer for ----------------------
private journeys of his employees or their family members ----------------------
iii.
Any contribution by the employee to an approved super
annuation fund for employers ----------------------
iv. The liability to pay this tax is to be borne by the employer ----------------------
----------------------
Activity 3 ----------------------
Write down the fringe benefits that you get from your organization. ----------------------
----------------------
8.9 TAX DEDUCTION AT SOURCE
----------------------
The Government wants to increase its revenue to meet increase demand for
development expenses. There are some persons who may not pay the tax either ----------------------
deliberately or due to ignorance of knowledge. Therefore, has come with an
----------------------
idea of collecting tax at source of income. It has made it mandatory for a person
giving income to another person to deduct tax from such payment and deposit ----------------------
with the Government. If the tax is not deducted there will be penalty and fines.
----------------------
Income Tax Act 205

Notes The following are the important areas of tax deduction at source:
S.N. Particulars Criteria Rate of Rate of Form no.
----------------------
TDS TDS % For annual
---------------------- % Non domestic return &
corporate Companies due date
---------------------- 1 Payment of Case to case Case to N.A 24
Salary to case
----------------------
Employees 31st May
---------------------- 2 Payment to Payment more 1.03 1.133 26 C
a contractor than 20,000/- on
---------------------- (advertising) one time or more 30th June
than 50,000/- p.a
---------------------- 3 Payment to a -Do- 2.06 2.266 26 C
---------------------- contractor
4 Payment -Do- 1.03 1.133 26 C
---------------------- to a sub
contractor. 30th June
---------------------- 5 Commission Payment 5.15 5.65 26 I
---------------------- or more
Brokerage than 2,500/- p.a 30th June
---------------------- 6 Rent Payment more 15.45 22.66 26 J
than 1,20,000/-
---------------------- p.a 30th June
---------------------- 7 Interest on Interest more 10.30 22.66 26 A
deposits than
---------------------- Rs.5,000/- p.a. 30th June
8 Fees for Payment 5.15 5.65 26 K
---------------------- Professional more
---------------------- or Technical than 20,000/- p.a. 30th June
Services
---------------------- General guidelines regarding TDS.
---------------------- Every
l person liable for deduction of Tax at Source should apply for TAN
No.
----------------------
Every
l person deduction Tax at Source should quote TAN number on all
---------------------- relevant forms.
---------------------- Tax deducted at source should be credited to the account of Central Board
l
of Direct Taxes CBDT within 7th of the succeeding month.
----------------------
Every
l person deduction Tax at Source should issue F.16 for salaries and
---------------------- F.16 A in other cases, to the persons from whom he deducted tax within
30 days from the date of deducting tax.
----------------------
Annual
l return should be submitted to Income Tax Authorities in Form
---------------------- No.24 or 25 or 26 as the case may be before the due dates.
----------------------

If an
l eligible person gives declaration in form 15G/15H, the tax should Notes
not be deducted at source. But a copy of the declaration form should be
sent to Income Tax Authorities within 7th of succeeding month. Form 15 ----------------------
G/15 H should be collected for every financial year.
----------------------
8.10 FILING OF RETURNS ----------------------
Due dates for payment of advance tax. ----------------------
As per Section 208, the liability for payment of advance tax arises where the ----------------------
amount of tax payable by the assessee for the year is Rs.5,000/- or more. The
due dates for various instalments of advance tax are given below for Non ----------------------
corporate Assessees:
----------------------
DUE DATE AMOUNT PAYABLE
(i) On or before 15 September Amount not less than 30% of such
th ----------------------
advance tax
----------------------
(ii) On or before 15 December Amount not less than 60% of such
th
advance tax. ----------------------

(iii) On or before 15th March Entire amount of 100% of such advance
tax. ----------------------
The due dates for various instalments of advance tax are given below for ----------------------
Corporate Assessees
----------------------
DUE DATE AMOUNT PAYABLE
(i) On or before 15 September Amount not less than 15% of such
th
----------------------
advance tax
(ii) On or before 15 September Amount not less than 45% of such
th ----------------------
advance tax
----------------------
(iii) On or before 15th December Amount not less than 75% or such
advance tax ----------------------
(iv) On or before 15th March Entire amount of 100% such advance
tax ----------------------
Due dates for filing the tax returns. ----------------------
A company
l and other assessees where audit is compulsory: 31st October ----------------------
of the A.Y.
l All other cases: 31st July of the Assessment Year (AY). ----------------------
Calculation of Interest ----------------------

The Income Tax Act provides for charging of interest for non- payment/short ----------------------
payment/deferment in payment of advance tax which is calculated as below:
----------------------
Interest U/s 234A
For late or non furnishing of return, simple interest @ 1 % for every month or ----------------------
part there of from the due date of filing of return to the date of furnishing of ----------------------
return, on the tax determined u/s 143(1) or non regular assessment as reduced
by TDS/advance tax paid. ----------------------
Income Tax Act 207

Notes Interest U/s 234B
For short fall in payment of advance tax by more than 10%, simple interest
----------------------
@ 1 % per month or part thereof is chargeable from 1st April of the assessment
---------------------- year to the date of processing u/s 143(1) or regular assessment, on the tax
determined u/s 143(1) or on regular assessment less advance tax paid/TDS.
----------------------
Interest U/s 234C
---------------------- For deferment of advance tax. If advance tax paid by 15th September is less
than 30% of tax payable on returned income less TDS, simple interest @ 1%
----------------------
per month to be charged for 3 months. Similarly, if amount of tax paid on or
---------------------- before 15th December is less than 60% of tax due on returned income, interest
---------------------- @ 1% per month is to be charged. Again, if the advance tax paid by 15th March
is less than tax due on returned income, interest @ 1 % on the shortfall is to be
---------------------- charged.
---------------------- Interest U/s 234D

Interest @ 0.5% is levied under this section when any refund is granted to the
---------------------- assessee and on regular assessment it is found that either no refund is due or the
---------------------- amount already refunded exceeds the refund determined on regular assessment.
The said interest is levied @ 0.5% on the whole or excess amount so refunded
---------------------- for every month or part thereof from the date of grant of refund to the date of
such regular assessment.
----------------------
---------------------- Summary
---------------------- l Every person shall file a return of income on or before the relevant due
date if his total income exceeds the maximum amount not chargeable to
---------------------- tax.
---------------------- l Surcharge of 10% on tax only if taxable income exceeds Rs.10,00,000/-.
Education cess on Tax + surcharge at 3% in all cases.
----------------------
l Firms and companies have to flat rate of 30% tax on their taxable income
---------------------- + 10% surcharge + 3% education cess.
---------------------- l Permanent Account Number is a number allotted to a person by the
Assessing Officer for the purpose of identification. Quoting PAN Number
---------------------- is compulsory in case of many transactions.
---------------------- l Salary is the remuneration received by or accruing to an individual,
periodically, for service rendered. Employer has to deduct proportionate
---------------------- tax from the salary of the employee every month.
---------------------- l Salary and allowances which are fully taxable:
---------------------- l Basic Pay, Dearness Allowance, City Compensatory Allowance, Bonus,

Overtime, Commission etc.
----------------------
l Allowances which are fully exempt from tax.
----------------------

l Reimbursement of travelling, and boarding expenses, meals, withdrwal Notes
of Provident Fund etc.
----------------------
l Salary and allowances which are taxable subject to certain conditions.
l House Rent Allowance, Gratuity, Employer’s contribution to Provident ----------------------
Fund, Perquisites like Rent free/concessional accommodation,
----------------------
Encashment of Leave etc.
Under Income Tax Act, certain expenses are not allowed. Also, there ----------------------
is ceiling on certain expenses. Therefore, there is a necessity to make
----------------------
adjustments to the profit as shown in the profit and loss account to arrive
at income from business. ----------------------
When a capital asset is transferred by an assessee after having held it for ----------------------
at least 36 months, the capital gains arising from this transfer is known as
Long Term Capital Gains. In case of shares of a company or unit of UTI ----------------------
or a unit of a Mutual Fund, the minimum period of holding for long term
capital gains to arise is 12 months. ----------------------
----------------------
Keywords
----------------------
l Allowance : A fixed quantity of money or other substance given regularly
----------------------
in addition to salary for meeting specific requirements of the employees
l Annual Value : N.A.V. less the deductions available u/s 24 ----------------------
l Assessee : A person who is liable to pay income tax ----------------------
l Assessment Year : The year in which the income of the previous year is ----------------------
to be assessed.
l Capital asset : Property of any kind held by the assessee except certain ----------------------
assets. Capital gain : Profit or gains arising from the transfer of a capital ----------------------
asset Financial Year : 1st April to 31st March
l Gross Annual Value : The highest of a) Rent received or receivable ----------------------
b) Fair Market Value c) Municipal valuation. ----------------------
l Long Term Capital gain : Profit or gains arising from the transfer of
----------------------
a equity invetment after 12 months or from the transfer of other capital
asset after 36 months. ----------------------
l Net Annual Value : GAV less the municipal taxes paid
----------------------
l Permanent Account Number : A number allotted to a person by the
Assessing Officer for the purpose of identification ----------------------
l Perquisite : Value of any benefit/amenity granted free or at concessional ----------------------
rate to specified employees
----------------------
l Previous Year : Year preceding the Assessment Year
----------------------
l Salary : The remuneration received by or accruing to an employee
----------------------
Income Tax Act 209

Notes l Short Term Capital gain : Profit or gains arising from the transfer of a
equity investment within 12 months or from the transfer of other capital
---------------------- asset within 36 months.
----------------------
----------------------
1. List the various benefits received by a salaried person in the name of
---------------------- salary and allowance into two groups, viz. taxable and non-taxable.
---------------------- 2. State the provisions in respect of advance payment of tax.
---------------------- 3. State the valuation of perquisites regarding furnished accommodation.

4. State provisions in respect of Tax Deduction at Source (TDS).
----------------------
5. State the provisions of Fringe Benefit Tax.
----------------------
6. State the provisions of Minimum Alternate Tax (MAT).
---------------------- 7. State the provisions of Banking Cash Transaction Tax.
---------------------- 8. State the provisions of Deferred Tax Liability.
---------------------- 9. How is the interest calculated on delayed payment of advance tax? Q10.
State the provisions of Income from House Property.
----------------------
11 State the provisions of Capital Gain.
---------------------- 12. State the provisions of Depreciation.
----------------------
----------------------
----------------------
---------------------- 1. True

1. A businessman prepares his profit and loss statement as per the standard
----------------------
accounting principles.
---------------------- 1. Fringe benefits have been defined as including any consideration for
employment provided by way of:
---------------------- i. Any privilege, service, facility or amenity provided by an employer
---------------------- directly or indirectly, including reimbursements
ii. Any free or concessional ticket provided by the employer for private
---------------------- journeys of his employees or their family members
----------------------

Notes
Suggested Reading
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Income Tax Act 211

Notes
----------------------
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----------------------
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Goods and Services Tax
UNIT
9
Structure:
9.1 Introduction
9.2 What is GST
9.3 History of GST
9.4 Constitutional Amendments
9.5 Advantages of GST
9.6 Components of GST
9.7 Levy and Collection of Tax
9.8 Meaning of Supply
9.9 Activities to be treated as supply of goods or supply of services
9.10 Activities not to be treated as supply
9.11 Composition Levy
9.12 Time of Supply of Goods and Services
Summary
Keywords
Suggested Reading
Goods and Services Tax 213

Notes
Objectives
----------------------
----------------------
●● Learn the basics of GST law.
----------------------
●● Understand the constitutional amendments and advantages of introduction
---------------------- of the GST law.
●● Understand the concept of Levy and Collection of Tax.
----------------------
●● Define the concept of composition leavy
----------------------
●● Enumerate the examples of Time of Supply of Goods and Services
----------------------
9.1 INTRODUCTION
----------------------
The Goods and Services Tax has revolutionized the Indian taxation
---------------------- system. The GST Act was passed in the Lok Sabha on 29th March, 2017, and
came into effect from 1st July, 2017.
----------------------
In this unit, we will understand the basics of GST law and take a closer
---------------------- look at what changes does GST will bring in the taxation system in India.
----------------------
9.2 WHAT IS GST
----------------------
GST (Goods & Services Tax) Law in India is a multi-stage, comprehensive
---------------------- and destination-based tax that will be levied on every transaction, goods and
services where there is value addition.
----------------------
In other words we can say that, GST is a type of indirect tax which can be
---------------------- levied on the supply of goods and services. Also GST Law has replaced many
---------------------- indirect taxes that previously existed in Indian tax system.
Before the introduction of GST law the indirect tax structure was as
---------------------- follows:
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Source: Indirect Taxes Committee, ICAI

As stated the GST law is a multi-stage, comprehensive and destination- Notes
based tax, following points will highlight the same:
----------------------
a. Multi-stage:
There are multiple stages through which an item goes along its supply ----------------------
chain for instance during its transportation from manufacture to final
----------------------
consumer. At every stage some or more value is added to the commodity.
However this is not mandatory to add the value at every stage. But we can ----------------------
say that there exists different stages through which the commodity pass
till its consumption. These stages can be summarised as follows: ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Since, Goods and Services Tax is levied on each of these stages, we can
----------------------
say it makes GST a multi-stage tax.
b. Destination-Based ----------------------
GST a destination based tax, Consider goods manufactured in Gujrat and ----------------------

are sold to the final consumer in Maharashtra. Since Goods & Service Tax
(GST) is levied at the point of consumption, in this case Maharashtra, the ----------------------
entire tax revenue will go to Maharashtra, ----------------------
c. Value Addition
----------------------
The manufacturer who makes textile buys cotton. The value of cotton
gets increased when the cotton is woven into a cloths. ----------------------
The manufacturer then sells the cloths to the retailer/agent who attaches ----------------------
labels and tags to each item. That is another addition of value after which
the warehouse sells it to the consumer by adding value to it. ----------------------
Consider following image which explains the above example: ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes GST will be levied on these value additions i.e. the monetary worth added
at each stage to achieve the final sale to the end customer.
----------------------
---------------------- 9.3 HISTORY OF GST

---------------------- The implementation of the Goods and Services Tax (GST) in India was
a historical move, as it marked a significant indirect tax reform in the country.
---------------------- The amalgamation of a large number of taxes (levied at a central and state level)
into a single tax is expected to have big advantages.
----------------------
The journey of this law is described below:
----------------------
a. The idea of moving towards GST was first mooted by the then Union
---------------------- Finance Minister in his Budget speech for 2006-07.
b. Initially, it was proposed that GST would be introduced from 1st April
----------------------
2010.
---------------------- c. The Empowered Committee of State Finance Ministers (EC) which had
formulated the design of State VAT was requested to come up with a
----------------------
roadmap and structure for GST. Joint Working Groups of officials having
---------------------- representatives of the States as well as the Centre were set up to examine
various aspects of GST and draw up reports specifically on exemptions
---------------------- and thresholds, taxation of services and taxation of inter-State supplies.
---------------------- d. Based on discussions within and between it and the Central Government,
the EC released its First Discussion Paper (FDP) on the GST in November,
---------------------- 2009. This spelt out features of the proposed GST and has formed the
basis for discussion between the Centre and the States so far.
----------------------
e. The introduction of the Goods and Services Tax (GST) is a very significant
---------------------- step in the field of indirect tax reforms in India. By amalgamating a large
number of Central and State taxes into a single tax, GST will mitigate ill
---------------------- effects of cascading or double taxation in a major way and pave the way
---------------------- for a common national market.
f. From the consumers’ point of view, the biggest advantage would be in
---------------------- terms of reduction in the overall tax burden on goods, which is estimated
---------------------- to be around 25%-30%. It would also imply that the actual burden of
indirect taxes on goods and services would be much more transparent to
---------------------- the consumer.
---------------------- g. Introduction of GST would also make Indian products competitive in the
domestic and international markets owing to the full neutralization of
---------------------- input taxes across the value chain of production and distribution. Studies
show that this would have a boosting impact on economic growth.
----------------------
h. GST, because of its transparent and self-policing character, would be
---------------------- easier to administer. It would also encourage a shift from the informal to
formal economy.
----------------------
i. The GST law was introduced and is in force from 1st July 2017.
---------------------- Following picture gives the insight into the history of GST Law:

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Source: Indirect Taxes Committee, ICAI
----------------------
9.4 CONSTITUTIONAL AMENDMENTS ----------------------
In order to address prevalent issues in taxation, the Constitution 122nd ----------------------
Amendment Bill was put forth in the 16th Lok Sabha on 19 Dec 2014.
----------------------
• The Bill suggests levy of GST on all goods and services, except alcohol
that humans consume. ----------------------
• The tax is levied as Dual GST by the Centre and states/union territories.
----------------------
The component levied by the Centre is Central Tax - CGST, while that
levied by the state is State Tax - SGST. The tax levied by union territories ----------------------
is Union Territory Tax - UTGST.
----------------------
• The Centre would levy the GST on inter-state trade or imports of services
and goods. This tax is referred to as Integrated Tax - IGST. ----------------------
• The Central Government will also levy excise duty on tobacco products, ----------------------
in addition to GST.
----------------------
• The tax on five petroleum products, i.e., high speed diesel, crude, petrol,
natural gas, and Aviation Turbine Fuel (ATF) will be outlined later after a ----------------------
decision is made by the GST Council.
----------------------

Notes September 2016: A Goods and Services Tax Council (GSTC) was created
by the union finance minister, revenue minister, and ministers of state to take
---------------------- decisions on GST rates, thresholds, taxes to be subsumed, exemptions, and
other features of the taxation system. The state finance ministers mentioned
---------------------- that the EC would be a platform for states where there would be discussions of
---------------------- their regional issues. The GST Council is a separate entity that would oversee
the implementation of the GST system.
----------------------
---------------------- Activity 1
---------------------- Enumerate the stages of GST implementation in India.

----------------------
----------------------
9.5 ADVANTAGES OF GST
----------------------
Before GST, tax on tax was calculated and tax was paid by every purchaser
---------------------- including the final consumer. The taxation on tax is called the Cascading Effect
---------------------- of Taxes.
GST is to improve the collection of taxes as well as boost the development
---------------------- of Indian economy by removing the indirect tax barriers between states and
---------------------- integrating the country through a uniform tax rate.
Following example will justify this argument:
----------------------
Say a shirt manufacturer pays ` 100 to buy raw materials. If the rate of
---------------------- taxes is set at 10%, and there is no profit or loss involved, then he has to pay
` 10 as tax. So, the final cost of the shirt now becomes ` (100+10=) 110.
----------------------
At the next stage, the wholesaler buys the shirt from the manufacturer
---------------------- at ` 110, and adds labels to it. When he is adding labels, he is adding value.
Therefore, his cost increases by say ` 40. On top of this, he has to pay a 10%
----------------------
tax, and the final cost therefore becomes
---------------------- ` (110+40=) 150 + 10% tax = ` 165
---------------------- Now, the retailer pays ` 165 to buy the shirt from the wholesaler because the
tax liability had passed on to him. He has to package the shirt, and when he
---------------------- does that, he is adding value again. This time, let’s say his value add is ` 30.
Now when he sells the shirt, he adds this value (plus the VAT he has to pay the
---------------------- government) to the final cost. So, the cost of the shirt becomes ` 214.5 Let us
---------------------- see a breakup for this:
Cost = ` 165 + Value added
---------------------- = ` 30 + 10% tax
---------------------- = ` 195 + ` 19.5
= ` 214.5
---------------------- So, the customer pays ` 214.5 for a shirt the cost price of which was
---------------------- basically only ` 170 (Rs 110 + ` 40 + ` 30). Along the way the tax liability was

passed on at every stage of transaction and the final liability comes to rest with Notes
the customer. This is called the Cascading Effect of Taxes where a tax is paid
on tax and the value of the item keeps increasing every time this happens. ----------------------
Action Cost 10% Tax Total ----------------------
Buys Raw Material @ 100 100 10 110
Manufactures @ 40 150 15 165 ----------------------
Adds value @ 30 195 19.5 214.5
Total 170 44.5 214.5 ----------------------
In the case of Goods and Services Tax, there is a way to claim credit for ----------------------
tax paid in acquiring input. What happens in this case is, the individual who has
paid a tax already can claim credit for this tax when he submits his taxes. ----------------------
In our example, when the wholesaler buys from the manufacturer, he pays ----------------------
a 10% tax on his cost price because the liability has been passed on to him. Then
----------------------
he adds value of ` 40 on his cost price of ` 100 and this brings up his cost to
` 140. Now he has to pay 10% of this price to the government as tax. But he ----------------------
has already paid one tax to the manufacturer. So, this time what he does is,
instead of paying Rs (10% of 140=) 14 to the government as tax, he subtracts ----------------------
the amount he has paid already. So, he deducts the ` 10 he paid on his purchase
----------------------
from his new liability of ` 14, and pays only ` 4 to the government. So, the
` 10 becomes his input credit. ----------------------
When he pays ` 4 to the government, he can pass on its liability to the
----------------------
retailer. So, the retailer pays
` (140+14=) 154 to him to buy the shirt. ----------------------
At the next stage, the retailer adds value of ` 30 to his cost price and ----------------------
has to pay a 10% tax on it to the government. When he adds value, his price
becomes ` 170. ----------------------
Now, if he had to pay 10% tax on it, he would pass on the liability to ----------------------
the customer. But he already has input credit because he has paid `14 to the
wholesaler as the latter’s tax. So, now he reduces ` 14 from his tax liability of ----------------------
` (10% of 170=) 17 and has to pay only ` 3 to the government. ----------------------

And therefore, he can now sell the shirt for ` (140+30+17) 187 to the ----------------------
customer.
----------------------
Action Cost 10% Tax Actual Total
Liability ----------------------
Buys Raw Material 100 10 10 110
----------------------
Manufactures @ 40 140 14 4 154
Adds Value @ 30 170 17 3 187 ----------------------
Total 170 17 187 ----------------------
In the end, every time an individual was able to claim input tax credit,
----------------------
the sale price for him reduced and the cost price for the person buying his
product reduced because of a lower tax liability. The final value of the shirt also ----------------------

Notes therefore reduced from ` 214.5 to ` 187, thus reducing the tax burden on the
final customer.
----------------------
Following are the key benefits of the GST
---------------------- 1. The GST system is introduced to create a common national market that
boosts foreign investment.
----------------------
2. The cascading effect of taxation will be mitigated.
----------------------
3. There will be uniformity in laws, rates of tax, and procedures across
---------------------- states.
---------------------- 4. The GST regime is expected to boost manufacturing activities and exports.
This would, in turn, generate more employment and lead to the growth of
---------------------- the economy.
---------------------- 5. Indian products would be more competitive in the international markets.
6. The GST system is likely to improve the overall investment climate in
----------------------
India.
---------------------- 7. Uniformity in the rates of GST will reduce tax evasion to a large extent.
---------------------- 8. The average sales burden experienced by companies is expected to
come down, thereby increasing consumption and boosting subsequent
---------------------- production of goods.
---------------------- 9. GST is a simpler system of taxation with smaller number of exemptions.
---------------------- 10. There are automated and simplified methods for processes such as
registration, refunds, returns, tax payments, etc.
----------------------
11. All interactions will be handled by the common GSTN website.
---------------------- 12. The input tax credit process will be more accurate and transparent, as
electronic matching will be performed.
----------------------
13. The final price of most goods will be lower when taxation is at the new
---------------------- GST rates. There will also be a seamless input tax credit flow between the
manufacturer, retailer, and supplier of service.
----------------------
14. A huge segment of small-scale retailers may be either exempt from tax
---------------------- or may benefit from low tax rates based on the compounding scheme.
---------------------- Consumers will further benefit if purchases are made from these small
retailers.
----------------------
9.6 COMPONENTS OF GST
----------------------
There are three applicable taxes under GST: CGST, SGST & IGST.
----------------------
• CGST: Collected by the Central Government on an intra-state sale (Eg:
---------------------- Within Maharashtra)
---------------------- • SGST: Collected by the State Government on an intra-state sale (Eg:
Within Maharashtra)
----------------------

• IGST: Collected by the Central Government for inter-state sale (Eg: Notes
Maharashtra to Gujrat)
----------------------
In most cases, the tax structure under the new regime will be as follows:
Transaction New Taxation Old Taxation Remarks ----------------------
Type Regime Regime ----------------------
Sale within the CGST + VAT + Central Revenue will be shared
State SGST Excise/Service equally between the ----------------------
tax Centre and the State
----------------------
Sale to another IGST Central Sales There will only be one
State Tax + Excise/ type of tax (central) in ----------------------
Service Tax case of inter-state sales.
The Center will then ----------------------
share the IGST revenue ----------------------
based on the destination
of goods. ----------------------
Illustration: ----------------------
A dealer in Maharashtra sells goods to a consumer in Maharashtra worth
----------------------
` 10,000. The GST rate is 18% : comprising CGST of 9% and SGST of 9%.
In such cases, the dealer collects ` 1800 and of this amount, ` 900 will go ----------------------
to the Central Government and ` 900 will go to the Maharashtra government.
----------------------
Now, let us assume the dealer in Maharashtra had sold the goods to a
dealer in Gujarat worth ` 10,000. ----------------------
The GST rate is 18% comprising of only IGST. In such case, the dealer has ----------------------
to charge ` 1800 as IGST. This IGST revenue will go to the Central Government.
----------------------
Multiple choice Multiple response ----------------------

1. Which of the following are the constituents of GST ----------------------
a. SGST
----------------------
b. CGST
c. IGST ----------------------
d. PGST ----------------------
2. GST (Goods & Services Tax) Law in India is a:
----------------------
a. Multi-stage tax
b. Comprehensive tax ----------------------
c. Destination -based tax
----------------------
d. Value added tax
----------------------
----------------------

Notes 9.7 LEVY AND COLLECTION OF TAX
---------------------- Section 8(1) says that there shall be levied a tax called the Central/State
Goods and Services Tax (CGST/SGST) on all intra-State supplies of goods and/
---------------------- or services on the value determined under section 15 and at such rates as may
be notified by the Central/ State Government in this behalf, but not exceeding
----------------------
14%, on the recommendation of the Council and collected in such manner as
---------------------- may be prescribed.
---------------------- In terms of Section 9 of the CGST Act, 2017, intra-State supplies are
liable to CGST & SGST. In terms of Section 7 of UTGST Act, 2017, intra-State
---------------------- supplies effected by a taxable person located in Union Territory (within the
Union Territory) will be liable to CGST & UTGST.
----------------------
---------------------- 9.8 MEANING OF SUPPLY

---------------------- As per Sub-section (1) of Section 7, Supply includes:
---------------------- 1. all forms of supply of goods or services or both such as sale, transfer,
barter, exchange, licence, rental, lease or disposal made or agreed to
---------------------- be made for a consideration by a person in the course or furtherance of
business;
----------------------
2. Import of services for a consideration whether or not in the course or
---------------------- furtherance of business;
---------------------- 3. The activities specified in Schedule I, made or agreed to be made without
a consideration; and
----------------------
4. The activities to be treated as supply of goods or supply of services as
---------------------- referred to in Schedule II.
The CGST Act, 2017 specifies certain provisions separately for supply
----------------------
of goods and supply of services viz., Section 12 and Section 13 provides for
---------------------- ascertaining time of supply of goods and time of supply of services respectively;
similarly separate provisions have been specified for ascertaining place of supply
---------------------- of goods and place of supply of services. Further, the rate of tax applicable
to supply of goods and supply of services may be different. Accordingly, it
----------------------
is important to distinguish whether a particular transaction involves supply of
---------------------- goods or supply of services.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Following table gives the detailed Meaning and scope of supply Notes
Section 7 - Meaning and scope of supply ----------------------
Section 7(1) Section 7(1) Section 7(1) Section 7(1) ----------------------
(a) (b) (c) (d)
----------------------
All forms Importation Supplies specified* Activities to be
of supply of of service, treated as supply ----------------------
- To be treated as
goods and / of goods or supply
- for a supplies made without a ----------------------
or services, of services – Sch
consideration consideration
made or II ----------------------
agreed to be - whether or *Schedule I:
made, not ----------------------
1. Permanent transfer
- for a in the / disposal of business ----------------------
consideration course or assets for which ITC
furtherance is availed ----------------------
- in the
of business 2. Supplies between Section 7(2) ----------------------
course or
related persons/
furtherance Activities not ----------------------
distinct persons in the
of business be considered as
course or furtherance ----------------------
supply (Sch-III)
such as: of business (gifts of
less than ` 50,000 ----------------------
- sale, in value in a FY by
employer to employee ----------------------
- transfer,
not to be treated as ----------------------
- barter, Section 7(3)
supply)
- exchange, 3. Supply of goods by / By Notification on ----------------------
to principal to / by recommendation ----------------------
- license,
agent where agent of GST Council
- rental, undertakes to supply / treat activity as ----------------------
receive such goods on • Supply of
- lease or behalf of principal ----------------------
goods and not
- disposal 4. Importation of service ----------------------
service from a • Supply of ----------------------
related person or service and not
from any of his goods ----------------------
other establishments
outside India, in the ----------------------
course or furtherance
----------------------
of business.
Source: Indirect Taxes Committee, ICAI ----------------------
----------------------
----------------------

