Master of Business Administration - Semester 3 MB 0051: Legal Aspects of Business ASSIGNMENT- Set 1

1. “All agreements are not contracts, but all contracts are agreements”. Comment.
Contract A contract is an agreement, enforceable by law, made between at least two parties by which rights are acquired by one and obligations are created on the part of another. If the party, which had agreed to do something, fails to do that, then the other party has a remedy. Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. The Airlines is under an obligation to take X from Mumbai to Bangalore on 10 January. In case the Airlines fails to fulfil its promise, X has a remedy against it. Thus, X has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January. A corresponding duty is imposed on the Airlines. As there is a breach of promise by the promisor (the Airlines), the other party to the contract (i.e., X) has a legal remedy. Agreement Sec.2(e) defines an agreement as “every promise and every set of promises forming consideration for each other”. In this context, the word ‘promise’ is defined by Sec.2(b). In a contract there are at least two parties. One of them makes a proposal (or an offer) to the other, to do something, with a view to obtaining the assent of that other to such act. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise (Sec.2(b)). Enforceability by law: The agreement must be such which is enforceable by law so as to become a contract. Thus, there are certain agreements which do not become contracts as this element of enforceability by law is absent. Essentials of a contract Sec.10 provides that all agreements are contracts, if they are made by free consent of parties, competent to contract, for a lawful consideration, and with a lawful object, and are not expressly declared by law to be void. To constitute a contract, there must be an agreement between two or more

than two parties. No one can enter into a contract with himself. An agreement is composed of two elements – offer or proposal by one party and acceptance thereof by the other party. Effect of absence of one or more essential elements of a valid contract: If one or more essentials of a valid contract are missing, then the contract may be either voidable, void, illegal or unenforceable. Classification of contracts Contracts may be classified as follows: Classification of contracts according to formation: A contract may be (a) Made in writing (b) By words spoken and (c) Inferred from the conduct of the parties or the circumstances of the case. Formal and informal contracts: This is another way of classifying contracts on the basis of their formation. A formal contract is one to which the law gives special effect because of the formalities or the special language used in creating it. The best example of formal contracts is negotiable instruments, such as cheques. Informal contracts are those for which the law does not require a particular set of formalities or special language. Classification according to validity: Contracts may be classified according to their validity as (i) Valid, (ii) Voidable, (iii) Void, (iv) Unenforceable. A contract to constitute a valid contract must have all the essential elements discussed earlier. If one or more of these elements are missing, the contract is voidable, void, illegal or unenforceable. As per Sec.2 (i) A voidable contract is one which may be repudiated (i.e., avoided) at the will of one or more of the parties, but not by others.

2. What are the essentials of a contract of sale under the sale of Goods Act, 1930?
A contract of sale is ‘a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price’. From the definition, the following essentials of the contract emerge: 1. There must be at least two parties. A sale has to be bilateral because the property in goods has to pass from one person to another. The seller and the buyer must be different persons. A person cannot buy his own goods. However, a part-owner may sell to another part-owner. Examples: A partnership firm was dissolved and the surplus assets, including some goods, were divided among the partners in specie. The sales-tax officer sought to tax this transaction. Held, this transaction did not amount to sale. The partners were themselves the joint owners of the goods and they could not be both sellers and buyers. Moreover, no money consideration was promised or paid by any partner to the firm as consideration for the goods allotted to him. 2. Transfer or agreement to transfer the ownership of goods. In a contract of sale, it is the ownership that is transferred (in the case of sale), or agreed to be transferred (in the case of agreement to sell), as against transfer of mere possession or limited interest (as in the case of bailment or pledge).

