PLEA INDIAN CONTRACT ACT

PART I
1. What are the essential elements of a valid contract? (Section 10) (Interview)
ESSENTIAL ELEMENTS OF A VALID CONTRACT

According to Section 10, "All agreements are contract if they are made by the free
consent of the parties, competent to contract, for a lawful consideration and with a lawful
object and are not expressly declared to be void."
The following are the essential elements of a valid contract:

1. Offer and Acceptance. In order to create a valid contract, there must be a 'lawful
offer' by one party and 'lawful acceptance' of the same by the other party.

2. Intention to Create Legal Relationship. In case, there is no such intention on the

part of parties, there is no contract. Agreements of social or domestic nature do not
contemplate legal relations.
Case :- Balfour vs. Balfour(1919)

3.Lawful Consideration. Consideration has been defined in various ways. According to

Blackstone, "Consideration is recompense given by the party contracting to another." In
other words of Pollock, "Consideration is the price for which the promise of the another
is brought." Consideration is known as quid pro-quo or something in return.

4. Capacity of parties. The parties to an agreement must be competent t contract. If

either of the parties does not have the capacity to contract, the contract is not valid.
According the following persons are incompetent to contract.
(a) Minors, (b) Persons of unsound mind, and
(c) persons disqualified by law to which they are subject.

5. Free Consent. 'Consent' means the parties must have agreed upon the same thing in
the same sense.
According to Section 14, Consent is said to be free when it is not caused by-

(1) Coercion, or (2) Undue influence, or (3) Fraud, or

(4) Mis-representation, or (5) Mistake.
An agreement should be made by the free consent of the parties.
6. Lawful Object. The object of an agreement must be valid. Object has nothing to do
with consideration. It means the purpose or design of the contract. Thus, when one hires a
house for use as a gambling house, the object of the contract is to run a gambling house.

The Object is said to be unlawful if-

(a) it is forbidden by law;

(b) it is of such nature that if permitted it would defeat the provision of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.

7. Certainity of Meaning. According to Section 29,"Agreement the meaning of which is

not Certain or capable of being made certain are void."

8. Possibility of Performance. If the act is impossible in itself, physically or legally, if

cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by
magic. Such Agreements is not enforceable.

9. Not Declared to be void or Illegal. The agreement though satisfying all the conditions
for a valid contract must not have been expressly declared void by any law in force in the
country. Agreements mentioned in Section 24 to 30 of the Act have been expressly
declared to be void for example agreements in restraint of trade, marriage, legal
proceedings etc.

10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those
cases where writing, rwegistration etc. is required by some statute. In India writing is
required in cases of sale, mortgage, lease and gift of immovable property, negotiable
instruments; memorandum and articles of association of a company, etc. Registration is
required in cases of documents coming within the scope of section 17 of the Registration
Act.

All the elements mentioned above must be in order to make a valid contract. If any one
of them is absent the agreement does not become a contract.
 2. Is consideration necessary for a contract? (Interview)
Yes refer to question 1

3. What is the difference between an agreement and a contract? (Interview)

An agreement is an informal compromise between two or more parties, which may or may not be legally
binding. A contract is a legally-binding agreement that is entered into voluntarily by two or more parties,
with the intention of creating one or more legal obligations among them.

4. What is the difference between a void and voidable contract?

A contract that is "void" cannot be enforced by either party, The law treats a void
contract as if it had never been formed. A contract will be considered void, for
example, when it requires one party to perform an act that is impossible or illegal.
Eg-Contracts involving an illegal subject matter such as gambling, prostitution, or
committing a crime.

A "voidable" contract, on the other hand, is a valid contract and can be

enforced. Usually only one party is bound to the contract terms in a voidable
contract. The unbound party is allowed to cancel the contract, which makes the
contract void. Eg- Contracts where one party was forced or tricked into entering it.

The main difference between the two is that a void contract cannot be performed
under the law, while a voidable contract can still be performed, although the
unbound party to the contract can choose to void it before the other party
performs.

5. Is a contract with a minor valid? (Interview)

Minor Agreements: A Minor is an incompetent person to enter into a contract
subject to certain exceptions.
No Restitution: No order can be made for compensation against a minor for a
benefit obtained under void agreement.
Minor Beneficiary: A contract becomes valid if it gives some benefit and not to
required minor to bear any obligation.
Services by a Minor under contract: The Contract of Apprenticeship is valid
and binding upon the minor.
No Ratification
The Rule of Estoppel: The Rule of Estoppel under Section 115 of the Indian
Evidence Act does not apply to the minor.
6. Difference between rescind, repudiate and revocation
Revoke- One of the traditional requirements for a binding contract is that one
party makes an offer and the other accepts it. A party can usually withdraw an
offer before it is accepted. The technical term for withdrawing an offer to enter
into a contract is to revoke the offer (Chitty, 2-060).

Repudiate- where a party acts in such a way as to make clear that he does not
intend to perform his obligations under the contract, and the other party is entitled
to “accept” this repudiation and terminate the contract.

Rescind- The correct use of the term rescind is to describe a situation where the
contract is treated as never having come into existence, and not the situation where
a contract is terminated part-way through its ‘life’. For example, if a contract is
terminated by acceptance of a repudiatory breach, this is sometimes inaccurately
described as a rescission (Chitty 24-027). Rescission from the start of the contract
(ab initio) may occur if a party is induced to enter into the contract by (for
example) misrepresentation or mistake (Chitty 6-103). If rescission occurs after
the contract has started, it will have retroactive effect to cancel the contract (Chitty
6-106).

(Subtle differences- A breaching party may repudiate the contract, but

termination only occurs if the other party accepts the repudiation. If a party is
induced to enter into a contract by a misrepresentation, he may be entitled to
rescind the contract. Contracts cannot generally be revoked, but an offer to enter
into one can be revoked before the other party accepts.)

7. What is anticipatory breach of contract?

Repudiation- Repudiation, in contrast, refers to the refusal of a party to perform an

obligation owed to the other party. It consists of such words or actions by the
contracting party that indicate that they are not going to perform their part of the
contract in the future. Now, because this occurs prior to the actual breach of the
contract, repudiation is often referred to as anticipatory breach.

