MGT-201: Business Law Notes

Nimansh Endlay, 2210110438

2) Sale of Goods Act Legal relationship between buyer and seller of goods or/and
services

(3) Intellectual Property rights Role of Patent, copyright and trademark laws in business

(5) Arbitration and Conciliation Act Commercial problem-solving technique between enterprises

(6) Competition Act Current market unfair trade practices and role of Competition
Commission of India

(7) Consumer Protection Act Meaning of term “Consumer” and laws related to its
protection

(8) Indian Companies Act, 2013 Meaning of term “Company” and key highlights in the Indian
Companies Act, 2013

SALES OF GOODS ACT

 Sale: The property in the goods is transferred from the seller to the buyer, the contract is
called sale. Transfer of ownership immediately doesn’t mean the physical possession.
 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
agreement to sell.
 Contract of Sale: Like any other contract results by an offer by one party and acceptance
by other. Whereby the seller transfers or agrees to transfer the property in goods to the
buyer for a price.
 Essentials of contract of sale:
o Contract
o Two Parties
o Goods
o Transfer of General Property
o Price
o Essential elements of valid contract
 Goods (Movable): Goods means every kind of movable property other than actionable
claims and money; and includes stock and shares, growing crops, grass, and things
attached to or forming part of the land which are agreed to be severed before sale or
under the contract of sale.
o Considerations: It must be movable. Things attached to or forming part of land
which can be severed satisfy the movability criteria.
 Kinds of Goods:
o Existing goods: Existing goods are goods that physically exist and belong to the
seller at the time of contract of sale.
 Specific goods: These are goods that are specifically agreed upon
between the seller and buyer at the time of making the contract of the
sale. Example – A own multiple Maruti car. B contracts with A to buy his
‘Maruti’ car bearing number ‘DL 1C 007’.
 Ascertained goods: The ascertained goods are identified after the
formation of contract. Example – A owns 10 ‘Maruti’ cars. B contracts with
A to buy one car out of them. After the contract, A keeps out one car to be
given to B.
 Unascertained goods: These are the goods that are not specifically
identified or agreed upon at the time of the contract of sale but are not
specifically identified in the contract. Example – A owns 10 ’Maruti’. B
contracts with A to buy one car out of them.

o Future goods: Future goods are goods that are not yet in existence or that do
not yet belong to the seller when the contract of sale is made. Example- a farmer
may agree to sell a buyer all the milk produced by his/her cows in the coming
year.

o Contingent goods: A certain type of future goods but are dependent on a

specific contingency. Example- A agrees to sell to B a specific rare painting
provided he can purchase it from its present owner. This is a contract for the sale
of contingent goods.

 Perishing of goods: According to Sale of goods act, the perished goods are the goods
that are not available for the use they are mean for. The goods are deteriorated to the
extent that they cannot be put to use.
 Causes of perishing:
o Physical destruction of the goods
o Damage of goods which destroys the commercial value.
o Loss of goods by theft
o Lawful acquisition of goods by government
 Effects of perishing:
o If Goods perished before formation of the contract of sale: This provision is made
either on the ground of mutual mistake as to matter of fact essential to
agreement, or on the ground of impossibility of performances, both of which
render the contract void ab-initio. Following points are to be taken into
consideration:
 The goods must be specific goods.
 Where subject-matter as while has been perished, the contract is void.
 The seller must not have the knowledge of destruction of goods.
 The goods must have been perished before formation of the contract.
  Example – S sold a specific cargo to B, which was on its way from Sri
Lanka to India. At the time of contract, the ship had already sunk which
the parties were not aware of. The contract of sale is void.