3. The subject matter of the contract must necessarily be goods. The sale of immovable property is not covered under Sale of Goods Act. The expression ‘goods’ is defined in Sec.2(7). 4. Price is the consideration of the contract of sale. The consideration in a contract of sale has necessarily to be ‘money’, (i.e., the legal tender money). If for instance, goods are offered as the consideration for goods, it will not amount to sale. It will be called a ‘barter’. Payment by installments. In the case of sale of goods, the parties may agree that the price will be payable by installments. Also, the terms may stipulate some amount by way of down payment and the balance by installments. Sale and agreement to sell Where under a contract of sale, the property (ownership) in the goods is transferred from the seller to the buyer, it is called a sale [Sec.4(3)]. Thus, sale takes place when there is a transfer of ownership in goods from the seller to the buyer. A sale is an executed contract. Example: Ramanathan sells his car to Bhim for Rs. 1 lakh. If all essential elements of a valid contract are present, it is a sale and therefore the ownership of the car stands transferred from Ramanathan to Bhim. This is so even where the payment of the price or the delivery of the car or both have been postponed. Agreement to sell means a contract of sale under which the transfer of property in goods is to take place at a future date or subject to some conditions thereafter to be fulfilled.

3. Describe the main features of Consumer Protection Act 1986. Salient features of the Act are:      It applies to all goods and services unless specifically exempted by the Central Government. It covers all sectors whether private, public or co-operative. It confers certain rights on consumers. It envisages establishment of consumer protection councils at the Central and State levels whose main object shall be to promote and protect the rights of the consumers. The provisions of this Act are in addition to and not in derogation of the provisions of any other Act.

4. What are the duties and powers of an ‘authorized person’ under FEMA, 1999?

The duties of an authorized person as provided in the Act are summarized here under:

1. To comply with RBI directions [Sec.10(4)]. An authorised person shall, in all his dealings in foreign exchange or foreign security, comply with such general or special direction or order as the Reserve Bank may, from time to time, think fit to give. 2. Not to engage in unauthorized transactions [Sec.10(4)]. Except with the previous permission of the Reserve Bank, an authorised person shall not engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of authorization under this section. 3. To ensure compliance of FEMA provisions [Sec.10(5)]. An authorised person shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information, as will reasonably satisfy him that the transaction will not involve and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made there under. Where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorised person shall refuse in writing to undertake the transactions and shall, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank. Powers of the authorised person 1. To deal in or transfer any foreign exchange or foreign security to any person [Sec.3(a)] 2. Receive any payment by order or on behalf of any person resident outside India in any name. [Sec.3(c)] However, an authorised person is not allowed to credit the account of any person without any corresponding remittance from any place outside India. 3. To open NRO, NRE, NRNR, NRSR and FCNR accounts. 4. To sell or purchase foreign exchange for current account transactions. [Sec.5] 5. To sell or purchase foreign exchange for permissible capital account transactions. [Sec.6]

5. What do you mean by Memorandum of Association? What does it contain? The Memorandum of Association of a company is its charter which contains the fundamental conditions upon which alone the company can be incorporated. It tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go. Thus, it defines as well as confines the powers of the company. If anything is done beyond these powers, that will be ultra vires (beyond powers of) the company and so void. The memorandum serves a two-fold purpose. It enables shareholders, creditors and all those who deal with the company to know what its powers are and what is the range of its activities. Thus, the intending

shareholder can find out the field in, or the purpose for which his money is going to be used by the company and what risk he is taking in making the investment. Also, any one dealing with the company, say, a supplier of goods or money, will know whether the transaction he intends to make with the company is within the objects of the company and not ultra virus its objects. Contents Sec.14 requires that the memorandum of a company shall be in such one of the Forms in Tables B, C, D and E in Schedule I to the Act, as may be applicable in the case of the company, or in Forms as near thereto as circumstances admit. Sec.15 requires the memorandum to be printed, divided into paragraphs, numbered consecutively and signed by at least seven persons (two in the case of a private company) in the presence of at least one witness, who will attest the signature. Each of the members must take at least one share and write opposite his name the number of shares he takes. Sec.13 requires the memorandum of a limited company to contain: (i) the name of the company, with „limited‟ as the last word of the name in the case of a public company and „private limited‟ as the last words in the case of a private company; (ii) the name of the State, in which the registered officer of the company is to be situated; (iii) the objects of the company, stating separately „Main objects‟ and „other objects‟; (iv) the declaration that the liability of the members is limited; and (v) the amount of the authorised share capital, divided into shares of fixed amounts. These contents of the memorandum are called compulsory clauses and are explained below: The name clause. The promoters are free to choose any suitable name for the company provided: (a) The last word in the name of the company, if limited by shares or guarantee is „limited‟ unless the company is registered under Sec.25 as an „association not for profit‟ *Sec.13(1) (a) & Sec.25]. (b) In the opinion of the Central Government, the name chosen is not undesirable [Sec.20(1)]. Too similar name:. In case of too similar names, the resemblance between the two names must be such as to be calculated to deceive. A name shall be said to be calculated to deceive where it suggests some connection or association with the existing company. Publication of name (Sec.147): Every company shall: (a) paint or affix its name and the address of its registered office and keep the same painted or affixed, on the outside of every office or place of business in a conspicuous position in letters easily legible and in the language in general use in the locality.