8. Modes of discharging a contract

A Contract is said to be discharged when the rights and obligations created by it
come to an end. A contract may be discharged in the following modes:-
1. Discharge by performance – Discharge by performance takes place when the
parties to a contract fulfill their obligations arising under the contract within the
time and in the manner prescribed. Performance may be actual performance or
attempted performance.
2. Discharge by Agreement or Consent – A Contract comes into existence by an
agreement and it may be discharged also by an agreement. The following are
modes of discharge of a contract by an agreement –
a) By Waiver – Waiver takes place when the parties to a contract agree that they
shall no longer be bound by the contract. For eg. A an actor promised to make a
guest performance in the film made by B. Later B forbids A from making the
guest appearance. B is discharged of his obligation.
b) By Novation – (Explained in detail in the next answer)
c) By Rescission – Rescission of a contract takes place when all or some of the
terms of the contract are cancelled. It may occur by mutual consent or where one
party fails in the performance of his obligations, the other party may rescind the
contract.
d) By alteration – Alteration of a contract may take place when one or more of the
terms of the contract is/are altered by mutual consent of the parties to the contract.
e) By Remission – Remission means acceptance of a lesser fulfillment of the
promise made, Eg.
Acceptance of a lesser sum than what was contracted for, in discharge of the
whole of the debt.
f) By Merger – Merger takes place when an inferior right accruing to a party
under a contract merges into a superior right accruing to the same party under the
same or some other contract. For eg. P holds a property under a lease. He later
buys the property. His rights as a lessee merge into his rights as an owner.
3. Discharge by impossibility of performance – If a contract contains an
undertaking to perform an impossibility, it is void ab initio. As per Section 56,
impossibility of performance may fall into either of the following categories –
(i) Impossibility existing at the time formation of the contract – This is know
as pre-contractual impossibility. The fact of impossibility may be –
a) known to the parties – Both the parties are aware or know that the contract is
to perform an impossible act. For eg. A agrees with B to put life into dead wife of
B, the agreement is void.
b) unknown to the parties – Both the parties are unaware of the impossibility.
The contract could be on the ground of mutual mistake of fact. For eg.A contract
to sell his house at Andaman to B. Both the parties are in Mumbai and are
unknown to the fact that the house is actually washed away due to Tsunami.
(ii) Impossibility arising subsequent to the formation of the contract
– Where impossibility of performance of the contract is caused by circumstances
 beyond the control of the parties, the parties are discharged from further
performance of the obligation arising under the contract.
4. Discharge by lapse of time – The Limitation Act, 1963 lays down certain
specified periods within which different contracts are to be performed and be
enforceable. If a party to a contract does not perform, action can be taken only
within the time specified by the Act. Failing which the contract is terminated by
lapse of time.
For eg. A sold a gold chain to B on credit without any period of credit, the
payment must be made or the suit to recover it, must be instituted within three
years from the date of delivery of the instrument.
5. Discharge by Operation of Law – A contract may be discharged
independently of the wished of the parties i.e. by operation of law. This includes
discharge –
a) By death – In contract involving personal skill or ability, the contract is
terminated on the death of the promisor. In other contracts the rights and liabilities
of a deceased person pass on to the legal representatives of the deceased person.
b) By insolvency – When a person is declared insolvent, he is discharged from all
liabilities incurred prior to such declaration.
c) By unauthorized material alteration of the terms of a written agreem
ent – Any material alteration made by a party to the contract, without the prior
permission of the other party, the innocent party is discharged.

9. Difference between damage and damages (Interview)

Damage means “loss or injury to a person or property”.

E.g.: The cost of the damage to the US caused by Hurricane Ike was estimated at USD 18
billion.
Other words you could use instead of damage: loss, injury
Damages means “money claimed by, or ordered to be paid to, a person as compensation
for loss or injury”.
E.g.: The Claimant wishes to sue Acme for damages as a result of a loss sustained by the
Claimant after Acme’s failure to perform its obligations.
Other words you could use instead of damages: compensation, satisfaction

10. Difference between loss and losses (Interview)

 11. Different forms of compensation

12. Difference between contract of service and contract for service

A contract of service is different from a contract for service. In a contract of service
the employer normally enjoys the power of control over the work of the servant and
the servant is bound to obey the orders/instructions of the master. An independent
contractor, on the other hand, undertakes to produce the required result, but in the
actual execution of the job to produce the result, he is not under the order or control of
the person for whom he executes that work. He is free to use his discretion. The line
of demarcation between an independent contractor and an employee is very thin and
the two concepts sometimes overlap.

13. What is a promissory estoppel

The true principle of promissory estoppel is where one party has by his words or
conduct made to the other a clear and unequivocal promise which is intended to create
legal relations or effect a legal relationship to arise in the future, knowing or intending
that it would be acted upon by the other party to whom the promise is made and it is
in fact so acted upon by the other party, the promise would be binding on the party
making it and he would not be entitled to go back upon it. It is not necessary, in order
to attract the applicability of the doctrine of promissory estoppel that the promisee
acting in reliance of the promise, should suffer any detriment. The only thing
necessary is that the promisee should have altered his position in reliance of the
promise.

GUARANTEE AND INDEMNITY

14. Difference between guarantee and indemnity (Interview) (Both interviews)
Difference between Indemnity and Guarantee
• A guarantee is a promise to someone that a third party will meet its obligation to them.
“If they do not pay you, I will pay you”.
• An indemnity is a promise to be responsible for another person’s loss and to agree to
compensate them for any loss or damage on mutually agreed terms. For example, one
agrees to pay the difference of repairs if they exceed a certain limit.

15. How do you enforce a guarantee or indemnity (Interview)

 16. What is a bank guarantee?
A guarantee from a lending institution ensuring that the liabilities of a debtor will be met.
In other words, if the debtor fails to settle a debt, the bank will cover it. A bank guarantee
enables the customer (debtor) to acquire goods, buy equipment, or draw down loans, and
thereby expand business activity.
17. Is the liability of a surety coextensive with the judgment debtor?

(S128; yes. It means that upon breach, both guarantee and surety will become co –
judgment debtors)

BAILMENT
18. What is bailment?
The contractual transfer of possession of assets or property for a specific objective. In
bailment, the deliverer of the asset is the bailor, and the receiver is the bailee. In a bailment
transaction, ownership is never transfered, and the bailor is generally not entitled to use the
property while it's in possession of the bailee. In these ways, bailment differs from gifting
and leasing. Bailment is a legal relationship between two parties, whereby the owner retains
full rights to the assets or property but the possesses the property. For example, when a
bank holds a borrower's asset as collateral for a secured loan, this is a form of bailment. In
this case, the bank is the bailee and the borrower is the bailor.

19. Different forms of bailment (See wiki page of Coggs v Bernard)

And there are six sorts of bailments. The first sort of bailment is, a bare naked bailment
of goods, delivered by one man to another to keep for the use of the bailor; and this I call
a depositum, and it is that sort of bailment which I mentioned in Southcote's case (1601)
Cro Eliz 815.

The second sort is, when goods or chattels that are useful, are lent to a friend gratis, to be
used by him; and this is called commodatum, because the thing is to be restored in specie.
The third sort is, when goods are left with the bailee to be used by him for hire; this is
called locatio et conductio, and the lender is called locator, and the borrower conductor.
The fourth sort is, when goods or chattels are delivered to another as a pawn, to be a
security to him for money borrowed of him by the bailor; and this is called in
Latin vadium, and in English a pawn or a pledge.
The fifth sort is when goods or chattels are delivered to be carried, or something is to be
done about them for a reward to be paid by the person who delivers them to the bailee,
who is to do the thing about them.
The sixth sort is when there is a delivery of goods or chattels to somebody, who is to
carry them, or do something about them gratis, without any rewards for such his work or
carriage, which is this present case. I mention these things, not so much that they are all
of them so necessary in order to maintain the proposition which is to be proved, as to
clear the reason of the obligation, which is upon persons in cases of trust.