o Goods perishing before sale but after agreement to sell: 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. Following points are to be taken into
consideration:
 The contract must be an agreement to sell and not an actual sale.
 The goods should be specific goods. If goods are unascertained, this
provision is not applicable.
 If gods are perished because of the fault of any party, the such party
would have to bear the loss.
 If only part of goods have been perished and the contract is indivisible,
the whole contract is void. If it is divisible, then remaining part of the
contract can be enforced.
o Effect if perishing of future goods: Present sale of future goods is an agreement
to sale. In case of future goods, if sufficiently identified, are to be treated as
specific goods, the destruction of which makes the contract void.
 Document of Title of Goods: Documents of title to goods are unconditional undertaking
on the part of issuing authority to deliver goods. Although these documents can be
transferred by mere delivery or by endorsement, yet it is regarded as ‘quasi negotiable
instrument’, because the title of transferee.
Examples of the Documents of Title to Goods
o Bill of lading
o Dock-warrant
o Warehouse keeper’s certificate,
o Wharfinger’s certificate
o Railway receipt
o Delivery order – etc.
 Transfer of Ownership: A contract of sale of goods involves transfer of ownership from
the seller to the buyer. Transfer of ownership or property in goods is in fact the main
object of making a contract of sale.
 Risk prima facie passes with ownership: In case of destruction of or damage to the
goods, it is the owner who must bear the loss because the general rule is ‘res perit
domino’ risk follows ownership or whosoever is the owner must bear the loss. The
payment of the price or possession of goods is immaterial.
 Rules regarding transfer of ownership: Goods must be ascertained. For specific goods.
o Property passes when intended to pass.
o Passing of property at the time of contract
o Passing of property delayed beyond the date of the contract.
o When the price of goods is to be ascertained by weighing
o When goods are delivered on approval
o For unascertained or future goods: In the case of a contract for a sale of
unascertained or future goods by description , property will pass from the seller
to the buyer when the goods of the same description, in a deliverable state, are
unconditionally appropriated to the contract by one party with the consent of the
other.
 When breach of Condition is to be treated as breach of Warranty:
o Voluntary waiver by buyer. [section 13(1)]: Although on a breach of condition by
the seller, the buyer has a right to treat the contract as repudiated and reject the
goods, but he is not bound to do so. He may instead elect to waive the condition,
i.e., to treat the breach of condition as a breach of warranty and accept the goods
and sue the seller for damages for breach of warranty.
o 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 ,unless there is a term of the contract, express
or implied, to that effect. [section 13(2)]
o Nothing in this section shall affect the case of any condition or warranty fulfillment
of which is excused by law by reason of impossibility or otherwise. [section 13(3)]
 Express conditions and warranties: Those which have been expressly agreed on by the
parties at the time of contract of sale.
 Implied conditions and warranties: Those which the law incorporates into the contract
unless the parties stipulate to the contrary.
 Implied Conditions:
o Condition as to title (sec. 14): In a contract of sale, unless the
circumstances of the contract are such as to show a different intention,
there is an implied condition on the part of the seller that -
 In the case of a sale, he has a right to sale the goods, and
 In the case of an agreement to sell, he will have a right to sell the
goods at the time when the property is to pass.
Example: R bought a car from D and used it for 4 months. D had no
title to the car and consequently R had to hand it over to the true
owner.Held, R could recover the price paid [Rowland v. Divall(1923)2
K.B. 500]
o Sale by description (sec. 15):
 In sale by description there is an implied condition that the goods
shall correspond with description.
 This means "if you contract to sell peas, you cannot oblige the party
to take beans."
 Hence if the description of the article tendered is different than the
buyer may not buy the goods. Example: A want to sell his
typewriter. He says to B, intending buyer who has not have seen
the machine, that it is a brand-new machine. agrees to purchase it.
On delivery B finds that the machine is old and repaired. B can
repudiate the contract.
o Sale by sample (sec. 17): A contract of sale is a contract for sale by sample
where there is a term in the contract, express or implied, to that effect. In
a sale by sample, the following are the implied conditions:
 The bulk shall correspond with the sample in quality.
 That the buyer shall have a reasonable opportunity of comparing
the bulk with the sample; and
 That the goods shall be free from any defects rendering them
unmerchantable.
 Example: Certain shoes were sold by sample for the French Army.
The shoes were found to contain paper not discoverable by
ordinary inspection. Held, the buyer was entitled to the refund of
price plus damages.
o Condition as to quality or fitness [Sec. 16 (1)]: Normally, in a contract of
sale there is no implied condition as to quality or fitness of the goods for a
particular purpose. The buyer must examine the goods thoroughly before
he buys them to satisfy himself.
 Example: An order was placed for some lorries to be used "for
heavy traffic in a hilly area". The lorries supplied were unfit and
breakdown. There is a breach of condition as to fitness.
o Condition as to merchantability [Sec. 16(2)]: Where goods are bought by
description from a seller who deals in goods of that description there is an
implied condition that the goods are of merchantable quality.
o Condition as to wholesomeness: In the case of eatables and previsions, in
addition to the implied condition as to merchantability, there is another
implied condition that the good shall be wholesome. Example: X
purchased milk from Y, a milk dealer. The milk contained typhoid germs.
 X's wife, on taking the milk, got infection and died. Held, X can be entitled
for damages.
 Implied Warranties:
o Warranty of quiet possession [Sec. 14(b)]: In a contract of sale, unless
there is a contrary intention, there is an implied warranty that the buyer
shall have and enjoy quiet possession of the goods. If the buyer is in any
way disturbed in the enjoyment of the goods in consequence of seller's
defective title to sell, he can claim damages from the seller.
o Warranty of freedom from encumbrances [Sec. 14 (c)]: The goods are not
subject to any change or right in favor of a third party.
o Warranty as to quality or fitness by usage of trade [Sec. 16 (4)]: An
implied warranty as to quality or fitness for a particular purpose may be
annexed by the usage of trade.
o Warranty to disclose dangerous nature of goods: Where a person sells
goods, knowing that the goods are inherently dangerous or they are likely
to be dangerous to the buyer and that the buyer is ignorant of the danger,
he must warn the buyer of the probable danger, otherwise he will be liable
in damages.
 When Sale Complete (Sec 18-23) – Transfer of Property:
o Goods must be ascertained.
o Property passes when intended to pass.
 Where there is a contract for the sale of specific or ascertained goods the
property in them is transferred to the buyer at such time as the parties to
the contract intend it to be transferred.
 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.
 Unless a different intention appears, the rules contained in sections 20 to
24 are rules for ascertaining the intention of the parties as to the time at
which the property in the goods is to pass to the buyer.
o Specific goods in a deliverable state.
o Specific goods to be put into a deliverable state.
o Specific goods in a deliverable state, when the seller must do anything thereto in
order to ascertain price.
o Sale of unascertained goods and appropriation.
 RISK OF LOSS OF DAMAGES:
o As per sales of goods act the risk involved in the goods will be based upon the
title of the goods which means who is the owner. If the title is transferred to the
buyer, he will bear the loss, if title is not yet transferred it will be borne by the
seller.
o Section 26 of the Sale of Goods Act, 1930 states the goods are the owner’s risk if
the property in them has not been transferred to the buyer. But if the property has
been transferred to the buyer then the goods are buyer’s risk.
o The risk is associated with ownership and not with mere possession of the
property.
o The passing of risk means the transfer of the liability for damage or loss of the
property from the seller of the immovable property to the buyer.
o The risk in the property prima facie passes with the property, but if the parties to
the contract agree to pass the risk on the property at some other level of
 transaction, then that is also possible, depending upon the terms of their
contract.
o It is also possible that that the title, risk, and possession of the property pass
independent of each other from the seller to the buyer in a sale’s transaction.
o IMP POINT: Exception:
 If delivery has been delayed due to the fault of either party then the
liability of damage will lie on the party at fault.
 If the delivery has been delayed due to the fault of either party, then the
liability of damage will lie on the party at fault. If the seller has failed to
deliver the goods as agreed by the parties and the goods are damaged or
lost due to that, then the seller will bear the cost. If the buyer has failed to
take delivery of goods despite many reminders by the seller, then the
buyer will bear the cost.
 Irrespective of the fact that the property in the goods has been transferred
or not, the possessor of the good has same rights and duties as bailee of
the goods. If the damage to the property occurs due to the negligence of
the possessor of the goods, as a bailee, he will be liable to bear the
damage or loss of the goods.

 Unpaid Seller: Payment haven’t been received for the price of the goods.
o When a seller is not paid for the price of goods, he is termed as ‘unpaid seller’
under the act.
o “The seller of the unpaid goods is deemed to be an unpaid seller within the
meaning of this act:
 When the whole of the price has not been paid or tendered; or
 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 dishonor of the instrument or
otherwise.”
 Rights of an Unpaid Seller:
o Rights against the goods
 When ownership of goods is transferred to the buyer.
 When ownership of goods has not been transferred to the buyer.
o Rights against the buyers
 Right to lien: A lien is a right of retaining property until a debt due to the
person retaining it has been satisfied. This right can be exercised if
following conditions are met:
1. Where goods have been sold for cash, not on credit, and the price
has not been paid by the buyer.
2. Where although the goods were sold on credit, but the buyer has
not made the payment even after the expiry of the period of credit.
3. Where the buyer becomes insolvent, even if the credit term has
not been expired. In the case of insolvency it is presumed that the
buyer will not be able to pay the price. The seller has a right to
demand full price before making delivery of goods to buyer.
The general rule is that delivery of part does not constitute
delivery of the whole.
 Right to stoppage in transit: It can be exercised by the seller only if
following conditions are met:
 The seller is unpaid seller
 The buyer is insolvent
 The property in the goods has already been passed to the buyer
 The seller has parted with the possession and the buyer has not
acquired it, i.e., the possession is with some independent entity
like railways, or a shipping company, etc.
 Duration of Transit:
o 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.
o If the buyer or his agent in that behalf obtains delivery of
the goods before their arrival at the appointed destination,
the transit is at an end.
o If, after the arrival of the goods at the appointed
destination, 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.
o 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.
o 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.
o 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.
o 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.
 Modes of Stoppages:
o 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.
 o 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
 Right to resale: When the seller exercise his right of lien or stoppage of
goods, it does not amount to rescinding of contract. The property in the
goods remain with the buyer only. All the sellers can do is to enforce the
payment of price by keeping the goods with him. However, if the buyer
does not pay the price even after the lapse of considerable time, the
seller will have to resort to resale the goods. In this case the original
contract of sale gets rescinded. Unpaid seller can exercise his rights to
resell goods in following circumstances:
1. Where the goods are of perishable nature
2. Where the seller expressly reserves a right of resale in case the
buyer make a default
3. Where the seller gives notice to the buyer about his intention to
resell the goods in case of non-payment of price by him within a
reasonable time, and after receipt of such notice, the buyer does
not pay the price within reasonable time. In such case, the seller is
entitled to:
a) recover any shortage between contract price and resale
price from the original buyer
b) retain any surplus of resale price over the contract price.
However, if the notice of resale is not given to the buyer, the
situation is reverse. If the seller resell the goods without giving
notice to the buyer, he is obliged to:
• Pay any surplus of resale price over the contrast price to
the original buyer, and
• Bear himself any shortage in resale price as compared to
the price of original contract.
 Doctrine of Caveat Emptor: It means “Let the buyer beware”.
 This doctrine says when the buyer purchases a product, he himself is responsible to see
whether he is buying the right thing suited to his purpose or not.
 Exceptions to Caveat Emptor:
o Fitness of Product for the Buyer’s Purpose
o Goods Purchased under Brand Name
o Goods sold by Description
o Goods of Merchantable Quality
o Sale by Sample
o Sale by Description and Sample
o Usage of Trade
o Fraud or Misrepresentation by the Seller
 Determination of Price of Goods: The price can be termed equivalent to the
consideration. In the absence of such price or consideration, the transfer cannot be
termed as a sale. The transfer by way of the sale must be in exchange for a price.
Different modes to fix the price are:
o The price is mentioned in the contract itself (Section 9)
o The manner of fixing the price mentioned in contract ( Section 9(1))
o Price is determined by the course of dealing between the parties (Section 9(1))
 o When Price is not fixed by any of the above modes (Section 9(2))