Notes
----------------------
Multiple choice multiple response
----------------------
1. What are different types of supplies covered under the scope of
---------------------- Supply?
(a) Supplies made with consideration
----------------------
(b) Supplies made without consideration
---------------------- (c) Both of the above
---------------------- (d) None of the above
2. What are the factors differentiating Composite Supply & Mixed
----------------------
Supply?
---------------------- (a) Nature of bundling i.e. artificial or natural
---------------------- (b) Existence of Principal Supply
(c) Both of the above
---------------------- (d) None of the above
----------------------
---------------------- 9.9 ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS

---------------------- OR SUPPLY OF SERVICES
---------------------- Section 7(1) (d) covers the activities to be treated as supply of goods or
supply of services which can be summarised as follows:
----------------------
Sr. Matters Supply of
---------------------- No
1 Transfer
----------------------
(a) Any transfer of title in goods Goods
---------------------- (b) Any transfer of right in goods or undivided share in Services
goods without the transfer of title thereof
----------------------
(c) Any transfer of title in goods wherein the property in Goods
---------------------- goods will pass at a future date upon payment of full
consideration as agreed
----------------------
2 Land and Building
---------------------- (a) Any lease, tenancy, easement, licence to occupy land Services
(b) Any lease or letting out of the building including a Services
----------------------
commercial, industrial or residential complex for
---------------------- business or commerce, either wholly or partly,
3 Any treatment or process on another person’s goods Services
----------------------
4 Transfer of business assets
---------------------- (a) Transfer / Disposal of goods so as to no longer to form Goods
part of business assets, whether or not for a consideration
----------------------

Sr. Matters Supply of Notes
No
----------------------
(b) Goods are put to any private use or are used, or made Services
available to any person for use, for any purpose other ----------------------
than a purpose of the business, whether or not for a
consideration ----------------------
(c) Any person ceases to be a taxable person, any goods Goods ----------------------
forming part of assets of any business carried on by
him – shall be deemed to be supply in the course or ----------------------
furtherance of his business immediately before he ceases
to be a taxable person, except – ----------------------
(a) Business is transferred as a going concern to ----------------------
another person; or
----------------------
(b) Business is carried on by a personal representative
who is deemed to be a taxable person ----------------------
5 Following to be treated as Supply of Services
----------------------
(a) Renting of immovable property
(b) Construction of a complex, building, civil structure or a part thereof, ----------------------
including a complex or building intended for sale to a buyer, wholly
or partly, except where the entire consideration has been received after ----------------------
issuance of completion certificate, where required, by the competent ----------------------
authority or before its first occupation, whichever is earlier.
Construction includes additions, alterations, replacements or remodeling ----------------------
of any existing civil structure
----------------------
(c) Temporary transfer or permitting the use or enjoyment of any intellectual
property right ----------------------
(d) Development, design, programming, customization, adaptation,
----------------------
upgradation, enhancement, implementation of information technology
software ----------------------
(e) Agreeing to the obligation to refrain from an act, or to tolerate an act or
a situation, or to do an act ----------------------
(f) Transfer of the right to use any goods for any purpose (whether or not ----------------------
for a specified period) for cash, deferred payment or other valuable
consideration ----------------------
6 Following Composite Supplies to be treated as Supply of Services ----------------------
(a) Works Contract as per Sec. 2(119) of CGST Act
“works contract” means a contract for building, construction, ----------------------
fabrication, completion, erection, installation, fitting out, improvement, ----------------------
modification, repair, maintenance, renovation, alteration or
commissioning of any immovable property wherein transfer of property ----------------------
in goods (whether as goods or in some other form) is involved in the
execution of such contract; ----------------------
----------------------

Notes Sr. Matters Supply of
No
----------------------
(b) Supply, by way of or as part of any service or in any other manner
---------------------- whatsoever, of goods, being food or any other article for human
consumption or any drink (other than alcoholic liquor for human
---------------------- consumption), where such supply or service is for cash, deferred
payment or other valuable consideration.
----------------------
Illustration: Restaurant Services or Catering Services
---------------------- 7 Supply of goods by any unincorporated AOP or BOP to a member
thereof for cash, deferred payment or other valuable consideration
----------------------
shall be treated as supply of goods
----------------------
9.10 ACTIVITIES NOT TO BE TREATED AS SUPPLY
----------------------
a. Activities under Section 7(2)(a)
----------------------
1. Services by an employee to the employer in the course of or in
---------------------- relation to his employment
---------------------- 2. Services by any court or Tribunal established under any law for the
time being in force
----------------------
3. (a) functions performed by the M.Ps, Members of State
---------------------- Legislature, Members of Panchayats, Members of
Municipalities and Members of other local authorities
----------------------
(b) Duties performed by any person who holds any post in
---------------------- pursuance of the provisions of the Constitution in that capacity
---------------------- (c) The duties performed by any person as a Chairperson or a
Member or a Director in a body established by the Central
---------------------- Government or a State Government or local authority and
who is not deemed as an employee before the commencement
----------------------
of this clause
---------------------- 4. Services of funeral, burial, crematorium or mortuary including
transportation of the deceased.
----------------------
5. Sale of land and, subject to Construction Activity of Schedule II,
---------------------- sale of building
---------------------- 6. Actionable claims, other than lottery, betting and gambling
---------------------- b. Activities under Section 7(2)(b)

Activities or transactions undertaken by the Central Government, or a
----------------------
State Government, or any local authority in which they are engaged as public
---------------------- authorities as may be notified by the Government on the recommendations of
the GST Council.
----------------------
----------------------

c. Exemptions to the concept of Supply Notes
a. Section 2(47) – “exempt supply” means supply of any goods and/
----------------------
or services
• which attract nil rate of tax; or ----------------------
• which may be exempt from tax under Section 11 or Section 6 ----------------------
of IGST Act and includes non-taxable supply
----------------------
b. Section 2(78) – “non-taxable supply” means a supply of goods and/
or services which is not leviable to tax under this Act or IGST Act ----------------------
c. Section 16(1) of IGST Act – “zero-rated supply” means any of the ----------------------
following supplies of goods and/or services, namely -
• Export of goods and/or services ----------------------
• Supply of goods and/or services to a SEZ developer or an ----------------------

SEZ unit
----------------------
9.11 COMPOSITION LEVY ----------------------
The composition levy is an alternative method of levy of tax designed ----------------------

for small taxpayers whose turnover is up to ` 75 lakhs ( ` 50 lakhs in case of
few States). The objective of composition scheme is to bring simplicity and to ----------------------
reduce the compliance cost for the small taxpayers. Moreover, it is optional ----------------------
and the eligible person opting to pay tax under this scheme can pay tax at a
prescribed percentage of his turnover every quarter, instead of paying tax at ----------------------
normal rate.
----------------------
Following persons are not allowed to opt for the composition scheme:
----------------------
a) A casual taxable person or a non-resident taxable person;
b) Suppliers whose aggregate turnover in the preceding financial year ----------------------
crossed ` 75 lakhs; ----------------------
c) Supplier who has purchased any goods or servcies from unregistered
supplier unless he has paid GST on such goods or services on reverse ----------------------
charge basis; ----------------------
d) Supplier of services, other than restaurant service;
----------------------
e) Persons supplying goods which are not taxable under GST law;
----------------------
f) Persons making any inter-State outward supplies of goods;
g) Suppliers making any supply of goods through an electronic commerce ----------------------
operator who is required to collect tax at source under section 52
----------------------
Rates for the composition levy are as follows:
----------------------
• 1% of the turnover in case of manufacturers ( other than specified);
• 2.50% of the turnover in case of suppliers covered under Sch. II, Para 6(b) ----------------------
such as Restaurants or Caterers
----------------------

Notes • 0.50% of the turnover in other cases
Conditions for Composition:
----------------------
• Permission of Proper Officer required
----------------------
• Registered persons
---------------------- • Aggregate Turnover < ` 75 Lakhs in the preceding FY (all-India basis for
---------------------- taxable persons having same PAN – who shall also opt for composition)
• No stock of goods imported or interstate.
----------------------
---------------------- Activity 2
---------------------- A person availing composition scheme during a financial year crosses the
---------------------- turnover of ` 75 lakhs/50 lakhs during the course of the year i.e. say he
crosses the turnover of ` 75 lakhs/50 lakhs in December? Will he be allowed
---------------------- to pay tax under composition scheme for the remainder of the year i.e. till
31st March?
----------------------
----------------------
9.12 TIME OF SUPPLY OF GOODS AND SERVICES
----------------------
As per Section 12(2) of CGST ACT, time of supply of goods shall be
---------------------- earlier of invoice/ payment which is:
---------------------- ●● Actual date of issue of invoice by the supplier
●● Due date for issue of invoice by the supplier
----------------------
●● Supply involves movement: Time of removal of goods for supply
----------------------
●● Continuous Supply: Date of issue of statement
---------------------- ●● ale on approval basis: Earlier of time at which it becomes known
S
that the supply has taken place OR 6 months from date of removal
----------------------
●● Other cases: Delivery of goods/ making available to the recipient or
---------------------- ●● Notified categories of supplies: Time to be specified by Rules
---------------------- ●● Date on which payment is entered in the books of Accounts of supplier
---------------------- ●● Date on which payment is credited to the supplier’s bank account
Examples:
----------------------
Consider following examples to understand the concept of time of supply in
---------------------- more detail:
----------------------
----------------------
----------------------
----------------------

a. Time of Supply of goods Notes
Sr. Section 12(2) Invoice Invoice Payment Credit Time of
----------------------
No. date due date entry in in bank supply
supplier's account ----------------------
books
1 Invoice raised 10-Oct- 20-Oct- 26-Oct-17 30-Oct- 10-Oct- ----------------------
before removal 17 17 17 17
----------------------
2 Advance received 30-Oct- 20-Oct- 10-Oct-17 30-Oct- 10-Oct-
17 17 17 17 ----------------------
3 Delayed issue of 26-Oct- 20-Oct- 26-Oct-17 26-Oct- 20-Oct-
invoice 17 17 17 17 ----------------------
4 Inter-State stock 10-Oct- 20-Oct- 26-Oct-17 - 10-Oct-
transfer 17 17 17 ----------------------
5 Advance received, 30-Oct- 10-Nov- 14-Nov- 30-Oct- 30-Oct- ----------------------
invoice for full 17 17 17 17 17
amount issued ----------------------
on same day
(40% advance, ----------------------
60% post supply ----------------------
payment)
6 Delayed issue of 30-Oct- 05-Nov- 26-Oct-17 10-Nov- 26-Oct- ----------------------
invoice 17 17 17 17
7 Invoice issued 20-Oct- 10-Nov- 26-Oct-17 10-Nov- 20-Oct- ----------------------
prior to delivery 17 17 17 17 ----------------------
b. Time of Supply of Services
----------------------
Sr. Event Time of Supply of Services
No. ----------------------
1 If invoice issued within prescribed Date of issue of Invoice or
time u/s 31(2) - 30 days (45 days in Payment, whichever is earlier ----------------------
case of Banking, Insurance, Financial ----------------------
Institution or NBFC company)
2 If invoice not issued within 30 days Date of completion of service or ----------------------
(45 days in case of Banking, Insurance, payment, whichever is earlier
Financial Institution or NBFC company) ----------------------
3 If both cases do not apply Date on which recipient shows
----------------------
in his books of accounts
Examples: ----------------------
Sr. Section 13(2) Invoice Invoice Payment Credit Time of ----------------------
supplier's account ----------------------
books
1 Invoice 10-Oct- 20-Oct- 26-Oct-17 30-Oct- 10-Oct- ----------------------
raised before 17 17 17 17 ----------------------
completion of
service ----------------------

Notes Sr. Section 13(2) Invoice Invoice Payment Credit Time of
---------------------- supplier's account
books
---------------------- 2 Advance received 30-Oct- 20-Oct- 10-Oct-17 30-Oct- 10-Oct-
---------------------- 17 17 17 17
Contract provides 24-Apr- 24-Apr- 20-Apr-18 24-Apr- 20-Apr-
---------------------- for payments on 18 18 18 18
completion of
---------------------- event. Recipient
to pay within 1
----------------------
month from date
---------------------- of completion
c. Time of Supply of Goods / Services - Reverse Charge – Sec 12(3) /
----------------------
13(3)
---------------------- Where tax liable to be paid on reverse charge basis, the time of supply of
---------------------- goods/services shall be earliest of
●● Date on which payment is entered in the books of recipient
----------------------
●● Date on which payment is debited to the recipient’s bank a/c
---------------------- ●● here it is not possible to determine time of supply in the 3 other cases:
W
---------------------- Date of entry in the books of account of the recipient
●● 31st day (in case of goods) / 61st day (in case of services) from the date of
---------------------- issue of invoice by supplier
---------------------- Note: Last factor is not relevant in case of services from a supplier being an
associated enterprise outside India
----------------------
Examples:
----------------------
Sr. Reverse charge Date of Removal Receipt Payment Time of
---------------------- No. Section 12(3) invoice of goods of goods by supply
issued by recipient
---------------------- supplier
---------------------- 1 General 31-Oct- 31-Oct- 20-Nov- 30-Nov- 20-Nov-
17 17 17 17 17
---------------------- 2 Advance paid 31-Oct- 31-Oct- 20-Nov- 05-Nov- 05-Nov-
17 17 17 17 17
----------------------
3 No payment 31-Oct- 30-Dec- 05-Jan- - 30-Nov-
---------------------- made for the 17 17 18 17
supply
----------------------
General 31-Oct- 31-Oct- 20-Nov- 30-Nov- 20-Nov-
---------------------- 17 17 17 17 17
Advance paid 31-Oct- 31-Oct- 05-Nov- 31-Oct- 05-Nov-
---------------------- 17 17 17 17 17
----------------------

Sr. Reverse charge Date of Removal Receipt Payment Time of Notes
No. Section 12(3) invoice of goods of goods by supply
issued by recipient ----------------------
supplier ----------------------
Delay in 31-Oct- 31-Oct- 10-Jan- 31-Oct- 31-Dec-
payment (Max. 17 17 18 17 17 ----------------------
60 days from
----------------------
date of invoice)
Service received 31-Oct- 30-Nov- 05-Apr- 31-Mar- 31-Mar- ----------------------
from associated 17 17 18 18 18
enterprise ----------------------
located outside ----------------------
India (No
time extension ----------------------
allowed)
----------------------
Service by - 30-Nov- - 05-Dec- 05-Dec-
unregistered 17 17 17 ----------------------
person, no
payment made ----------------------
----------------------
----------------------
Multiple choice single response
----------------------
1. Which of the following persons can opt for composition scheme?
(a) Person making any supply of goods which are not leviable to ----------------------
tax under this Act;
----------------------
(b) Person making any inter-State outward supplies of goods;
(c) Person effecting supply of goods through an e-commerce ----------------------
operator liable to collect tax at source ----------------------
(d) None of the above
----------------------
2.
What is the threshold limit of turnover in the preceding financial year
for opting to pay tax under composition scheme? ----------------------
(a) `20 lacs
----------------------
(b) `10 lacs
(c) `50 lacs ----------------------
(d) None of the above ----------------------
----------------------
Summary
●● he Goods and Services Tax has revolutionized the Indian taxation
T ----------------------
system.
----------------------
●● Before GST, tax on tax was calculated and tax was paid by every purchaser
including the final consumer. The taxation on tax is called the Cascading ----------------------

Notes Effect of Taxes.
●● GST (Goods & Services Tax) Law in India is a multi-stage, comprehensive
---------------------- and destination-based tax that will be levied on every transaction, goods
and services where there is value addition.
----------------------
●● I n terms of Section 9 of the CGST Act, 2017, intra-State supplies are
---------------------- liable to CGST & SGST.
---------------------- ●● he composition levy is an alternative method of levy of tax designed for
T
small taxpayers whose turnover is up to ` 75 lakhs
----------------------
---------------------- Keywords
---------------------- ●● CGST: Central Goods and Service Tax
●● SGST: State Goods and Service Tax
----------------------
●● IGST: Integrated Goods and Service Tax
---------------------- ●● Composition levy: Alternative method of levy of tax designed for small
---------------------- taxpayers whose turnover is up to ` 75 lakhs.
●● upply: All forms of supply of goods or services or both such as sale,
S
---------------------- transfer, barter, exchange, licence, rental, lease or disposal made or agreed
---------------------- to be made for a consideration by a person in the course or furtherance of
business.
----------------------
---------------------- Self-Assessment Questions
---------------------- 1. Write a short note on constituents of the GST.

2. What are the benefits of GST introduction?
----------------------
3. Which are the taxes replaced in GST law?
---------------------- 4. How are the provisions relating to time of supply relevant under GST
Law?
----------------------
5. What will be the time of supply where tax is liable to be paid under reverse
---------------------- charge mechanism?
----------------------
Answer to check your progress
----------------------
----------------------
Multiple choice Multiple response
----------------------
1. Which of the following are the constituents of GST
---------------------- a. SGST
b. CGST
----------------------
c. IGST
----------------------
2. GST (Goods & Services Tax) Law in India is a:
---------------------- a. Multi-stage tax

b. Comprehensive tax Notes
c. Destination-based tax
----------------------
----------------------
Multiple choice multiple response
1. What are different types of supplies covered under the scope of Supply? ----------------------
(a) Supplies made with consideration ----------------------
(b) Supplies made without consideration
----------------------
2. What are the factors differentiating Composite Supply & Mixed Supply?
(a) Nature of bundling i.e. artificial or natural ----------------------
(b) Existence of Principal Supply ----------------------
Multiple choice single response
----------------------
1. Which of the following persons can opt for composition scheme?
----------------------
(d) None of the above
2. What is the threshold limit of turnover in the preceding financial year for ----------------------
opting to pay tax under composition scheme?
----------------------
(c) ` 50 lacs
----------------------
Suggested Reading ----------------------
1. http://www.idtc.icai.org ----------------------
2. https://www.bankbazaar.com/tax ----------------------
3. Good And Simple Tax – GST for You, CMA Bhogavalli Mallikarjuna
Gupta, Notion Press, 2017 ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
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----------------------

Labour Laws
UNIT
10
Structure:
10.1 Introduction
10.2 The Payment of Wages Act, 1936
10.3 The Minimum Wages Act, 1948
10.4 The Payment of Bonus Act, 1965
10.5 The Payment of Gratuity Act, 1972
10.6 The Employee’s Provident Funds and Miscellaneous Provisions Act, 1952
10.7 The Employee’s State Insurance Act, 1948
10.8 The Workman’s Compensation Act, 1923
Summary
Keywords
Suggested Reading
Labour Laws 235

Notes
Objectives
----------------------
----------------------
• Explain the main provisions of important labour laws
----------------------
• Calculate the bonus payable to your employees
---------------------- • Describe the contribution to employees’ provident fund
----------------------
10.1 INTRODUCTION
----------------------
While running an organisation an entrepreneur has to employ labours
---------------------- to carry out his business. India is a labour welfare nation. To prevent the
exploitation of labour by unscrupulous employers, the Govt of India has enacted
----------------------
several acts. All the employers are expected to follow these regulations. In case
---------------------- of violation, there are provisions for imprisonment or fine or both. In this unit,
you will be studying some of the important provisions of important labour laws.
----------------------
---------------------- 10.2 THE PAYMENT OF WAGES ACT, 1936
---------------------- The main purpose of the Act is to ensure regular and timely payment of
wages to the employed person and to prevent unauthorised deductions being
---------------------- made from wages and arbitrary fines being imposed on the employed persons.
The Act extends to the whole of India.
----------------------
It applies in the first instance to the payment of wages to persons employed
---------------------- in any factory and to persons employed in an industrial or other establishment
specified in sub-clause (a) to (g) of clause (ii) of Section 2. Only those employed
----------------------
persons who are normally drawing less than Rs. 1600/- a month are covered by
---------------------- the Act.
As per Section 2(vi)
----------------------
Wages means all remuneration, whether by way of salaries, allowances or
---------------------- otherwise expressed in terms of money or capable of being so expressed which
would, if the terms of employment, express or implied were fulfilled be payable
----------------------
to a person employed in respect of his employment or of work done in such
---------------------- employment.
---------------------- Wages includes

a) any remuneration payable under any award or settlement between the
---------------------- parties or order of a court.
---------------------- b) any remuneration to which the person employed is entitled in respect of
overtime work or holidays or any leave period.
----------------------
c) any additional remuneration payable under the terms of employment
---------------------- whether called a bonus or by any other name.
----------------------

d) any sum which by reason of the termination of employment of the person Notes
employed is payable under any law, contract or instrument which provides
for the payment of such sum whether with or without deduction but does ----------------------
not provide for the time within which the payment is to be made.
----------------------
e) any sum to which the person employed is entitled under any scheme
framed under any law for the time being in force. ----------------------
As per Section 4 it is obligatory on every person responsible for the payment of ----------------------
wages to fix period in respect of which such wages shall be payable. Payments
can be made daily, weekly, fortnightly, or monthly. ----------------------
If the number of persons employed is less than one thousand, the wages shall be ----------------------
paid before the expiry of the seventh day. In any other case where such number
of persons employed exceeds one thousand, the wages should be paid before ----------------------
the expiry of the tenth day. The computation of seventh day and or tenth day as
----------------------
the case may be, has to be reckoned with from the last day of the wage period
in respect of which the wages are payable. ----------------------
Example: If the salary payable is weekly on every Saturday and if the number ----------------------
of employees is less that 1,000, the last date for payment of wages payable on
19-11-2006 is 26-11-2006. ----------------------
As per Section 6 all wages to be paid in currency coins or currency notes or in ----------------------
both. Provided that the employer may, after obtaining the written authorisation
of the employed person, pay him the wages either by cheque or by crediting the ----------------------
wages in his bank account.
----------------------
The list of Deductions authorised as per Section 7(2) are as under –
----------------------
a) fines
b) deduction for absence from duty ----------------------
c) deduction for damage to or loss of goods or loss of money ----------------------
d) deduction for house accommodation ----------------------
e) deductions for the amenities and services
----------------------
f) deductions for recovery of advances
----------------------
g) deductions for recovery of loans
h) deductions for Income-Tax ----------------------
i) deductions under the order of a Court of authority ----------------------
j) deductions in respect of provident fund ----------------------
k) deductions for payment to co-operative societies
----------------------
l) deductions for payment to a Scheme of Insurance of a Post Office
----------------------
m) deductions for payment of Life Insurance Premium.
n) deductions for the purchase of Government securities ----------------------
o) deductions for payment to post office saving bank ----------------------
Labour Laws 237

Notes p) deductions for payment of contribution to certain funds
q) deductions for payment of certain fees
----------------------
r) deductions in respect of fidelity guarantee bond
----------------------
s) deductions for certain losses in case of railway administration
---------------------- t) deductions for payment to Prime Minister’s national relief fund or any
---------------------- other fund
u) deductions for contribution to Insurance Scheme
----------------------
The total amount of all categories of deduction from the wages of any employed
---------------------- person, in any wage period, should not exceed the following limits prescribed
by Section 7(3).
----------------------
75%
l of the wages payable in case where such deductions are wholly or
---------------------- partly made for payments to co-operative societies under Section 7(2)(j)
of the Act.
----------------------
l 50% of the wages payable in any other case -
----------------------
Example:
---------------------- Mr.Vishalsingh an employee of your establishment has availed a loan from
---------------------- Model Co-operative Bank, Pune. He is a defaulter. The Bank has requested you
to deduct Rs.9,000/- per month and remit to the bank. The following are the
---------------------- details of his wages and deductions.
---------------------- Gross Salary: 16,000/- PM

Deductions: Income tax: Rs. 600/-
----------------------
LIC Premium Rs. 400/-
----------------------
Festival Advance Rs. 500/-
---------------------- Quarters Facility Rs. 800/-
---------------------- Compulsory Provident Fund Rs.1,000/-
Loan installment of X bank Rs.3,000/-
----------------------
Total Deductions: Rs.6,300/-
---------------------- Net Salary Payable Rs. 9,700/-
---------------------- The computation of amount to be remitted to Model Co-operative Bank, Pune
a) Gross Salary: Rs.16,000/-
----------------------
b) 75% of Gross Salary (Maximum deductions) Rs.12,000/-
---------------------- c) Less existing deductions Rs. 6,300/-
---------------------- d) Amount that can be remitted to Model Bank Rs. 5,700/- (d=b-c)
---------------------- As per Section 15(2) for claims is entertained, the concerned authority may
direct the refund to be made to the concerned employed person of the amount
---------------------- deducted or the payment of the delayed wages as the case may be, together
with compensation which shall not exceed ten times the amount improperly
---------------------- deducted and not exceeding rupees twenty five in respect of delayed wages.

Section 17-A of the Payment of Wages Act, 1936 provides for conditional Notes
attachment of property of employer or other person responsible for Payment of
Wages if the Authority is satisfied that the employer or the person responsible ----------------------
for the payment of wages is likely to evade payment. Section 17A confers
the powers of a civil court, of attachment before judgment on the authority ----------------------
constituted under Section 15 and the appellate authority under Section 17 of the ----------------------
Act.
----------------------
Section 20(1) of the Act lays down that who so ever, being responsible for
the payment of wages, contravenes any of the provisions of the act shall be ----------------------
punishable with fine which may not be less than Rs. 200/- but which may extend
to Rs. 1000/- ----------------------
----------------------
----------------------
----------------------
1. Wages includes any remuneration payable under any award or
settlement between the parties or order of a court. ----------------------
----------------------
Activity 1
----------------------
Obtain a copy of the pay slip of a friend or a relative working with a private ----------------------
employer and study the wages paid and the deductions made.
----------------------
10.3 THE MINIMUM WAGES ACT, 1948 ----------------------
The Minimum Wages Act was passed in 1948 and it came into force on ----------------------
15th March, 1948. The Act provides for a full fledge machinery to determine ----------------------
the minimum rates of wages in the industries specified in the schedule attached
to the Act and therefore are called scheduled employment. ----------------------
The Minimum Wages Act, 1948 also gives effect to the obligations created by ----------------------
the Convention no. 26 of the International Labour Organisation adopted in the
year 1948, and Recommendation no. 30 relating to minimum wage fixation ----------------------
machinery.
----------------------
Fixation of minimum rates of wages
The Act does not define the minimum wages concept. According to the ----------------------
committee of fair wages, minimum wages must provide not merely for the bare
----------------------
sustenance of life but also for the preservation of efficiency of the worker. For
this purpose, the minimum wages must also provide some measure of education, ----------------------
medical requirements and amenities. The minimum wages have to be paid
irrespective of the paying capacity of the industry. An employee is prohibited ----------------------
from relinquishing any of his rights under the Act.
----------------------
Section 3 lays down that the appropriate Government shall fix the minimum
rate of wages payable to employees in an employment specified in part I and ----------------------
Labour Laws 239

Notes part II of the schedule. The rates to be fixed need not be uniform. Different rates
can be fixed for different zones or localities.
----------------------
The minimum wages can be revised at an interval of 5 years or lesser interval.
---------------------- Manner of fixation/revision of minimum wages
---------------------- According to Section 3(2), the ‘appropriate Government’ may fix minimum rate
of wages for :-
----------------------
a) Time work, known as a Minimum Time Rate;
---------------------- b) Piece work, known as a Minimum Piece Rate;
---------------------- c) A ‘Guaranteed Time Rate’ for those employed in piece work for the
purpose of securing to such employees a minimum rate of wages on a
---------------------- time work basis; (This is intended to meet a situation where operation of
---------------------- minimum piece rates fixed by the appropriate Government may result in
a worker earning less than the minimum wages), and
----------------------
d) A ‘Over Time Rate’ i.e., minimum rate whether a time rate or a piece rate
---------------------- to apply in substitution for the minimum rate which would otherwise be
applicable in respect of overtime work done by employee.
----------------------
Section 3(3) provides that different minimum rates of wages may be fixed for
---------------------- a) different scheduled employments;
---------------------- b) different classes of work in the same scheduled employments;
---------------------- c) adults, adolescents, children and apprentices;

d) different localities.
----------------------
Further, minimum rates of wages may be fixed by any one or more of the
---------------------- following wage periods, namely:
---------------------- a) by the hour,
---------------------- b) by the day,

c) by the month, or
----------------------
d) by such other large wage period, as may be prescribed; and where such
---------------------- rates are fixed by the day or by the month, the manner of calculating
wages for month or for a day as the case may be, may be indicated.
----------------------
Minimum Rate of wages
----------------------
Any minimum rate of wages may consist of an all inclusive rate allowing for the
---------------------- basic rate, the cost of living allowance and the cash value of the concessions,
if any.
----------------------
Procedure for fixing and revising minimum wages (Section 5)
---------------------- i) First Method [section 5(1)(a)]
---------------------- This method is known as the ‘Committee Method’. The appropriate
Government may appoint as many committees to hold enquiries and
---------------------- advise it in respect of such fixation or revision as the case may be.