20. Is a contract necessary for bailment?

21. Difference between bailment and sale

Sale and Bailment are two different types of contracts. A contract of sale is a straight forward contract
where a person may buy goods, services or property from a seller in exchange for remuneration, usually
in the form of money. Essentially, in a bailment contract, the bailor gives the goods, assets or property to
the bailee for a specific amount of time. However, the goods, assets or property still belongs to the bailor.
22. What is the duty of care imposed on a bailee
The duty of care that must be exercised by a bailee varies, depending on the type of
bailment. If the bailee is the only person receiving a benefit from the bailment (exclusive
beneficiary), then the duty of care is extraordinary. But if the benefit is mutual, then the
duty of care is “reasonable”.
23. What is lien (general lien and particular lien)
A lien is a right of one person to retain property or goods which are in his possession,
belonging to another person until the promise or the liability is discharged. This lien may
be particular or general.
Particular Lien : A particular lien is available only against the particular property in
respect of which the bailee has expended labour and skill. A bailee is entitled to a particular
lien only (Sec. 179).
Example: A gives two cars - An Ambassador and a Fiat, for repairs to B. B repaired only
the Ambassador car. A took delivery of the Ambassador car without making the payment
of the repair charges. B cannot retain the Fiat car for the repair charges due in respect of
the Ambassador car.

General Lien : A general lien is a right of one person to retain any property or goods which
are in his possession belonging to another person until the promise or liability is discharged.
It is a right to retain the property belonging to another for a general balance of account.
General lien is available to bankers, factors, wharfingers, attorneys of High Court and
policy brokers.
Example: A has two accounts in a bank. In savings bank account, he has a credit balance
of Rs. 500. In current account, he has an overdraft of Rs. 1,000. Bank can exercise right of
lien on the savings account for the amount due on the current account. It should be noted
that right of lien will not apply to properties deposited for safe custody or for a specific
purpose.

24. What are the requirements to impose a particular lien

In order to exercise lien, the following conditions are essential:
1. Right of lien can be exercised only when the bailee has expended his labour and skill on
the goods bailed. Therefore, mere custody of goods does not give a right of lien.
Examples:
(1) A parks his car in B's garage for safe custody. A does not pay the rent. B cannot retain
the car. [Hatton v. Car maintenance Co. Ltd.]
(2) A repairs B's car. B does not pay the repair charges. B can retain the car until payment
is made.
2. Right of lien can be exercised only when the work has been completed in time. If the
work has not been completed in time, the lien cannot be exercised.
3. Right of lien can be exercised only if the payment is due. In case the payment is to be
made, n on delivery, but at a future date, then the lien cannot be exercised.

25. What is a pledge, pledgee, pawnbroker, pledgor?

Sometimes called bailment, pledges are a form of security to assure that a person will
repay a debt or perform an act under contract. In a pledge one person temporarily gives
possession of property to another party. Pledges are typically used in securing loans,
pawning property for cash, and guaranteeing that contracted work will be done. Every
pledge has three parts: two separate parties, a debt or obligation, and a contract of
pledge. Pledges are different from sales. In a sale both possession and ownership of
property are permanently transferred to the buyer. In a pledge only possession passes to a
second party. The first party retains ownership of the property in question, while the
second party takes possession of the property until the terms of the contract are satisfied.
The second party must also have a lien—or legal claim—upon the property in question. If
the terms are not met, the second party can sell the property to satisfy the debt. Any
excess profit from the sale must be paid to the debtor, or first party. But if the sale does
not meet the amount of the debt, legal action may be necessary.
Pledged property must be in the possession of a pledgee. This can be accomplished in one
of two ways. The property can be in the pledgee's actualpossession, meaning physical
possession (for example, Mary keeps John's stereo at her house). Otherwise, it can be in
the constructive possession of the pledgee, meaning that the pledgee has some control
over the property, which typically occurs when actual possession is impossible. For
example, a pledgee has constructive possession of the contents of a pledgor's safety
deposit box at a bank when the pledgor gives the pledgee the only keys to the box.

In pledges both parties have certain rights and liabilities. The contract of pledge
represents only one set of these: the terms under which the debt or obligation will be
fulfilled and the pledged property returned. On the one hand, the pledgor's rights extend
to the safekeeping and protection of his property while it is in possession of the pledgee.
The property cannot be used without permission unless use is necessary for its
preservation, such as exercising a live animal. Unauthorized use of the property is called
conversion and may make the pledgee liable for damages; thus, Mary should not use
John's stereo while in possession of it.

For the pledgee, on the other hand, there is more than the duty to care for the pledgor's
property. The pledgee has the right to the possession and control of any income accruing
during the period of the pledge, unless an agreement to the contrary exists. This income
reduces the amount of the debt, and the pledgor must account for it to the pledgee.
Additionally, the pledgee is entitled to be reimbursed for expenses incurred in retaining,
caring for, and protecting the property. Finally, the pledgee need not remain a party to the
contract of pledge indefinitely. She can sell or assign her interest under the contract of the
pledge to a third party. However, the pledgee must notify the pledgor that the contract of
pledge has been sold or reassigned; otherwise, she is guilty of conversion.

Pledgor is the person who pledges the goods (the debtor)

Pledgee is the person to whom the goods are pledged.

Pawnbroker-
A pawnbroker is an individual or business (pawnshop or pawn shop) that offers
secured loans to people, with items of personal property used as collateral. The word
pawn is derived from the Latin pignus, for pledge, and the items having been pawned to
the broker are themselves called pledges or pawns, or simply the collateral.

26. Rights of a pledge –(special right- more than lien but less than mortgage.
General rights still vest with owner.)
As the pledge is for the benefit of both parties, the pledgee is bound to exercise only
ordinary care over the pledge. The pledgee has the right of selling the pledge if the pledgor
make default in payment at the stipulated time. No right is acquired by the wrongful sale
of a pledge except in the case of property passing by delivery, such as money or negotiable
securities. In the case of a wrongful sale by a pledgee, the pledgor cannot recover the value
of the pledge without a tender of the amount due.
27. Difference between lien and pledge, pledge and mortgage

(1) Pledge is used when the lender (pledgee) takes actual possession of assets (i.e.
certificates, goods ). Such securities or goods are movable securities. In this
case the pledgee retains the possession of the goods until the pledgor (i.e.
borrower) repays the entire debt amount. In case there is default by the
borrower, the pledgee has a right to sell the goods in his possession and
adjust its proceeds towards the amount due (i.e. principal and interest
amount). Some examples of pledge are Gold /Jewellery Loans, Advance
against goods,/stock, Advances against National Saving Certificates etc.

A lien is a claim on an asset such as property or machinery that is used as collateral

against funds borrowed or for the payment of obligations, or performance of services to
another party. The lien will provide the lender the right to detain the borrower’s assets,
property or goods to secure payment over obligations. The lender can only detain the
property/assets/goods until payments are made, and do not have the right to sell any such
assets unless explicitly stated in the lien contract. Nevertheless, the lender should be
cautious when selling off assets to safeguard against any charges of liability. There are
instances in which financial institutions, individuals or entities that are owed money use
legal avenues to impose a lien on the borrower’s assets; thereby securing against default.
In such instances, the lender does not have any right to sell off the borrower’s assets.
There are different types of liens such as construction/mechanic’s liens that are placed on
house owners who owe funds to construction and repair workers who provide services for
property improvement. Other liens include agriculture liens, maritime liens and tax liens.
Liens are also imposed for receivable rent, unpaid premiums, or fees.