 Earnest Money: The ‘Earnest money’ counts as a part of the purchase price is payed in
advance. When the transaction goes through it is adjusted against the bill. When
transaction falls through by reason of default or failure of the buyer, the other party can
rescind the contract and return the earnest money. Thus the earnest money is liable to
be forfeited. Example: A contracted to supply potatoes, eggs ,fish etc. To Military
Headquarters. He deposited Rs. 18,500 as a security for due performance of the
contract. A committed defaults in making regular and full supplies. The government
rescinded the contract and forfeited the deposit. The court held that the amount was a
‘security deposit’ and the government was not entitled to forfeit the same.

 When time is stipulated regarding payment of the price: ‘unless a different intention
appears from the terms of the contract, stipulations as to time of payment are not
deemed to be the essence of the contract of sale’. If the payments are not made in time
the seller cannot avoid the contract but can claim damage.
 When time is stipulated regarding delivery of goods: If nothing is mentioned in the
contract, time stipulated for delivery is considered to be of the essence of the contract.
Non-performance at the stipulated time would render the contract voidable at the option
of the buyer.
 Antitrust Laws: Purpose- Maintain the competitive market.
o This is done by condemning anticompetitive behaviour by companies that
already have market power and by stopping companies from engaging in
exclusionary activity to gain monopoly power.
o Antitrust laws ban the company actions that may hamper a new company’s equal
opportunity to enter the market and forbid any company action that would force
an efficient company to leave the market.
 The Sherman Act:
o Every contract, combination in the form of trust or otherwise, conspiracy, in
restraint of trade or commerce among the several states, or with foreign nations,
is declared to be illegal.
o Every person who shall monopolize, attempt to do that, or combine or conspire
with any other person to monopolize any part of the trade or commerce among
the states or with foreign nations, shall be deemed guilty of a felony.
o Potential Violations of Sherman Act:
 Per se violations: Which means no Défense or justification is allowed.
 Rule of reason: Defending who engage in potentially anticompetitive
behaviour have the opportunity to explain to a court the legitimate reason
for their business decisions
  United States v. Socony vacuum oil co..inc.,310 U.s. (1940)
 Cartelization: A cartel is an explicit agreement among competing companies to fix prices,
or engage in some other activity that is intended to reduce competition, in a particular
market. Cartels are more likely to affect price when:
o There are high barriers for new businesses to enter the market.
o The market is not government regulated.
o The products are homogeneous.
o There is a non numerous amount of companies in the market.
 Resale price maintenance and vertical non price restraints: Resale price
maintenance takes place when a wholesaler makes its sale contingent on the retailer’s
selling the product at a certain price.
o CASE: Leegin Creative Leather Products, Inc v. PSKS, Inc.,551 U.S. 877
(2007) The leader brought suit alleging that the manufacturer violated the
Sherman Act by suspending all shipments to the retailer after it violated the
manufacturer’s policy, which required retailers to follow the manufacturers
suggested retail prices. The supreme court reasoned that the lower courts
had not consistently applied the ”per se” test because of the potential
procompetitive aspects of resale price maintenance; therefore it had the
obligation to overrule use of the “per se” test.
 Quantity discounts:
o Quantity discounts for consumer purchases are Legal, but these given by a
business to other business customers are not always legal.
o Giving a large buyer a quantity discount is condemned unless the large purchase
and lower price can be justified by the seller’s diminished costs due to
manufacturing, delivery, or sale, or by the seller’s good faith effort to meet a
competitor’s equally low price.
 Primary-line Violation and predatory pricing:
o Primary violations are often referred to as predatory conduct and are analysed
similarly with predatory- pricing exclusionary activity of Sherman Act, section-2,
violations.
o The law is concerned with a company pricing its products or service at an
amount that causes its competitors to leave the market and thereby that
company gains the power to charge supercompetitive prices in the relevant
market.
 Insurance:
o Insurance Fraud:
 Insurance fraud is any act committed to defraud an insurance process.
This occurs when a claimant attempts to obtain some benefit or
advantage they are not entitled to, or when an insurer knowingly denies
some benefit that is due.
 The most common schemes include: premium diversion, fee churning,
asset diversion, and workers compensation fraud. Perpetrators in these
schemes can be insurance company employees or claimant
o False Insurance Claims
 False insurance claims are Insurance claims filed with the intent
to defraud an insurance provider.
 Fraudulent claims account for a significant portion of all claims received
by insurers, and cost billions of dollars annually. Types of insurance fraud
are diverse, and occur in all areas of insurance. Insurance crimes also
 range in severity, from slightly exaggerating claims to deliberately causing
accidents or damage.
 Fraudulent activities affect the lives of innocent people, both directly
through accidental or intentional injury or damage, and indirectly as these
crimes lead to higher insurance premiums. Insurance fraud poses a
significant problem, and governments and other organizations try to deter
such activity.
o CBI vs. Rajesh Kohli & Ors.
 Theft of goods: This policy provides cover for property contained in business premises,
stocks owned by you or held in trust and/or commission. It can be further extended to
cover cash, valuables, securities kept in a locked safe or cash box in locked steel
cupboard. The policy can be extended to cover riot, strike, malicious damage and theft.
o Theft Of Goods Inclusions:
 Loss or damage to insured property due to burglary and/or housebreaking
 Damage to premises caused by burglars during burglary or attempts at
burglary The policy pays actual loss / damage to the insured property
caused by burglary / house breaking subject to the limit of sum insured.
 If the sum insured is not adequate, the policy pays only proportionate
loss. There is also a provision in the policy to cover bulk items on "first
loss" basis, wherein a percentage of total stock stored can be taken as
that exposed to the risk of burglary and housebreaking. The premium is
charged on this percentage selected only. A nominal premium is charged
on the balance stock.
o Theft of Goods Exclusions:
 For goods held in trust / commission, Cash, jewellery, curios, title deeds,
business books (unless specifically insured)
 Due to shop lifting, acts involving you or your family members /
employees.
 Due to war perils, natural calamities and nuclear perils
 For items stolen from a safe using a key or duplicate key, unless it is
obtained by violence or threat.
 No insurance claim for theft committed without violence: SC
o The SC has ruled that a person or an entity can’t seek compensation on insured
goods if theft happened without violence.
o The court observed "The terms of the policy have to be construed as it is and we
cannot add or subtract something.