ii) Second Method [section 5(1)(b)] Notes
The method is known as the ‘Notification Method’. When fixing
----------------------
minimum wages under Section 5(1)(b), the appropriate Government
shall by notification, in the Official Gazette publish its proposals for the ----------------------
information of persons likely to be affected thereby and specify a date
not less than two months from the date of the notification, on which the ----------------------
proposals will be taken into consideration.
----------------------
The representations received will be considered by the Advisory Board
constituted under Section 7, and there after, fix or reverse the minimum rates of ----------------------
Wages by notification in the Official Gazette. The new wage rates shall come
----------------------
into force from such date as may be specified in the notification. However, if
no date is specified, the notification shall come into force on expiry of three ----------------------
months from the date of its issue.
----------------------
Any employer shall be punishable with imprisonment which may extend to six
months or fine which may extend to Rs. 500 or with both, who ----------------------
a) Pays less than minimum rate of wages fixed for the employees, class of ----------------------
work or less than the amount due to him under the provision of this Act;
or ----------------------
b) contravenes any rule or order made under Section 13 i.e., fixing hours for ----------------------
a normal working day, etc.
----------------------
----------------------
1. Minimum rates of wages may be fixed by any one or more of the
----------------------
following wage periods, namely:
i. By the hour ----------------------
ii. By the day ----------------------
iii. By piece work ----------------------
iv. By schedule
----------------------
----------------------
Activity 2
----------------------
What is the Minimum Wages fixed by the state Government in your state as
on today? ----------------------
----------------------
10.4 THE PAYMENT OF BONUS ACT, 1965 ----------------------
Bonus is a cash payment made to employees in addition to wages. It is not an ----------------------
ex-gratia payment.
----------------------
Labour Laws 241

Notes Broadly speaking, the scheme of the Act is four dimensional :
(1) To impose statutory liability upon an employer of every establishment
----------------------
covered by the Act to pay bonus to employees in establishment:
---------------------- (2) To define the principle of payment of bonus according to the prescribed
formula;
----------------------
(3) To provide for payment of minimum and maximum bonus and linking the
---------------------- payment of bonus with the scheme of ‘set-off and set on’; and
---------------------- (4) To provide machinery for enforcement of the liability for payment of
bonus.
----------------------
The payment of Bonus Act gives to the employees a statutory right to a share in
---------------------- the profits of his employer.
---------------------- The Act extends to the whole of India. Sub-section (3) of Section 1 provides
that save as otherwise provided in this Act, it shall apply to a) every factory and
---------------------- b) every other establishment in which twenty and more persons are employed
on any day during an accounting year. Subsequent reduction of strength in the
---------------------- number of employees would not make the Act inapplicable to an establishment.
---------------------- Allocable surplus [Section 2 (4)] : This expression means 67% of the available
surplus in an accounting year, in relation to an employer, being a company,
----------------------
other than a banking company, which has not made the arrangements prescribed
---------------------- under the Income Tax Act, for the declaration and payment within India of the
dividends payable out of its profits in accordance with the provisions of Section
----------------------
194 of that Act. In any other case, the allocable surplus means 60% of such
---------------------- available surplus.
---------------------- Every employee of an establishment covered under the Act is entitled to bonus
from his employer in an accounting year provided he has worked in that
---------------------- establishment for not less than thirty working days in the year on Salary less
than Rs. 3,500/- per month. [Section 2(13) read with Section 8]
----------------------
An employee in the following cases is entitled to bonus :
---------------------- i) A temporary workman is entitled to bonus on the basis of total number of
---------------------- days worked by him.
ii) An employee of a seasonal factory is entitled to proportionate bonus and
----------------------
not the minimum bonus as prescribed under Section 10 of the Act.
---------------------- iii) A part time employee as a sweeper engaged on a regular basis is entitled
to bonus.
----------------------
iv) A retrenched employee is eligible to get bonus provided he has worked
---------------------- for minimum qualifying period
---------------------- v) A probationer is an employee and as such entitled to bonus.
---------------------- vi) A dismissed employee reinstated with back wages is entitled to bonus.
vii) A Piece rated worker is entitled to bonus.
----------------------

An employee in the following cases is not entitled to bonus : Notes
1. An apprentice is not entitled to bonus.
----------------------
2. An employee employed through contractors on building operation is not
entitled to bonus. (Section 32 ). ----------------------
3. An employee who has been dismissed from service for (a) fraud; or (b) ----------------------
riotous or violent behaviour while on the premises of the establishment;
or (c) theft, misappropriation or sabotage of any property of establishment ----------------------
is not entitled for bonus. [Section 9]
----------------------
Computation of available surplus
----------------------
Computation of gross profit under Section 4 :An employer is required to
calculate gross profit in the manner specified in the First Schedule, in the case of ----------------------
a banking company; (b) in any other case, these gross profits are to be calculated
in the manner specified in the Second Schedule. ----------------------
Example: The following is the information about a company. ----------------------

a) Profit before Depreciation and Tax: 2,00,000/- ----------------------
b) Depreciation as per Companies Act; 25,000/-
----------------------
c) Depreciation as per Income Tax Act; 50,000/-
----------------------
d) Income Tax rate 30%
e) Taxable profit (Profit Before Tax) 1,50,000/- ----------------------
f) Income Tax payable 45,000/- ----------------------

g) Net Profit (Profit After Tax) 1,05,000/- (Available Surplus) ----------------------
h) Allocable Surplus (60% of g) 63,000/-
----------------------
Set on and set off of allocable surplus (Section 15) :
----------------------
(1) Where for any accounting year the allocable surplus exceeds the amount
of maximum bonus payable to the employees in the establishment under ----------------------
Section 11, then, the excess shall, subject to a limit of twenty per cent of
the total salary or wage of the employees employed in the establishment in ----------------------
that accounting year, be carried forward for being set on in the succeeding ----------------------
accounting year and so on, up to and inclusive of the fourth accounting
year to be utilised for the purpose of payment of bonus, in the manner ----------------------
illustrated in the Fourth Schedule.
----------------------
(2) Where for any accounting year, there is no allocable surplus or the allocable
surplus in respect of that year falls short of the amount of minimum bonus ----------------------
payable to the employee in the establishment under Section 10, and there
is no amount or sufficient amount carried forward and set on under Sub- ----------------------
section (1) which could be utilized for the deficiency, as the case may be, ----------------------
shall be carried forward for being set off in the succeeding accounting
year and so on upto and inclusive of the fourth accounting year in the ----------------------
same manner illustrated in the Fourth Schedule.
----------------------
Labour Laws 243

Notes Payment of minimum bonus (Section 10) : Subject to the other provisions of
this Act, every employer shall be bound to pay to every employee in respect of
---------------------- the accounting year commencing on any day in the year 1979 and in respect
of every subsequent accounting year, a minimum bonus which shall be 8.33
---------------------- percent of the salary or wage earned by the employee during the accounting
---------------------- year or one hundred rupees, whichever is higher, whether or not the employer
has any allocable surplus in the accounting year:
----------------------
Payment of maximum bonus (Section 11 ) : (1) Where in respect of any
---------------------- accounting year referred to in Section 10, the allocable surplus exceeds the
amount of minimum bonus payable to the employees under that Section, the
---------------------- employer shall, in lieu of such minimum bonus, be bound to pay to every
employee in respect of that accounting year bonus which shall be an amount in
----------------------
proportion to the salary or wage earned by the employee during the accounting
---------------------- year subject to a maximum of 20% of such salary or wage.
Calculation of bonus with respect to certain employees (Section 12) : Where
----------------------
the salary or wage of an employee exceeds Rs.2,500 /-per mensem, the bonus
---------------------- payable to such employee under Section 10 or, as the case may be, under Section
11 shall be calculated as if his salary or wage were 2,500/- per mensem.
----------------------
Proportionate reduction in bonus in certain cases (Section 13) : Where an
---------------------- employee has not worked for all the working days in an accounting year, the
bonus amount shall be proportionately reduced.
----------------------
Example:
---------------------- Mr.Vishal is an employee of XYZ company Ltd. Other details are as under
---------------------- Date of joining : 1-7-2006
---------------------- Basic Pay: 1,500/- PM Gross Salary 3,400/- PM Eligibility of bonus:
Since the amount is more than 2,500/- amount eligible for bonus is
----------------------
Rs. 2,500/-PM
---------------------- Minimum bonus PM = 2,500/- X 8.33% = 208.25
---------------------- Bonus for 7 months: 208.25 X 9 months = Rs. 1,874.25
---------------------- Time-limit for payment of bonus (Section 19)

Bonus shall be paid in cash by his employer within a period of eight months
----------------------
from the close of the accounting year.
---------------------- If an employee is found guilty of misconduct causing financial loss employer
can deduct the amount of loss from the amount of bonus payable. In case of
----------------------
non-payment of bonus employee can make application within one year to Govt.
---------------------- authority to recover bonus.
Punishment for violation of the act: imprisonment up to six months, or with fine
----------------------
up to one thousand rupees, or with both.
----------------------
----------------------

Notes
----------------------
Fill in the blanks.
----------------------
1. Bonus is a cash payment made to employees in addition to wages. It
is not an ________________ payment. ----------------------
----------------------
Activity 3 ----------------------
Calculate allocable surplus in respect of a company on the basis of the ----------------------

following information:
----------------------
a. Profit before Depreciation and Tax: 4,00,000/-
----------------------
b. Depreciation as per Companies Act: 30,000/-
c. Depreciation as per Income Tax Act: 40,000/- ----------------------
d. Income Tax rate: 35% ----------------------
----------------------
10.5 THE PAYMENT OF GRATUITY ACT, 1972
----------------------
The Payment of Gratuity Act came into force from 21st August 1972.
----------------------
Gratuity may be regarded as a reward for long and meritorious service. Gratuity
shall be payable to an employee after continuous service for not less than five ----------------------
years :
----------------------
(a) on his superannuation or
----------------------
(b) on his retirement or resignation or
(c) on his death or disablement due to accident or disease ----------------------
The formula for calculating the gratuity payable us as under : ----------------------
Last Salary drawn × No. of years of service × 15 ----------------------
26
----------------------
In case of “Leave Without Pay” the salary payable had an employee been on duty
throughout the month will be taken in to account for the purpose of payment ----------------------
of gratuity. The amount must not exceed Rs. 3,50,000. If an employee gets
----------------------
more amount of gratuity under a scheme laid down under service conditions, he
would be entitled to get it. ----------------------
Example:
----------------------
The normal monthly salary of Mr.Harshal is Rs.15,000/- PM. He retired from
service on 31-3-2007 after a service of 20 years. During March 2007, he was ----------------------
on leave without pay for 10 days. Hence, actual salary drawn by him in March ----------------------
2007 was Rs.10,000/-.
----------------------
Labour Laws 245

Notes The gratuity payable will be: 15,000 × 20 × 15 = 45,00,000/26 = Rs.1,73,077/-
26
----------------------
Employer can deduct loss caused by an employee from the amount of gratuity
---------------------- payable. The employer shall arrange to pay the amount of gratuity within 30
days from the date it becomes payable.
----------------------
In the case of permanent employees, the wages would be those last drawn by
---------------------- the employee concerned. In the case of piece rate and daily wage employee
average based on total wages received by him for the period of three months
---------------------- immediately preceding the termination on his employment is to be worked out.
---------------------- Further in the case of an employee who is employed is a seasonal establishment
and who is not so employed throughout the year, the employer shall pay the
----------------------
gratuity at the rate of 7 days wages for each season.
---------------------- A disabled employee on his retirement, may be employed on reduced wages in
such a case he would be entitled to the gratuity at two rates, one for the period
----------------------
of employment prior to his disability and the other for the period subsequent
---------------------- thereto.
The amount must not exceed Rs. 3,50,000. If an employee is to get more gratuity
----------------------
under a scheme laid down by terms of gratuity, he would be entitled to get it.
---------------------- Example 1: Mr.Ashok has retired from a Bank. His last drawn salary was
---------------------- Rs.30,000/- PM of which Rs.20,000 is Basic Pay. He had completed 20 years of
service. As per his service conditions with the Bank, he is entitled to a gratuity
---------------------- equivalent to one month’s basic pay for every year of service completed.
---------------------- Gratuity payable under the Gratuity Act :

30,000 × 20 × 15 = 3,46,154/-
----------------------
26
----------------------
Gratuity payable under the Service conditions :
---------------------- 20,000 × 20 = 4,00,000
---------------------- In the case of Mr.Ashok, gratuity payable under service conditions is more
favourable to him. Hence, he can opt for payment for gratuity under his service
---------------------- conditions.
---------------------- Nomination facility is available for gratuity
---------------------- Penalty for knowingly making or causing to make any false statement or false
representation for avoiding any payment is imprisonment for a term extending
---------------------- to six months or fine extending Rs. 10,000/- or both.
----------------------
----------------------
----------------------
----------------------

Notes
----------------------
Fill in the blanks.
----------------------
1. ______________ shall be payable to an employee after continuous
service for not less than five years. ----------------------
----------------------
Activity 4 ----------------------
Calculate the gratuity payable to Mr. Ramesh on the basis of the following ----------------------
information.
----------------------
The last drawn wages: Rs. 10,000 per month
----------------------
The number years of service: 20 years
----------------------
10.6 THE EMPLOYEE’S PROVIDENT FUNDS AND
----------------------
MISCELLANEOUS PROVISIONS ACT, 1952
----------------------
The object of the employees’ provident fund act is to provide for the
institution of provident funds, pension fund and deposit linked insurance funds ----------------------
for employees’ in factories and other establishments.
----------------------
The contribution paid to the fund by the employer shall be 10% of the
basic wages and the dearness allowance. ----------------------
The contribution payable by the employee shall be equal to the employers’ ----------------------
contribution. An employee may contribute more than 10% of his basic wages,
dearness allowance and retaining allowance. In such case, the employer shall ----------------------
not be under an obligation to pay any contribution over and above his normal
----------------------
contribution.
If an employees basic pay + DA is Rs.9,000 pm, employees’ contribution ----------------------
to provident fund is 10% of basic pay and DA i.e. 10% of 9,000/- = 900/-. Equal
----------------------
amount will be contributed by the employer. So, in all Rs.1,800/-.
Employer will pay a sum not exceeding eight and one-third per cent of ----------------------
the basic wages, dearness allowance and retaining allowance of the concerned
----------------------
employees in to pension fund. Employer will pay a sum not exceeding one
per cent of the basic wages, dearness allowance and retaining allowance into a ----------------------
deposit-linked insurance fund.
----------------------
On retirement/voluntary retirement the balance outstanding in the account
of such an employees is paid to him. In case of death of an employee, the ----------------------
amount is paid to nominee/legal heirs.
----------------------
The central provident fund commissioner, any additional central provident
fund commissioner and deputy provident fund commissioner, any regional ----------------------
provident fund commissioner may by order decide any dispute and determine
the amount due from any employer. ----------------------
Labour Laws 247

Notes The Employer shall be liable to pay simple interest at the rate of twelve per cent
per annum or at such higher rates as may be specified in the Scheme on any
---------------------- amount due from him under this Act from the date on which the amount has
become so due till the date of its actual payment:
----------------------
If there is delay in making payment of Rs.132,065/-, then the interest will be
---------------------- payable from 1-4-07. If the actual payment is made on 1-6-07, then the interest
payable will be Rs. 1,32,065 × 2 × 12
---------------------- = Rs. 2,641
1200
----------------------
Any enquiry under this Act shall be deemed to be judicial proceeding within the
---------------------- meaning of sections 193 and 228 of the civil procedure code.

----------------------
---------------------- 1. The Employees’ State Insurance Act, 1948 is a social security and
---------------------- welfare legislation.
----------------------
Activity 5
----------------------
---------------------- Particulars of the salary drawn by Mr. Shankar working in an industry are
as under.
----------------------
Basic Pay: 4,000/-
---------------------- Dearness allowance: 2,000/-
Other allowance: 250/-
----------------------
Gross salary: 6,250/-
---------------------- Calculate total contribution under ESI.
----------------------
----------------------
10.7 THE EMPLOYEE’S STATE INSURANCE ACT, 1948
---------------------- The Employees’ State Insurance Act, 1948 is a social security and welfare
legislation. Every establishment to which this Act applies shall be registered
---------------------- within such time and in such manner as may be specified in the regulations
made in this behalf.
----------------------
The Employees’ State Insurance Corporation, Standing Committee of the
---------------------- Corporation and Medical benefit council have been constituted to administer
ESI act.
----------------------
Employer’s Contribution to ESI fund: 4.75% of the wages payable to
---------------------- an employee. Employee’s Contribution: 1.75% of the wages payable to an
employee.
----------------------
----------------------

Employer shall send a statement of contributions in quadruplicate in Form 6 Notes
a) within 42 days of the termination of the contribution period to which it
----------------------
relates.
b)
within 21 days, of the date of permanent closure of the factory or ----------------------
establishment,
----------------------
c) within 7 days of the date of receipt of requisition from the appropriate
office. ----------------------
An employer shall pay contributions within 21 days of the last day of the calendar ----------------------
month in which the contributions fall due. If he fails to pay contribution within
the periods specified shall be liable to pay simple interest at the rate of 15% per ----------------------
annum in respect of each day of default or delay in payment of contribution. In ----------------------
addition an employer has to pay damages on contributions or any other amount
due but not paid in time. ----------------------
The benefits under ESI are grouped as under: ----------------------
a) Sickness benefits
----------------------
b) Maternity benefits
----------------------
c) Disablement benefits
d) Dependents benefits ----------------------
e) Medical benefits ----------------------
f) Funeral Expenses ----------------------
Example:
----------------------
Particulars of the salary drawn by Mr.Suresh working in an industry are as
under. ----------------------
Basic Pay 3,000/- ----------------------
Dearness allowance : 2,000/- ----------------------
Other allowance : 500/-
----------------------
Gross salary : 5,500/-
----------------------
Employers’ contribution: 4.75 × 55 = 261.25
Employees’ contribution: 1.75 × 55 = 96.25 ----------------------
Total contribution = 357.50 ----------------------
Damages on contributions or any other amount due but not paid in time ----------------------
An employer, who fails to pay contribution within the period specified, or any
other amount payable under the Act shall be liable to pay damages as shown – ----------------------
----------------------
----------------------
----------------------
Labour Laws 249

Notes Period of delay Rate of damages in
per cent p.a.of
---------------------- the Amount due
---------------------- 1) Up to 2 months 5%
2) 2 months and above but less than 4 months 10%
----------------------
3) 4 months and above but less than 6 months 15%
----------------------
4) 6 months and above 25%
----------------------
10.8 THE WORKMAN’S COMPENSATION ACT, 1923
----------------------
The Workman’s Compensation Act, is one of the earliest measures adopted to
----------------------
benefit the labourers. It was passed in 1923 and enforced on 1st July, 1924.
---------------------- Incapacity for work includes inability to get work.
---------------------- The liability of the employer to pay compensation is dependant upon the
following four conditions:
----------------------
1) Personal injury may have been caused to a workman,
----------------------
2) Such injury must have been caused by an accident,
---------------------- 3) The accident must have arisen out of and in the course of employment
and,
----------------------
4) The injury must have resulted either in death of the workman or in his
---------------------- total or partial disablement for a period exceeding three days.
---------------------- The expression ‘arising out of’ suggests the cause of accident and the expression
“in the course of” points out to the place and circumstances under which the
---------------------- accident takes place and the time when it occurred. A casual connection between
---------------------- the injury by accident and the employment is necessary. Notional extension of
the premises include an area which the workman passes and repasses in going
---------------------- to and from the place of employment.
---------------------- Total disablement: A workman is incapacitated of doing any work.

The permanent partial disablement: The injury results in the reduction in the
----------------------
earning capacity in respect of employment which the workman was capable of
---------------------- undertaking at the time of accident.
The temporary partial disablement: The injury results in the reduction in the
----------------------
earning capacity in respect of employment he had been at the time of the
---------------------- accident.
The employer shall not be liable to pay compensation in the following cases:
----------------------
a) If the injury did not result in total or partial disablement of the workman
---------------------- for a period exceeding three days,
---------------------- b) In respect of any injury not resulting in death or permanent total
disablement the employer can plead
----------------------

i) that the workman was at the time of accident under the influence of Notes
drinks or drugs
ii) that the workman willfully disobeyed an order expressly given ----------------------
or rules expressly framed for the purpose of securing safety of ----------------------
workman and
iii) that the workman having known that certain safety guards or safety ----------------------
devices are specifically provided for the purpose of securing the ----------------------
safety of workman willfully disregarded or removed the same.
Amount of compensation ----------------------
Subject to the provisions of the Act, the amount of compensation shall be as ----------------------
follows namely:
----------------------
a) where the death is the result from the injury – an amount equal to 50% of
the monthly wages of the deceased workman multiplied by the relevant ----------------------
factor or an amount of eighty thousand rupees, which ever is more,
----------------------
b) where permanent total disablement results from the injury – an amount
equal to 60% of the monthly wages of the injured workman multiplied by ----------------------
the relevant factor or an amount of ninety thousand rupees whichever is
more, ----------------------
c) where permanent partial disablement results from the injury- ----------------------

i) In the case of an injury specified in part II of Schedule I such ----------------------
percentage of the compensation which would have been payable
in the case of permanent total disablement as is specified therein as ----------------------
being the percentage of the loss of earning capacity caused by that
injury and ----------------------
ii) In the case of an injury not specified in Schedule I such percentage ----------------------
of the compensation payable in the case of permanent total
disablement as is proportionate to the loss of earning capacity as ----------------------
assessed by the qualified medical practitioner permanently caused ----------------------
by the injury.
d) where temporary disablement whether total or partial results from the ----------------------
injury- a sum equivalent to 25% of the monthly wages of the workman to ----------------------
be paid.
An employer should pay the compensation due within one month from the date ----------------------
it fell due, other wise he has to pay simple interest at 12% or more. He may be ----------------------
liable for penalty upo 50% of the compensation payable.
----------------------
----------------------
1. ______________ results in the reduction in the earning capacity
----------------------
in respect of employment, which the workman was capable of
undertaking at the time of accident. ----------------------
Labour Laws 251

Notes
Activity 5
----------------------
Go through a Labour Law Journal and study a case pertaining to Workman’s
----------------------
Compensation Act. Write the issue and court’s decision.
----------------------
---------------------- Summary
---------------------- • Payment of wages Act
---------------------- Wages means all remuneration, whether by way of salaries, allowances or

otherwise expressed in terms of money or capable of being so expressed.
---------------------- Payment of wages can be made daily, weekly, fortnightly, or monthly.
If the number of persons employed is less than one thousand, the wages
---------------------- shall be paid before the expiry of the seventh day. Employer can pay the
---------------------- wages either by cheque or by crediting the wages in employee’s bank
account with his consent. Total deductions should not exceed 75% of the
---------------------- wages payable in case where such deductions are wholly or partly made
for payments to co-operative societies. Or 50% of the wages payable in
---------------------- any other case.
---------------------- • The Minimum wages Act
---------------------- The minimum wages have to be paid irrespective of the paying capacity
of the industry. An employee is prohibited from relinquishing any of his
---------------------- rights under the Act. A Government can fix minimum wages by Committee
method or Notification method. Minimum wages should normally be
----------------------
paid in cash and in kind if the custom permits. Any employer shall be
---------------------- punishable with imprisonment which may extend to six months or fine
which may extend to Rs. 500 or with both, if he violates the provisions of
---------------------- the act.
---------------------- • The payment of bonus Act
---------------------- very employee is entitled to bonus if he has worked in that establishment

E
for not less than thirty working days in the year on salary less than
---------------------- Rs. 3,500/- per month. 60 % of profit after tax is considered as allocable
surplus. Minimum bonus shall be 8.33 percent of the salary or one
---------------------- hundred rupees, whichever is higher, whether or not the employer has
---------------------- any allocable surplus in the accounting year. Minimum bonus cannot
be avoided merely because there was loss in the concerned accounting
---------------------- year. Maximum bonus is 20% of such salary. Where the salary exceeds
Rs.2,500/- per mensem, the bonus payable shall be calculated as if his
---------------------- salary or wage were 2,500/- per mensem. Where an employee has not
---------------------- worked for all the working days in an accounting year, the minimum
bonus shall be proportionately reduced.
----------------------
----------------------

• Payment of gratuity Act Notes
Gratuity shall be payable to an employee after continuous service for not
----------------------
less than five years (a) on his superannuation or (b) on his retirement or
resignation or (c)on his death or disablement due to accident or disease. ----------------------
The formula for calculating the gratuity payable us as under:-
----------------------
Last Salary drawn × No. of years of service × 15
----------------------
26
In case of “Leave Without Pay” the salary payable had an employee been ----------------------
on duty throughout the month will be taken in to account for the purpose ----------------------
of payment of gratuity. The amount must not exceed Rs. 3,50,000. If
an employee gets more amount of gratuity under a scheme laid down ----------------------
service conditions, he would be entitled to get it. Employer can deduct
loss caused by an employee from the amount of gratuity payable. The ----------------------
employer shall arrange to pay the amount of gratuity within 30 days from ----------------------
the date it becomes payable.
• The Employees’ Provident Fund Act ----------------------
The object is to provide for the institution of provident funds, pension fund ----------------------
and deposit linked insurance funds for employees’ in factories and other
----------------------
establishments. The contribution paid to the fund by the employer shall
be 10% of the basic wages and the dearness allowance. The contribution ----------------------
payable by the employee shall be equal to the employers’ contribution.
An employee may contribute more than 10% of his basic wages, dearness ----------------------
allowance and retaining allowance. In such case, the employer shall not
----------------------
be under an obligation to pay any contribution over and above his normal
contribution. ----------------------
• Employer will pay a sum not exceeding eight and one-third per cent of the
----------------------
basic wages, dearness allowance and retaining allowance of the concerned
employees in to pension fund. Employer will pay a sum not exceeding one ----------------------
per cent of the basic wages, dearness allowance and retaining allowance
into a deposit-linked insurance fund. On retirement/voluntary retirement ----------------------
the balance outstanding in the account of such an employees is paid to
----------------------
him/his nominees.
• The Employees’ state Insurance Act, 1948 ----------------------
It is a social security and welfare legislation. The Employees’ State ----------------------
Insurance Corporation, Standing Committee of the Corporation and
Medical benefit council have been constituted to administer ESI act. ----------------------
Employer’s Contribution to ESI fund: 4.75% of the wages payable to an ----------------------
employee Employee’s Contribution: 1.75% of the Wages payable to an
employee. ----------------------
----------------------
----------------------
Labour Laws 253

Notes The benefits under ESI are grouped as under:-
a) Sickness benefits, b) Maternity benefits,
----------------------
c) Disablement benefits, d) Dependents benefits,
----------------------
e) Medical benefits, f) Funeral Expenses,
---------------------- • Workman’s Compensation Act
---------------------- Incapacity for work includes inability to get work.
---------------------- The liability of the employer to pay compensation is dependant upon the
following four conditions:
----------------------
1) Personal injury may have been caused to a workman,
---------------------- 2) Such injury must have been caused by an accident,
---------------------- 3) The accident must have arisen out of and in the course of employment
and,
----------------------
4) The injury must have resulted either in death of the workman or in
---------------------- his total or partial disablement for a period exceeding three days.
---------------------- The expression “arising out of” suggests the cause of accident and the
expression ‘in the course of’ points out to the place and circumstances
---------------------- under which the accident takes place and the time when it occurred. A
casual connection between the injury by accident and the employment
---------------------- is necessary. Notional extension of the premises include an area which
---------------------- the workman passes and repasses in going to and from the place of
employment.
----------------------
---------------------- Keywords
---------------------- • Accounting Year : 1st April to 31st March
• Allocable Surplus : 60% of the available surplus in an accounting year.
----------------------
• Bonus : Cash payment made to employees in addition to wages.
---------------------- • Continuous Service : Uninterrupted service and includes service which
---------------------- is interrupted by sickness, accident, leave, lay off, strike or lockout or
cessation of work not due to any of the employee concerned.
---------------------- • Controlled Industry : Any Industry whose control by the Union of India
---------------------- has been declared by an Act of Parliament to be expedient in the public
interest.
---------------------- • Cost of living index number : Index numbers declared by the Competent
---------------------- authority by notification in the official gazette.
• Dearness allowance : All such amount paid to an employee on account
---------------------- of rise in the cost of living.
---------------------- • Family : Employee, his/her wife/husband; children, whether married or
unmarried; dependent parents and the dependent parents of wife/husband,
---------------------- and the widow and children of his predeceased son.

• Insurable employment : An employment in a factory or establishment to Notes
which this Act applies.
----------------------
• Permanent Partial Disablement : The injury results in the reduction in
the earning capacity in respect of employment which the workman was ----------------------
capable of undertaking at the time of accident.
----------------------
• Provident Fund : Fund created to credit the contributions from employer
and employees for payment to employee on retirement/death. ----------------------
• Salary : All remuneration capable of being expressed in terms of money.
----------------------
• Superannuation : The age on the attainment of which the employee shall
vacate the employment. ----------------------
• Total disablement : A workman is incapacitated of doing any work. ----------------------

• Wages : Wages means all remuneration, whether by way of salaries, ----------------------
allowances or otherwise expressed in terms of money payable in return
for the work done. ----------------------
----------------------
----------------------
1. What are the main provisions of important labour laws?
----------------------
2. Write the bonus payable to the employees under the Bonus Act.
3. What is the contribution to employees’ provident fund as per the Provident ----------------------
Fund Act? ----------------------
4. What is the formula for calculating the gratuity?
----------------------
Answers to Check your Progress ----------------------

1. True
----------------------
----------------------
1. Minimum rates of wages may be fixed by any one or more of the following ----------------------
wage periods, namely: ----------------------
i. By the hour
----------------------
ii. By the day
----------------------
1. Bonus is a cash payment made to employees in addition to wages. It is not ----------------------

an ex gratia payment.
----------------------
Labour Laws 255

Notes Check your Progress 4
Fill in the blanks.
----------------------
1.
Gratuity shall be payable to an employee after continuous service for not
---------------------- less than five years.
---------------------- state True or False.