(2) Hypothecation is used for creating charge against the security of movable assets,
but here the possession of the security remains with the borrower itself. Thus, in
case of default by the borrower, the lender (i.e. to whom the goods / security has
been hypothecated) will have to first take possession of the security and then sell the
same. The best example of this type of arrangement are Car Loans. In this case
Car / Vehicle remains with the borrower but the same is hypothecated to the bank /
financer. In case the borrower, defaults, banks take possession of the vehicle after
giving notice and then sell the same and credit the proceeds to the loan
account. Other examples of these hypothecation are loans against stock and
debtors. [Sometimes, borrowers cheat the banker by partly selling goods
hypothecated to bank and not keeping the desired amount of stock of goods. In
such cases, if bank feels that borrower is trying to cheat, then it can convert
hypothecation to pledge i.e. it takes over possession of the goods and keeps the same
under lock and key of the bank].

(3) Mortgage: is used for creating charge against immovable property which
includes land, buildings or anything that is attached to the earth or permanently
fastened to anything attached to the earth (However, it does not include growing
crops or grass as they can be easily detached from the earth). The best example
when mortage is created is when someone takes a Housing Loan / Home Loan. In
this case house is mortgaged in favour of the bank / financer but remains in
possession of the borrower, which he uses for himself or even may give on rent.

AGENCY

28. Who is a mercantile agent

Agent who a principal authorizes to purchase and liquidate assets, and to raise
funds by using the principal’s assets as loan collateral. Also refer to commercial
agent.

29. Will the principle be responsible for a sub agent

Relationship between principal agent and sub-agent depends on the question whether the
agent has an authority to appoint sub-agent and whether the sub-agent is properly
appointed.

If then sub-agent is properly appointed:

1) the principal is bound by and responsible for the acts of a sub agent;
2) the agent is responsible to the principal for the acts of the sub-agent;
3) the sub agent is responsible for his acts to the agent, but not to the principal except in
case of fraud or willful wrong.

It is of interest to observe clause (3) above. Sub-agent is responsible and accountable to

the agent and not to the principal by clause (1). Principal is liable for acts of the sub-agent
if he is properly appointed. Sub-agent is not responsible to the principal because there is
no privity of contract between the principal and sub agent. It is case of fraud or willful
wrong that the principal can proceed against the sub-agent. Principal can, however,
against the agent for acts of a sub-agent. As far as the rights of a third party are
concerned, he can enforce the wrongs of a sub-agent on the principal if the sub-agent is
properly appointed. Principal is therefore liable for acts of the sub-agents if he is properly
appointed.

30. What is agent’s lien

Section 221- 221. Agent's lien on principal's property

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.

31. Difference between agent and servant

The Supreme Court clearly explained the distinction between an agent and a
servant in Lakshminarayan Ram Gopal and Sons v. Hyderabad Government. The
points of distinction are summarized as follows:
Agent
1. An agent has an authority to create contractual relationship between the
principal and a third party.
2. An agent is not subject to the direct control or supervision of the principal. As
such, he has greater discretion in his actions. A principal has the right to direct
what the agent has to do but the master has also the right to say how it is to be
done.
3. An agent is paid commission on the basis of work done.
4. A principal is liable for only those acts which are within the scope of the
authority given to the agent.
5. An agent may work for a number of principals at the same time.
Servant
1. A servant has no such
2. A servant acts under the direct control and supervision of his master, and is
bound to carry out all reasonable orders given to him in the course of his work.
3. A servant is paid by way of salary or wages.
4. A master is liable for the wrongs of his servants committed in the course of
employment.
5. A servant usually serves only one master.
INDIAN PARTNERSHIP ACT
32. What is a partnership

Partnership refers to an agreement between persons to share their profits or losses

arising on account of actions carried by all or one of them acting on behalf of all.
The persons who have entered such an agreement are called partners and give their
collective business a name, which is necessarily their firm-name. This relation
between partners arises out of a contract or an agreement, which means a husband
and wife carrying on a business or members of a Hindu undivided family re not
into partnership. The share of profits received by any individual from the firm,
money received by a lender of money, salary received by a worker or a servant,
annuity received by a widow or a child of a deceased partner, does not make them
a partner of the firm.

33. What is the nature of liabilities of partners

http://www.preservearticles.com/201101153418/rights-duties-and-liabilities-of-
partners.html (gives rights, duties and liabilities)
34. Does a partnership have to be in writing? (I think yes)

Agreements can be written or oral. A written agreement is not necessary under the
Partnership Act, but is recommended. However, you will need a written agreement for
registration and tax purposes. A written agreement is advisable to establish existence
of partnership and to prove rights and liabilities of each partner, as it is difficult to
prove an oral agreement.

35. What is the nature of liabilities in an LLP (Trilegal Test)

36. What is holding out under the Partnership Act (S28) Also, can a retired partner be
liable (S32)
37. Can a minor be a partner (S30)
38. Section 30 of the Partnership Act 1932 defines that a minor cannot be a partner of any kind of
business.
•But with the consent of all other partners, he can invest capital and get a share on profit. He or
she cannot take part in the management of the business.
•His or her liability will be limited to the limit of his capital investment. He or she cannot be
declared bankrupt when the business firm will fail to meet the financial obligation.
 •He or she can file a suit against the firm for self-interest and cut off relations with other partners.
• He has the right to examine and inspect and collect books of account of the firm. He can be
made a partner when he will become a major; but it requires the consent of all other partners.

39. What is partnership at will (S7 I think) (Interview)

A form of partnership that arises where no fixed term has been agreed for the duration of
the partnership or the partnership has been entered into for an undefined term. A partnership
at will may be dissolved at any time by a partner serving notice on the other partner(s). A
partnership will be a partnership at will unless contrary intention can be proved, for this, there
must be an express or implied agreement that is inconsistent with the right which a partner
would otherwise have to determine the partnership by notice.

40. How does a partner in a partnership at will resign (Interview)

SALE OF GOODS
41. What is difference between hire purchase agreements and sale
HTTP://WWW.PRESERVEARTICLES.COM/2012012621580/WHAT-IS-THE-
DIFFERENCE-BETWEEN-SALE-AND-HIRE-PURCHASE.HTML

42. Difference between conditions and warranties (S12)

HTTP://STUDYPOINTS.BLOGSPOT.IN/2011/08/DEFINE-AND-DISTINGUISH-OR-
DIFFERENCE_4255.HTML

43. Difference between sale and service

Sales : Tangible, end goal is sale, giving them something they want. Service:
intangible and end goal is customer satisfaction, doing something for them.