INTELLECTUAL PROPERTY RIGHTS

 Intellectual property rights are the rights given to persons over the creations of their
minds. It is an exclusive right over the use of his/her creation for a certain period of time.
 Types of Intellectual Property Rights (IPR):
o Patent: includes products and processes / inventions
o Copyright: includes Literary, dramatic, musical and cinematographic
o Industrial Design: feature of shape, pattern or composition can be 2d & 3d.
o Trademark (TM): includes good/services produced by individual or enterprise,
drawing, symbols, 3d signs, shapes.
 Patent Act 1970:
o A patent is a form of right granted by the government to an inventor, giving the
owner the right to exclude others from making, using, selling, offering to sell for a
limited period of time.
 o It has to fulfil three main requirements: It has to be new, not obvious and there
needs to be an industrial applicability of it.
o Patent Act 1970 , came into action on Sept 1970 containing the Law Governing
Patents and since then has been amended in 1999 , 2002 , 2005
o Duration of 20years from filing of Patent application.
o Objectives Of Patent Act:
 To encourage inventions by providing protection to inventors from
infringement of their inventions
 Induces an inventor to disclose his / her invention, Instead of keeping it a
secret
 It is a solution to a specific technological problem, which may be a
product or a process
 Ensures reasonable income (royalty) to an inventor
o Types Of Patents:
 Product Patent – Right to make ,use ,sell or distribute the product in India
 Process Patent – Right to use and exercise the process in India
o Patent Infringement:
 It is the commission of a prohibited act with respect to a
patented invention without permission from the patent holder.
 Permission may typically be granted in the form of a license.
 There are several different ways patent infringement can occur :
a) Makes
b) Uses
c) Offers for sale
d) Sells any patented item without the patent owner's
permission
 Copyright Act, 1957:
o Copyright law protects the expression of an idea.
o The Copyright Act, 1957 prohibits any person from reproducing or copying any “
literary, dramatic, musical or artistic work” without the consent of the owner of
copyright in that work.
o This protection has also been extended to computer programmes ,
cinematographic films and sound recordings.
o Duration depends on whether it is pre or post 1 Jan. 1978
o Pre - Depends on whether published? Registered, first term, renewal etc.
o Post - Life of author + 50 years
 Industrial Design:
o Protected under Design Act 2000
o Protects external shape, configuration, surface pattern or ornamentation of an
industrially reproduced article
o Judged solely by the eye
o Covered for 2D or 3D or Both forms
o New and Original
o Not an artistic work or trademark
o Non- functional
o New and Original:
 “Original”: Means that it must originate from the creator.
 “New”: May involve a design which is known but is applied for the first
time to that article.
 Pattern made up of old features but resulting combination with strikingly
different appearance can be original.
  Distinguishable from known designs or combination of known designs can
be new.
o Why register designs:
 Right to prevent others from producing, importing, selling or distributing
products having an identical appearance or a fraudulent or obvious
imitation
 Monopoly Period of 10 years- extendable by 5
 Gives you a Unique Selling Point (USP)
o What to do when licensing a design:
 A registered design can be licensed to exploit markets or commercialize it
on a scale beyond the resources of the author.
 Essential to specify in the license- the term, territory, amount of royalty &
type of products for which design can be used by licensee.
 Trademark: A Trademark is a Visual Symbol which may be a word signature, name,
device, label, numerals or combination of colors used by one undertaking on goods or
services or other articles of commerce to distinguish it from other similar goods or
services originating from a different undertaking.
o Functions of Trademark:
 Indicates the source of origin of goods or services
 Guarantee the quality of goods bearing the mark
 Used as a marketing tool to build a brand
 It creates an image of product in minds of consumers.
 Can have great $ value to a company
o Designation of a Trademark:
 TM: (Used for an Unregistered Trademark, A mark used to promote or
brand goods)
 SM: (Used for an Unregistered Service mark, A mark used to promote
or brand Services)
 R: (Used for a Registered Service mark)