1. True
----------------------
----------------------
Fill in the blanks.
---------------------- 1.
Permanent partial disablement results in the reduction in the earning
capacity in respect of employment, which the workman was capable of
----------------------
undertaking at the time of accident.
----------------------

----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Child Labour Act and Contract Labour Act
UNIT
11
Structure:
11.1 Introduction
11.3 Important Provisions of the Child Labour Act
11.4 Penalties under Child Labour Act
11.5 Important Provisions of the Contract Labour Act
Summary
Keywords
Suggested Reading
Child Labour Act and Contract Labour Act 257

Notes
Objectives
----------------------
----------------------
• Explain the main provisions of Child Labour Act
----------------------
• State the penalties for violation of provisions of Child Labour Act
---------------------- • Describe the main provisions of Contract Labour Act
----------------------
11.1 INTRODUCTION
----------------------
India is one of the poor countries. Around 40% people live below poverty
---------------------- line. People in this category cannot afford to send their children to school. On
the contrary, they use their children for earning livelihood. A small income
----------------------
earned by children supplements the income of the poor family. Child labour is
---------------------- very cheap compared to adult labour. Children are more honest and sincere in
discharging their duties. Hence, few businessman prefer child labour to reduce
---------------------- their wage bill. It is the fundamental right of every child to have basic education.
As a measure of Child Welfare, Government of India has banned child labour.
----------------------
---------------------- 11.2 IMPORTANT DEFINITIONS

---------------------- Section 2 of the Act defines the following terms:-
---------------------- i. ‘appropriate Government’ means, in relation to an establishment under
the control of the Central Government or a railway administration or a
---------------------- major port or a mine or oilfield, the Central Government, and in all other
cases, the State Government;
----------------------
ii. ‘Child’ means a person who has not completed his fourteenth year of age;
----------------------
iii. ‘Day’ means a period of twenty-four hours beginning at midnight;
---------------------- iv. ‘Establishment’ includes a shop, commercial establishment, workshop,
---------------------- farm, residential hotel, restaurant, eating-house, theatre or other place of
public amusement or entertainment;
---------------------- v. ‘Family’, in relation to an occupier, means the individual, the wife or
---------------------- husband, as the case may be, of such individual, and their children, brother
or sister of such individual;
----------------------
vi. ‘Occupier’, in relation to an establishment or a workshop, means the
---------------------- person who has the ultimate control over the affairs of the establishment
or workshop;
----------------------
vii. ‘Workshop’ means any premises (including the precincts thereof) wherein
---------------------- any industrial process is carried on, but does not include any premises
to which the provisions of Section 67 of the Factories Act, 1948 (63 of
---------------------- 1948), for the time being, apply.
----------------------

11.3 IMPORTANT PROVISIONS OF THE CHILD LABOUR ACT Notes
As per Section 3, no child shall be employed or permitted to work in ----------------------
any of the occupations set forth in Part A of the Schedule or in any workshop
wherein any of the processes set forth in Part B of the Schedule is carried on: ----------------------
Provided that nothing in this section shall apply to any workshop wherein any
----------------------
process is carried on by the occupier with the aid of his family or to any school
established by, or receiving assistance or recognition from, Government. ----------------------
As per Section 4, the Central Government, after giving by notification in ----------------------
the official Gazette, not less than three months’ notice of its intention so to do,
may, by like notification, add any occupation or process to the Schedule and ----------------------
thereupon the Schedule shall be deemed to have been amended accordingly.
----------------------
As per Section 5 (1), The Central Government may, by notification in
the official Gazette, constitute an advisory committee to be called the Child ----------------------
Labour Technical Advisory Committee (hereafter in this section referred to as
the Committee) to advise the Central Government for the purpose of addition ----------------------
or occupations and processes to the Schedule. ----------------------
(2) The Committee shall consist of a Chairman and such other members not
----------------------
exceeding ten, as may be appointed by the Central Government.
(3) The Committee shall meet as often as it may consider necessary and shall ----------------------
have power to regulate its own procedure.
----------------------
(4) The Committee may, if it deems it necessary so to do, constitute one
or more sub-committees and may appoint to any such sub-committee, ----------------------
whether generally or for the consideration of any particular matter, any
----------------------
person who is not a member of the Committee.
(5) The term of office of, the manner of filling casual vacancies in the ----------------------
office of, and the allowances, if any, payable to, the Chairman and other ----------------------
members of the Committee, and the conditions and restrictions subject to
which the Committee may appoint any person who is not a member of ----------------------
the Committee as a member of any of its sub-committees shall be such as
may be prescribed. ----------------------
As per Section 6, the provisions of this Part shall apply to an establishment or a ----------------------
class of establishments in which none to the occupations or processes referred
to in Section 3 is carried on. ----------------------
Section 7 : Hours and period of work ----------------------

(1) No child shall be required or permitted to work in any establishment ----------------------
in excess of such number of hours, as may be prescribed for such
establishment or class of establishments. ----------------------
(2) The period of work on each day shall be so fixed that no period shall ----------------------
exceed three hours and that no child shall work for more than three hours
before he has had an interval for rest for at least one hour. ----------------------
----------------------

Notes (3) The period of work of a child shall be so arranged that inclusive of his
interval for rest, under Sub-section (2), it shall not be spread over more
---------------------- than six hours, including the time spent in waiting for work on any day.
---------------------- (4) No child shall be permitted or required to work between 7 p.m. and 8 a.m.
(5) No child shall be required or permitted to work overtime.
----------------------
(6) No child shall be required or permitted to work in, any establishment on
---------------------- any day on which he has already been working in another establishment.
---------------------- Section 8 : weekly holidays
---------------------- Every child employed in an establishment shall be allowed in each week, a

holiday of one whole day, which day shall be specified by the occupier in a
---------------------- notice permanently exhibited in a conspicuous place in the establishment and
the day so specified shall not be altered by the occupier more than once in three
---------------------- months.
---------------------- Section 9 : Notice to inspector
---------------------- (1)
Every occupier in relation to an establishment in which a child
was employed or permitted to work immediately before the date of
---------------------- commencement of this Act in relation to such establishment shall, within
a period of thirty days from such commencement, send to the Inspector
----------------------
within whose local limits the establishment is situated, a written notice
---------------------- containing the following particulars, namely:
(a) The name and situation of the establishment;
----------------------
(b) The name of the person in actual management of the establishment;
----------------------
(c) The address to which communications relating to the establishment
---------------------- should be sent; and
---------------------- (d)
The nature of the occupation or process carried on in the
establishment.
----------------------
(2) Every occupier, in relation to an establishment, who employs, or permits
---------------------- to work, any child after the date of commencement of this Act in relation
to such establishment, shall, within a period of thirty days from the date
---------------------- of such employment, send to the Inspector within whose local limits the
establishment is situated, a written notice containing the particulars as are
----------------------
mentioned in Sub-section (1).
---------------------- Explanation: For the purposes of Sub-sections (1) and (2), “date of
commencement of this Act, in relation to an establishment” means the
----------------------
date of bringing into force of this Act in relation to such establishment.
---------------------- (3) Nothing in Sections 7, 8 and 9 shall apply to any establishment wherein
any process is carried on by the occupier with the aid of his family or to
----------------------
any school established by, or receiving assistance or recognition from,
---------------------- Government.
----------------------

Section 10 : disputes as to age Notes
If any question arises between an Inspector and an occupier as to the age of any
----------------------
child who is employed or is permitted to work by him in an establishment, the
question shall, in the absence of a certificate as to the age of such child granted ----------------------
by the prescribed medical authority, be referred by the Inspector for decision to
the prescribed medical authority. ----------------------
Section 11 : Maintenance of register ----------------------
There shall be maintained by every occupier in respect of children employed or
----------------------
permitted to work in any establishment, a register to be available for inspection
by an Inspector at all times during working hours or when work is being carried ----------------------
on in any such establishment showing:
----------------------
(a) The name and date of birth of every child so employed or permitted to
work; ----------------------
(b) Hours and periods of work of any such child and the intervals of rest to ----------------------
which he is entitled;
(c) The nature of work of any such child; and ----------------------
(d) Such other particulars as may be prescribed. ----------------------

Section 12 : display of notice containing abstract of Sec. 3 and 14 ----------------------
Every railway administration, every port authority and every occupier shall
----------------------
cause to be displayed in a conspicuous and accessible place at every station on
its railway or within the limits of a port or at the place of work, as the case may ----------------------
be, a notice in the local language and in the English language containing an
abstract of Sections 3 and 14. ----------------------
Section 13 : Health and safety ----------------------
(1) The appropriate Government may, by notification in the official Gazette, ----------------------
make rules for the health and safety of the children employed or permitted
to work in any establishment or class of establishments. ----------------------
(2) Without prejudice to the generality of the foregoing provisions, the said ----------------------
rules may provide for all or any of the following matters, namely:
----------------------
(a) cleanliness in the place of work and its freedom from nuisance;
(b) disposal of wastes and effluents ----------------------
(c) ventilation and temperature ----------------------
(d) dust and fume ----------------------
(e) artificial humidification
----------------------
(f) lighting
----------------------
(g) drinking water
(h) latrine and urinals ----------------------
(i) spittoons ----------------------

Notes (j) fencing of machinery
(k) work at or near machinery in motion
----------------------
(l) employment of children on dangerous machines
----------------------
(m) instructions, training and supervision in relation to employment of
---------------------- children on dangerous machines
---------------------- (n) device for cutting off power

(o) self-acting machines
----------------------
(p) easing of new machinery
----------------------
(q) floor, stairs and means of access
---------------------- (r) pits, sumps, openings in floors, etc.
---------------------- (s) excessive weights
---------------------- (t) protection of eyes

(u) explosive or inflammable dust, gas, etc.
----------------------
(v) precautions in case of fire
----------------------
(w) maintenance of buildings and
---------------------- (x) safety of buildings and machinery
----------------------
----------------------
----------------------
1. ‘Occupier’, in relation to an establishment or a workshop, means
---------------------- the person who has the ultimate control over the affairs of the
establishment or workshop.
----------------------
---------------------- Activity 1
----------------------
State whether a child can be employed in the following occupations/
---------------------- processes:
---------------------- • Bank
---------------------- • Hosiery manufacturing unit

• Pharmaceutical Company
----------------------
• School
----------------------
• Family run carpentry unit
----------------------
----------------------
----------------------

11.4 PENALTIES UNDER CHILD LABOUR ACT Notes
As per Section 14 the penalties are as under: ----------------------
(1) Whoever employs any child or permits any child to work in contravention ----------------------
of the provisions of Sec. 3 shall be punishable with imprisonment for a
term which shall not be less than, three months but which may extend to ----------------------
one year or with fine which shall not be less than ten thousand rupees but
which may extend to twenty thousand rupees or with both. ----------------------
(2) Whoever, having been convicted of an offence under Sec. 3, commits a ----------------------
like offence afterwards, he shall be punishable with imprisonment for a
term which shall not be less than six months but which may extend to two ----------------------
years. ----------------------
(3) Whoever
----------------------
(a) fails to give notice as required by Sec. 9, or
----------------------
(b) fails to maintain a register as required by Sec. 11 or makes any false
entry in any such register; or ----------------------
(c) fails to display a notice containing an abstract of Sec. 3 and this ----------------------
section as required by Sec. 12; or
(d) fails to comply with or contravenes any other provisions of this ----------------------
Act or the rules made there under, shall be punishable with simple ----------------------
imprisonment which may extend to one month or with fine which
may extend to ten thousand rupees or with both. ----------------------
Section 15 : Modified application of certain laws in relation to penalties ----------------------
(1) Where any person is found guilty and convicted of contravention of
----------------------
any of the provisions mentioned in Sub-section (2), he shall be liable to
penalties as provided in Sub-sections (1) and (2) of Sec. 14 of this Act and ----------------------
not under the Acts in which those provisions are contained.
----------------------
(2) The provisions referred to in Sub-section (1) are the provision mentioned
below : ----------------------
(a) Sec. 67 of the Factories Act, 1948 (63 of 1948);
----------------------
(b) Sec. 40 of the Mines Act, 1952 (35 of 1952);
----------------------
(c) Sec. 109 of the Merchant Shipping Act, 1958 (44 of 1958); and
----------------------
(d) Sec. 21 of the Motor Transport Workers Act, 1961 (27 of 1961).
Section 16 : Procedure relating to offences ----------------------
(1) Any person, police officer or inspector may file a complaint of the ----------------------
commission of an offence under this Act in any Court of competent
jurisdiction. ----------------------
(2) Every certificate as to the age of a child which has been granted by a ----------------------
prescribed medical authority shall, for the purposes of this Act, be
conclusive evidence as to the age of the child to whom it relates. ----------------------

Notes (3) No Court inferior to that of a Metropolitan Magistrate or a Magistrate of
the first class shall try any offence under this Act.
----------------------
Section 17 : Appointment of inspectors
---------------------- The appropriate Government may appoint inspectors for the purposes of securing
compliance with the provisions of this Act and any inspector so appointed shall
----------------------
be deemed to be a public servant within the meaning of the Indian Penal Code
---------------------- (45 of 1860).
Section 18 : Power to make rules
----------------------
(1) The appropriate Government may, by notification in the official Gazette
---------------------- and subject to the condition of previous publication, make rules for
---------------------- carrying into effect the provisions of this Act.
(2) In particular and without prejudice to the generality of the foregoing
---------------------- power, such rules may provide for all or any of the following matters,
---------------------- namely :
(a) the term of office of, the manner of filling casual vacancies of, and
---------------------- the allowances payable to, the Chairman and members of the Child
---------------------- Labour Technical Advisory Committee and the conditions and
restrictions subject to which a non-member may be appointed to a
---------------------- sub- committee under Sub-section (5) of Sec. 5;
---------------------- (b) number of hours for which a child may be required or permitted to
work under sub-section (1) of Sec. 7;
----------------------
(c) grant of certificates of age in respect of young persons in employment
---------------------- or seeking employment, the medical authorities which may issue
such certificate, the form of such certificate, the charges which may
---------------------- be made there under and the manner in which such certificate may
be issued : Provided that no charge shall be made for the issue of
----------------------
any such certificate if the application is accompanied by evidence
---------------------- of age deemed satisfactory by the authority concerned;
---------------------- (d) the other particulars which a register maintained under Sec. 11
should contain.
---------------------- Section 19 : Rules and notifications to be laid before Parliament or state
---------------------- legislature
(1) Every rule made under this Act by the Central Government and every
---------------------- notification issued under Sec. 4, shall be laid, as soon as may be after it is
---------------------- made or issued, before each House of Parliament, while it is in session for
a total period of thirty days which may be comprised in one session or in
---------------------- two or more successive sessions, and if, before the expiry of the session
immediately following the session or the successive sessions aforesaid,
---------------------- both Houses agree in making any modification in the rule or notification
---------------------- or both Houses agree that the rule or notification should not be made or
issued, the rule or notification shall thereafter have effect only in such,
---------------------- modified form or be of no effect, as the case may be; so, however, that any

such modification or annulment shall be without prejudice to the validity Notes
of anything previously done under that rule or notification.
----------------------
(2) Every rule made by a State Government under this Act shall be laid as
soon as may be after it is made, before the Legislature of that State. ----------------------
Section 20 : Certain other provisions of law not barred
----------------------
Subject to the provisions contained in Sec. 15, the provisions of this Act and
the rules made there under shall be in addition to, and not in derogation of, the ----------------------
provisions of the Factories Act, 1948 (63 of 1948), the Plantations Labour Act,
----------------------
1951 (69 of 1951) and the Mines Act, 1952 (35 of 1952).
----------------------
Section 21 : Power to remove difficulties
(1) If any difficulty arises in giving effect to the provisions of this Act, the ----------------------
Central Government may, by order published in the official Gazette, make ----------------------
such provisions not inconsistent with the provisions of this Act as appear
to it to be necessary or expedient for removal of the difficulty: Provided ----------------------
that no such order shall be made after the expiry of a period of three years
from the date on which this Act receives the assent of the President. ----------------------
(2) Every order made under this section shall, as soon as may be after it is ----------------------
made, be laid before the Houses of Parliament.
----------------------
The schedule
----------------------
Part A : Occupations
Any occupation connected with ----------------------
(1) Transport of passengers, goods or mails by railway; ----------------------

(2) Cinder picking, clearing of an ash pit or building operation in the railway ----------------------
premises;
----------------------
(3) Work in a catering establishment at a railway station, involving the
movement of a vendor or any other employee of the establishment from ----------------------
one platform to another or into or out of a moving train;
----------------------
(4) Work relating to the construction of a railway station or with any other
work where such work is done in close proximity to or between the ----------------------
railway lines;
----------------------
(5) A port authority within the limits of any port.
(6) Work relating to selling of crackers and fireworks in shops with temporary ----------------------
licences. ----------------------
(7) Abattoirs/slaughter houses.
----------------------
Part b : Processes
----------------------
(1) Bidi-making
(2) Carpet-weaving ----------------------
(3) Cement manufacture, including bagging of cement ----------------------

Notes (4) Cloth printing, dyeing and weaving
(5) Manufacture of matches, explosives and fire-works
----------------------
(6) Mica-cutting and splitting
----------------------
(7) Shellac manufacture
---------------------- (8) Soap manufacture
---------------------- (9) Tanning
---------------------- (10) Wool-cleaning
(11) Building and construction industry
----------------------
(12) Manufacture of slate pencils (including packing)
----------------------
(13) Manufacture of products from agate
---------------------- (14) Manufacturing processes using toxic metals and substances, such as,
---------------------- lead, mercury, manganese, chromium, cadmium, benzene, pesticides and
asbestos.
---------------------- (15) “Hazardous processes” as defined in Sec. 2 (cb) and dangerous operations
---------------------- as defined in rules made under Sec. 87 of the Factories Act, 1948 (63 of
1948).
----------------------
(16) Printing as defined in Sec. 2(k) (iv) of the Factories Act. 1948 (63 of
---------------------- 1948).
(17) Cashew and cashew nut decaling and processing.
----------------------
(18) Soldering processes in electronic industries.
----------------------
---------------------- 1. Any person, police officer or inspector may file a ________________

of the commission of an offence under this Act in any Court of
---------------------- competent jurisdiction.
----------------------
Activity 2
----------------------
---------------------- State the following with reference to employment of a child in contravention

of section 3 of the act:
----------------------
• Maximum Imprisonment
---------------------- • Minimum Imprisonment
---------------------- • Maximum Fine
---------------------- • Minimum Fine
----------------------

11.5 IMPORTANT PROVISIONS OF THE CONTRACT LABOUR ACT Notes
Section 2 : Definitions ----------------------
(1) a workman shall be deemed to be employed as ‘contract labour’ in or in ----------------------
connection with the work of an establishment when he is hired in or in
connection with such work by or through a contractor, with or without the ----------------------
knowledge of the principal employer;
----------------------
(2)
‘contractor’, in relation to an establishment, means a person who
undertakes to produce a given result for the establishment, other than a ----------------------
mere supply of goods or articles of manufacture to such establishment,
through contract labour or who supplies contract labour for any work of ----------------------
the establishment and includes a sub-contractor; ----------------------
(3) ‘workman’ means, any person employed, in or in connection with the
work of any establishment to do any skilled, semi-skilled or un-skilled ----------------------
manual, supervisory, technical or clerical work for hire or reward, whether ----------------------
the terms of employment be express or implied.
Example: Security staff employed at various IT Companies through contractors ----------------------
are contract labours. ----------------------
Section 3 : Central Advisory board
----------------------
The Central Board shall consist of –
(a) a Chairman to be appointed by the Central Government; ----------------------
(b) the Chief Labour Commissioner (Central), ex officio; ----------------------

(c) such number of members, not exceeding seventeen but not less than eleven, ----------------------
as the Central Government may nominate to represent that Government,
the Railways, the coal industry, the mining industry, the contractors, the ----------------------
workmen and, any other interests which, in the opinion of the Central
----------------------
Government, ought to be represented on the Central Board.
Section 4 : state Advisory board ----------------------
The State Board shall consist of – ----------------------
(a) a Chairman to be appointed by the State Government;
----------------------
(b) the Labour Commissioner, ex officio, or in his absence any other officer
nominated by the State Government in that behalf; ----------------------
(c) such number of members, not exceeding eleven but not less than nine, as ----------------------
the State Government may nominate to represent that Government, the
industry, the contractors, the workmen and any other interests which, in ----------------------
the opinion of the State Government, ought to be represented on the State
----------------------
Board.
Section 7 : Registration of Certain, Establishments ----------------------
(1) Every principal employer of an establishment shall make an application ----------------------
to the registering officer in the prescribed manner for registration of the
establishment. ----------------------

Notes (2) If the application for registration is complete in all respects, the registering
officer shall register the establishment and issue to the principal employer
---------------------- of the establishment a certificate of registration.
---------------------- Section 8 : Revocation of Registration in Certain Cases
If the registering officer is satisfied that the registration of any establishment
----------------------
has been obtained by mis-representation or suppression of any material fact,
---------------------- or that for any other reason the registration has become useless or ineffective
and, therefore requires to be revoked, the registering officer may revoke the
---------------------- registration.
---------------------- Section 9 : Effect of Non-registration
---------------------- No principal employer of an establishment, to which this Act applies, shall :

(a) in the case of an establishment required to be registered under Section 7,
---------------------- but which has not been registered within the time fixed for the purpose
---------------------- under that section,
(b) in the case of an establishment the registration in respect of which has
---------------------- been revoked employ contract labour in the establishment after the expiry
---------------------- of the period referred to in clause (a) or after the revocation of registration
referred to in clause (b), as the case may be.
----------------------
Section 10 : Prohibition of Employment of Contract Labour
---------------------- (1)
Notwithstanding anything contained in this Act, the appropriate
Government may, after consultation with the Central Board or, as the case
----------------------
may be, a State Board, prohibit, by notification in the Official Gazette,
---------------------- employment of contract labour in any process, operation or other work in
any establishment.
----------------------
(2) Before issuing any notification under Sub-section (1) in relation to an
---------------------- establishment, the appropriate Government shall have regard to the
conditions of work and benefits provided for the contract labour in that
---------------------- establishment and other relevant factors, such as :
---------------------- (a)
whether the process, operation or other work is incidental to,
or necessary for the industry, trade, business, manufacture or
---------------------- occupation that is carried on in the establishment;
---------------------- (b) whether it is of perennial nature, that is to say, it is of sufficient
duration having regard to the nature of industry, trade, business,
---------------------- manufacture or occupation carried on in that establishment;
---------------------- (c) whether it is done ordinarily through regular workmen in that
establishment or an establishment similar thereto;
----------------------
(d) whether it is sufficient to employ considerable number of whole-
---------------------- time workmen.
---------------------- Section 12 : Licensing of Contractors

(1) With effect from such date as the appropriate Government may, by
---------------------- notification in the Official Gazette, appoint, no contractor to whom this

Act applies, shall undertake or execute any work through contract labour Notes
except under and in accordance with a licence issued in that behalf by the
licensing officer. ----------------------
(2) Subject to the provisions of this Act, a licence under sub-section (1) may ----------------------
contain such conditions including, in particular, conditions as to hours
of work, fixation of wages and other essential amenities in respect of ----------------------
contract labour as the appropriate Government may deem fit to impose
----------------------
in accordance with the rules, if any, made under section 35 and shall be
issued on payment of such fees and on the deposit of such sum, if any, as ----------------------
security for the due performance of the conditions as may be prescribed.
----------------------
Section 13 : grant of Licences
(1) Every application for the grant of a licence under Sub-section (1) of ----------------------
Section 12 shall be made in the prescribed form and shall contain the
----------------------
particulars regarding the location of the establishment, the nature of
process, operation or work for which contract labour is to be employed ----------------------
and such other particulars as may be prescribed.
----------------------
(2) The licensing officer may make such investigation in respect of the
application received under Sub-section (1) and in making any such ----------------------
investigation the licensing officer shall follow such procedure as may be
prescribed. ----------------------
(3) A licence granted under this Chapter shall be valid for the period specified ----------------------
therein and may be renewed from time to time for such period and on
payment of such fees and on such conditions as may be prescribed ----------------------
Section 14 : Revocation, suspension and Amendment of Licences ----------------------

(1) If the licensing officer is satisfied, either on a reference made to him in ----------------------
this behalf or otherwise, that
----------------------
(a) a licence has been obtained by misrepresentation or suppression of
any material fact, or ----------------------
(b) the holder of a licence has, without reasonable cause, failed to ----------------------
comply with the conditions subject to which the licence has been
granted or has contravened any of the provisions of this Act or the ----------------------
rules made there under, then without prejudice to any other penalty
to which the holder of the licence may be liable under this Act, ----------------------
the licensing officer may, after giving the holder of the licence an ----------------------
opportunity of showing cause, revoke or suspend the licence or
forfeit the sum, if any, or any portion thereof deposited as security ----------------------
for the due performance of the conditions subject to which the
licence has been granted. ----------------------
(2) The licensing officer may vary or amend a licence. ----------------------
Section 20 : Libility of Principal Employer in Certain ----------------------
(1) If any amenity required to be provided under Section 16, Section 17,
----------------------
Section 18 or Section 19 for the benefit of the contract labour employed

Notes in an establishment is not provided by the contractor within the time
prescribed therefor, such amenity shall be provided by the principal
---------------------- employer within such time as may be prescribed.
---------------------- (2) All expenses incurred by the principal employer in providing the amenity
may be recovered by the principal employer from the contractor either by
---------------------- deduction from any amount payable to the contractor under any contract
or as a debt by the contractor.
----------------------
Section 21 : Responsibility for Payment of wages
----------------------
(1) A contractor shall be responsible for payment of wages to each worker
---------------------- employed by him as contract labour and such wages shall be paid before
the expiry of such period as may be prescribed.
----------------------
(2) Every principal employer shall nominate a representative duly authorised
---------------------- by him to be present at the time of disbursement of wages by the contractor
and it shall be the duty of such representative to certify the amounts paid
---------------------- as wages in such manner as may be prescribed.
---------------------- (3) It shall be the duty of the contractor to ensure the disbursement of wages
in the presence of the authorised representative of the principal employer.
----------------------
(4) In case the contractor fails to make payment of wages within the prescribed
---------------------- period or makes short payment, then the principal employer shall be liable
to make payment of wages in full or the unpaid balance due, as the case
---------------------- may be, to the contract labour employed by the contractor and recover the
---------------------- amount so paid from the contractor either by deduction from any amount
payable to the contractor under any contract or as a debt payable by the
---------------------- contractor.
---------------------- Section 23 : Contravention of Provisions Regarding Employment of
Contract Labour
----------------------
Whoever contravenes any provision of this Act or of any rules made there
---------------------- under prohibiting, restricting or regulating the employment of contract labour,
or contravenes any condition of a licence granted under this Act, shall be
---------------------- punishable with imprisonment for a term which may extend to three months,
or with fine which may extend to one thousand rupees, or with both, and in the
----------------------
case of a continuing contravention with an additional fine which may extend to
---------------------- one hundred rupees for every day during which such contravention continues
after conviction for the first such contravention.
----------------------
Section 24 : Other Offences
---------------------- If any person contravenes any of the provisions of this Act or of any rules
---------------------- made there under for which no other penalty is elsewhere provided, he shall be
punishable with imprisonment for a term which may extend to three months, or
---------------------- with fine which may extend to one thousand rupees, or with both.
----------------------
----------------------

Section 25 : Offences by Companies Notes
(1) If the person committing an offence under this Act is a company, the
company as well as every person in charge of, and responsible to, the ----------------------
company for the conduct of its business at the time of commission of the ----------------------
offence shall be deemed to be guilty of the offence and shall be liable to
be proceeded against and punished accordingly : Provided that nothing ----------------------
contained in this Sub-section shall render any such person liable to any
punishment if he proves that the offence was committed without his ----------------------
knowledge or that he exercised all due diligence to prevent the commission ----------------------
of such offence.
----------------------
(2) Notwithstanding anything contained in Sub-section (1), where an offence
under this Act has been committed by a company and it is proved that the ----------------------
offence has been committed with the consent or connivance of, or that the
commission of the offence is attributable to any neglect on the part of any ----------------------
director, manager, managing agent or any other officer of the company,
----------------------
such director, manager, managing agent or such other officer shall also
be deemed to be guilty of that offence and shall be liable to be proceeded ----------------------
against and punished accordingly.
----------------------
Explanation : For the purpose of this section - (a) ‘company’ means any
body corporate and includes a firm or other association of individuals; and ----------------------
b) ‘director’, in relation to a firm, means a partner in the firm.
----------------------
Section 26 : Cognizance of Offences
No court shall take cognizance of any offence under this Act except on a ----------------------
complaint made by, or with the previous sanction in writing of, the inspector
----------------------
and no court inferior to that of a Presidency Magistrate or a Magistrate of the
first class shall try any offence punishable under this Act ----------------------
Section 27 : Limitation of Prosecutions
----------------------
No court shall take cognizance of an offence punishable under this Act unless
the complaint thereof is made within three months from the date on which the ----------------------
alleged commission of the offence came to the knowledge of an inspector:
----------------------
Provided that where the offence consists of disobeying a written order made by
an inspector, complaint, thereof may be made within six months of the date on ----------------------
which the offence is alleged to have been committed.
----------------------
1. The Central Board shall consist of: ----------------------

i. A Chairman to be appointed by the Central Government ----------------------
ii. The Chief Labour Commissioner (Central), ex officio
----------------------
iii. State Advisory Board
iv. Security staff employed ----------------------