44. What is the principle of caveat emptor (Hasenbhoy Jetha, Bombay v New India
Corporation Ltd. – case brief or internet will do ) (There is a diff between Indian
law and common law on this matter) (Trilegal test)

Doctrine of Caveat Emptor :-

It means that buyer should be very careful in a contract of sale. While purchasing the goods
the buyer should check the goods carefully. If a buyer purchases the goods and after it he
comes to know that these are defective. In this case seller will not be responsible for this
defect. The object of this principle is to make the buyer more careful in purchasing. It is his
duty that he should check the quality and fitness of the commodity which he needs.

This law is framed to save the buyer from the expected loss in future.
Example :- Mr. Krishna went to market and purchased a bike to take a part in Bike race
competition. But he did not tell the seller that for which purpose he is buying. When he
reached home, he came to know that this bike is not suitable for bike race competition. Due
to the principal of Caveat Emptor Mr. Krishna can neither reject the bike nor can claim for
compensation.

COMPANIES ACT
45. What is the difference between a public company and private company
(Interview)

Distinction Between A Public Company And a Private Company – Following are the
main points of difference between a Public Company and a Private Company :-
1. Minimum Paid-up Capital : A company to be Incorporated as a Private Company must
have a minimum paid-up capital of Rs. 1,00,000, whereas a Public Company must have a
minimum paid-up capital of Rs. 5,00,000.
2. Minimum number of members : Minimum number of members required to form a
private company is 2, whereas a Public Company requires at least 7 members.
3. Maximum number of members : Maximum number of members in a Private Company
is restricted to 50, there is no restriction of maximum number of members in a Public
Company.
4. Transerferability of shares : There is complete restriction on the transferability of the
shares of a Private Company through its Articles of Association, whereas there is no
restriction on the transferability of the shares of a Public company
5 .Issue of Prospectus : A Private Company is prohibited from inviting the public for
subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public
Company is free to invite public for subscription i.e., a Public Company can issue a
Prospectus.
6. Number of Directors : A Private Company may have 2 directors to manage the affairs
of the company, whereas a Public Company must have at least 3 directors.
7. Consent of the directors : There is no need to give the consent by the directors of a
Private Company, whereas the Directors of a Public Company must have file with the
Registrar a consent to act as Director of the company.
8. Qualification shares : The Directors of a Private Company need not sign an undertaking
to acquire the qualification shares, whereas the Directors of a Public Company are required
to sign an undertaking to acquire the qualification shares of the public Company
9. Commencement of Business : A Private Company can commence its business
immediately after its incorporation, whereas a Public Company cannot start its business
until a Certificate to commencement of business is issued to it.
10. Shares Warrants : A Private Company cannot issue Share Warrants against its fully
paid shares, Whereas a Private Company can issue Share Warrants against its fully paid up
shares.
11. Further issue of shares : A Private Company need not offer the further issue of shares
to its existing share – holders, whereas a Public Company has to offer the further issue of
shares to its existing share – holders as right shares. Further issue of shares can only be
offer to the general public with the approval of the existing share – holders in the general
meeting of the share – holders only.
12. Statutory meeting : A Private Company has no obligation to call the Statutory Meeting
of the member, whereas of Public Company must call its statutory Meeting and file
Statutory Report with the Register of Companies.
13. Quorum : The quorum in the case of a Private Company is TWO members present
personally, whereas in the case of a Public Company FIVE members must be present
personally to constitute quorum. However, the Articles of Association may provide and
number of members more than the required under the Act.
14. Managerial remuneration : Total managerial remuneration in the case of a Public
Company cannot exceed 11% of the net profits, and in case of inadequate profits a
maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private
Company.
15. Special privileges : A Private Company enjoys some special privileges, which are not
available to a Public Company.

46. Difference between company and partnership

COMPANIES AND PARTNERSHIPS COMPARED

The major difference between companies and partnerships may be considered

under the following headings :

Formation: A company is created by registration under the Companies Act. A

partnership is created by agreement which may be express or implied from the
conduct of the partners and is subject to the Indian Contract Act and the Indian
Partnership Act. No special form is required , though partnerships articles are
usually written.
Status At Law: A company is an artificial legal person with perpetual succession.
Thus a company may property , make contracts and sue and be sued. It is an entity
distinct from its members. A partnership is not a legal though it may sue and be
sued in the firm’s name. Thus the partners own the property of the firm and are
liable for the contracts of the firm jointly as well as severally.

Transfer Of Shares: Shares in a company are freely transferable unless the

company’s constitution otherwise provides; restrictions may , of course , appear
in the articles of a private company. A partner can transfer his shares in the firm
, but the assignee does not thereby become a partner and is merely entitled to the
assigning partner’s share of the profits.

Number Of Members: A private company must have at least two members and
maximum 50 members. A partnership cannot consist of more than 20 persons (10
persons in case of banking business).

Management: Members of a company are not entitled to take part in the

management of the company unless they become directors. Partners are entitled
to share in the management of the firm unless the articles provide otherwise.

Agency: A member of a company is not an agent of the company or that of other

members , and he cannot bind a company by his acts. Each partner is an agent of
the firm and his partners, and nay bind the firm by his acts.

Liability Of Members: The liability of a member of a company may be limited

by shares or by guarantee. The liability of a partner is unlimited.

Powers: The affairs of accompany are closely controlled by the Companies Act,
1956 and the company can only operate within the objects laid down in the
memorandum of association, though these can be altered to some extent by
special resolution. Partners may carry on any business as they please so long as
it is not illegal and make whatever arrangements they wish with regard to the
running of the firm from time to time.

Termination: No one member of a company can wind up the company, and the
death, bankruptcy or insanity of a member does not mean that the company must
be wound up. A partnership may be dissolved by any partner at any time unless
the partnership is entered into for a fixed period of time. A partnership is also
dissolved by the death or bankruptcy of a partner.

47. When does it become an illegal associating of person

Under the Companies Act, 1956, not more than 10 persons can come together for
carrying on any banking business and not more than 20 persons can come together for
carrying on any other of business, unless the association is registered under the
Companies Act or any other Indian law. Any association which does not comply with the
above norms is an illegal association. Therefore, a partnership of more 10 or 20 members,
as the case may be, is an illegal association unless the registered under the Companies
Act or any other Indian law.

However, this provision does not apply in the following cases :-

A Joint Hindu Family business comprising of family members only. But where two or
more Joint Hindu families come together for business through partnership, the total
number of members cannot exceed 10 or 20 as the case may be, but in computing the
number of persons, minor members of such family will be excluded.

Any association of charitable, religious, scientific trust or organisation which is not

formed with a profit motive

Foreign companies.