CONSUMER PROTECTION ACT

 Who is a Consumer?
o Buys any goods for a consideration which has been paid or promised or partly
paid and partly promised.
o Buys capital goods to provide services to other individuals.
o Uses the goods with the approval of the buyer.
o Buys goods for the self-employment.
 Who is Not a Consumer?
o Any person who buys a commodity with an intention to resale
o A person who obtains services without consideration
o A person who obtains services for commercial purposes
o Applications for jobs
 Factors leading to exploitation of consumer:
o Deceptive and misleading techniques
o False warranties or guarantees.
o Non availability of goods
o Adulteration
o Hoarding
o Black marketing
 To provide the better protection of the interests of the consumer, the Consumer
Protection Bill, 1986 was introduced in Lok Sabha on 5th December 1986
 Is a social welfare legislation which was enacted because of widespread consumer
protection movement.
 Extends to the whole of India except the State of Jammu and Kashmir
 Objective:
o Better protection of interests of consumers
o Provide better speedy and simple redressal to consumer disputes.
o Protection of the rights of the consumers:
o The right to be protected against marketing of goods which are hazardous to life
and property.
o The right to be informed about the quality, quantity, potency, purity, standard and
price of goods to protect the consumer against unfair trade practices.
o The right to be heard and to be assured that consumers interests will receive due
consideration at appropriate forums.
o Right to consumer education
 Goods: Every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass, and things attached to or forming part
of the land which are agreed to be severed before ale or under the contract of sale.
 Services: Services of any description which is available of potential users and includes,
but not limited to, the provision of facilities in connection with banking, financing,
insurance, transport, processing, supply of electrical or other energy, board or lodging or
both, housing construction, entertainment, amusement or the purveying of news or other
information.
 Defect: Any fault, imperfection or shortcoming in the quality, quantity, potency, or
standard which is required to be maintained by or under any law for the time being in
force, or under any contract, express or implied or as is claimed by the trader in any
manner whatsoever in relation to any goods.
 Complaint: Any allegation in writing made by a complainant to National Commission, the
State Commission or the District Forum with a view to obtain relief provided under this
act.
 Written Allegations Include:
o An unfair trade practice or a restrictive trade practice has been adopted by any
trader or service provider;
o The goods bought or agreed to be bought suffer from one or more defects;
o The services hired or availed of or agreed to be hired or availed suffer from
deficiency in any respect.
o A trader or the service provider has changed for the goods or for the services
mentioned in the complaint, a price in excess of the price
o Fixed by or under any law for the time being in force.
o Displayed on the goods or any package containing such goods.
o Displayed on the price list exhibited under any law
o for the time being in force.
o Agreed between the parties.
o Goods which will be hazardous to life and safety when used are being offered for
sale to the public
o In contravention of any standards relating to safety of such goods as required to
be complied any law for the time being in force.
o If the trader could have known with due diligence that the goods so offered are
unsafe to the public.
 Complainant:
o A consumer
o Any voluntary consumer association registered under the companies act,1956, or
under any other law for the time being in force 3)
o The central government or any state government, who or which makes a
complaint
o One or more consumers, where there are numerous consumers having the same
interest.
o In case of death of a consumer, his legal heir or representative. (this clause has
been introduced by the CPA amendment act, 2002)
 How to file a complaint:
o The name , description and address of the complainants and the opposite party.
o The facts relating to complaint and when and where it arose.
o Documents in support of allegations in the complaint.
o The relief which the complainant is seeking.
o The complaint should be signed by the complainant or his authorized agent.
 Complaint cannot be filed if:
o A complaint on behalf of the public which consists of unidentifiable consumers.
o A complaint by an individual on behalf of general public.
o An unregistered association
o A complaint after expiry of limitation period i.e after lapse of two years from the
date on which the cause of action arise unless the Forum is satisfied about the
genuineness of the reason for not filing within the time
 Unfair Trade Practices: Trade practices which a trader, for the purpose of promoting the
sale, use or supply of any goods or for the provision of any service, adopts any unfair
method or unfair or deceptive practice.
o Consumer Protection Act:
 Section 2 (1) (r) of the existing Consumer Protection Act 1986 states that
the practice of making any statement, whether orally or in writing or by
visible representation which makes a false or misleading representation
concerning the need for, or the usefulness of, any goods or services, falls
under unfair trade practices.
 A consumer can make a complaint against unfair trade practice in a
Consumer Forum established under the Consumer Protection Act, 1986
o Grievances Against Misleading Advertisements (GAMA):
 The Department of consumer affairs has recently launched a portal to
enable consumers to register Grievances Against Misleading
Advertisements (GAMA).
 After preliminary scrutiny of the grievances registered on the portal, the
grievances are forwarded to the State Government concerned or the
respective Central Regulator based on the subject matter.
o ASCI:
 The Advertising Standards Council of India (ASCI) is a voluntary self-
regulatory body of Advertisement Industry.
 It self-regulates advertising content to monitor and decide on complaints
against advertisements making misleading, false and unsubstantiated
claims.
 In 2015, the government appointed ASCI as its executive arm to process
complaints received on the GAMA portal about misleading
advertisements. ASCI also receives direct complaints from citizens.
 o The practices included are:
 Making any statement, whether orally or in writing or by visible
representation which –
 Falsely represents that the goods are of particular standard, quality,
quantity, grade, composition, style or model;
 Falsely represents that the services are of particular standard, quality or
grade;
 Falsely represents any rebuilt, second hand, renovated, or old goods as
new goods;
 Represents that the goods or services have sponsorship, approval,
performance, characteristic, accessories, uses or benefits which such
goods or services do not have;
 Represents that the seller or the supplier has sponsorship or approval or
affiliation which such seller or supplier does not have;
 Make a false or misleading representation concerning the needs for , or
the usefulness of, any goods or services;
 Gives to the public any warranty or guarantee of the performance or
length of life of a product or of any goods that is not based on an
adequate or proper test thereof.
 Materially misleading the public concerning the price at which a product
or like products or goods or services, have been or are ordinarily sold or
provided.
 False offer of bargain price:
 A price that is stated in any advertisement to be a bargain price by
reference to ordinary price or otherwise
 A price that a person who reads, hears or sees the advertisement would
reasonably understand to be a bargain price having regard to the prices
at which like products
 Schemes offering gifts or prizes
 Offering gifts or prizes or other items with the intention of not providing
them and conducting promotional contests.
 Creating an impression that something is being given free of charge when
it is fully or partly covered by the amount charged in the transaction.
 Conducting of any contest, lottery or game of chances etc for the purpose
of promoting-directly or indirectly- the sale, use or supply of any product
or any business interest.
 Restrictive Trade Practices: A trade practice which tends to bring about manipulation of
price, or its conditions of delivery or to affect flow of supplies in the market relating to
goods or services in such a manner as to impose on the consumers unjustified costs or
restrictions.
 Consumer Needs Protection Against:
o Price fixing or output restraint i.e delivery/flow of supplies to impose unjustified
costs/restrictions on consumers.
o Collusive tendering; market fixing territorially among competing suppliers,
depriving consumers of free choice, fair competition.
o Supplying only to particular distributors or on condition of sale only within a
territory.
o Delaying in supplying goods/services leading to rise in price.
o Requiring a consumer to buy/hire any goods or services as a pre-condition for
buying/hiring other goods or services.
 Jago grahak jago:
 o It is the consumer awareness program campaign from the ministry of consumer
program affairs, government of India.
o The government has created channels to create consumer awareness like print
media advertisement, audio campaigns, video campaigns.
o It is still in its primitive stage but will emerge to be a successful campaign.
o This campaign helps in spreading awareness and saving consumers from the
exploitation of the sellers
 Consumer Protection Councils:
o Sections of the Consumer Protection Act, 1986:
 Section 4 : How the Central Consumer Protection Council shall be
established
 Section 5 : Describes the procedure for the meetings of the Central
Council
 Section 6 : Enumerates the objects of the Central and the State Councils
 Section 7 : Tells how the state Council shall be established and how the
meetings should be organized
 Section 8 : Tells that the objectives of the State Councils are same as
those of the Central Council
 Section 8A and Section 8B : Establishment and the objects of District
Council
o Objects of the Councils:
 One basic thought ‘Consumer need to be Protected’
 Another thought is ‘How he/she can be protected?’
o Work Towards This Protection: The Act has provided for constitution of Consumer
Councils:
 District Forums
 State Commissions
 National Commission
o Rights of Consumers which needed to be Protected by the Councils:
 Right to Safety
 Right to Information
 Right to choose
 Right to Represent
 Right to Redressal
 Right to Education
o Central Council:
 Composition
 Vacancy
 Term
 Meetings of the Central Council
 Composition:
 Members of the councils are selected from various areas of
consumer interest.
 Leading members of state-wide organisations representing
segments of the consumer public.
 The Consumer Protection Act has authorised the Central
Government to make rules as to the composition of the Central
Council.
 Vacancy
  Any member may, by writing under his hand to the Chairman of
the Central Council, resign from the Council.
 The vacancies so caused or otherwise, shall be filled from the
same category by the Central Government
 Such person shall hold office so long as the member whose place
he fills would have been entitled to hold office, if the vacancy had
not occurred.
 Term: The term of the council is three years.
 Rules Regarding Meetings of the Central Council:
 At least one meeting every year
 It may meet as and when necessary
 Time and place decided by the Chairman
 Informed to every member 10 days in prior
 Shall contain statement of business to be transacted thereat
 In the absence of Chairman, the Vice- Chairman shall preside
over the meeting
 The resolution passed by the Central Council are
recommendatory in nature
o State Consumer Protection Councils:
 Composition:
 Chairman Minister in charge of consumer affairs in the State
Government.
 Other official or non-official members representing such interest
may be prescribed by State Government.
 Same such number not more than 10 nominated by the Central
Government.
 Meetings:
 At least meet twice a year.
 The council may meet at such tie and place as the Chairman may
think fit.
 Procedure in regard to the transaction of its business is prescribed
by the State Government.
o District Consumer Protection Councils:
 This will provide a forum for promoting and protecting the rights of
consumers at grass root level.
 It is obligatory on the part of State Government to establish for every
district, by notification, a council to be known as the District Consumer
Protection Council.
 Composition:
 Consist of Collector of the district, who shall be the Chairman
 Such number of other official and non-official members
representing such interests as may be prescribed by the State
Government
 Consumer Forums:
o Three Levels of Consumer Courts
 District Consumer Disputes Redressal Forum (District Forum)
 State Consumer Disputes Redressal Commission
 National Consumer Disputes Redressal Commission
o Constitution of Forums:
 Composition
  Disqualification for appointment
 Appointing authority
 Term of office
 Vacancy
 Terms and conditions of service