Notes
Activity 3
----------------------
State the following with reference to contravention of the contract labour
----------------------
act:
---------------------- • Maximum Imprisonment
---------------------- • Maximum Fine
----------------------
Summary
----------------------
• A small income earned by children supplements the income of the poor
---------------------- family. ‘Child’ means a person who has not completed his fourteenth year
---------------------- of age. 14 to 18 years he is called adolescent. After 18 years he is called
an adult. A child shall not be employed or permitted to work in any of
---------------------- the occupations set forth in Part A of the Schedule or in any workshop
wherein any of the processes set forth in Part B of the Schedule is carried
---------------------- on. A child shall not work for more than three hours before he has had an
---------------------- interval for rest for at least one hour. The period of work of a child shall
not be spread over more than six hours inclusive of his interval for rest.
---------------------- A child shall not be permitted or required to work between 7 p.m. and 8
a.m. or to work overtime. Establishments should follow rules made for
---------------------- the health and safety of the children employed or permitted to work.
---------------------- • Punishment for employing a child against rules: Imprisonment for a term
which shall not be less than three months but which may extend to one
----------------------
year. Fine: Minimum ten thousand rupees but which may extend to twenty
---------------------- thousand rupees.
• A workman hired by or through a contractor is called a Contract Labour.
----------------------
A person who supplies contract labour for any work is called a Contractor.
---------------------- Contractors should obtain licence from the competent authority for
supplying contract labour. Any person who violates the contract labour
---------------------- act shall be punishable with imprisonment for a term which may extend
to three months, or with fine which may extend to one thousand rupees,
----------------------
or with both.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Keywords Notes
----------------------
• Child : A person below 14 years of age
• Contractor : A person who supplies contract labour for any work ----------------------
• Contract Labour : A workman hired by or through a contractor ----------------------
• Family : The individual, the wife or husband, as the case may be, and ----------------------
their children, brother or sister of such individual
• Occupier : The person who has the ultimate control over the affairs of the ----------------------
establishment or workshop ----------------------
• Workman : A person employed to do any skilled, semi-skilled or un-
skilled manual, supervisory, technical or clerical work for hire or reward ----------------------
----------------------
----------------------
a. Child
----------------------
b. Family
----------------------
c. Occupier
d. Contract Labour ----------------------
2. State the main occupations where employment of child is banned. ----------------------
3. State the main processes where employment of child is banned. ----------------------
4. State the terms and conditions for employment of child.
----------------------
5. What are the health and safety measures that an establishment has to take
in respect of children permitted to work? ----------------------
6. State the penalties for violations of the provisions of the Child Labour ----------------------
Act.
----------------------
7. State the procedure for licencing of contractors to supply contract labour. 8.
State the penalties for violations of the provisions of the Contract Labour ----------------------
Act.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Notes Answers to Check your Progress
---------------------- 1. True
----------------------
Fill in the blanks.
----------------------
1. Any person, police officer or inspector may file a complaint of the
---------------------- commission of an offence under this Act in any Court of competent
jurisdiction.
----------------------
---------------------- 1. The Central Board shall consist of:
---------------------- i. A Chairman to be appointed by the Central Government
ii. The Chief Labour Commissioner (Central), ex officio
----------------------

----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------

Documentation Laws
UNIT
12
Structure:
12.1 Introduction
12.3 Types of Documents
12.4 Stamp Duty on Documents
12.5 Laws Applicable to Documents
Summary
Keywords
Suggested Reading
Documentation Laws 275

Notes
Objectives
----------------------
----------------------
• State the stamp duty payable on documents
----------------------
• List the different documents used in SCM
---------------------- • Describe the procedure for execution of documents
----------------------
12.1 INTRODUCTION
----------------------
When a person approaches a Court for exercising his rights, he has to
---------------------- prove his claims. The burden of proof lies on the person going to Court. The
provisions of Evidence Act will be applicable. He can prove his claims through
----------------------
oral evidence. But, it is difficult for a witness to remember and reproduce the
---------------------- facts of a case. So, it is advisable to prove with the help of documentary evidence.
The documentary evidence is a primary evidence and carries greater credibility.
---------------------- For this purpose, every businessman has to maintain the proper documents
and also these documents should be valid in the eyes of law. Otherwise, the
----------------------
documents will become inadmissible in the Court of law due to technical fault.
---------------------- While running an organisation an entrepreneur has to employ labours to
carry out his business. He has to maintain documentary records regarding terms
---------------------- of employment and salaries paid. He purchases raw materials for which he has
---------------------- to maintain necessary records. He takes loan from bank and he has to maintain
the copies of documents given to banks.
----------------------
12.2 IMPORTNT DEFINITIONS
----------------------
---------------------- Document: As per Section 3 of the Indian Evidence Act a document is any
matter expressed or described by letter, figures or marks intended to be used for
---------------------- recording that matter. As per Section 29 of the Indian Penal Code, ‘document’
is any matter expressed or described intended to be used as evidence.
----------------------
Instrument: As per Section 2 of the Indian Stamp Act, an instrument
---------------------- is a document by which any right or liability is created, transferred limited,
extended, extinguished or recorded. As per these definitions, the main purpose
---------------------- of document is to create a documentary evidence of a transaction.
---------------------- Primary Evidence: As per Section 62 of the Indian Evidence Act, primary
evidence means the document itself produced for the inspection of the court.
----------------------
---------------------- 12.3 TYPES OF DOCUMENTS
---------------------- Based on functional aspects, the documents used in National or International

trade transactions are broadly classified into six categories, namely :
----------------------
A. Commercial Documents
---------------------- B. Financial Documents

C. Transport Documents Notes
D. Risk Covering Documents
----------------------
E. Official / Regulatory Documents
F. Miscellaneous Documents ----------------------
A. Commercial documents ----------------------

1. Proforma Invoice ----------------------
Proforma invoice is basically a form of quotation by the seller to a
----------------------
potential buyer. It is a sort of invitation to the buyer from seller to
place a firm order on him. Normally, a proforma invoice is similar ----------------------
to an ordinary commercial invoice except for the fact that the word
“ PROFORMA” appears on it. ----------------------
2. Commercial Invoice ----------------------
Commercial invoice is the basic document in any trade. It generally
----------------------
contains all the information required for the preparation of all other
documents. ----------------------
B. Financial documents
----------------------
1. Bill Of Exchange
----------------------
A Bill of Exchange (or B/E shortly) is also referred to as ‘Draft’
or ‘Hundi’. As per Section 5 of the Negotiable Instruments Act, ----------------------
1881 a ‘bill of exchange’ is an instrument in writing containing an
unconditional order, signed by the maker, directing a certain person ----------------------
to pay a certain sum of money only to, or to the order of, a certain
----------------------
person or to the bearer of the instrument.
i) DP basis - Documents against Payment Basis ----------------------
ii) DA basis - Documents against Acceptance Basis ----------------------
C. Transport documents
----------------------
In trade the goods move from the warehouse of the seller to the
warehouse of the buyer. The goods may move by land, water or air or a ----------------------
combination of one or more of these modes. In international trade such
----------------------
transport documents are more in number and it is very important to know
the significance of each type of document and its nomenclature etc. One ----------------------
of the important aspects to be remembered with regard to any transport
document is that it must show the name of the carrier. These documents ----------------------
are called as ‘documents of title to goods’. This document shows the
----------------------
name of consigner and consignee.
Lorry Receipt (LR) ----------------------
It is a document given by a road transport operator. ----------------------
Railway Receipt (RR)
----------------------
It is a document given by a Railway Authority transporting goods through
Railway. ----------------------

Notes Bill of Lading (BOL)
This is a transport document, which represents movement of goods by water.
----------------------
A Bill of Lading is a formal receipt given by a ship owner or their authorised
---------------------- agents stating that the goods mentioned therein (quantity, quality, description
etc.,) are shipped on a specified date and vessel and are deliverable to the person
---------------------- mentioned therein or to his order after payment of all dues of the shipping
company.
----------------------
A Bill of Lading is a memorandum of contract of carriage because it contains
---------------------- detailed terms and condition on which the carrier has accepted the goods for
shipment (Carriage) from the shipper.
----------------------
These documents are called as QUASI NEGOTIABLE instruments. Though
---------------------- the title to the goods covered by a Railway Receipt, Lorry receipt or Bill of
Lading can be transferred by endorsement and delivery of the instrument, it is
----------------------
still not a fully negotiable instrument like a Bill of Exchange, the simple reason
---------------------- being that it represents title to goods and is governed by a Sale of Goods Act.
Generally, Bills of Lading are issued in a set of 2 or 3. The exact number of
----------------------
originals issued is indicated on each Bill of Lading. These are called Negotiable
---------------------- Bills of Lading and presentation of any one of them will entitle the holder to claim
the goods there under and render the other negotiable copies void. Production of
---------------------- one copy of negotiable Bill of Lading is a must for claiming the goods.
---------------------- There are various types of Bills of Lading. Some of them are described
hereunder:
----------------------
a) Received for shipment bill of Lading
---------------------- It is a Bill of Lading, which merely acknowledged that Ship owners or
their agents for shipment have received the goods.
----------------------
The B/L of this type generally contains a clause reading “Received in
---------------------- apparent good order and condition (or otherwise) for shipment by S. or
the next following vessel.” The goods received might be stored in a ship
----------------------
or warehouse of ship owner/ his agents and there is no guarantee that the
---------------------- ship named there under will carry the goods. It is not considered as a safe
document since it may not be considered to be a good delivery under a
---------------------- sale contract.
---------------------- b) On board bill of Lading
---------------------- This B/L acknowledges the goods having been put on board a ship for
shipment. Hence, this type of B/L is a safer document for the importer
---------------------- (since it is an assurance that the goods are being carried by the named
ship) and is a good delivery under sale contract for an exporter. Hence, in
---------------------- international trade generally only On Board Bills of Lading are called for.
---------------------- This B/L will have a notation ‘Shipped on Board’ or words to that effect.
A received for shipment B/L can also be inscribed with such notation with
---------------------- proper authentication and date. In such a case that B/L will be considered
as On Board (or Shipped) B/L. An ‘On Board’ B/L must specify the name
---------------------- of the vessel.

c) Short Form Bill of Lading Notes
One of the functions of a B/L is that it evidences underlying contract of
----------------------
carriage. Thus, a B/L should have the terms and conditions of carriage
printed on it. But in case of a short form B/L such terms and conditions ----------------------
will not be stated on the B/L and even if stated, it may be by reference to
other document or source. Thus, a Short Form B/L is one which merely ----------------------
states the name of shippers, name of ship, date of shipment etc. and no
----------------------
terms and conditions of carriage are mentioned. Generally, charter party
Bills of Lading is of this nature since terms and conditions of charter ----------------------
party and not liner B/L terms and conditions govern them.
----------------------
d) Long Form Bill of Lading
This is converse of Short Form B/L. In this case the terms and conditions ----------------------
of carriage are given on the B/L.
----------------------
e) Clean bill of Lading
----------------------
A clean B/L is one, which bears no super-imposed clause or notation,
which expressly declares the defective condition of the goods or packing. ----------------------
This B/L indicates, ‘The carrier has received the goods in apparent good
order and condition.’ Since the carrier acts as bailee of the goods, by ----------------------
issuing a Clean B/L, he has to deliver the goods in the same good order ----------------------
and condition.
f) Claused bill of Lading ----------------------
This is also called as Foul B/L or Dirty B/L. It is the opposite of a clean ----------------------
B/L and contains super-imposed clauses or reservations declaring the
----------------------
defective nature of goods, its packing etc. When a claused B/L is issued,
the ship owners or their agents can disclaim their liability to deliver the ----------------------
goods in goods order and condition. This type of B/L is neither good for
the seller nor for the buyer (so also Banker). ----------------------
g) Through bill of Lading ----------------------
A B/L is issued for the entire voyage covering several modes of transport ----------------------
and (or) transshipments is called a Through B/L. This is used generally
when the goods have to take more than one mode of transport. In this type ----------------------
of B/L there is no guarantee of carriers for the safe carriage of goods.
----------------------
h) straight bill of Lading
It is a B/L, which is issued directly in the name of the consignee, is called ----------------------
a Straight B/L. In this case the goods will be delivered to the named ----------------------
consignee. This B/L does not require any endorsement either in blank or
otherwise by the shipper. From the banker’s point of view this type of B/L ----------------------
is not safe.
----------------------
i) Charter Party bill of Lading
----------------------
It is a B/L, which is issued to the charter parties i.e. those parties who
have hired the space in the vessel either in full or in part. Charter party ----------------------

Notes Bills of Lading are issued subject to the terms and conditions agreed upon
by the hirer of the ship / ship space and ship owners and are not subject to
---------------------- Liner B/L terms and conditions. Charter may be
---------------------- a) Time Charter (i.e., specific time)
b) Voyage Charter (i.e., for one or more voyages)
----------------------
c) Mixed Charter (i.e., for specified time and voyage)
----------------------
The charter party bills of landing are generally not acceptable because
---------------------- Sea Charters are full of problems and the ship owners may exercise lien
over the goods in case charters do not pay hire charges.
----------------------
j) Container bill of Lading
---------------------- It is a B/L, which indicates that the goods are carried in a container as
---------------------- one unit of cargo. The containers in which the goods are locked - in are
generally numbered in a systematic manner in string of letters and figures.
---------------------- These numbers indicate the ownership, type of container, size of container
and identification number of the container.
----------------------
k) Combined Transport B/L or Multi modal B/L
----------------------
A combined Transport B/L very much resembles a Through B/L. It is
---------------------- a B/L issued by a shipping company or their agents who act as multi
modal transport operators and carry the goods all the through (from start
---------------------- to finish) accepting the liability for performance of carriage and for losses
or damages to the goods wherever they occur (on land, sea or air). The
----------------------
essence of a combined transport B/L is that the shipping company or their
---------------------- agents act as principal carriers (called as contractual carriers) guaranteeing
the safe conduct of goods from start to finish. In a through B/L no such
---------------------- guarantee of carrier is available.
---------------------- l) Lash bill of Lading
---------------------- It is a B/L issued by operators stating that the goods received and put on
board a barge to be carried and put on a parent vessel. Thus, a B/L issued
---------------------- by a LASH operator is the same as a received for shipment B/L until it
bears a clause stating that the barge is put on board the parent vessel (then
---------------------- becomes an on board B/L and becomes acceptable like a regular B/L).
---------------------- m) House bill of Lading
---------------------- This type of B/L is one issued by generally an association of forwarding
agencies or non-vessel owning carriers (shipping people) who combine
---------------------- their resources to acquire and operate expensive transport vessels for
example, FIATA. Such bills of landing are safe only when they are issued
----------------------
subject to ICC Rules. But the liability of carriers in this case is limited.
---------------------- 4. Airway bill (Awb)
---------------------- Airway Bill is an acknowledgement issued by an Airline company or
their authorised agents (and not forwarding agents) stating that they
---------------------- have received the goods detailed therein (number of packages, quantity

and nature of goods) for dispatch by Air to the named consignee at the Notes
address stated therein. Unlike a B/L, AWB is not a document titled to
goods because it is merely an acknowledgement of goods. When it is not ----------------------
a title of goods naturally it is not a negotiable document.
----------------------
Since, an AWB is not a document of title to the goods it is not necessary
for a consignee to process the AWB for taking delivery of goods. Thus, ----------------------
for shippers the AWB is not as safe a document as a B/L. Further, in case
----------------------
of AWB it is obligatory on the part of Airlines to notify the consignee on
arrival of goods and they will normally deliver the goods to the consignee ----------------------
or his order on proper identification.
----------------------
Air Consignment Note
It is otherwise called as Air receipt. Forwarding agents issue this generally. ----------------------
This document shows the departure and the destination stations as well as
----------------------
the name of the shipper and the addressee. It must also indicate forwarding
station and date stamp. This document also gives the description of goods ----------------------
etc. and their apparent good order and condition (or otherwise)
----------------------
House Airway bill
House Airway Bill is a receipt for goods issued on the same lines as ----------------------
Airway Bill by cargo consolidating agents. When Air cargo is shipped ----------------------
under consolidation, the Airline company issues an Airway Bill called
Master Airway Bill to the consolidating cargo agent and he in turn issues ----------------------
his own House Airway Bills to individual shippers. Thus, House Airway
Bill is a receipt for goods issued not by the actual carriers or their agents ----------------------
but an intermediatory cargo-consolidating agent. A House Airway Bill is ----------------------
not safe as a document as an Airway Bill. In case the consolidating agents
fails to pay the freight, the carriers will have the right over the goods and ----------------------
the holder of House Airway will not get his goods.
----------------------
5. Postal receipt
----------------------
As the name indicates it is a receipt issued by postal authorities. It can be
a Sea Mail receipt or Airmail receipt depending upon the mode by which ----------------------
they are sent. Postal receipt is also an acknowledgement of receipt of
goods for delivery to a named consignee hence; it is not a document of ----------------------
title to goods nor is it a negotiable instrument. Though the postal receipt
----------------------
is not a must for taking delivery of goods in certain countries receipt
must be shown to the Customs and postal authorities for clearance and ----------------------
delivery. Postal regulations in certain countries allow senders to issue and
authenticate their own certificate of posting. Considering all these, it is ----------------------
not considered a safe document from the banker’s point of view.
----------------------
6. Courier/Express delivery service
----------------------
A courier/service document evidences receipt of goods for delivery and
should appear on its face to indicate the name of the courier/service and ----------------------
should be stamped/signed or otherwise authenticated by such named
courier/service unless the credit specifically calls for a document issued ----------------------

Notes by a named courier/ service. This document should also indicate the date
of pick-up or receipt. If no name of courier/service is stated in the letter
---------------------- of credit, bank can accept the document issued by any courier/service.
---------------------- 7. Multimodal Transport document
This document is issued when the movements of goods involve more than
----------------------
one mode of transport. Hence, this is also called as ‘inter mobile transport
---------------------- document (ITD)’ or ‘Combined Transport Document (CTD)’. In simple
words it is defined as a document evidencing contract for performance and
---------------------- procurement of performance of combined transport. Thus, in a multimodal
transport document the carriers (called as Multimodal Transport Operators
----------------------
(MTO)) take the liability for safe conduct of transport of goods by various
---------------------- modes of transport from the place of receipt of goods to the place of
delivery. In most respects it has the characteristics of a Bill of Lading. It
---------------------- is a document evidencing receipt of goods and not shipment on board. It
is also a negotiable document and issued in sets.
----------------------
MTD is a safe document than a Through Bill of Lading (which serves the
---------------------- same practical purpose) in the sense, it has the guarantee of M.T.O. for the
safe conduct of goods right through.
----------------------
d. Risk Covering documents
----------------------
As the name indicates these are the documents, which represent the
---------------------- insurance cover against the physical risks to the goods that are moving
from Exporter to Overseas Importer.
----------------------
i. Insurance policy
----------------------
Insurance policy is a contract of insurance. It is an undertaking
---------------------- given by the insurers promising to pay or secure payment of money
as compensation in case the goods under movement or otherwise
---------------------- are subjected to loss, theft, damage etc. In international trade
marine insurance is the most common document obtained either by
----------------------
exporter or importer for the safety of goods.
---------------------- Insurance policies are of different nature and may cover different
types of risks. But the basic cover is perils of sea.
----------------------
Insurance policies are generally freely assignable to anyone who
---------------------- acquires insurable interest without notice to the underwriters. The
---------------------- assignment is usually effected by bank endorsement.
Specific Policy: When a policy is issued for a particular voyage
---------------------- covering specific goods, such policy is termed as a specific policy.
---------------------- Open Policy : It is a blank policy issued by the insurers for a

specified amount and period and exporter can cover any number
---------------------- of shipments within the stipulated amount and period and he gets
---------------------- the insurance. This type of policy is commonly used these days.
In these cases generally the cover becomes more effective only
---------------------- when details of shipment are informed in good time to the insurers

along with premium if any, as agreed to. Open policy has its own Notes
advantage and disadvantage.
----------------------
ii. Insurance cover note
Insurance cover note is a precursor for the Insurance Policy. When ----------------------
a specific policy is required and the details of ship or shipment are
----------------------
known, the insurance company issues a cover note, which acts as
a provisional policy to be replaced by a regular policy, where the ----------------------
details of ship /shipment are furnished to insurers. Insurance cover
notes are generally valid for short periods of normally three months ----------------------
and within that validity period the insurer has to supply the details
----------------------
of ship/shipment and get it replaced by a regular policy failing
which he is deprived of the insurance. Thus, the cover notes are not ----------------------
as secure a document as a policy and generally not acceptable in
international trade. ----------------------
5. Official Documents ----------------------
Official documents are otherwise called as Regulatory documents, because ----------------------
most of these documents are required for compliance of regulations of
either exporter’s country or importer’s country. ----------------------
i. Export declaration forms ----------------------
As per Indian Exchange Control Regulations details of all goods
(except certain exempted categories) by whatever means exported ----------------------
from India are required to be declared on certain specified forms. ----------------------
These forms are known as Export Declaration Forms. These forms
are evolved by Reserve Bank of India to ensure that the value of all ----------------------
the goods exported from India is declared and the foreign exchange
due there against is repatriated to India. In export trade, the goods ----------------------
leave under the supervision of one agency (Customs/Post Office) ----------------------
and proceeds thereof are received through another agency (banks
etc.). These export declaration forms are so designed that they can ----------------------
have an effective check over the cycle of movement of goods out of
India and receipt of their value in foreign exchange into India. These ----------------------
forms enable Reserve Bank of India to compile vital foreign trade ----------------------
data of the country and also to exercise control over the exporter/
export activities. These export declaration forms have two important ----------------------
aspects: one is declaration of exporter as to the nature and exact (or
appropriate market value in case exact value is not ascertainable ----------------------
at the time of import) value of goods being exported. The second ----------------------
is an undertaking of the exporter to realise the full export value
declared thereon and repatriate the same into India. All these forms ----------------------
bear distinct serial numbers with a two-alphabet prefix followed by
a six-digit numeral. Each form has a specific validity date by which ----------------------
the same can be used for shipment, Presently there are following ----------------------
types of such forms which will be printed only by RBI for sale to
Authorized Dealers for supply to their exporter clients. ----------------------

Notes a) G.R.Form : This form in duplicate is to be used when exports
are made to all countries otherwise than by post.
----------------------
b) P.P.Form: This form is also in duplicate and should be used
---------------------- when exports are made to any country by post parcel except
when on “Value Payable” or “Cash on Delivery” basis.
----------------------
c) Softex Form: This form is to be used when computer software
---------------------- is being exported in Non-Physical form. This form has to be
submitted in triplicate.
----------------------
ii. Export Certificate
---------------------- Certain goods can be exported from India subject to conditions
---------------------- of export licensing policy etc. For example, the Government
may restrict the quantity of exports to be made or goods may be
---------------------- followed to be exported out of quantitative restrictions placed by
importer’s country under the Trade arrangements/ agreements. In
---------------------- such cases, the goods will be allowed to be exported (and imported
---------------------- into the country of import) only when an export certificate is
issued. Generally, these certificates are issued by the agencies
---------------------- like Commodity Boards, Export Promotion Councils nominated
by Government of India. For example, Cotton Textiles Export
---------------------- Promotion Councils issues export certificates for export of cotton
---------------------- textiles to EEC (European Economic Community) countries in
terms of trade agreements between Government of India and EEC
---------------------- nations. This certificate may be needed for verification by Customs
of both exporter’s/ Importer’s country.
----------------------
iii. Certificate of Origin
---------------------- The certificate of origin indicates the country where the goods
---------------------- were originally produced / manufactured. Generally in a certificate
of origin of goods, on the basis of declaration made by the
---------------------- manufacturer/ exporter, an independent agency like Chamber of
Commerce, Export Promotion Council, Trade Association or any
---------------------- other body, which is, authorised in this behalf issues a certificate of
---------------------- origin of goods.
This document may form a part of the invoice itself or may be a
----------------------
separate document.
---------------------- In any of the countries, permission to import is refused unless
a certificate of origin is produced. Further, this is also used to
----------------------
determine the concessional tariff rates applicable to the goods.
---------------------- Certificate of origin is used mostly to serve/ ensure the following:
---------------------- a) Some countries may not wish to use the goods of a particular
country or enemy country.
----------------------
b) Some countries may not wish a particular country to export the
---------------------- goods manufactured in another country to avoid intermediary

trade or avoiding competition from the goods manufactured Notes
by a competing country and to encourage their own country.
----------------------
c) Some countries may allow import of goods manufactured in
certain countries at concessional tariff rates (e.g. Generalised ----------------------
System of Preference Scheme of GATT).
----------------------
6. Micellaneous documents
Depending on the requirement of the importer, the exporter may have to ----------------------
prepare some documents, which will differ from transaction to transaction.
----------------------
Hence they have been classified as miscellaneous documents.
Packing List ----------------------
It is a document, which shows the nature and number of goods, etc. put in each ----------------------
packet/ container etc. with distinctive numbers or marks. The importer generally
needs this when he is importing different types or sizes of merchandise so that ----------------------
he may identify the nature of goods in each package. This may also be used ----------------------
when an importer is importing goods for ultimate direct distribution to various
suppliers etc. It is also used by Customs for checking the goods on random ----------------------
basis or otherwise. Thus, packing list is mainly to facilitate easy identification
of goods in each package/ container by the importer or Customs etc. ----------------------
Weight Certificate ----------------------

It is a document certifying the weight of the goods. Generally, it is given by ----------------------
the exporter, which may at times be countersigned by an independent agency.
Generally, it gives the weight of each article or bunch of articles. It may also ----------------------
give the net weight as well as the gross weight.
----------------------
This certificate is generally required in case of bulk goods like iron ore, food
items etc. ----------------------
Certificate of Analysis and Quality ----------------------
It is a certificate, which indicates the inner composition, quality, technical ----------------------
composition and intricate nature of the goods broadly described in the invoice.
The exporter himself or an institution/ organisation, which is component or ----------------------
nominated to give such a certificate, may give this certificate. In certain types
of goods like chemicals, food articles, clothes etc., this certificate is generally ----------------------
called for so that the goods exported confirm to the desired quality/ standard/ ----------------------
analysis.
Certificate of Inspection ----------------------
As the name indicates, it is a document certifying having inspected the goods ----------------------
(prior to shipment). This certificate is generally described by the importer so
----------------------
that he can be sure that the right types of goods ordered are being sent by the
exporter. In India certain goods are statutorily subjected to quality control and ----------------------
pre shipment inspection. For this purpose, an agency called Export Inspection
Council was created. EIC in turn has nominated certain agencies to issue ----------------------
Inspection Certificates in respect of certain types of goods. Sometimes, the
----------------------
importer may also nominate a person to issue such a certificate.