48. What is a prospectus and a statement in lieu of prospectus?

Prospectus: Basically a company issues it to raise money. It is a formal legal document
that provides details about an investment offering for sale to the public. A prospectus
should contain the facts that an investor needs to make an informed investment decision.
Statement in lieu of prospectus: If a company does not want to issue a prospectus to the
public for subscription of the shares, this statement is required to be issued to the public
for necessary information. It must be signed by every person named in it as director or by
his agent authorized in writing: The nature of the information of this document is more or
less similar to that given in the prospectus. A copy of this statement must be filed with
registrar within prescribed time. This provision does not apply to private company.
49. Certificate of registration or certificate of commencement.
http://www.caclubindia.com/articles/certificate-of-commencement-of-business-
procedural-analysis-3046.asp#.uydqlfmszoe
50. What are MOU and AOA (what do they contain)
MOA
MOA is the document that reveals the name, registered office address, aims and objectives
of the company, clause about its limited liability, share capital, minimum paid up capital
etc. MOA also gives information about its first shareholders including the number of shares
subscribed by them. MOA is one document that tells people all about the company and its
relationship with the outside world. Though it is essential to submit MOA with the registrar
when a company is being formed, it does not find mention in the constitution of the
company. Subsequent to an amendment added in 2006 Companies Act, it is no longer
mandatory to include the details about name, address, objectives and first shareholders
names. Hence there is no restriction upon a company to engage in a particular business.
AOA
Articles of Association, also simply referred to as Articles, are necessary to be submitted
during incorporation of a company with the registrar of companies. When Articles are
taken in conjunction with MOA, they form what is called as the constitution of the
company. Though there are differences in these articles as to their requirements in different
countries, in general AOA is a document that provides following information about the
company.
• The manner in which shares have been distributed along with voting rights attached with
different classes of shares
• Estimate of intellectual property rights
• The list of directors with shares allotted to each
• Schedule of the meetings of the board of directors along with the quorum required with
percentage of votes with directors
• Chairman’s special voting rights and the manner in which he is elected
• How profits are distributed through dividends
• How the company can be dissolved
• Secrecy of know-how and how it is managed
• How shares can be transferred, and so on.

How do you alter the same (special or general resolution and who alters directors,
shareholder?)(Interview): See note on resolutions
51. What type of resolution do you need to increase the capital in the capital clause
in the AOA (Interview): See Note on resolutions
52. What are the different types of shares (Interview)

Types of shares

It’s important to understand these distinctions because the characteristics of different

types of shares can significantly affect the way you decide to invest. The different types
of shares include:
Ordinary shares

Most shares traded on ‘ordinary’ shares. Ordinary shares carry no special or preferred
rights. Holders of ordinary shares will usually have the right to vote at a general meeting
of the company, and to participate in any dividends or any distribution of assets on
winding up of the company on the same basis as other ordinary shareholders.

Preference shares

Preference shares usually give their holder a priority or 'preference' over ordinary
shareholders to payments of dividends or on winding up of the company. There are
different kinds of preference shares with different rights and characteristics. Holders of
preference shares usually have voting rights which are restricted to paricular
circumstances or particular resolutions, however this will depend on the terms of the
shares.

Partly-paid shares

Partly-paid shares (also known as contributing shares) are issued without the company
requiring payment of the full issue price. At a specified future date or dates, the company
is entitled to call for all or part of the outstanding issue price, and the shareholder at the
time the call is due is legally obliged to pay the call. (No liability companies are not
required to specify the date or dates on which calls will be made, and the shareholder at
the time the call is due may pay the call or forfeit the share.)

Generally, a holder of a partly paid share has the same rights as an ordinary shareholder
to vote, to dividends and on winding up of the company, but those rights will be
proportional to the amount paid on the share (except for a vote by show of hands, where a
holder of a partly paid share has one vote, the same as any ordinary shareholder).

Retail investors are required to sign a client agreement with their broker before first
trading in partly paid shares, to acknowledge that they understand the risks involved.

53. What are the different types of preference shares and what is the difference
between them (Interview)
Meaning Of Preference Shares
Preference shares are those, which enjoy the following two preferential rights:
1. Dividend at a fixed rate or a fixed amount on these shares before any dividend on
equity shares.
2. Return of preference share capital before the return of equity share capital at the time
of winding up of the company.

Preference shares also have a right to participate or in part in excess profits left after been
paid to equity shares, or has a right to participate in the premium at the time of
redemption. But these shares do not carry voting rights.

Types Of Preference Shares

Following are the major types of preference shares:

1. Cumulative Preference Shares

When unpaid dividends on preference shares are treated as arrears and are carried
forward to subsequent years, then such preference shares are known as cumulative
preference shares. It means unpaid dividend on such shares is accumulated till it is paid
off in full.

2. Non-cumulative Preference Shares

Non-cumulative preference shares are those type of preference shares, which have right
to get fixed rate of dividend out of the profits of current year only. They do not carry the
right to receive arrears of dividend. If a company fails to pay dividend in a particular year
then that need not to be paid out of future profits.

3. Redeemable Preference Shares

Those preference shares, which can be redeemed or repaid after the expiry of a fixed
period or after giving the prescribed notice as desired by the company, are known as
redeemable preference shares. Terms of redemption are announced at the time of issue of
such shares.

4. Non-redeemable Preference Shares

Those preference shares, which can not be redeemed during the life time of the company,
are known as non-redeemable preference shares. The amount of such shares is paid at the
time of liquidation of the company.

5. Participating Preference Shares

Those preference shares, which have right to participate in any surplus profit of the
company after paying the equity shareholders, in addition to the fixed rate of their
dividend, are called participating preference shares.

6. Non-participating Preference Shares

Preference shares, which have no right to participate on the surplus profit or in any
surplus on liquidation of the company, are called non-participating preference shares.

7. Convertible Preference Shares

Those preference shares, which can be converted into equity shares at the option of the
holders after a fixed period according to the terms and conditions of their issue, are
known as convertible preference shares.

8. Non-convertible Preference Shares

Preference shares, which are not convertible into equity shares, are called non-convertible
preference shares.
54. What is statutory meeting, general meeting and EGM

A. Statutory Meeting :
A public company limited by shares or a guarantee company having share capital is
required to hold a statutory meeting. Such a statutory meeting is held only once in the
lifetime of the company. Such a meeting must be held within a period of not less than one
month or within a period not more than six months from the date on which it is entitled to
commence business i.e. it obtains certificate of commencement of business. In a statutory
meeting, the following matters only can be discussed :-

a. Floatation of shares / debentures by the company

b. Modification to contracts mentioned in the prospectus

The purpose of the meeting is to enable members to know all important matters
pertaining to the formation of the company and its initial life history. The matters
discussed include which shares have been taken up, what money has been received, what
contracts have been entered into, what sums have been spent on preliminary expenses,
etc. The members of the company present at the meeting may discuss any other matter
relating to the formation of the Company or arising out of the statutory report also, even
if no prior notice has been given for such other discussions but no resolution can be
passed of which notice have not been given in accordance with the provisions of the Act.

A notice of at least 21 days before the meeting must be given to members unless consent
is accorded to a shorter notice by members, holding not less than 95% of voting rights in
the company.

A statutory meeting may be adjourned from time to time by the members present at the
meeting.

The Board of Directors must prepare and send to every member a report called the
"Statutory Report" at least 21 days before the day on which the meeting is to be held. But
if all the members entitled to attend and vote at the meeting agree, the report could be
forwarded later also. The report should be certified as correct by at least two directors,
one of whom must be the managing director, where there is one, and must also be
certified as correct by the auditors of the company with respect to the shares allotted by
the company, the cash received in respect of such shares and the receipts and payments of
the company. A certified copy of the report must be sent to the Registrar for registration
immediately after copies have been sent to the members of the company.