ARBITRATION AND CONCILIATION

ACT,1996 AND AMENDMENT IN 2018
 Background:
o It is accepted that commercial disputes should be solved through arbitration and
not through judicial system
o Regular judicial process is time consuming
o Normal proceedings is costly in terms of money and energy
o An Arbitration is the reference of a despite between two parties for determination
, after hearing both sides in a judicial manner.
 Limitation of the Act:
o Divorce
o Restitution of conjugal rights
o Taxation
o Non-Payment of admitted Liability
o Criminal Matters
 Suitable Areas for Arbitration
o Construction projects
o Shipping and Transport
o Patents
o Trade marks and brands
o Financial services(Banking and Insurance)
o Foreign collaboration
o Partnership disputes
o Employment disputes
 Domestic Arbitration
o An arbitrator is basically a private Judge appointed with mutual consent of parties
o Simply like ‘panchayat’ system in those days to resolve disputes
o Most of the time terms for Arbitration will be mentioned while making the contract
itself
o Any dispute during the operation phase of any contract will be referred as
agreed.
 Advantages:
o Quick Decisions
o Minimum Legal technicalities and formalities
o Flexibility regarding procedures
o Arbitrator is usually expert in the subject matter
o Cost of court fees
o Other proceeding expense is high
 Disadvantages:
o Limited power of Arbitrator
o No issue summons
 o Examine witnesses
o Take Evidence
o Chances of being biased

 Court must refer the matter to arbitration in some cases

o If a party approaches court despite the arbitration agreement, the other party can
raise objection.
o However objection must be raised before submitting his first statement on the
substance of dispute
o Judicial authority shall refer the parties to arbitration.
o As part of proceedings it is mandatory for judicial authority to refer the matter to
arbitration
o Once the first statement to court is already made by the opposite party the matter
has to continue in the court
o Once the application is made by other party for referring the matter to arbitration
o The arbitrator can continue with arbitration and even make an arbitral award.
o Matter can be referred to arbitration even if the appeal is pending.
 Formation of Arbitral Tribunal
o The Arbitral tribunal can consist of 1,3,5,7 or any number of persons, provided
that number of arbitrators must be an odd numbers.
o If the parties do not determine the number of arbitrators, it will be presumed that
there is a sole arbitrator
 Appointment of Arbitrator
o The parties can agree on a procedure for appointing the arbitrator or arbitrators.
o If they are unable to agree, each party will appoint one arbitrator and the two
appointed arbitrators will appoint the third arbitrator who will act as presiding
arbitrator
o If Arbitrator is not appointed within 30days then they can request Chief Justice to
appoint an arbitrator
 Withdrawal of Arbitration: Arbitral proceedings shall be terminated by final arbitration
award or by an order under section32(2) Arbitral Tribunal shall issue order if termination
of arbitral proceedings
o Claimant withdraws claim, unless respondent objects to withdrawal and Arbitral
Tribunal recognises a legitimate interest on his part in obtaining final settlement
of dispute
o The parties agree on termination of proceedings
o Arbitral Tribunal finds that the continuation of proceedings has for any reason
become unnecessary or impossible
 Intervention by court in arbitration proceedings
o Arbitration Act has over-riding effect
o Arbitration can continue even if other party approaches court
o Challenge to appointment of Arbitrators
o Interim measures by court
o Order is appealable
o Court assistance in taking evidence
 Amendment in 2018
o High Court and Supreme Court recognized Arbitral Institutions: Section 11
of the Act, empowers the High Courts and Supreme Court of India to appoint
arbitrators’ in Ad-hoc arbitration matters.
 o Changes to the timelines provided under S.29A: The above said 2015 Act
brought in one year time line for completion of arbitration proceedings and
pronouncement of awards from the date of constitution of the Arbitral tribunal
o Reduced Scope of Section 17: As per the present Act, a party can approach
the arbitrator any time during the proceedings or at any time after making the
award till it is enforced. The said powers are to be restricted to the date of making
the award and arbitrators will not have powers after making award to grant any
interim relief.
o Confidentiality of the Arbitration Proceedings: Globally one of the main
reasons for parties resorting to arbitration is confidentiality. Hence the
amendment proposes a new Section 42A, ensuring confidentiality of the
arbitration proceedings except award.
o Arbitration Council of India(ACI): The said council is going to be a body
corporate headed by a retired Supreme Court Judge. The council is expected to
create a system for grading/ empaneling of existing Arbitral institutions in India
o Qualifications and Experience of Arbitrator: The said qualifications make 10
years’ experience as a lawyer or a Chartered Accountant or an Engineer or
technocrat or a former Executive.
 Conciliation
o Conciliation is an alternative out-of-court dispute resolution(ADR) instrument.
o Conciliation is a voluntary, flexible, confidential, and interest based process. The
parties seek to reach an amicable dispute settlement with the assistance of the
conciliator, who acts as a neutral third party.
o Conciliation is a voluntary proceeding, where the parties involved are free to
agree and attempt to resolve their dispute by conciliation
o Major Benefits:
 Conciliation ensures party autonomy.
The parties can choose the timing, language, place, structure and content
of the conciliation proceedings.
 Conciliation ensures the expertise of the decision maker.
The parties are free to select their conciliator. A conciliator does not have
to have a specific professional background. The parties may base their
selection on criteria such as; experience, professional and / or personal
expertise, availability, language and cultural skills. A conciliator should be
impartial and independent.
 Conciliation is time and cost efficient.
Due to the informal and flexible nature of conciliation proceedings, they
can be conducted in a time and cost-efficient manner.
 Conciliation ensures confidentiality.
The parties usually agree on confidentiality. Thus, disputes can be settled
discretely and business secrets will remain confidential.
o Principles of Procedure
 Independence and impartiality [Section 67(1)]
 Fairness and justice[Section 67(2)]
 Confidentiality [Section 70]
 Disclosure of the information[Section 70]
 Co-operation of the parties with Conciliator [S. 71]

COMPANIES ACT
 History:
o 1850: The Indian company law begun with the companies act 1850, modeled on
British companies act 1844
o 1913: The Indian Companies act of 1913 was based on the British Companies
act of 1908
o 1956: The Indian Companies act, 1956; April 1, 1956
o 2013: The Indian Companies act
 Highlights of Indian Companies Act 2013
o Passed in Lok sabha: December 18, 2012
o Passed in Rajya Sabha: August 08, 2013
o Total number of sections: 470
o Total number of chapters: 29
o Total number of schedules: 7
o Effective from September 12, 2013