Notes In India, the export inspection will be generally carried out with reference to:
a) Specifications laid down by importer
----------------------
b) Samples approved by Importer
----------------------
c) Where no sample/ specification is given, ISI specification or other
---------------------- specification is generally taken as a measure of Standard.
---------------------- Health Certificate

When live animals or plants and edible products are exported generally the
---------------------- importer insists on a certificate of health issued by a recognised agency,
---------------------- indicating the health and transportability of the export product. Sometimes, this
certificate may also be required as per the laws of either Importer’s country or
---------------------- Exporter’s country. Other certificates of this category are PHYTOSANITARY/
RADIATION/ FUMIGATION certificates.
----------------------
Catalogues, photographs, work certificates, passport, brochures, clean reports
---------------------- of findings (CRF) are some other miscellaneous documents, which may be
required by importer depending upon the commodity.
----------------------

---------------------- 1. A Bill of Lading is a memorandum of contract of carriage because
it contains detailed terms and conditions, on which the carrier has
---------------------- accepted the goods for shipment (Carriage) from the shipper.
----------------------
---------------------- Activity 1
---------------------- Collect any five documents used in Supply Chain Management in a

manufacturing organisation.
----------------------
----------------------
12.4 STAMP DUTY ON DOCUMENTS
----------------------
Instrument: As per Section 2 of the Indian Stamp Act 1899, an instrument
---------------------- is a document by which any right or liability is created, transferred limited,
---------------------- extended, extinguished or recorded. The documents like Promissory Note,
Usance Bill of Exchange require stamp duty as per the Indian Stamp Act.
----------------------
Certain other documents like agreements, hypothecation deeds, guarantee letter
---------------------- etc attract stamp duty as per respective state stamp Acts. For example, in the
state of Maharashtra, the stamp duty is prescribed under Bombay Stamp Act.
---------------------- The government revises these rates from time to time. A businessman should
affix proper stamp duty as per the latest rates.
----------------------
The list of the instruments chargeable with stamp duty as given in the schedule
---------------------- 1 of the Indian Stamp Act, 1899 are as under:-

Adoption Deed, Acknowlegement of Debt, Affidavit, Agreements, Pledge, Notes
power of Attorney, Usance Bill, Bill of Lading, Bond, Debenture, Conveyance
Deed, Exchange of Property, Gift, hiring agreements, Insurance, Indemnity ----------------------
Bonds, Lease Agreements, Share Certificates, Letter of Credit, Guarantee,
Articles of Association, memorandum of Association, Mortgage deed, partition ----------------------
deed, Partnership Deed, Promissory Note, Protest of a Bill, Transfer of Shares ----------------------
and Debentures, Warranty of goods, etc.
----------------------
As per Section 4, if many instruments are used to complete a transaction,
then the principal instrument should be stamped. ----------------------
As per Section 5, if an instrument contains several distinct matters, stamp
----------------------
duty should be paid on the aggregate amount. For example if you have executed
a hypothecation deed for a term loan of Rs.5.00 lacs and a cash credit facility ----------------------
of Rs.3.00 lacs, then the stamp duty should be paid as per the rate applicable
for Rs.8.00 lacs. As per section 12, if an adhesive stamp is not cancelled the ----------------------
instrument will be deemed to be unstamped.
----------------------
The recent stamp scam in Maharashtra shows that many people involved
in the use of the non judicial stamps were not careful. The stamps which can ----------------------
be pasted on printed documents are called adhesive stamps. Franking machines
----------------------
have become popular after the recent scam. If the people continue to be negligent
and careless, the scams may take place in franking also. ----------------------
Stamp paper should be used within 6 months from the date of purchase. ----------------------
If not sued you can surrender it and claim refund. The stamp paper should be
purchased in the name of a party to a contract. If there is a contract between X ----------------------
and Y the stamp papers should be purchased in the name of X or Y. The stamp
papers purchased in the name of third parties cannot be used. A stamp paper ----------------------
purchased today cannot be used for creating a document as of past date. If a ----------------------
stamp paper is purchased on 10-1-2008, it cannot be used after 10-7-2008 and
it cannot be used for a transaction done before 10-1-2008. It means, the date of ----------------------
purchase of stamp should not be later than the date of transaction. Stamp paper
should be cancelled to prevent their re-use. The contents are bigger than the ----------------------
space available on the judicial stamp paper, then the part of the contents can be ----------------------
written on the stamp paper and the remaining part can be continued on the white
paper. In this case the judicial stamp paper should be treated as first page as per ----------------------
Section 13. Necessary foot notes should be written to show that the matter is
continued on page No. so and so. As per Section 14, two instruments chargeable ----------------------
with stamp duty cannot be written on same impressed stamp paper. As per ----------------------
Section 15, violation of Section 13 and Section 14 will mean the instrument
will be deemed to be unstamped. If the value of the stamp duty used is less than ----------------------
required stamp duty it is called under stamped. If no stamp duty is affixed, it ----------------------
is called unstamped. As per Section 31, if an instrument is unstamped or under
stamped, collector of stamps can confiscate/impound the instruments. ----------------------
As per Section 17, an instrument should be stamped before or at the time ----------------------
of execution of documents. It cannot be stamped afterwards. As per Section
18, an instrument executed outside India should be stamped within 3 months ----------------------

Notes after it has been received in India. As per Section 19, the first holder in India
should affix the proper stamp on such documents. As per Section 29, the stamp
---------------------- duty should be paid by the person executing the documents. As per Section
20, if the cash payment exceeds Rs.5,000/- the received should give stamped
---------------------- receipt if demanded. As per Section 35, an instrument not duly stamped cannot
---------------------- be admitted as evidence in the Court of Law. Certain types of unstamped or
under stamped documents can be rectified by paying the penalty of 10 times the
---------------------- deficient duty. This facility cannot be claimed as a right by the parties executing
documents. It is the discretion of the stamp authorities. As per Section 41, if
---------------------- the collector of stamps is satisfied with the causes for not stamping or under
---------------------- stamping, he may reduce or waive the penalty. As per Section 62, the penalty
for executing unduly stamped instrument is Rs.500/-.
----------------------
----------------------
12.5 LAWS APPLICABLE TO DOCUMENTS
---------------------- Documents are created to be used as primary evidences in the court of

law for enforcing one’s rights. The documents help you in convincing the Court
---------------------- to give judgment in your favour. To be recognised by a Court, the documents
should pass a test which may be called as S E L W E R test.
----------------------
S : STAMP ACT
---------------------- E : EVIDENCE ACT
---------------------- L : LIMITATION ACT
W: WITNESSES
----------------------
E : EXECUTION
----------------------
R : REGISTRATION ACT
---------------------- A document should pass in all the six tests to be acceptable in court of
law. Deficiency in any one or more areas may render the document the useless.
---------------------- In that case very purpose of taking the document is defeated.
---------------------- 1. Indian stamp Act
---------------------- It is already covered in the previous topic.
2. Indian Evidence Act
----------------------
As per Section 62 of the Indian Evidence Act, primary evidence means the
---------------------- document itself produced for the inspection of the court. As per Section
61 of the Indian Evidence Act, the contents of a document may be proved
---------------------- either by primary or secondary evidence. As per Section 59 of the Indian
Evidence Act, all facts except the contents of document may be proved
----------------------
by oral evidence. Proving a fact becomes with the help of a documentary
---------------------- evidence.
3. Limitation Act
----------------------
The purpose of limitation act is to fix a time frame within which an
---------------------- aggrieved party can go to court to enforce his rights. Suppose, you have
transported the goods through a transport operator and you have made cash
----------------------
payment and obtained a cash receipt from him. Suppose, the Transport

Operator files a case against you demanding the payment of transportation Notes
charges after 5 years. Now, it will be difficult for you to produce the
cash receipt obtained from the Transport Operator in the Court of Law. ----------------------
After all, how long can you preserve these documents? You cannot be
expected to preserve your documents for ever. Hence, the Limitation Act ----------------------
comes to your risqué. The Limitation Act prescribes the time limit within ----------------------
which an aggrieved party can go to Court to enforce his rights. Once,
that period is over, you can destroy your old records. It means you have ----------------------
to preserve al the relevant documents till the limitation period in respect
of that transaction is not yet over. If the document obtained by you is ----------------------
nearing the limitation period, and you have a dispute with your counter ----------------------
party for not receiving the sum due to you or any other dispute, then you
have to file a case in the Court before the limitation period expires. You ----------------------
can renew the validity period the documents by a fresh written agreement
with the counter party regarding extension of limitation period. If the ----------------------
counter party acknowledges his liability to you directly or indirectly, then ----------------------
the fresh limitation period will start from that day. If the time limit for
enforcing a document is over it is called Time Barred Document. If you ----------------------
file a case in the Court on the strength of time barred documents, then
the court will reject you claim without going into the merits of your case. ----------------------
The Income Tax authorities have right to check your records for previous ----------------------
eight years. Here you will have to maintain your records for a period of
minimum eight years. Even if you have calculated your taxable income ----------------------
correctly and paid the tax correctly, you have to maintain the records for
eight years. If there is only one set of document and the original set is ----------------------
required to be kept with the counter party, you can keep Photostat copies ----------------------
with you.
----------------------
The period of limitation is as under;
Money suittt : 3 years ----------------------
Mortgage suittt : 12 years ----------------------
Suit for decreett : 3 years ----------------------
Execution of decreett : 12 years
----------------------
The period of limitation starts from the date of cause of action. The time
spent in legal proceedings, period of stay, time required for obtaining ----------------------
certified copies etc excluded.
----------------------
4. witnesses
----------------------
Certain documents require witnesses. If the witnesses are not obtained,
then these documents will become inadmissible in the court of law. The ----------------------
signatures of the witnesses should be obtained at relevant places along
with their name and full address. Examples of the documents which ----------------------
require witnesses are as under:
----------------------
Mortgage Deed, Lease Deed, Nomination, Sale of Immovable property,
Will etc. ----------------------

Notes 5. Execution of document
Execution of document means drafting and signing the documents by the
----------------------
parties concerned. In case of printed forms, the blanks should be filled up
---------------------- before signing the documents. Both the parties should read the contents
carefully and sign the documents only if the contents are acceptable to
---------------------- them. Once, you sign a document you can not take a stand that you have
not read the documents. The contents of the documents will be binding
----------------------
on you even if you have not read them. Most of the companies have
---------------------- printed forms for their day to day transactions. They are drafted by one
party and naturally they contain all the clauses favourable to them. If the
---------------------- contents are not acceptable to you, you can refuse to do the transaction
with that party. Many companies use very small fonts and it is difficult
----------------------
to read them. Most of the clauses averse to you are either printed in very
---------------------- small font or printed else where with * mark. You should sign only after
understanding the implication of the documents on your interests. If
---------------------- the documents are bulky and you need time to sign the documents, you
should take the required time to read and understand the contents of the
----------------------
documents. If you are signing on behalf of a firm or a company, then you
---------------------- should affix the rubber stamp first and then sign at the place provided.
The fact that you are not signing in your personal capacity but in some
---------------------- official capacity should be evident from your signature. You should avoid
using photostat copies of the documents. The documents can be printed,
----------------------
computer written, type written or hand written. It is better to have printed
---------------------- formats if you require them frequently. The blanks of a printed format
should be filled up in ink and in one hand writing. There should not ob
---------------------- scratches or over writings. Do not use whitener to change an amount or
name or any other details. It is better to scratch the wrong information and
----------------------
write the correct information under your full signature.
---------------------- 6. Registration Act
---------------------- As per section 17 of Indian Registration Act, certain documents require
registration. They must be registered with the concerned authorities. As
---------------------- per Section 49, unregistered documents will not be admitted as evidence.
Examples of documents requiring registration are as under:
----------------------
Mortgage Deed, Lease Deed for a period exceeding one year, Sale of
---------------------- Immovable property, etc. All registered documents are deemed to be duly
---------------------- executed.
Certain types of documents executed by a Company creating a charge on
---------------------- the assets of the company are required to be registered with Registrar of
---------------------- Companies as detailed under Section 125 of Indian Companies’ Act, 1956
within a period of 30 days from the date of execution. If the document is
---------------------- not registered with ROC, then the document will not be valid against the
liquidator of the company. You will become an unsecured creditor.
----------------------
----------------------

Notes
----------------------
Fill in the blanks.
----------------------
1. As per Section 62 of the ________________, primary evidence
means the document itself produced for the inspection of the court. ----------------------
----------------------
Activity 2
----------------------
Find out the stamp duty payable in your state in respect of the following ----------------------
instrument:
----------------------
a. Mortgage for housing loan
b. Guarantee bond ----------------------
----------------------
Summary ----------------------
• A document is any matter expressed or described by letter, figures or ----------------------
marks intended to be used for recording that matter. Primary evidence
means the document itself. The documents used in trade transactions are ----------------------
broadly classified into
----------------------
A. Commercial Documents
----------------------
B. Financial Documents
C. Transport Documents ----------------------
D. Risk Covering Documents ----------------------
E. Official/Regulatory Documents ----------------------
F. Miscellaneous Documents
----------------------
• Lorry receipt, Railway receipt, Bill of lading, Airway Bill and Postal
receipt are the important transportation documents. Invoice, Bill of ----------------------
Exchange and Insurance policies are some other important documents.
----------------------
• To be recognised by a Court, the documents should pass a test which may
be called as ----------------------
S E LW E R T E S T ----------------------
S : STAMP ACT E : EVIDENCE ACT L : LIMITATION ACT ----------------------
W: WITNESSES E : EXECUTION R : REGISTRATION ACT
----------------------
----------------------
----------------------
----------------------

Notes Keywords
----------------------
• Document : any matter expressed or described by letter, figures or marks
---------------------- intended to be used for recording.
• Airway Bill : An acknowledgement issued by an Airline company
---------------------- acknowledging the receipt of goods for transport.
---------------------- • Bailee : A person to whom the goods are delivered.
---------------------- • Bill of Exchange : an instrument in writing containing an unconditional
---------------------- of money only to, or to the order of, a certain person or to the bearer of
the instrument.
----------------------
• Bill of Lading : Transport document, which represents movement of
---------------------- goods by water.
• Execution of document : Writing and signing the documents.
----------------------
• Instrument : A document by which any right or liability is created,
---------------------- transferred limited, extended, extinguished or recorded.
---------------------- • Limitation : Period within which one has to file a case in the Court of
Law.
----------------------
• Multimodal Transport Document : Movements of goods involve more
---------------------- than one mode of transport.
• Primary Evidence : The document itself produced for the inspection of
----------------------
the court.
---------------------- • Proforma invoice : A form of quotation by the seller.
---------------------- • Quasi Negotiable : Can be transferred by endorsement and delivery of
the instrument but not covered by NI Act.
---------------------- • Through Bill of Lading : When the goods have to take more than one
---------------------- mode of transport.
---------------------- Self-Assessment Questions

----------------------
1. Explain the importance of documentation in trade.
---------------------- 2. Explain the definitions of ‘Document’ under different Acts.
---------------------- 3. Explain the different documents used in transportation of goods.
---------------------- 4. State the features of Bill of Lading.

5. State the financial and commercial documents.
----------------------
6. State the important provisions of Indian Stamp Act.
----------------------
7. State the main provisions of Indian registration Act.
---------------------- 8. State the important provisions of Limitation Act.
---------------------- 9. What precautions should be taken while executing documents?

Answers to Check your Progress Notes

1. True ----------------------
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Fill in the blanks.
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1. As per Section 62 of the Indian Evidence Act, primary evidence means
the document itself produced for the inspection of the court. ----------------------
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Suggested Reading
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Notes
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The Motor Vehicles Act, 1988
UNIT
13
Structure:
13.1 Introduction
13.3 Provisions regarding Driving Licence
13.4 Provisions regarding Conductor’s Licence
13.5 Registration of Vehicles
Summary
Keywords
Suggested Reading
The Motor Vehicles Act, 1988 295

Notes
Objectives
----------------------
----------------------
• State the important definitions of the act
----------------------
• Describe the provisions regarding driving licence
---------------------- • Discuss the provisions regarding conductor’s licence
---------------------- • Enumerate the provisions regarding registration of vehicles
----------------------
---------------------- 13.1 INTRODUCTION
---------------------- Road transport is frequently used by the people engaged in Supply Chain
Management. Even though it is costly compared to Railway transport the road
---------------------- transport has several distinct advantages. Transport through a Lorry is a common
mode of transport. Lorry is basically a motor vehicle. Hence, it is essential for
---------------------- the people in Supply Chain Management to under stand the main provisions of
---------------------- Motor Vehicles Act, 1988.
---------------------- 13.2 IMPORTANT DEFINITIONS

---------------------- Section 2 states the important definitions as under :
---------------------- ●● ‘articulated vehicle’ means a motor vehicle to which a semi-trailer is
attached;
----------------------
●● ‘axle weight’ means in relation to an axle of a vehicle the total weight
---------------------- transmitted by the several wheels attached to that axle to the surface on
which the vehicle rests;
----------------------
●● ‘certificate of registration’ means the certificate issued by a competent
---------------------- authority to the effect that a motor vehicle has been duly registered
---------------------- ●● ‘conductor’, in relation to a stage carriage, means a person engaged in
collecting fares from passengers, regulating their entrance into, or exit
---------------------- from, the stage carriage and performing such other functions as may be
prescribed; ‘conductor’s licence’ means the licence issued by a competent
----------------------
authority authorising the person specified therein to act as a conductor.
---------------------- ●● ‘contract carriage’ means a motor vehicle which carries a passenger or
---------------------- passengers for hire or reward and is engaged under a contract, whether
expressed or implied, for the use of such vehicle as a whole for the carriage
---------------------- of passengers mentioned therein and entered into by a person which a
holder of a permit in relation to such vehicle or any person authorised by
---------------------- him in this behalf on a fixed or an agreed rate or sum
---------------------- ●● on a time basis, whether or not with reference to any route or distance; or
---------------------- ●● from one point to another,

●● and in either case, without stopping to pick up or set down passengers not Notes
included in the contract anywhere during the journey, and includes
----------------------
●● a maxicab; and
●● a motor cab notwithstanding that separate fares and charged for its ----------------------
passengers;
----------------------
●● ‘dealer’ includes a person who is engaged
----------------------
●● in the manufacture of motor vehicles; or
●● in building bodies for attachment to chassis; or ----------------------
●● in the repair of motor vehicles; or ----------------------

●● in the business of hypothecation, leasing or hire-purchase of motor ----------------------
vehicle;
----------------------
●● ‘driver’ includes, in relation to a motor vehicle which is drawn by another
motor vehicle, the person who acts as a steersman of the drawn vehicle; ----------------------
●● ‘driving licence’ means the licence issued by a competent authority ----------------------
authorising the person specified therein to drive, otherwise than as
a learner, a motor vehicle or a motor vehicle of any specified class or ----------------------
description;
----------------------
●● ‘educational institution bus’ means an omnibus, which is owned by a
college, school or other educational institution and used solely for the ----------------------
purpose of transporting students or staff of the educational institution in
connection with any of its activities; ----------------------
●● ‘fares’ includes sums payable for a season ticket or in respect of the hire ----------------------
of a contract carriage;
----------------------
●● ‘goods’ includes live-stock, and anything (other than equipment ordinarily
used with the vehicle) carried by a vehicle except living persons, but does ----------------------
not include luggage or personal effects carried in a motor car or in a trailer
----------------------
attached to a motor car or the personal luggage of passengers travelling
in the vehicle; ----------------------
●● ‘goods carriage’ means any motor vehicle constructed or adapted for use
----------------------
solely for the carriage of goods, or any motor vehicle not so constructed
or adapted when used for the carriage of goods; ----------------------
●● ‘gross vehicle weight’ means in respect of any vehicle the total weight of
----------------------
the vehicle and load certified and registered by the registering authority
as permissible for that vehicle; ----------------------
●● ‘heavy goods vehicle’ means any goods carriage the gross vehicle weight ----------------------
of which, or a tractor or a road-roller the unladen weight of either of
which, exceeds 12,000 kilograms; ----------------------
●● ‘heavy passenger motor vehicle’ means any public service vehicle or ----------------------
private service vehicle or educational institution bus or omnibus the gross
----------------------

Notes vehicle weight of any of which, or a motor car the unladen weight of
which, exceeds 12,000 kilograms;
----------------------
●● ‘invalid carriage’ means a motor vehicle specially designed and
---------------------- constructed, and not merely, adapted, for the use of a person suffering
from some physical defect or disability, and used solely by or for such a
---------------------- person;
---------------------- ●● ‘learner’s licence’ means the licence issued by a competent authority under
Chapter II authorising the person specified therein to drive as a learner,
---------------------- a motor vehicle or a motor vehicle of any specified class or description;
---------------------- ●● ‘licensing authority’ means an authority empowered to issue licences.
---------------------- ●● ‘light motor vehicle’ means a transport vehicle or omnibus the gross
vehicle weight of either of which or a motor car or tractor or road-roller
---------------------- the unladen weight of any of which, does not exceed 6,000 kilograms;
---------------------- ●● ‘maxicab’ means any motor vehicle constructed or adapted to carry more
than six passengers, but not more than twelve passengers, excluding the
---------------------- driver, for hire or reward;
---------------------- ●● ‘medium goods vehicle’ means any goods carriage other than a light
motor vehicle or a heavy goods vehicle;
----------------------
●● ‘medium passenger motor vehicle’ means any public service vehicle or
---------------------- private service vehicle, or educational institution bus other than a motor
cycle, invalid carriage, light motor vehicle or heavy passenger motor
---------------------- vehicle;
---------------------- ●● ‘motorcab’ means any motor vehicle constructed or adapted to carry not
more than six passengers excluding the driving for hire or reward;
----------------------
●● ‘motor car’ means any motor vehicle other than a transport vehicle,
---------------------- omnibus, road-roller, tractor, motor cycle or invalid carriage;
---------------------- ●● ‘motor cycle’ means two-wheeled motor vehicle, inclusive of any

detachable side-car having an extra wheel, attached to the motor vehicle;
---------------------- ●● ‘motor vehicle’ or ‘vehicle’ means any mechanically propelled vehicle
---------------------- adapted for use upon roads whether the power of propulsion is transmitted
thereto from an external or internal source and includes a chassis to which
---------------------- a body has not been attached and a trailer; but does not include a vehicle
running upon fixed rails or a vehicle of a special type adapted for use only
---------------------- in a factory or in any other enclosed premises or a vehicle having less than
---------------------- four wheels fitted with engine capacity of not exceeding thirty five cubic
centimetres;
----------------------
●● ‘omnibus’ means any motor vehicle constructed or adapted to carry more
---------------------- than six persons excluding the driving;
●● ‘owner’ means a person in whose name a motor vehicle stands registered,
----------------------
and where such person is a minor, the guardian of such minor, and
---------------------- in relation to a motor vehicle which is the subject of a hire-purchase,

agreement, or an agreement of lease or an agreement of hypothecation, Notes
the person in possession of the vehicle under that agreement;
----------------------
●● ‘permit’ means a permit issued by a State or Regional Transport Authority
or an authority prescribed in this behalf under this Act authorising the use ----------------------
of a motor vehicle as a transport vehicle;
----------------------
●● ‘private service vehicle’ means a motor vehicle constructed or adapted
to carry more than six persons excluding the driving and ordinarily used ----------------------
by or on behalf of the owner of such vehicle for the purpose of carrying
persons for, or in connection with, his trade or business otherwise than ----------------------
for hire or reward but does not include a motor vehicle used for public
----------------------
purposes;
●● ‘public place’ means a road, street, way or other place, whether a ----------------------
thoroughfare or not, to which the public have a right of access, and
----------------------
includes any place or stand at which passengers are picked up or set down
by a stage carriage; ----------------------
●● ‘public service vehicle’ means any motor vehicle used or adapted to be ----------------------
used for the carriage of passengers for hire or reward, and includes a
maxicab, a motorcab, contract carriage, and stage carriage; ----------------------
●● ‘registered axle weigh’ means in respect of the axle of any vehicle, the axle ----------------------
weight certified and registered by the registering authority as permissible
for that axle; ----------------------
●● ‘registering authority’ means an authority empowered to register motor ----------------------
vehicles;
----------------------
●● ‘route’ means a line of travel which specifies the highway which way be
traversed by a motor vehicle between one terminus and another; ----------------------
●● ‘semi-trailer’ means a trailer drawn by a motor vehicle and to constructed
----------------------
that a part of it is super-imposed on, and a part of its weight is borne by,
the drawing vehicle; ----------------------
●● ‘stage carriage’ means a motor vehicle constructed or adapted to carry ----------------------
more than six passengers excluding the driving for hire or reward at
separate fares paid by or for individual passengers, either for the whole ----------------------
journey or for stages of the journey;
----------------------
●● ‘State transport undertaking’ means any undertaking providing road
transport service, where such undertaking is carried on by, ----------------------
●● the Central Government or a State Government ; ----------------------
●● any Road Transport Corporation established under Section 3 of the Road
----------------------
Transport Corporations Act, 1950 (64 of 1950);
●● any municipality or any corporation or company owned or controlled by ----------------------
the Central Government or one or more State Governments, or by the
----------------------
Central Government and one or more State Governments.
●● ‘tourist vehicle’ means a contract carriage constructed or adapted and ----------------------

Notes equipped and maintained in accordance with such specifications as may
be prescribed in this behalf;
----------------------
●● ‘tractor’ means a motor vehicle which is not itself constructed to carry
---------------------- any load (other than equipment used for the purpose of propulsion) ; but
excludes a road-roller;
----------------------
●● ‘traffic signs’ includes all signals, warning sign posts, direction posts,
---------------------- markings on the road or other devices for the information, guidance or
direction of driving of motor vehicles;
----------------------
●● ‘trailer’ means any vehicle, other than a semi-trailer and a side-car, drawn
---------------------- or intended to be drawn by a motor vehicle;
---------------------- ●● ‘transport vehicle’ means a public service vehicle, a goods carriage, an

educational institution bus or a private service vehicle;
---------------------- ●● ‘unladen weight’ means the weight of a vehicle or trailer including all
---------------------- equipment ordinarily used with the vehicle or trailer when working, but
excluding the weight of a driving or attendant; and where alternative parts
---------------------- or bodies are used the unladen weight of the vehicle means the weight of
the vehicle with the heaving such alternative part or body ;
----------------------
●● ‘weight’ means the total weigh transmitted for the time being by a wheels
---------------------- of a vehicle to the surface on which the vehicle rests.
----------------------
----------------------
----------------------
1. ‘Transport vehicle’ means a public service vehicle, a goods carriage,
---------------------- an educational institution bus or a private service vehicle.
----------------------
13.3 PROVISIONS REGARDING DRIVING LICENCE
----------------------
Section 3 : Necessity for driving licence
----------------------
(1) No person shall drive a motor vehicle in any public place unless he holds
---------------------- an effective driving licence issued to him authorising him to drive the
vehicle; and no person shall so drive a transport vehicle [other than a
---------------------- motor cab hired for his own use or rented under any scheme] unless his
---------------------- driving licence specifically entitles him so to do.
Section 4 : Age limit in connection with driving of motor vehicles
----------------------
(1) No person under the age of eighteen years shall drive a motor vehicle in
---------------------- any public place: Provided that a motor cycle without gear may be driven
in a public place by a person after attaining the age of sixteen years.
----------------------
(2) No person under the age of twenty years shall drive a transport vehicle in
---------------------- any public place.
---------------------- (3) No learner’s licence or driving licence shall be issued to any person to

drive a vehicle of the class to which he has made an application unless he Notes
is eligible to drive that class of vehicle under this section.
----------------------
S.No. Minimum Age For Licence to Drive
1 16 years Motor cycle without gear ----------------------
2 18 years Motor cycle with gear
----------------------
3 20 years Transport Vehicle
Section 5 : Responsibility of owners of motor vehicles ----------------------
No owner or person in charge of a motor vehicle shall cause or permit any ----------------------
person who does not satisfy the provisions of Section 3 or Section 4 to drive the
----------------------
vehicle.
Section 6 : Restriction on the holding of driving licences ----------------------
(1) No person shall, while he holds any driving licence for the time being in ----------------------
force, hold any other driving licence except a learner’s licence or a driving
licence issued or a document authorising the person specified therein to ----------------------
drive a motor vehicle.
----------------------
(2) No holder of a driving licence or a learner’s licence shall permit it to be
used by any other person. ----------------------
Section 7 : Restrictions on the granting of learners licences for certain ----------------------

vehicles
----------------------
(1) No person shall be granted a learner’s licence.
----------------------
(a) to drive a transport vehicle unless be has held a driving licence to
drive a light motor vehicle for at least one year. ----------------------
(b) to drive a heavy passenger motor vehicle unless he has held a
----------------------
driving licence for at least two years to drive a light motor vehicle
or for at least one year to drive a medium passenger motor vehicle; ----------------------
(c) to drive a medium goods vehicle or a medium passenger motor ----------------------
vehicle unless he has held a driving licence for at least one year to
drive a light motor vehicle. ----------------------
(2) No person under the age of eighteen years shall be granted a learner’s ----------------------
licence to drive a motor cycle without gear except with the consent in
writing of the person having the care of the person desiring the learner’s ----------------------
licence.
----------------------
S.No. Minimum Experience For Licence to Drive
1 licence to drive a light motor vehicle for Transport vehicle ----------------------
at least one year
----------------------
2 licence for at least two years to drive a Heavy passenger motor
light motor vehicle or for at least one year vehicle ----------------------
to drive a medium passenger motor vehicle
3 licence to drive a light motor vehicle for Medium goods vehicle ----------------------
at least one year ----------------------

Notes Section 8 : grant of learners licence
(1) Any person who is not disqualified under section 4 for driving a motor
----------------------
vehicle and who is not for the time being disqualified for holding or
---------------------- obtaining a driving licence may, apply to the licensing authority having
jurisdiction in the area
----------------------
(i) in which he ordinarily resides or carries on business, or
---------------------- (ii) in which the school or establishment referred to in Section 12 from
where he intends to receive instruction in driving a motor vehicle is
----------------------
situate for the issue to him of learner’s licence.
---------------------- (3) Every application shall be accompanied by a medical certificate in such
---------------------- form as may be prescribed by the Central Government and signed by a
registered medical practitioner.
---------------------- (5) No learner’s licence shall be issued to any applicant unless he passes to
---------------------- the satisfaction of the licensing authorities such test as may be prescribed
by the Central Government.
---------------------- Section 9 : grant of driving licence
---------------------- (1) Any person who is not for the time being disqualified for holding or
obtaining a driving licence may apply to the licensing authorities having
----------------------
jurisdiction in the area-
---------------------- (i) in which he ordinarily resides or carries on business, or
---------------------- (ii) in which the school or establishment from where he is receiving or
has received instruction in driving a motor vehicle is situated, for
---------------------- the issue to him of a driving licence.
---------------------- Example:
---------------------- Mr.Vishal stays at Bijapur in Karnataka. He works in Bank of Maharashtra,

Gulbarga branch in Karnataka. He has received instruction in driving a car at
---------------------- Vithal Motor Driving School at Solapur in Maharashtra. He can apply for the
driving licence to the licensing authorities at Bijapur or Gulbarga or Solapur
---------------------- whichever is convenient to him.
---------------------- (2) Every application shall be in such form and shall be accompanied by such
fee and such documents as may be prescribed by the Central Government.
----------------------
(3) No driving licence shall be issued to any applicant unless the passes to
---------------------- the satisfaction of the licensing authority prescribed test of competence to
drive.
----------------------
Where the application is for a driving licence to drive a motor cycle or a light
---------------------- motor vehicle, the licensing authority shall exempt the applicant from the test
of competence prescribed under this Sub-section, if the licensing authority is
----------------------
satisfied
----------------------
----------------------