A list of members showing their names, addresses and occupations together with the
number shares held by each member must be kept in readiness and produced at the
commencement of the meeting and kept open for inspection during the meeting.

If default is made in complying with the above provisions, every director or other officer
of the company who is in default shall be punishable with fine upto Rs. 500. The
Registrar or a contributory may file a petition for the winding up of the company if
default is made in delivering the statutory report to the Registrar or in holding the
statutory meeting on or after 14 days after the last date on which the statutory meeting
ought to have been held.

Contents of Statutory Report must provide the following particulars:- (a)The total number
of shares allotted, distinguishing those fully or partly paid-up, otherwise than in cash, the
extent to which partly paid shares are paid-up, and in both cases the consideration for
which they were allotted.(b) The total amount of cash received by the company in respect
of all shares allotted, distinguishing as aforesaid.(c) An abstract of the receipts and
payments upto a date within 7 days of the date of the report and the balance of cash and
bank accounts in hand, and an account of preliminary expenses.(d) Any commission or
discount paid or to be paid on the issue or sale of shares or debentures must be separately
shown in the aforesaid abstract.(e) The names, addresses and occupations of directors,
auditors, manager and secretary, if any, of the company and the changes which have
taken place in the names, addresses and occupations of the above since the date of
incorporation.(f) Particulars of any contracts to be submitted to the meeting for approval
and modifications done or proposed.(g) If the company has entered into any underwriting
contracts, the extent, if any, to which they have not been carried out and the reasons for
the failure.(h) The arrears, if any, due on calls from every director and from the
manager.(i) The particulars of any commission or brokerage paid or to be paid, in
connection with the issue or sale of shares or debentures to any director or to the
manager.

The auditors have to certify that all information regarding calls and allotment of shares
are correct.

B. Annual General Meeting

Must be held by every type of company, public or private, limited by shares or by
guarantee, with or without share capital or unlimited company, once a year. Every
company must in each year hold an annual general meeting. Not more than 15 months
must elapse between two annual general meetings. However, a company may hold its
first annual general meeting within 18 months from the date of its incorporation. In such
a case, it need not hold any annual general meeting in the year of its incorporation as well
as in the following year only.

In the case there is any difficulty in holding any annual general meeting (except the first
annual meeting), the Registrar may, for any special reasons shown, grant an extension of
time for holding the meeting by a period not exceeding 3 months provided the application
for the purpose is made before the due date of the annual general meeting. However,
generally delay in the completion of the audit of the annual accounts of the company is
not treated as "special reason" for granting extension of time for holding its annual
general meeting. Generally, in such circumstances, an AGM is convened and held at the
proper time. All matters other than the accounts are discussed. All other resolutions are
passed and the meeting is adjourned to a later date for discussing the final accounts of the
company. However, the adjourned meeting must be held before the last day of holding
the AGM.

A notice of at least 21 days before the meeting must be given to members unless consent
is accorded to a shorter notice by members, holding not less than 95% of voting rights in
the company. The notice must state that the meeting is an annual general meeting. The
time, date and place of the meeting must be mentioned in the notice. The notice of the
meeting must be accompanied by a copy of the annual accounts of the company,
director’s report on the position of the company for the year and auditor’s report on the
accounts. Companies having share capital should also state in the notice that a member is
entitled to attend and vote at the meeting and is also entitled to appoint proxies in his
absence. A proxy need not be a member of that company. A proxy form should be
enclosed with the notice. The proxy forms are required to be submitted to the company at
least 48 hours before the meeting.

The AGM must be held on a working day during business hours at the registered office of
the company or at some other place within the city, town or village in which the
registered office of the company is situated. The Central Government may, however,
exempt any class of companies from the above provisions. If any day is declared by the
Central government to be a public holiday after the issue of the notice convening such
meeting, such a day will be traeted as a working day.

A company may, by appropriate provisions in its its articles, fix the time for its annual
general meeting and may also by a resolution passed in one annual general meeting fix
the time for its subsequent annual general meetings.

Companies licensed under Section 25 are exempt from the above provisions provided that
the time, date and place of each annual general meeting are decided upon beforehand by
the Board of Directors having regard to the directions, if any, given in this regard by the
company in general meeting.

In case of default in holding an annual general meeting, the following are the
consequences :-

1. Any member of the company may apply to the Company Law Board. The
Company Law Board may call, or direct the calling of the meeting, and give such
ancillary or consequential directions as it may consider expedient in relation to the
calling, holding and conducting of the meeting. The Company Law Board may
direct that one member present in person or by proxy shall be deemed to constitute
the meeting. A meeting held in pursuance of this order will be deemed to be an
annual general meeting of the company. An application by a member of the
company for this purpose must be made to the concerned Regional Bench of the
Company Law Board by way of petition in Form No. 1 in Annexure II to the CLB
Regulations with a fee of rupees fifty accompanied by (i) affidavit verifying the
petition, (ii) bank draft for payment of application fee.
2. Fine which may extend to Rs. 5,000 on the company and every officer of the
company who is in default may be levied and for continuing default, a further fine
of Rs. 250 per day during which the default continues may be levied.

Business to be Transacted at Annual General Meeting :

At every AGM, the following matters must be discussed and decided. Since such matters
are discussed at every AGM, they are known as ordinary business. All other matters and
business to be discussed at the AGM are specila business.

The following matters constitute ordinary business at an AGM :-

a. Consideration of annual accounts, director’s report and the auditor’s report

b. Declaration of dividend
c. Appointment of directors in the place of those retiring
d. Appointment of and the fixing of the remuneration of the statutory auditors.

In case any other business ( special business ) has to be discussed and decided upon, an
explanatory statement of the special business must also accompany the notice calling the
meeting. The notice must should also give the nature and extent of the interest of the
directors or manager in the special business, as also the extent of the shareholding interest
in the company of every such person. In case approval of any document has to be done by
the members at the meeting, the notice must also state that the document would be
available for inspection at the Registered Office of the company during the specified
dates and timings.
C. Extraordinary General Meeting
Every general meeting (i.e. meeting of members of the company) other than the statutory
meeting and the annual general meeting or any adjournment thereof, is an extraordinary
general meeting. Such meeting is usually called by the Board of Directors for some
urgent business which cannot wait to be decided till the next AGM. Every business
transacted at such a meeting is special business. An explanatory statement of the special
business must also accompany the notice calling the meeting. The notice must should
also give the nature and extent of the interest of the directors or manager in the special
business, as also the extent of the shareholding interest in the company of every such
person. In case approval of any document has to be done by the members at the meeting,
the notice mus also state that the document would be available for inspection at the
Registered Office of the company during the specified dates and timings.