 Objectives (2013):
o To promote the development of the economy
o To encourage transparency and accountability
o To promote high standards of corporate governance
o To recognize new concepts and procedures to support business while protecting
interests of all the stakeholders
o To set up institutional structure in the form of various authorities, bodies and
panels (NCLT and NCLAT)
o To enforce stricter action against fraud and gross non - compliance with
company law provisions

 What Is a Company: The word ‘company’ was derived from the Latin words Com=with or
together : Panis =bread. A company can be defined as an "artificial person", invisible,
intangible, created under law, with a discrete legal entity, perpetual succession and a
common seal.
 o Act defines: “A company means a company formed and registered under this Act
or an existing company.”
o A Company is a voluntary association of persons formed for the purpose of doing
business, having a distinct name and limited liability.
o It is a form of business organization where the funds of a large number of
investors are managed by a few persons for the purpose of earning profits which
are shared by all the investors
o Meaning of company: section 2 (20) of companies act, 2013 company means a
company incorporated under this act or under any previous company law. The
word company has no strictly technical or legal meaning. A body corporate or
corporation includes company incorporated outside India
o Company is derived from two words: com- group and companies- bread.
Therefore, it means group that eat their bread together.

 Characteristics of a Company:
o Registration: Compulsory
o Separate legal entity: Distinct person
o Perpetual succession
o Artificial person: But not a Citizen
o Transferable shares
o Limited liability
o Common seal: Separate and independent legal existence
o Separate property: Can dispose property in its name.
o Capacity to sue and be sued
 Conversion of company:
o The Act provides for conversion of public company into a private company and
vice versa
o A private company is converted into a public company either by default or by
choice incompliance with the statutory requirements.
o Once the action for conversion takes place then , a petition can be filed with the
central government with the necessary documents for its decision on the matter
of conversion
 STEPS for formation of a company:
o Types of Company
o Availability of Name
o The Memorandum and Articles of Association duly signed, and stamped.
o The agreement, if any with any individual for appointment as its Managing or
whole-time director.
o Consent of directors in Form 29.
o Notice of Registered address in Form 18 to be given within 30 days of the date of
incorporation.
o Particulars of Directors in Form 32.
o Payment of Registration Fees.
o Power of attorney, to fulfill various legal and other formalities.
o Statutory Declaration in Form No. 1 that all requirements of the Companies Act
and the rules thereunder have been complied with.
o The declaration should be made by either an advocate of Supreme Court / High
Court, a practicing Chartered Accountant or a director, or a manager or a
secretary named in the Articles of the proposed company. [Section 33 (2)]
 Promoters:
o They can be remunerated for their services, but they have to enter into a contract
before the incorporation of the company through a pre incorporation of the
company
o They will usually act as nominees or as the first directors of the company
o They enter into contracts after the incorporation and before the commencement
of business.
o But they need not compulsorily participate in the formation of the company.
 o Sometimes , a few persons may only act as professionals who help the
promoters on behalf of the company.. like the solicitor , chartered accountant
etc.. and get paid for their services.
o The promoters in most of the cases decide as to …What is the type of a
company to be formed?
o In India promoters generally secure the management of the company that is
formed and have a controlling interest in the company’s management.
 Legal position of promoters:
o They cannot make profit at the expense of the company, which they have
promoted without the knowledge and consent of the company. In case they do so
, they may be compelled to account for it.
o They cannot sell their property to the company at a profit unless all the material
facts are disclosed at the independent board of directors or the shareholders of
the company
o If they do so, the company may repudiate the contract of sale or confirm the sale
after recovering the profit made by the promoter
 Promoters have the following liabilities under the Companies Act,1956:
o They can be liable for non-compliance of the provisions of the Act
o Severe penalty may be imposed
o The court may suspend the promoter from taking part in the management of the
company
o Liable for any untrue statement in the prospectus to the person who has
subscribed for any shares or debentures on the faith of the prospectus The
liabilities are ….
 to set aside the allotment of shares,
 sued for damages,
 sued for compensation
 criminal proceedings
 Memorandum of Association (MOA):
o It is the charter of the company
o It contains the fundamental conditions upon which the company can be
incorporated
o It contains the objects of the company’s formation
o The company has to act within objects specified in the MOA
o It defines as well as confines the powers of the company
o Any thing done beyond the objects specified in the MOA will be ultra vires. Their
transactions will be null and void
o The outsider have to transact looking into the MOA
o Conditions of the MOA:
 It should be printed.
 Divided into paragraph and numbers consecutively.
 Signed by at least seven persons or two in case of public and private
company respectively.
 The signature should be in the presence of a witness, who will have to
attest the signature.
 Members have to take shares and write the number of shares taken with
full address.
o The MOA of the Limited Company:
 The name of the company with ‘limited’ as the last word
 The name of the state where the registered office of the company is to be
situated
  The objects of the company stating the ‘Main objects’ and the ‘other
objects’
 The declaration about the liability of the members is limited ( limited by
shares or guarantee)
 The amount of the authorized share capital, divided into shares of fixed
amounts
o The Compulsory Clauses in MOA
 The Name Clause – it decides on the name of the company based on the
capital involved
 The Registered Office Clause- where it has registered its head office and
other branch office ( The registered office can be changed with the
permission of the ROC)
 The Object Clause- Main object, ancillary object and the other objects of
the company are clearly specified ( Ashbury Railway Carriage Co V.
Riche). The applicable doctrine here is the “ Doctrine of Ultra Vires”
beyond the powers of the company (opposed to Intra Vires)
 The Liability Clause- What is the liability of its members.. limited by
shares or guarantee or unlimited, there can be alteration in the liability
clause
 The Capital Clause - The amount of the nominal capital of the company,
number of shares in which it is to be divided…alteration of the capital
clause etc
 The Association or Subscription clause Where the subscribers to the
MOA declare that they respectively agree to take the number of the
shares in the capital. It has to have the following:
 They have to sign in the presence of two witnesses, who attest the
signatures,
 The subscriber to take at least ones hare.
 After the name the subscriber has to write the number of shares taken
 Doctrine of Ultra Vires
o The powers exercisable by the company are to be confined to the objects
specified in the MOA.
o So it is better to define and include the provisions regarding the acquiring of
business, sharing of profits, promoting company and other financial, gifts ,
political party funds etc
o If the company acts beyond the powers or the objects of the company that is
specified in the MOA, the acts are considered to be of ultra vires. Even if it is
ratified by the all the members, the action is considered to be ineffective.
o Even the charitable contributions have to be based on the object clause. ( A
Lakshmanaswami Mudaliar V. LIC of India)
o The consequences of the ultra vires transactions are as follows:
 Injunction
 Directors’ personal liability.
 If a property has been purchased and it is an ultra vires act, the company
can have a right over that property.
 The doctrine to be used exclusively for the companies’ interest.
 But the others cannot use this doctrine as a tool to attack the company
 Articles of Association
o It is the company’s bye- laws or rules to govern the management of the company
for its internal affairs and the conduct of its business.
 o AOA defines the powers of its officers and also establishes a contract between
the company and the members and between the members inter se