(a) (i) that the applicant has previously held a driving licence and that the Notes
period between the date of expiry of that licence and the date of
such application does not exceed five years; or ----------------------
(ii) that the applicant holds or has previously held a driving licence ----------------------
issued under Section 18; or
(iii) that the applicant holds a driving licence issued by a competent ----------------------
authority of any country outside India; and ----------------------
(b) that the applicant is not suffering from any disease or disability which is ----------------------
likely to cause the driving by him of a motor cycle or, as the case may
be, a light motor vehicle to be a source of danger to the public; and the ----------------------
licensing authorities may for that purpose require the applicant to produce
----------------------
a medical certificate.
Provided further that where the application is for a driving licence to drive ----------------------
a motor vehicle (not being a transport vehicle), the licensing authority ----------------------
may exempt the applicant from the test of competence to drive prescribed
under this sub-section, if the applicant possesses a driving certificate ----------------------
issued by an automobile association recognised in this behalf by the State
Government ----------------------
(4) Where the application is for a licence to drive a transport vehicle, no such ----------------------
authorisation shall be granted to any applicant unless he possesses such
minimum educational qualification as may be prescribed by the Central ----------------------
Government and a driving certificate issued by a school or establishment. ----------------------
(5) Where the applicant does not pass to the satisfaction of the licensing
authority the test of competence to drive, he shall not be qualified to re- ----------------------
appear for such test ----------------------
(a) in the case of first three such tests, before a period of one month
----------------------
from the date of last test; and
(b) in the case of such test after the first three tests, before a period of ----------------------
one year from the date of last such test
----------------------
(6) The test of competence to drive shall be carried out in a vehicle of the
type to which the application refers: Provided that a person who passed ----------------------
a test in driving a motor cycle with gear shall be deemed also to have ----------------------
passed a test in driving a motor cycle without gear.
(7) When any application has been duly made to the appropriate licensing ----------------------
authority and the applicant has satisfied such authority of his competence ----------------------
to drive, the licensing authority shall issue the applicant a driving licence
unless the applicant is for the time being disqualified for holding or ----------------------
obtaining a driving licence:
----------------------
(8) If the licence authority is satisfied, after giving the applicant an opportunity
of being heard, that he ----------------------
(a) is a habitual criminal or a habitual drunkard; or ----------------------

Notes (b) is a habitual addict to any narcotic drug or psychotropic substance
within the meaning of the Narcotic Drugs and Psychotropic
---------------------- Substances Act, 1985 (16 of 1985); or
---------------------- (c) is a person whose licence to drive any motor vehicle has, at any
time earlier, been revoked
----------------------
it may make an order refusing to issue a driving licence to such person and any
---------------------- person aggrieved by an order made by a licensing authority may, within thirty
days of the receipt of the order, appeal to the prescribed authority
----------------------
Section 10 : Form and contents of licence to drive
---------------------- (1) Every learner’s licence and driving licence, except a driving licence issued
---------------------- under Section 18, shall be in such form and shall contain such information
as may be prescribed by the Central Government.
---------------------- (2) A learner’s licence or, as the case may be, driving licence shall also be
---------------------- expressed as entitling the holder to drive a motor vehicle of one or more
of the following classes, namely :
---------------------- (a) motor cycle without gear
---------------------- (b) motor cycle with gear
---------------------- (c) invalid carriage
---------------------- (d) light motor vehicle

(e) medium goods vehicle
----------------------
(f) medium passenger motor vehicle
----------------------
(g) heavy goods vehicle
---------------------- (h) heavy passenger motor vehicle
---------------------- (i) road-roller
---------------------- (j) motor vehicle of a specified description

Section 11 : Additions of driving licence
----------------------
(1) Any person holding a driving licence to drive any class or description
---------------------- of motor vehicles, who is not for the time being disqualified for holding
or obtaining a driving licence to drive any other class or description of
---------------------- motor vehicles, may apply to the licensing authority having jurisdiction
---------------------- in the area in which he resides or carries on his business in such form
and accompanied by such documents and with such fees as may be
---------------------- prescribed by the Central Government for the addition of such other class
or description of motor vehicles to the licence
----------------------
Section 12 : Licensing and regulations of driving schools
----------------------
(1) The Central Government may make rules for the purpose of licensing
---------------------- and regulating, by the State Governments, schools or establishments
(by whatever name called) for imparting instruction in driving of motor
---------------------- vehicles and matters connected therewith

(2) In particular, and without prejudice to the generality of the foregoing Notes
power, such rules may provide for all or any of the following matters,
namely : ----------------------
(a) licensing of such schools or establishments including grant, renewal ----------------------
and revocation of such licences;
----------------------
(b) supervision of such schools or establishments;
(c) the form of application and the form of licence and the particulars ----------------------
to be contained therein;
----------------------
(d) fee to be paid with the application for such licences;
----------------------
(e) conditions subject to which such licences may be granted;
(f) appeals against the orders of refusal to grant or renew such licences ----------------------
and appeals against the orders revoking such licences; ----------------------
(g) conditions subject to which a person may establish and maintain any
----------------------
such school or establishment for imparting instruction in driving of
motor vehicles; ----------------------
(h) nature, syllabus and duration of course or courses for efficient
----------------------
instruction in driving any motor vehicle;
(i) apparatus and equipments (including motor vehicles fitted with ----------------------
dual control) required for the purpose of imparting such instruction; ----------------------
(j) suitability of the premises at which such schools or establishments
may be established or maintained and facilities to be provided ----------------------
therein; ----------------------
(k) qualifications, both educational and professional ( including
experience), which a person imparting instruction in driving a ----------------------
motor vehicle shall possess; ----------------------
(l) inspection of such schools and establishments ( including the
----------------------
services rendered by them and the apparatus, equipments and motor
vehicles maintained by them for imparting such instruction); ----------------------
(m) maintenance of records by such schools or establishments;
----------------------
(n) financial stability of such schools or establishments;
----------------------
(o) the during certificates, if any, to be issued by such schools or
establishments and the form in which such driving certificates shall ----------------------
be issued and the requirements to be complied with for the purposes
of issuing such certificates; ----------------------
(p) such other matters as may be necessary to carry out the purposes of ----------------------
this section.
----------------------
(3) Where the Central Government is satisfied that it is necessary or expedient
so to do, it may, by rules made in this behalf, exempt generally, either ----------------------
absolutely or subject to such conditions as may be specified in the rules,
----------------------

Notes any class of schools or establishments imparting instruction in driving of
motor vehicles or matters connected therewith from the provisions of this
---------------------- section.
---------------------- (4) A school or establishment imparting instruction in driving of motor
vehicles or matters connected therewith immediately before the
---------------------- commencement of this Act whether under a licence or not, may continue
to impart such instruction without a licence issued under this Act for a
----------------------
period of one month from such commencement, and if it has made in
---------------------- application for such licence under this Act within the said period of
one month and such application is in the prescribed form, contains the
---------------------- prescribed particulars, and is accompanied by the prescribed fee, till the
disposal of such application by the licensing authority
----------------------
Section 13 : Extent of effectiveness of licences, to drive motor vehicles
----------------------
A learner’s licence or a driving licence issued under this Act shall be effective
---------------------- throughout India.
---------------------- Section 14 : Currency of licences to drive motor vehicles
---------------------- (1) A learner’s licence issued under this Act shall, subject to the other
provisions of this Act, be effective for a period of six months from the
---------------------- date of issue of the licence.
---------------------- (2) A driving licence issued or renewed under this Act shall
(a) in the case of a licence to drive a transport vehicle, be effective for
----------------------
a period of three years; and
---------------------- (b) in the case of any other licence
---------------------- (i) if the person obtaining the licence, either originally or on renewal thereof,
has not attained the age of forty years on the date of issue or, as the case
---------------------- may be, renewal thereof
---------------------- (A) be effective for a period of twenty years from the date of such issue
or renewal; or
----------------------
(B) until the date on which such person attains the age of forty years,
---------------------- whichever is earlier;
---------------------- (ii) if the person referred to in sub-clause (i) has attained the age of forty
years on the date of issue or, as the case may be, renewal thereof, be
---------------------- effective for a period of five years from the date of such issue of renewal:
---------------------- Provided that every driving licence shall, notwithstanding its expiry under this
sub-section, continue to be effective for a period of thirty days from such expiry.
----------------------
----------------------
----------------------
----------------------

Examples of validity period (currency) of different licences: Notes
S.N. Type of Licence Date of Licences Date of Birth of Licence
licence holer valid upto ----------------------
1 Learners Licence 12-12-2007 12-11-1958 12-06-2008 ----------------------
2 Licence to drive 02-01-2008 05-05-1980 02-01-2011
transport vehicle ----------------------
3 Licence other 10-01-2008 18-02-1988 10-01-2028 ----------------------
than 1 & 2
4 Licence other 10-01-2008 18-02-1978 18-02-2018 ----------------------
than 1 & 2 ----------------------
5 Licence other 10-01-2008 12-11-1958 10-01-2013
than 1 & 2 ----------------------
Section 15 : Renewal of driving licences ----------------------
(1) Any licensing authority may, on application made to renew a driving ----------------------
licence issued under the provisions of this Act with effect from the date of
its expiry. ----------------------
Provided that in any case where the application for the renewal of a licence ----------------------
is made more than thirty days after the date of its expiry, the driving
licence shall be renewed with effect from the date of its renewal: ----------------------
Provided further that where the application is for the renewal of a licence ----------------------
to drive a transport vehicle or where in any other case the applicant
has attained the age of forty years, the same shall be accompanied by a ----------------------
medical certificate.
----------------------
(2) An application for the renewal of a driving licence shall be made in such
form and accompanied by such documents as may be prescribed by the ----------------------
Central Government.
----------------------
Section 16 : Revocation of driving licence on grounds of disease or disability
----------------------
Any licensing authority may at any time revoke a driving licence or may require,
as a condition of continuing to hold such driving licence, the holder thereof to ----------------------
produce a medical certificate if the licensing authority has reasonable grounds
to believe that the holder of the driving licence is, by virtue of any disease or ----------------------
disability, unfit to drive a motor vehicle and where the authority revoking a ----------------------
driving licence is not the authority which issued the same, it shall intimate the
fact of revocation to the authority which issued that licence. ----------------------
Section 17 : Orders refusing or revoking driving licences and appeals there ----------------------
from
----------------------
(1) Where a licensing authority refuses to issue any learner’s licence or to
issue or renew, or revokes, any driving licence, or refuses to add a class ----------------------
or description of motor vehicle to any driving licence, it shall do so by
an order communicated to the applicator the holder, as the case may be, ----------------------
giving the reasons in writing for such refusal or revocation.
----------------------

Notes (2) Any person aggrieved by an order made under Sub-section (1) may, within
thirty days of the service on him of the order, appeal to the prescribed
---------------------- authority which shall decide the appeal after giving such person and the
authority which made the order an opportunity of being heard and the
---------------------- decision of the appellate authority shall be binding on the authority which
---------------------- made the order.
Section 18 : Driving licences to drive motor vehicles, belonging to the
----------------------
Central Government
----------------------
(1) Such authority as may be prescribed by the Central Government may issue
---------------------- driving licence valid throughout India to persons who have completed
their eighteenth year to drive motor vehicle which are the property or for
---------------------- the time being under the exclusive control of the Central Government
and are used for the Government purposes relating to the defence of the
----------------------
country and unconnected with any commercial enterprise
---------------------- (2) A driving licence issued under this section shall specify the class or
---------------------- description of vehicle which the holder is entitled to drive and the period
for which he is so entitled
---------------------- (3) A driving licence issued under this section shall not entitle the holder
---------------------- to drive any motor vehicle except a motor vehicle referred to in
Sub-section (1).
---------------------- (4) The authority issuing any driving licence under this section shall, at the
---------------------- request of any State Government, furnish such information respecting
any person to whom a driving licence is issued as that Government may
---------------------- at any time require.
---------------------- Section 20 : Power of Court to disqualify
(1) Where a person is convicted of an offence under this Act or of an offence
----------------------
in the commission of which a motor vehicle was used, the Court by
---------------------- which such person is convicted may declare the person so convicted to
be disqualified, for such period as the Court may specify, from holding
---------------------- any driving licence to drive all classes or description of vehicles, or any
particular class or description of such vehicles, as are specified in such
----------------------
licence:
---------------------- Section 21 : Suspension of driving licence in certain cases
---------------------- (1) Where, in relation to a person who had been previously convicted of
an offence, a case is registered by a police officer on the allegation that
---------------------- such person has, by such dangerous driving of any class or description
---------------------- of motor vehicle caused the death of, or grievous hurt to, one or more
persons, the driving licence held by such person shall in relation to such
---------------------- class or description of motor vehicle become suspended
---------------------- (a) for a period of six months from the date on which the case is
registered, or
----------------------

(b) if such person is discharged or acquitted before the expiry of the Notes
period aforesaid, until such discharge or acquittal, as the case may
be ----------------------
(2) Where the driving licence held by a person becomes suspended, the police ----------------------
officer shall bring such suspension to the notice of the Court competent
to take cognizance of such offence, and thereupon, such Court shall take ----------------------
possession of the driving licence, endorse the suspension thereon and
----------------------
intimate the fact of such endorsement to the licensing authority by which
the licence was granted or last renewed. ----------------------
(3) Where the person is acquitted or discharged, the Court shall cancel
----------------------
the endorsement on such driving licence with regard to the suspension
thereof. ----------------------
(4) If a driving licence in relation to a particular class or description of motor
----------------------
vehicles is suspended, the person holding such licence shall be debarred
from holding or obtaining any licence to drive such particular class of ----------------------
description of motor vehicles so long as the suspension of the document
remains in force ----------------------
Section 22 : Suspension or cancellation of driving licence on conviction ----------------------
(1) Without prejudice to the provisions of Sub-section (3) of Section 20 ----------------------
where a person, referred to in Sub-section (1) of Section 21 is convicted
of an offence of causing, by such dangerous driving as is referred to in ----------------------
Section 184 of any class or description of motor vehicle the death of, or
grievous hurt to, one or more persons, the Court by which such person is ----------------------
convicted may cancel, or suspend for such period as it may think fit, the ----------------------
driving licence held by such person in so far as it relates to that class or
description of motor vehicle. ----------------------
(2) Without prejudice to the provisions of Sub-section (2) of Section 20, if ----------------------
a person, having been previously convicted of an offence punishable
under Section 185 is again convicted of an offence punishable under that ----------------------
section, the Court, making such subsequent conviction, shall, by order,
cancel the driving licence held by such person. ----------------------
(3) If a driving licence is cancelled or suspended, the Court shall take the ----------------------
driving licence in its custody, endorse the cancellation or, as the case
----------------------
may be, suspension, thereon and send the driving licence so endorsed
to the authority by which the licence was issued or last renewed and ----------------------
such authority shall, on receipt of the licence, keep the licence in its
safe custody, and in the case of a suspended licence, return the licence ----------------------
to the holder thereof after the expiry of the period of suspension on an
----------------------
application made by him for such return:
(4) If a licence to drive a particular class or description of motor vehicles ----------------------
is cancelled or suspended under this section, the person holding such
----------------------
a licence shall be debarred from holding, or obtaining, any licence to
----------------------

Notes drive such particular class or description or motor vehicles so long as the
cancellation or suspension of the driving licence remains in force.
----------------------
Section 23 : Effect of disqualification order
---------------------- (1) A person in respect of whom any disqualification order is made under
Section 19 or Section 20 shall be debarred to the extent and for the period
----------------------
specified in such order from holding or obtaining a driving licence and the
---------------------- driving licence, if any, held by such person at the date of the order shall
cease to be effective to such extend and during such period.
----------------------
(2) The operation of a disqualification order made under Section 20 shall not
---------------------- be suspended or postponed while an appeal is pending against such order
or against the conviction as a result of which such order is made, unless
---------------------- the appellate court so directs.
---------------------- (3) Any person in respect of whom any disqualification order has been made
may at any time after the expiry of six months from the date of the order
---------------------- apply to the Court or other authority by which the order was made, to
---------------------- remove the disqualification; and the Court or authorities, as the case may
be, may, having regard to all the circumstances, either cancel or vary the
---------------------- disqualification order:
---------------------- Section 24 : Endorsement

(1) The Court or authority making an order of disqualification shall endorse
---------------------- or cause to be endorsed upon the driving licence if any, held by the person
---------------------- disqualify, particulars of the order of disqualification and of any conviction
of an offence in respect of which an order of disqualification is made; and
---------------------- particulars of any cancellation or variation of an order of disqualification
made under Sub-section (3) of Section 23 shall be similarly so endorsed.
----------------------
(2) A Court by which any person is convicted of an offence under this Act
---------------------- as may be prescribed by the Central Government, having regard to the
objects of this Act, shall, whether or not a disqualification order is made
----------------------
in respect of such conviction, endorse or cause to be endorsed particulars
---------------------- of such conviction on any driving licence held by the person convicted.
(3) Any person accused of an offence prescribed under Sub-section (2) shall
----------------------
when attending the Court bring with him his driving licence if it is in his
---------------------- possession.
---------------------- (4) Where any person is convicted of any offence under this Act and
sentenced to imprisonment for a period exceeding three months the Court
---------------------- awarding the sentence shall endorse the fact of such sentence upon the
driving licence of the person concerned and the prosecuting authority
---------------------- shall intimate the fact of such endorsement to the authority by which the
---------------------- driving licence was granted or last renewed.
(5) When the driving licence is endorsed or caused to be endorsed by any
---------------------- Court, such Court shall send the particulars of the endorsement by the
----------------------

licensing authority by which the driving licence was granted or last Notes
renewed.
----------------------
(6) Where on an appeal against any conviction or order of a Court, which has
been endorsed on a driving licence, the appellate court varies or sets aside ----------------------
the conviction or order, the appellate court shall inform the licensing
authority by which the driving licence was granted or last renewed and ----------------------
such authority shall amend or cause to be amended the endorsement.
----------------------
Section 25 : T
ransfer of endorsement and issue of driving licence free from
endorsement ----------------------
(1) An endorsement on any driving licence shall be transferred to any new or ----------------------
duplicate driving licence obtained by the holder thereof until the holder
becomes entitled under the provisions of this section to have a driving ----------------------
licence issued to him free from endorsement.
----------------------
(2) Where a driving licence is required to be endorsed and the driving licence
is not in the possession of the Court or authority by which the endorsement ----------------------
is to be made, then-- ----------------------
(a) if the person in respect of whom the endorsement is to be made is at
the time the holder of a driving licence, he shall produce the driving ----------------------
licence to the Court or authority within five days, or such longer ----------------------
time as the Court or authority may fix; or
(b) if, not being then the holder of a driving licence, he subsequently ----------------------
obtains a driving licence, he shall within five days after obtaining ----------------------
the driving licence produce it to the Court or authority, and if the
driving licence is not produced within the time specified, if shall, ----------------------
expiration or such time, be or no effect until it is produced for the
purpose of endorsement. ----------------------
(3) A person whose driving licence has been endorsed shall, if during a ----------------------
continuous period of three years after such endorsement no further
----------------------
endorsement has been made against him, be entitled on surrendering his
driving licence and on payment of a fee of five rupees, to receive a new ----------------------
driving licence free from all endorsements :
----------------------
Provided that if the endorsement is only in respect of an offence contravening
the speed limits referred to in Section 112, such person shall be entitled to ----------------------
receive a new driving licence free from such endorsement on the expiration of
one year of the date of the endorsement: ----------------------
Section 26 : Maintenance of state Registers of driving Licences ----------------------
(1) Each State Government shall maintain, in such form as may be prescribed ----------------------
by the Central Government, a register to be known as the State Register of
Driving Licences, in respect of driving licences issued and renewed by the ----------------------
licensing authorities of the State Government, containing the following
particulars, namely : ----------------------
----------------------

Notes (a) names and addresses of holders of driving licences;
(b) licence numbers;
----------------------
(c) dates of issue or renewal of licences;
----------------------
(d) dates of expiry of licences;
---------------------- (e) classes and types of vehicles authorised to be driven; and
---------------------- (f) such other particulars as the Central Government may prescribe.
---------------------- (2) Each State Government shall supply to the Central Government a printed
copy of the State Register of Driving Licences and shall inform the Central
---------------------- Government without delay of all additions to and other amendments in
such register made from time to time.
----------------------
(3) The State Register order Driving Licences shall be maintained in such
---------------------- manner as may be prescribed by the State Government.
---------------------- Section 27 : Power of Central government to make rules
---------------------- The Central Government may make rules

(a) regarding conditions referred to in Sub-section (2) of Section 3;
----------------------
(b) providing for the form in which the application for learner’s licence
---------------------- may be made, the information it shall contain and the documents to be
submitted with the application referred to in Sub-section (2) of Section 8;
----------------------
(c) providing for the form of medical certificate referred to in Sub-section (3)
---------------------- of Section 8;
---------------------- (d) providing for the particulars for the test referred to in Sub-section (5) of
Section 8;
----------------------
(e) providing for the form in which the application for driving licence may be
---------------------- made, the information it shall contain and the documents to be submitted
with the application referred to in Sub-section (2) of Section 9;
----------------------
(f) providing for the particulars regarding test of competence to drive,
---------------------- referred to in Sub-section (3) of Section 9;
---------------------- (g) specifying the minimum educational disqualifications of persons to

whom licences to drive transport vehicles may be issued under this Act
---------------------- and the time within which such disqualifications are to be acquired by
such persons;
----------------------
(h) providing for the form and contents of the licences referred to in Sub-
---------------------- section (1) of Section 10;
---------------------- (i) providing for the form and contents of the application referred to in
Sub-section (1) of Section 11 and documents to be submitted with the
---------------------- application and the fee to be charged;
---------------------- (j) providing for the form and contents subject to which Section 9 shall apply
to an application made under Section 11;
----------------------

(k) providing for the form and contents of the application referred to in Notes
Sub- section (1) of Section 15 and the documents to accompany such
application under Sub-section (2) of Section 15; ----------------------
(l) providing for the authority to grant licences under Sub-section (1) of ----------------------
Section 18;
----------------------
(m) specifying the fees payable under Sub-section (2) of Section 3, Sub-section
(2) of Section 9 and Sub-sections (3) and (4) of Section 15 for the grant ----------------------
of learner’s licences, and for the grant the renewal of driving licences and
licences for the purpose of regulating the schools or establishments for ----------------------
imparting instructions in driving motor vehicles;
----------------------
(n) specifying the acts for the purposes of clause (f) of Sub-section (1) of
Section 19; ----------------------
(o) specifying the offences under this Act for the purposes of Sub-section (2) ----------------------
of Section 24;
----------------------
(p) to provide for all or any of the matters referred to in Sub-section (1) of
Section 26; ----------------------
(q) any other matter which is, or has to be, prescribed by the Central ----------------------
Government.
----------------------
Section 28 : Power of state government to make rules
(1) A State Government may make rules for the purposes of carrying into ----------------------
effect the provisions of this Chapter other than the matters specified in
----------------------
Section 27.
(2) Without prejudice to the generality of the foregoing power, such rules ----------------------
may provide for ----------------------
(a) the appointment, jurisdiction, control and functions of licensing
authorities and other prescribed authorities; ----------------------
(b) the conduct and hearing of appeals that may be preferred under this ----------------------
Chapter, the fees to be paid in respect of such appeals and the refund
of such fees; Provided that no fee so fixed shall exceed twenty-five ----------------------
rupees; ----------------------
(c) the issue of duplicate licences to replace licences lost, destroyed
----------------------
or mutilated, the replacement of photographs which have become
obsolete and the fees to be charged therefor; ----------------------
(d) the badges and uniform to be worn by drives of transport vehicles
----------------------
and the fees to be paid in respect of badges;
(e) the fee payable for the issue of a medical certificate under Sub- ----------------------
section (3) of Section 8;
----------------------
(f) the exemption of prescribed persons, or prescribed classes of
persons, from payment of all or any portion of the fees payable ----------------------
under this Chapter; ----------------------

Notes (g) the communication of particulars of licences granted by one
licensing authority to other licensing authorities;
----------------------
(h) the duties, functions and conduct of such persons to whom licences
---------------------- to drive transport vehicles are issued;
(i) the exemption of drivers of road-rollers from all or any of the
----------------------
provisions of this Chapter or of the rules made there under;
---------------------- (j) the manner in which the State Register of Driving Licences shall be
maintained under Section 26;
----------------------
(k) any other matter which is to be, or may be, prescribed.
----------------------

----------------------
Fill in the blanks.
---------------------- 1. A learner’s licence issued under this Act shall, subject to the other
provisions of this Act, be effective for a period of __________ from
----------------------
the date of issue of the licence.
----------------------
---------------------- Activity 1
----------------------
Visit a Driving School and collect the information about the procedure for
---------------------- obtaining learner’s licence. Write a summary of the procedure.
----------------------
13.4 PROVISIONS REGARDING CONDUCTOR’S
----------------------
LICENCE
----------------------
Section 29 : Necessity for conductors licence
----------------------
(1) No person shall act as a conductor of a stage carriage unless he holds an
---------------------- effective conductor’s licence issued to him authorising him to act as such
conductor; and no person shall employ or permit any person who is not so
---------------------- licensed to act as a conductor of a stage carriage.
---------------------- Section 30 : Grant to conductors licence
(1) Any person who possession such minimum educational disqualification
----------------------
as may be prescribed by the State Government and is not disqualified
---------------------- may apply to the licensing authority having jurisdiction in the area in
which he ordinarily resides or carries on business for the issue to him of
---------------------- a conductor’s licence.
---------------------- (2) Every application under Sub-section (1) shall be in such form and shall
contain such information as may be prescribed.
----------------------
(3) Every application for conductor’s licence shall be accompanied by a
---------------------- medical certificate and two clear copies of a recent photograph of the
applicant.
(4) A conductor’s licence issued under this Chapter shall be in such form Notes
and contain such particulars as may be prescribed and shall be effective
throughout the State in which it is issued. ----------------------
(5) The fee for a conductor’s licence and for each renewal thereof shall be ----------------------
one-half of that for a driving licence.
----------------------
Section 31 : Disqualifications for the grant of conductors licence
(1) No person under the age of eighteen years shall hold, or be granted, a ----------------------
conductor’s licence.
----------------------
(2) The licensing authority may refuse to issue a conductor’s licence
----------------------
(a) if the applicant does not possess the minimum educational
disqualification: ----------------------
(b) if the medical certificate produced by the applicant discloses that he ----------------------
is physically unfit to act as a conductor; and
----------------------
(c) if any previous conductor’s licence held by the applicant was
revoked. ----------------------
Section 32 : R
evocation of a conductors licence on grounds of disease or
----------------------
disability
A conductor’s licence may at any time be revoked by any licensing authority ----------------------
if that authorities has reasonable grounds to believe that the holder of the ----------------------
licence is suffering from any disease or disability which is likely to render him
permanently unfit to hold such a licence and where the authority revoking a ----------------------
conductor’s licence is not the authority which issued the same, it shall intimate
the fact of such revocation to the authority which issued that licence: ----------------------
Section 33 : Orders refusing etc., conductors licences and appeals therefrom ----------------------
(1) Where a licensing authority refuses to issue or renew, or revokes any ----------------------
conductor’s licence, it shall do so by an order communicated to the
applicant or the holder, as the case may be, giving the reasons in writing ----------------------
for such refusal or revocation.
----------------------
(2) Any person aggrieved by an order made under Sub-section (1) may, within
thirty days of the service on him of the order, appeal to the prescribed ----------------------
authority which shall decide the appeal after giving such person and the
----------------------
authority which made the order an opportunity of being heard and the
decision of the appellate authorities shall be binding on the authority ----------------------
which made the order.
----------------------
Section 34 : Power of licensing authority to disqualify
(1) If any licensing authority is of opinion that it is necessary to disqualify the ----------------------
holder of a conductor’s licence for holding or obtaining such a licence on
----------------------
account of his previous conduct as a conductor, it may, for reasons to be
recorded, make an order disqualifying that person for a specified period, ----------------------
not exceeding one year, for holding or obtaining a conductor’s licence :
----------------------

Notes Provided that before disqualifying the holder of a licence, the licensing
authority shall give the person holding such licence a reasonable
---------------------- opportunity of being heard.
---------------------- (2) Upon the issue of any such order, the holder of the conductor’s licence
shall forthwith surrender the licence to the authority making the order, if
---------------------- the licence has not already been surrendered, and the authority shall keep
the licence until the disqualification has expired or has been removed.
----------------------
(3) Where the authority disqualifying the holder of a conductor’s licence
---------------------- under this section is not the authority which issued the licence, it shall
intimate the fact of such disqualification to the authority which issued the
----------------------
same.
---------------------- (4) Any person aggrieved by an order made under Sub-section (1) may, within
thirty days of the service on him of the order, appeal to the prescribed
----------------------
authority which shall decide the appeal after giving such person and the
---------------------- authority which made the order an opportunity of being heard and the
decision of the appellate authority shall be binding on the authority which
---------------------- made the order.
---------------------- Section 35 : Power of Court to disqualify
---------------------- (1) Where any person holding a conductor’s licence is convicted of an

offence under this Act, the Court by which such person is convicted may,
---------------------- in addition to imposing any other punishment authorised by law, declare
the person so convicted to be disqualified for such period as the Court
---------------------- may specify for holding a conductor’s licence.
---------------------- (2) The Court to which an appeal lie from any conviction of an offence
under this Act may set aside or vary any order of disqualification made
---------------------- by the Court below, and the Court to which appeals ordinarily lie from
---------------------- such Court, may set aside or vary any order of disqualification made by
that Court, notwithstanding that no appeal lies against the conviction in
---------------------- connection with which such order was made.
----------------------
----------------------