6. Write a note on the following:   Copy Right Act Pledge

Copy Right Act The law relating to copyright is contained in the Copyright Act, 1957. It extends to the whole of India and came into force on January 21, 1958. The Act has been amended in 1983, 1984, 1992 and 1994 primarily to bring the Indian law in conformity with the international conventions in general and Bern Convention and the Universal Copyright Convention in particular. The term „copyright‟ means the exclusive right, by virtue of, and subject to the provision of the Act: (a) In the case of literary, dramatic or musical work, not being a computer programmed – (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in (i) to (vi); (b) in the case of computer programme – (i) to do any of the acts specified in clause (a) above; (ii) to sell or give on hire, or offer for sale or hire any copy of the computer programme, regardless of whether such copy has been sold or given on hire on earlier occasions; (c) in the case of an artistic work – (i) to reproduce the work in any material form including depiction in three dimensions of a two – dimensional work or in two dimensions of a three – dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in (i) to (iv) above; (d) in the case of a cinematograph film – (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire; or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the film to the public. (e) In the case of a sound recording – (i) to make any other sound recording embodying it; (ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the sound recording to the public.

Pledge Sec.172, defines a pledge as the bailment of goods as security for payment of a debt or performance of a promise. The person, who delivers the goods as security, is called the „pledgor‟ and the person to whom the goods are so delivered is called the „pledgee‟. The ownership remains with the pledgor. It is only a qualified property that passes to the pledgee. He acquires a special property, and lien which is not of ordinary nature and so long as his loan is not repaid, no other creditor or „authority‟ can take away the goods or its price. Thus, in Bank of Bihar v. State of Bihar and Ors. (1971) Company Cases 591, where sugar pledged with the Bank was seized by the Government of Bihar, the Court ordered the State Government of Bihar to reimburse the bank for such amount as the Bank in the ordinary course would have realised by the sale of sugar seized. Delivery essential. A pledge is created only when the goods are delivered by the borrower to the lender or to someone on his behalf with the intention of their being treated as security against the advance. Delivery of goods may, however, be actual or constructive. It is constructive delivery where the key of a godown (in which the goods are kept) or documents of title to the goods are delivered. The owner of the goods can create a valid pledge by transferring to the creditor the documents of title relating to the goods. Example: A businessman pledged a railway receipt to a bank, duly endorsed. Later he was declared bankrupt. The Official Assignee contended that the pledge of the railway receipt was not valid. Held, that the railway receipts in India are title to goods, and that the pledge of the railway receipt to the bank, duly endorsed, constituted a valid pledge of the goods. Similarly, where the goods continue to remain in the borrower‟s possession but are agreed to be held as a „bailee‟ on behalf of the pledgee and subject to the pledgee‟s order, it amounts to constructive delivery, and is a valid pledge. Advantages of pledge. To a creditor, pledge is perhaps the most satisfactory mode of creating a charge on goods. It offers the following advantages: 1. The goods are in the possession of the creditor and therefore, in case the borrower makes a default in payment, they can be disposed of after a reasonable notice. 2. Stocks cannot be manipulated as they are under the lender‟s possession and control. 3. In the case of insolvency of the borrower, lender can sell the goods and prove for the balance of the debt, if any. 4. There is hardly any possibility of the same goods being charged with some other party if actual possession of the goods is taken by the lender.

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