o It can be originally framed and altered by the company under previous or existing
provisions of law.
o AOA plays a subsidiary part to the MOA
o Any thing done beyond the AOA will be considered to be irregular and may be
ratified by the shareholders
o The content of the AOA may differ from company to company as the Act has not
specified any specific provisions
o Flexibility is allowed to the persons who form the company to adopt the AOA
within the requirements of the company law
o The AOA will have to be conversant with the MOA, as they are contemporaneous
documents to be read together.
o Any ambiguity and uncertainty in one of them may be removed by reference to
the other.
o Contents of the AOA may be as follows:
 Share capital
 Lien on shares
 Calls on shares
 Transfer and transmission of shares
 Forfeiture of the shares
 Adoption of the preliminary contracts etc….
 Surrender of the shares
 General meetings
 Alteration of the capital
 Directors etc.
 Dividends and reserves
 Account and audit
 Borrowing powers
 Winding up
 Raising of Capital From Public:
o The companies can raise money by offering securities for sale to the public.
o They can invite the public to buy shares, which is known as public issue.
o For this purpose the company may issue a prospectus, which may include a
notice circular , advertisement or other documents which are issued to invite
public deposits.
 Prospectus:
o It is an invitation issued to the public to purchase or subscribe shares or
debentures of the company.
o Every prospectus must be dated. The date of publication and the date of issue
must be specifically stated in the prospectus.
o The golden rule of the prospectus is that every detail has to be given in strict and
scrupulous accuracy. The material facts given in the prospectus are presumed to
be true.( New Brunswick and Canada Railway . Land & Co. Vs. Muggerridge).
o Various forms in which the prospectus can be issued:
 Shelf Prospectus: Prospectus is normally issued by financial institution or
bank for one or more issues of the securities or class of securities
mentioned in the prospectus.
 There can be deemed prospectus also if it is issued by the issue house
 ‘Information Memorandum’: It means a process, which is undertaken prior
to the filing of prospectus.
  Even an Advertisement , that the shares are available is considered to be
prospectus
o Contents of the prospectus:
 General information
 Capital structure
 Terms of present issue
 Management and projects
 Management and perception of risk factor It is compulsory to register the
prospectus with the Registrar
o Abridged Prospectus: Every application form to contain a prospectus . The
Central Govt. has prescribed that there should be one Abridged Prospectus with
every two application forms, attached by way of a perforated lines containing the
information under the following points:
o Civil Liability for Misstatements In case of any untrue statement in the
prospectus:
 The liability will be on the director of the company ,whose name was
written during the time of issue
 The persons who have authorized their names to be theirs in the
prospectus to be named as directors
 Promoter
 Every person including the person who is an expert and has authorized
his name to be issued with the prospectus
o Remedies for misstatements in the prospectus
 Relying on the prospectus if any person buys shares, the person may
 Rescind the contract ( only when there is misrepresentation relating to the
material facts. The rescission has to be done within a reasonable time
 Claim damages- it can be claimed from the directors, promoters or other
persons who has authorized their name to be written during the issue of
the prospectus
 Share Capital:
o Share: Share is defined as “an interest having a money value and made up of
diverse rights specified under the articles of association”.
o Share capital: Share capital means the capital raised by the company by issue
of shares.
o A share is a share in the share capital of the company including the stock.
o Share gives a right to participate in the profits of the company, or a share in the
assets when the company is going to be wound up.
o Other features of a share:
 A share is not a negotiable instrument, but it is a movable property.
 It is also considered to be goods under the Sale of Goods Act, 1930.
 The company has to issue the share certificate.
 It is subject to stamp duty.
 The ‘Call’ on Shares is a demand made for payment of price of the
shares allotted to the members by the Board of Directors in accordance
with the Articles of Association.
 The call may be for full amount or part of it.
o Kinds of Shares:
 Equity Shares:
 Equity Share Capital means all share capital which is not
preference share capital."
  The equity shareholders receive dividend out of profits declared in
AGMs.
 Dividend declared only after depreciation allowance and payment
of preference shareholders.
 Voting right is in proportion to paid-up equity capital.
 Preference Shares
 Preference shares capital is that part of share capital which fulfills
following two conditions:
o carries preferential right with respect to dividend- fixed
amount or at fixed rate; and
o carries preferential right with respect to repayment of
capital on winding up.
o Sweat Equity Shares
 Sweat Equity Shares means equity shares issued to employees or
directors at a discount for consideration other than cash for providing
know-how or making available rights in the nature of intellectual property
or value addition by whatever name called.
 Issue must be authorised by a special resolution.
 Resolution to specify number, current market price and consideration of
shares, and the class or classes of directors or employees.
 Transfer and Transmission of shares:
o AOA provides for the procedure of transfer of shares. It is a voluntary action of
the shareholder.
o It can be made even by a blank transfer –In such cases the transferor only signs
the transfer form without making any other entries.
o In case it is a forged transfer, the transferor’s signature is forged on the share
transfer instrument.
o Transmission of shares is by operation of law, e.g. by death, insolvency of the
shareholder etc.
 Share Certificate and Share Warrant:
o Share Certificate: The Share Certificate is a document issued by the company
and is prima facie evidence to show that the person named therein is the holder (
title) of the specified number of shares stated therein
o Share certificate is issued by the company to the ( shareholder) allottee of
shares.
o The company has to issue within 3 months from the date of allotment. In case of
default the allottee may approach the central government
o Share Warrant: The share warrant is a bearer document issued by the company
under its common seal. As share warrant is a negotiable instrument, it is
transferred by endorsement and by mere delivery like any other negotiable
instrument.
 Buy-Back of Securities:
o The company may purchase its securities back and it is popularly known as buy
back of shares
o To do so , the company has to be authorized under the AOA.
o The company has to comply with the provisions of the Company law to buy back
its securities.
o The listed company has to seek permission from the SEBI (SERA 1998).
Specifically for the private company etc , the Buy Back Securities Rules1999 will
be applicable.
o Conditions of Buy-back:
 Must be authorized by the Articles.
 Special resolution is AGM authorizing Buy-back. Buy-back is, or less
than, 25% of paid-up capital or free reserves in that financial year.
 Debts owned by company is not more than twice its capital and free
reserves after such buy-back. (Central Govt. may relax the ratio)
 Buy-back should complete within 12 months from passing of special
resolution.
 Declaration of solvency (Form 4A) signed by the MD and one director
must be filled with the RoC and SEBI.
 After buy-back is complete the securities must be physically destroyed
within 7 days.
 Company shall not make a further issue of shares / securities for 6
months, except by way of bonus shares.
 Prescribed return in Form 4C to be filled with RoC and SEBI within 30
days.
 The company must maintain a register of buy-back mentioning the
consideration paid, date of cancellation / destruction of securities.
 Contravention of Section 77A would make the company or officer
punishable with fine up to Rs 50,000 and /or imprisonment up to 2 years.
 If buy-back is out of free reserve, a sum equal to the nominal value of
shares be transferred to securities premium account and disclose in the
balance sheet.
o Prohibition for Buy-back [Sec 77B]
 No company shall directly or indirectly purchase its own securities:
 Through any subsidiary including its own subsidiary or,
 Through any investment company.
 If any default in repayment of deposit, interest thereon, redemption of
debenture / preference shares, payment of dividend, repayment of any
term loan is subsisting.
 If company has not complied with provisions of Sections 159, 207 and
211 of the Act.