1. The age of granting Conductor’s License is
----------------------
i. Eighteen years
----------------------
ii. Fourteen years
---------------------- iii. Thirteen years
---------------------- iv. Twelve years
----------------------
----------------------

Notes
Activity 2
----------------------
Meet a conductor and collect the information about the procedure for obtaining ----------------------
conductor’s licence. Make a note on the information in your own words.
----------------------
13.5 REGISTRATION OF VEHICLES ----------------------
----------------------
Section 39 : Necessity for registration
No person shall drive any motor vehicle and no owner of a motor vehicle shall ----------------------
cause or permit the vehicle to be driven in any public place or in any other place
----------------------
unless the vehicle is registered and the certificate of registration of the vehicle
has not been suspended or cancelled and the vehicle carries a registration mark ----------------------
displayed in the prescribed manner.
----------------------
Section 40 : Registration, where to be made
Every owner of a motor vehicle shall cause the vehicle to be registered by ----------------------
a registering authority in whose jurisdiction he has the residence or place of
----------------------
business where the vehicle is normally kept.
Section 41 : Registration, how to be made ----------------------
(1) An application by or on behalf of the owner of a motor vehicle for ----------------------
registration shall be in the prescribed form and shall be accompanied by
prescribed documents and fees. Where a motor vehicle is jointly owned ----------------------
by more persons than one, the application shall be made by one of them
----------------------
on behalf of all the owners and such applicant shall be deemed to be the
owner of the motor vehicle. ----------------------
(3) The registering authority shall issue to the owner of a motor vehicle
----------------------
registered by it a certificate of registration.
(4) The certificate of registration shall also specify the type of the motor ----------------------
vehicle, being a type as the Central Government may, having regard to ----------------------
the design, construction and use of the motor vehicle, by notification in
the Official Gazette, specify. ----------------------
(5) The registering authority shall enter the particulars of the certificate in a ----------------------
register to be maintained in prescribed form and manner.
(6) The registering authority shall assign to the vehicle, for display thereon, ----------------------
a distinguishing mark (in this Act referred to as the registration by mark) ----------------------
consisting of one of the groups of such of those letters and followed
by such letters and figures as are allotted to the State by the Central ----------------------
Government and displayed and shown on the motor vehicle in prescribed
form. ----------------------
(7) A certificate of registration other than a transport vehicle shall be valid ----------------------
only for a period of fifteen years from the date of issue of such certificate
and shall be renewable. ----------------------

Notes (8) An application by or on behalf of the owner of a motor vehicle, other than
a transport vehicle, for the renewal of a certificate of registration shall be
---------------------- made along with the fees such within prescribed period and in prescribed
form.
----------------------
(10) The registering authority may renew the certificate of registration for a
---------------------- period of five years and intimate the fact to the original registering
authority, if it is not the original registering authority.
----------------------
(11) If the owner fails to make an within the period prescribed, the registering
---------------------- authority may require the owner to pay such amount not exceeding one
hundred rupees. Provided that action shall be taken against the owner
----------------------
where the owner fails to pay the said amount.
---------------------- (13) State Government may prescribe different amounts having regard to the
period of delay on the part of the owner in making an application
----------------------
(14) An application for the issue of a duplicate certificate of registration shall
---------------------- be made to the original registering authority in the prescribed form along
---------------------- with the prescribed fee.
Section 43 : Temporary registration
----------------------
(1) Notwithstanding anything contained in Section 40 the owner of a motor
---------------------- vehicle may apply to any registering authority or other prescribed authority
to have the vehicle temporarily registered in the prescribed manner
---------------------- and for the issue in the prescribed manner of a temporary certificate of
---------------------- registration and a temporary registration mark.
(2) A registration made under this section shall be valid only for a period not
----------------------
exceed one month, and shall not be renewable:
---------------------- Provided that where a motor vehicle so registered is a chassis to which a body
has not been attached and the same is detained in a workshop beyond the said
----------------------
period of one month for being fitted with a body, the period may, on payment
---------------------- of such fees, if any, as may be prescribed, be extended by such further period
or periods as the registering authority or other prescribed authority, as the case
---------------------- may be, may allow.
---------------------- Section 44 : Production of vehicle at the time of registration
---------------------- The registering authority shall before proceeding to register a motor vehicle or
renew the certificate of registration in respect of a motor vehicle, other than a
---------------------- transport vehicle, require the person applying for registration of the vehicle or,
as the case may be, for renewing the certificate of registration to produce the
---------------------- vehicle either before itself or such authority as the State Government may by
---------------------- order appoint in order that the registering authority may satisfy itself that the
particulars contained in the application are true and that the vehicle complies
---------------------- with the requirements of this Act and of the rules make thereunder.
---------------------- Section 45 : Refusal of registration or renewal of the certificate of registration

The registering authority may, by order, refuse to register any motor vehicle, or
----------------------

renew the certificate of registration in respect of a motor vehicle (other than a Notes
transport vehicle), if in either case, the registering authority has reason to believe
that it is a stolen motor vehicle or, the vehicle is mechanically defective or fails ----------------------
to comply with the requirements of this Act or of the rules made thereunder, or
if the applicant fails to furnish particulars of any previous registration of the ----------------------
vehicle or furnishes inaccurate particulars in the application for registration of ----------------------
the vehicle or, as the case may be, for renewal of the certificate or registration
thereof and the registering authority shall furnish the applicant whose vehicle ----------------------
is refused registration, or whose application for renewal of the certificate of
registration is refused, a copy of such order, together with the reason for such ----------------------
refusal. ----------------------
Section 46 : Effectiveness in India of registration
----------------------
Subject to the provisions of Section 47, a motor vehicle registered in accordance
with this Chapter in any State shall not required to be registered elsewhere in ----------------------
India and a certificate of registration issued or in force under this Act in respect
----------------------
of such vehicle shall be effective throughout India.
Section 47 : A
ssignment of new registration mark on removal to another ----------------------
state
----------------------
(1) When a motor vehicle registered in one State has been kept in another
State, for a period exceeding twelve months, the owner of the vehicle ----------------------
shall, within such period and in such form containing such particulars as ----------------------
may be prescribed by the Central Government, apply to the registering
authority, within whose jurisdiction the vehicle then is, for the assignment ----------------------
of a new registration mark and shall present the certificate of registration
to that registering authority : ----------------------
Provided that an application under this Sub-section shall be accompanied ----------------------

(i) by the no such certificate obtained under Section 48, or ----------------------
(ii) in a case where no such certificate has been obtained, by
----------------------
(a) the receipt obtained under Sub-section (2) of Section 48; or
----------------------
(b) the postal acknowledgment received by the owner of the vehicle if he has
sent an application in this behalf by registered post acknowledgment due ----------------------
to the registering authority referred to in Section 48.
----------------------
Together with a declaration that he has not received any communication from
such authority refusing to grant such certificate or requiring him to comply with ----------------------
any direction subject to which certificate may be granted :
----------------------
Provided further that, in a case where a motor vehicle is held under a hire-
purchase, lease or hypothecation agreement, an application under this Sub- ----------------------
section shall be accompanied by a no such certificate from the person with
whom such agreement has been entered into, and the provisions of Section 51, ----------------------
so far as may be, regarding obtaining of such certificate from the person with ----------------------
whom such agreement has been entered into, shall apply.
----------------------

Notes (2) The registering authority, to which application is made under Sub-section
(1), shall after making such verification, as it thinks fit, of the returns,
---------------------- if any, received under Section 62, assign the vehicle a registration mark
as specified in Sub-Section (6) of Section 41 to be displayed and shown
---------------------- thereafter on the vehicle and shall enter the mark upon the certificate of
---------------------- registration before returning it to the applicant and shall, in communication
with the registering authority by whom the vehicle was previously
---------------------- registered, arrange for the transfer of the registration of the vehicle from
the records of that registering authority to its own records
----------------------
(3) Where a motor vehicle is held under a hire-purchase or lease or
---------------------- hypothecation agreement, the registering authority shall, after assigning
the vehicle a registration mark under Sub-section (2), inform the person
----------------------
whose name has been specified in the certificate of registration as the
---------------------- person with whom the registered owner has entered into the hire-purchase
or lease or hypothecation agreement (by sending to such person a notice
---------------------- by registered post acknowledgment due at the address of such person
entered in the certificate of registration the fact of assignment of the said
----------------------
registration mark)
---------------------- (4) A State Government may make rules under Section 65 requiring the owner
of a motor vehicle not registered within the State, which is brought into
----------------------
or is for the time being in the State, to furnish to the prescribed authority
---------------------- in the State such information with respect to the motor vehicle and its
registration as may be prescribed
----------------------
(5) If the owner fails to make an application under Sub-section (1) within
---------------------- the period prescribed, the registering authority may, having regard
to the circumstances of the case, require the owners to pay, in lieu of
---------------------- any action that may be taken against him under Section 177, such
amount not exceeding one hundred rupees as may be prescribed under
----------------------
Sub-section (7) :
---------------------- Provided that action under Section 177 shall be taken against the owner
---------------------- where the owner fails to pay the said amount.
(6) Where the owner has paid the amount under Sub-section (5), no action
---------------------- shall be taken against him under Section 177.
---------------------- (7) For the purposes of Sub-section (5), the State Government may prescribe
different amounts having regard to the period of delay on the part of the
---------------------- owner in making an application under Sub-section (1).
---------------------- Section 48 : No objection certificate
---------------------- (1) The owner of a motor vehicle when applying for the assignment of a
new registration mark under Sub-section (1) of Section 47, or where the
---------------------- transfer of a motor vehicle is to be effected in a State other than the State of
its registration, the transferor of such vehicle when reporting the transfer
----------------------
under Sub-section (1) of Section 50, shall make an application in such
---------------------- form and in such manner as may be prescribed by the Central Government

to the registering authority by which the vehicle was registered for the Notes
issue of a certificate (hereafter in this section referred to as the no such
certificate), to the effect that the registering authority has no objection for ----------------------
assigning a new registration mark to the vehicle or, as the case may be,
for entering the particulars of the transfer of ownership in the cover of ----------------------
registration ----------------------
(2) The registering authority shall, on receipt of an application under Sub-
----------------------
section (1), issue a receipt in such form as may be prescribed by the
Central Government ----------------------
(3) On receipt of an application under Sub-section (1), the registering
----------------------
authority may, after making such inquiry and requiring the applicant to
comply with such directions as it deems fit and within thirty days of the ----------------------
receipt thereof, by order in writing, communicate to the applicant that it
has granted or refused to grant the no objection certificate: ----------------------
Provided that a registering authority shall not refuse to grant the no ----------------------
objection certificate unless it has recorded in writing the reasons for doing
so and a copy of the same has been communicated to the applicant ----------------------
(4) Where while a period of thirty days referred to in Sub-section (3), the ----------------------
registering authority does not refuse to grant that no objection certificate
or does not communicate the refusal to the applicant, the registering ----------------------
authority shall be deemed to have granted the no objection certificate ----------------------
(5) Before granting or refusing to grant the no objection certificate, the
registering authority shall obtain a report in writing from the police that ----------------------
no case relating to the theft of the motor vehicle concerned has been ----------------------
reported or is pending, verify whether all the amounts due to Government
including road tax in respect of that motor vehicle have been paid and ----------------------
take into account such other factors as may be prescribed by the Central
Government ----------------------
Section 49 ----------------------
(2) If the owner of a motor vehicle fails to intimate his new address to the ----------------------
concerned registering authority within the period specified in Sub-section
(1), the registering authority may, having regard to the circumstances of ----------------------
the case, require the owner of pay, in lieu of any action that may be taken
----------------------
against him under Section 177, such amount not exceeding one hundred
rupees as may be prescribed under Sub-section (4) : ----------------------
Provided that action under Section 177 shall be taken against the owner
----------------------
where he fails to pay the said amount
(3) Where a person has paid the amount under Sub-section (2), no action ----------------------
shall be taken against him under Sub-section 177 ----------------------
(4) For the purposes of Sub-section (2), a State Government may prescribe
different amounts having regard to the period of delay in intimating his ----------------------
new address ----------------------

Notes (5) On receipt of intimation under Sub-section (1), the registering authority
may, after making such verification as it may think fit, cause the new
---------------------- address to be entered in the certificate of registration
---------------------- (6) A registering authority other than the original registering authority making
any such entry shall communicate the altered address to the original
---------------------- registering authority
---------------------- (7) Nothing in Sub-section (1) shall apply where the change of the address
recorded in the certificate of registration is due to a temporary absence not
---------------------- intended to exceed six months in duration or where the motor vehicle is
neither used nor removed from the address recorded in the certificate of
----------------------
registration.
---------------------- Section 50 : Transfer of ownership
---------------------- (1) Where the ownership of any motor vehicle registered under this Chapter
is transferred
----------------------
(a) the transferor shall
---------------------- (i) in the case of a vehicle registered within the same State, within
---------------------- fourteen days of the transfer, report the fact of transfer, in such form
with such documents and in such manner, as may be prescribed by
---------------------- the Central Government to the registering authority within where
jurisdiction the transfer is to be effected and shall simultaneously
---------------------- send a copy of the said report of the transferee; and
---------------------- (ii) in the case of a vehicle registered outside the State, within forty- five
days of the transfer, forward to the registering authorities referred to
----------------------
in Sub-clause (i)
---------------------- (A) the no objection certificate obtained under Section 48; or
---------------------- (B) in a case where no such certificate has been obtained,
---------------------- (I) the receipt obtained under Sub-section (2) of Section 48; or
(II) the postal acknowledgment received by the transferred if he has sent an
---------------------- application in this behalf by registered post acknowledgment due to the
---------------------- registering authority referred to in Section 48, together with a declaration
that he has not received any communication from such authority refusing
---------------------- to grant such certificate or requiring him to comply with any direction
subject to which such certificate may be granted;
----------------------
(b) the transferee shall, within thirty days of the transfer, report the transfer to
---------------------- the registering authority within whose jurisdiction he has the residence or
place of business where the vehicle is normally kept, as the case may be,
----------------------
and shall forward the certificate of registration to that registering authority
---------------------- together with the prescribed fee and a copy of the report received by him
from the transferor in order that particulars of the transfer of ownership
---------------------- may be entered in the certificate of registration.
----------------------

(2) Where Notes
(a) the person in whose name a motor vehicle stands registered dies, or
----------------------
(b) a motor vehicle has been purchased or acquired at a public auction
conducted by, or an behalf of, Government, the person succeeding ----------------------
to the possession of the vehicle or, as the case may be, who has
----------------------
purchased or acquired the motor vehicle, shall make an application
for the purpose of transferring the ownership of the vehicle in his ----------------------
name, in the registering authority in whose jurisdiction he has the
residence or place of business where the vehicle is normally kept, ----------------------
as the case may be, in such manner, accompanied with such fee, and
----------------------
within such period as may be prescribed by the Central Government.
(3) If the transferor or the transferee fails to report to the registering authority ----------------------
the fact of transfer within the period specified in clause (a) or clause (b)
----------------------
of Sub-section (1), as the case may be, or if the person who is required
to make an application under sub-section (2) (hereafter in this section ----------------------
referred to as the other person) fails to make such application within the
period prescribed, the registering authority may, having regard to the ----------------------
circumstances of the case, require the transferor or the transferee, or the
----------------------
other person, as the case may be, to pay, in lieu of any action that may be
taken against him under sub-Section 177 such amount not exceeding one ----------------------
hundred rupees as may be prescribed under Sub-section (5) :
----------------------
Provided that action under Section 177 shall be taken against the transferor
or the transferee or the other person, as the case may be, where he fails to ----------------------
pay the said amount.
----------------------
(4) Where a person has paid the amount under Sub-section (3), no action
shall be taken against him under Section 177. ----------------------
(5) For the purposes of Sub-section (3), a State Government may prescribe ----------------------
different amounts having regard to the period of delay on the part of the
transferor or the transferee in reporting the fact of transfer of ownership ----------------------
of the motor vehicle or of the other person in making the application
under Sub-section (2). ----------------------
(6) On receipt of a report under Sub-section (1), or an application under Sub- ----------------------
section (2), the registering authority may cause the transfer of ownership
----------------------
to be entered in the certificate of registration.
(7) A registering authority making any such entry shall communicate the ----------------------
transfer of ownership to the transferor and to the original registering
----------------------
authority, if it is not the original registering authority
Section 51 : Special provisions regarding motor vehicle subject to hire- ----------------------
purchase agreement, etc. ----------------------
(1) Where an application for registration of a motor vehicle which is held
under a hire-purchase, lease or hypothecation is received the fact that the ----------------------
vehicle is under a hire-purchase, lease or hypothecation agreement shall ----------------------
be mentioned in the certificate of registration.

Notes
----------------------

1. Production of vehicle at the time of registration is discussed in which
----------------------
section of the Act?
---------------------- i. Section 44
ii. Section 46
----------------------
iii. Section 40
---------------------- iv. Section 47
----------------------
Activity 3
----------------------
---------------------- Visit the office of Regional Transport Authority and collect the information
about the procedure for registration of vehicle. Write a note on the
---------------------- information in your own words.
----------------------
---------------------- Summary
---------------------- ●● Transport through a Lorry is a common mode of transport. Lorry is

basically a motor vehicle. Hence, it is essential for the people in Supply
---------------------- Chain Management to under stand the main provisions of Motor Vehicles
Act, 1988.
----------------------
●● A person should not drive a motor vehicle in any public place unless he
---------------------- holds an effective driving licence.
---------------------- ●● Age limits for driving different vehicles are as under:
S. No. Minimum Age For Licence to Drive
----------------------
1 16 years Motor cycle without gear
---------------------- 2 18 years Motor cycle with gear
---------------------- 3 20 years Transport Vehicle
●● Minimum Experience for driving different vehicles is as under:-
----------------------
S. No. Minimum Experience For Licence to Drive
---------------------- 1 Licence to drive a light motor vehicle Transport vehicle
---------------------- for at least one year
2 Licence for at least two years to Heavy passenger motor
---------------------- drive a light motor vehicle or for vehicle
at least one year to drive a medium
----------------------
passenger motor vehicle
---------------------- 3 Licence to drive a light motor vehicle Medium goods vehicle
for at least one year
----------------------

●● Owner of a motor vehicle should not permit any person who does not Notes
hold valid licence drive the vehicle. A person can apply for a licence to
the authorities in the jurisdiction of his residence or place of business or ----------------------
the place of driving school where he has received instruction to drive the
vehicle. ----------------------
●● Examples of validity period (currency) of different licences: ----------------------

S. Date of Date of Birth of Licence ----------------------
Type of Licence
No. Licences licence holer valid upto
----------------------
1 Learners Licence 12-12-2007 12-11-1958 12-06-2008
Licence to drive ----------------------
2 02-01-2008 05-05-1980 02-01-2011
transport vehicle
Licence other than ----------------------
3 10-01-2008 18-02-1988 10-01-2028
1&2 ----------------------
Licence other than
4 10-01-2008 18-02-1978 18-02-2018 ----------------------
1&2
Licence other than ----------------------
5 10-01-2008 12-11-1958 10-01-2013
1&2
●● A driving licence can be renewed with effect from the date of its expiry if ----------------------
the application for the renewal of a licence is made less than thirty days ----------------------
after the date of its expiry. A driving licence can be renewed with effect
from the date of its renewal if the application for the renewal of a licence ----------------------
is made more than
----------------------
●● thirty days after the date of its expiry. A driving licence can be suspended
for a period of 6 months from the date of case registered against a person ----------------------
on the allegation of dangerous driving or till date of his acquittal;
----------------------
Keywords ----------------------
●● Articulated Vehicle : A motor vehicle to which a semi-trailer is attached; ----------------------

●● Axle Weight : In relation to an axle of a vehicle the total weight transmitted ----------------------
by the several wheels attached to that axle to the surface on which the
vehicle rests; ----------------------
●● Certificate of Registration : The certificate issued by a competent ----------------------

authority to the effect that a motor vehicle has been duly registered
----------------------
●● Conductor : A person engaged in collecting fares from passengers,
regulating their entrance into, or exit from, the stage carriage ----------------------
●● Conductor’s Licence : The licence issued by a competent authority ----------------------
authorising the person specified therein to act as a conductor.
----------------------
●● Contract Carriage : A motor vehicle which carries a passenger for hire
and is engaged under a contract, for the use of such vehicle as a whole; ----------------------
●● Driver : The person who acts as a steersman of the drawn vehicle; ----------------------

Notes ●● Driving Licence : The licence issued by a competent authority authorising
the person specified therein to drive a motor vehicle of any specified class.
----------------------
●● Goods : Anything (other than equipment ordinarily used with the vehicle)
---------------------- carried by a vehicle except living persons, but does not include luggage
or personal effects carried in a motor car or the personal luggage of
---------------------- passengers and includes livestock
---------------------- ●● Goods Carriage : Any motor vehicle constructed or adapted for use
solely for the carriage of goods.
----------------------
●● Gross Vehicle Weight : The total weight of the vehicle and load certified
---------------------- and registered by the registering authority as permissible for that vehicle;
---------------------- ●● Heavy Goods Vehicle : Any goods carriage the gross vehicle weight of
which, or a tractor or a road-roller the unladen weight of either of which,
---------------------- exceeds 12,000 kilograms;
---------------------- ●● Heavy Passenger Motor Vehicle : Any public service vehicle or private
service vehicle or educational institution bus or omnibus the gross vehicle
---------------------- weight of any of which, or a motor car the unladen weight of which,
exceeds 12,000 kilograms;
----------------------
●● Learner’s Licence : The licence issued by a competent authority
---------------------- authorising the person specified therein to drive as a learner, a motor
vehicle of any specified class.
----------------------
●● Licensing Authority : An authority empowered to issue licences.
----------------------
●● Light Motor Vehicle : A transport vehicle or omnibus the gross vehicle
---------------------- weight of either of which or a motor car or tractor or road-roller the
unladen weight of any of which, does not exceed 6,000 kilograms;
----------------------
●● Motor Vehicle : Any mechanically propelled vehicle adapted for use
---------------------- upon roads and includes a chassis to which a body has not been attached
and a trailer.
----------------------
●● Owner : A person in whose name a motor vehicle stands registered, and
---------------------- where such person is a minor, the guardian of such minor, and in relation
to a motor vehicle which is the subject of a hire-purchase, agreement, or
---------------------- an agreement of lease or an agreement of hypothecation, the person in
---------------------- possession of the vehicle under that agreement
●● Permit : A permit issued by a State or Regional Transport Authority
---------------------- authorising the use of a motor vehicle as a transport vehicle.
---------------------- ●● Private Service Vehicle : A motor vehicle constructed or adapted to carry
more than six persons excluding the driving and ordinarily used by or on
----------------------
behalf of the owner of such vehicle for the purpose of carrying persons for,
---------------------- or in connection with, his trade or business otherwise than for hire or reward.
●● Public Place : A road, street, way or other place, whether a thoroughfare
----------------------
or not, to which the public have a right of access, and includes any place
---------------------- or stand at which passengers are picked up or set down by a stage carriage

●● Public Service Vehicle : Any motor vehicle used or adapted to be used Notes
for the carriage of passengers for hire or reward, and includes a maxicab,
a motorcab, contract carriage, and stage carriage. ----------------------
●● Registered Axle Weight : The axle weight certified and registered by the ----------------------
●● registering authority as permissible for that axle;
----------------------
●● Registering Authority : An authority empowered to register motor
vehicles; ----------------------
●● Route : A line of travel which specifies the highway which way be ----------------------
traversed by
----------------------
●● a motor vehicle between one terminus and another
●● Traffic Signs : Includes all signals, warning sign posts, direction posts, ----------------------
markings on the road or other devices for the information, guidance or ----------------------
direction of driving of motor vehicles.
----------------------
●● Trailer : Any vehicle, other than a semi-trailer and a side-car, drawn or
intended to be drawn by a motor vehicle ----------------------
●● Transport Vehicle : A public service vehicle, a goods carriage, an
----------------------
educational institution bus or a private service vehicle.
●● Unladen Weight : The weight of a vehicle or trailer including all ----------------------
equipment ordinarily used with the vehicle or trailer when working, but
----------------------
excluding the weight of a driver or attendant.
●● Weight : The total weigh transmitted for the time being by a wheels of a ----------------------
vehicle to the surface on which the vehicle rests. ----------------------
----------------------
a. Driving licence ----------------------
b. Goods ----------------------
c. Carriage goods ----------------------
d. Contract carriage
----------------------
e. Goods carriage
----------------------
f. Heavy goods vehicle
g. Learner’s licence ----------------------
h. Certification of registration ----------------------
2. Explain the procedure for obtaining Learner’s Licence. ----------------------
3. Explain the procedure for obtaining Driving Licence.
----------------------
4. Explain the circumstances under which a Driving Licence can be revoked.
----------------------

Notes 5. Explain the procedure for obtaining Conductor’s Licence.
6. Explain the procedure for Registration of Vehicles.
----------------------
7. Explain the provisions pertaining to Driving School.
----------------------
8. Explain the provisions pertaining to age of the applicant for different
---------------------- licences.
---------------------- 9. Explain the provisions pertaining to experience of the applicant for

different licences.
---------------------- 10. Explain the provisions pertaining to validity period (currency) of the
---------------------- different licences.
---------------------- Answers to Check your Progress

---------------------- 1. True
----------------------
Fill in the blanks.
----------------------
1. A learner’s licence issued under this Act shall, subject to the other
---------------------- provisions of this Act, be effective for a period of six months from the
date of issue of the licence.
----------------------
---------------------- 1. The age of granting Conductor’s License is
---------------------- i. Eighteen years
----------------------
----------------------
1. Production of vehicle at the time of registration is discussed in which
---------------------- section of the Act?
---------------------- i. Section 44
----------------------
Suggested Reading
----------------------
----------------------
----------------------

Legal Aspects of Supply Chain

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LEGAL ASPECTS OF SCM

(FOR PRIVATE CIRCULATION ONLY)

COURSE DESIGN AND REVIEW COMMITTEE

Published by Symbiosis Centre for Distance Learning (SCDL), Pune

Copyright © 2019 Symbiosis Open Education Society

Unit No. TITLE Page No.

10 Labour Laws 235-256

The Indian Contract Act, 1872 1

---------------------- By Enforceability it is meant that the party to a contract can approach a

2 Legal Aspects of SCM

The Indian Contract Act, 1872 3

4 Legal Aspects of SCM

f) The parties should be competent to contract ----------------------

The Indian Contract Act, 1872 5

6 Legal Aspects of SCM

The Indian Contract Act, 1872 7

8 Legal Aspects of SCM

c) Right of Subrogation ----------------------

The Indian Contract Act, 1872 9

10 Legal Aspects of SCM

The Indian Contract Act, 1872 11

12 Legal Aspects of SCM

The Indian Contract Act, 1872 13

The Indian Contract Act, 1872 15

16 Legal Aspects of SCM

Performance of a Contract ----------------------

The Indian Contract Act, 1872 17

Sr. No. Date of Transport Transportation Charges ----------------------

The Indian Contract Act, 1872 19

20 Legal Aspects of SCM

The Indian Contract Act, 1872 21

22 Legal Aspects of SCM

The Indian Contract Act, 1872 23

---------------------- Check your Progress 1

24 Legal Aspects of SCM

The Sale of Goods Act, 1930 25

---------------------- 2.2 ESSENTIALS OF A CONTRACT OF SALE

---------------------- Buyer Pays price to Seller

26 Legal Aspects of SCM

The Sale of Goods Act, 1930 27

28 Legal Aspects of SCM

The Sale of Goods Act, 1930 29

30 Legal Aspects of SCM

32 Legal Aspects of SCM

The Sale of Goods Act, 1930 33

34 Legal Aspects of SCM

The Sale of Goods Act, 1930 35

---------------------- 2.3 DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL

36 Legal Aspects of SCM

The Sale of Goods Act, 1930 37

38 Legal Aspects of SCM

The Sale of Goods Act, 1930 39

---------------------- 2.5 RIGHTS OF AN UNPAID SELLER

40 Legal Aspects of SCM

The Sale of Goods Act, 1930 41

42 Legal Aspects of SCM

The Sale of Goods Act, 1930 43

The Sale of Goods Act, 1930 45

---------------------- • bill of Exchange : An instrument in writing containing an unconditional

46 Legal Aspects of SCM

The Sale of Goods Act, 1930 47

---------------------- Check your Progress 3

48 Legal Aspects of SCM

Negotiable Instruments Act, 1930 49

---------------------- • bill of Exchange : An instrument in writing containing an unconditional

---------------------- 1. Visit a bank or a financial institute. Collect the format of Promissory

l Bill of Exchange is an instrument in writing containing an unconditional ----------------------

2. What are the provisions of Negotiable Instruments Act regarding ----------------------