The Articles of Association of a Company may contain provisions for convening an

extraordinary general meeting. Eg. It may provide that "the board may, whenever it
thinks fit, call an extraordinary general meeting" or it may provide that "if at any time
there are not within India, directors capable of acting who are sufficient in number to
form a quorum, any director or any two members of the company may call an
extraordinary general meeting"

55. Different types of directors? Can a managing director be a director of more

than one company? (Not sure of this question. See taxxmann. It talks about
managing director, independent director, full time director etc etc): see note on
director
Under the Companies Act, 1956, the following kinds of directors are recognised:

Ordinary Directors
Ordinary directors are also referred to as simple directors who attends Board meeting of a
company and participate in the matters put before the Board. These directors are neither
whole time directors nor managing directors.

Managing Director
Managing Director is a director who, by virtue of an agreement with the company or of a
resolution passed by the company in general meeting or by its Board of directors or, by
virtue of its Memorandum or Articles of Association, is entrusted with substantial powers
of management which would not otherwise be exercisable by him, and includes a director
occupying the position of a managing director, by whatever name called.

Whole-time/Executive Directors
Whole-time Director or Executive Director includes a director in the whole-time
employment of the company.

Additional Directors
Additional Directors are appointed by the Board between the two annual general meetings
subject to the provisions of the Articles of Association of a company. Additional directors
shall hold office only up to the date of the next annual general meeting of the company.
Number of the directors and additional directors together shall not exceed the maximum
strength fixed for the Board by the Articles.

Alternate Director
An Alternate Director is a person appointed by the Board if so authorised by the Articles
or by a resolution passed by the company in the general meeting to act for a director called
"the original director" during his absence for a period of not less than three months from
the State in which meetings of the Board are ordinarily held. Generally, the alternate
directors are appointed for a person who is Non-resident Indian or for foreign collaborators
of a company.

Professional Directors
Any director possessing professional qualifications and do not have any pecuniary interest
in the company are called as "Professional Directors". In big size companies, sometimes
the Board appoints professionals of different fields as directors to utilise their expertise in
the management of the company.

Nominee Directors
The banks and financial institutions which grant financial assistance to a company
generally impose a condition as to appointment of their representative on the Board of the
concerned company. These nominated persons are called as nominee directors.

56. What is the procedure for merger of company (Interview)

HTTP://WWW.CACLUBINDIA.COM/ARTICLES/STEP-BY-STEP-PROCEDURE-FOR-
AMALGAMATION-5067.ASP

57. What is the procedure to be followed for hiving off (Interview)

Hiving-Off/ Demerger Through Sale Under Section 293(1)(A) of Companies Act,
1956
Statutory Framework

Popularly known as hiving off, this is, in the Company Law Terminology, either
a ‘sale’ or ‘disposal’ of the whole or substantially the whole of the undertaking, or
An ‘arrangement, compromise and reconstruction’. The former is governed by section
293(1) (a) of the Companies Act, 1956 and the latter falls within the ambit of sections
391/394 of the Companies Act, 1956. the former requires approval of the shareholders of
the concerned company by an ordinary resolution, while the latter calls for the
shareholders’, the creditors’ and the High Court’s approval. A straightforward hiving-off
of any business of the company, for a lump-sum price, is mostly routed through section
293(1) (a) of the Companies Act, 1956, which is an enabling provision. It facilitates sale
of business, which the section calls, ‘the whole or substantially the whole undertaking or
one or more undertakings’. By resorting to the mechanism provided in this section, any
company can sell the whole of its business or any one of its businesses as a going concern.
The business to be hived-off is intended to become transferred from the main body of a
commercial or industrial enterprise through the agency of new ownership.

In the hiving-off, the business or the undertaking is sold and transferred by the company to
the buyer at a pre-determined price, under an agreement between the seller and the buyer.
This agreement is usually called ‘Business Transfer or Assignment Agreement’[21]. The
various properties and assets and their values are not individually identified and
determined. The price is a lump-sum or a ‘slump-price’. Although it comprises, inter alia,
current assets or movables, the values of individual assets are not identified and stated in
the agreement.

The agreement inter alia covers the following issues/ points-

Assignment of business and consideration to be paid .Further assurances in respect of other

documentation, assets and liabilities, etc. Representation and warranties to be given by the
seller. Representations and warranties to be given by the buyer.
The provision in section 293 of the Companies Act, 1956 applies only to public companies
and private companies which are subsidiaries of public companies. It is not applicable to a
private company which is not a subsidiary of a public company.

This provision also applies to a company holding a license under section 25 of the
Companies Act, 1956. This provision does not apply to the sale of shares in a company
which owns an undertaking. When a shareholder sells his shares, the undertaking continues
to remain with the company which has its own independent entity.[22] Where the main
business of company was not investing in shares, sale of shares held by it would not amount
to sale of undertaking attracting section 293(1) (a) of the Companies Act, 1956.[23]

The shareholders may give conditional consent. The shareholders may impose any
conditions, except any condition, which would result in the reduction of the company’s
share capital unless the provisions of the Act pertaining to the reduction of capital are
complied with. The conditions may include, but not be limited to, regarding the use,
disposal or investment of the sale proceeds which may result from the transaction of the
sale, lease or disposal of the whole, or substantially the whole, of an undertaking of the
company.[24] This power is exercisable with the prior consent of the general meeting and
cant be taken granted with the hope that shareholders will ratify the action.[25]
58. What is demerger
A demerger is a form of corporate restructuring in which the entity's business
operations are segregated into one or more components.It is the converse of a merger or
acquisition. It is a business strategy in which a single business is broken into components,
either to operate on their own, to be sold or to be dissolved. A de-merger allows a large
company, such as a conglomerate, to split off its various brands to invite or prevent an
acquisition, to raise capital by selling off components that are no longer part of the
business's core product line, or to create separate legal entities to handle different
operations.
59. What type of resolution do you need for merger (Interview) (I’m not sure if
there is a difference between 2/3rd majority and special resolution – find out.
Also keep in mind if the voting is b/w directors or shareholders) (Interview): see
note on resolutions

60. Difference between special resolution and ordinary resolution (Interview)

A resolution is an ordinary resolution when at a general meeting, the votes cast in favour
of the resolution by the members/ proxies, entitled to vote, (including the casting vote,
if any, of the chairman) exceed the votes, if any, cast against the resolution by members
so entitled and voting. A special resolution is where � (a) the intention to propose the
resolution as a special resolution is duly specified in the notice calling the general
meeting or other intimation given to the members of the resolution; and (b) the votes
cast in favour of the resolution by members or proxies as the case may be, are not less
than three times the number of the votes, if any, cast against the resolution by members
so entitled and voting.

TOPA AND GENERAL QUESTIONS FROM MY INTERVIEW

61. What is the difference between simple mortgage and English mortgage (S 57)
(Interview)
HTTP://ARTICLES.ECONOMICTIMES.INDIATIMES.COM/2006-09-
29/NEWS/27445371_1_MORTGAGE-TRANSFER-OF-PROPERTY-ACT-DATE-AND-TRANSFERS
62. You are given a MOA and AOA. The name of the company is blacked out. Is it
a pvt co or public co
63. There is a company with 30 members and 5 crores as share capital. Is it a pvt
co or public co
64. When a foreign entity wants to invest in India does it buy shares or bonds or
what (not sure of this question)