B.

COM I YEAR / 2 SEM

CBCS-R19

BUSINESS LAWS
PREPARATION MATERIAL
_Dr A SATHISH KUMAR M.COM, MBA, UGC-NET, NCMP, Ph.D

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Q1. All Contracts are Agreements but all Agreements are not Contracts - Discuss

No doubt it is a valid and true statement. Before critically discussing the statement, we must know the
exact and basic meanings of the two terms contract and agreement in the context of business law. To
understand the meaning, we have to go to the contract act 1872 that is applicable in the subcontinent.
A contract is a legally binding agreement or relationship that exists between two or more parties to do
or abstain from performing certain acts. There must be offer and acceptance for a contract to be
formed. An offer must be backed by acceptance of which there must be consideration. Both parties
involved must intend to create legal relation on a lawful matter which must be entered into freely and
should be possible to perform.

According to section 2(h) of the Contract Act 1872: ” An agreement enforceable by law is a contract.”

A contract therefore, is an agreement which creates a legal obligation i.e., a duty enforceable by law.
From the above definition, we find that a contract essentially consists of two elements: (1) An
agreement and (2) Legal obligation i.e., a duty enforceable by law. Example; A promises to sell a horse
to B for Rs.100,000, and B promises to buy a horse at that price.

All contracts are agreements: For a Contract to be there an agreement is essential; without an
agreement, there can be no contract. As the saying goes, “where there is smoke, there is fire; for
without fire, there can be no smoke”. It could will be said, “where there is contract, there is agreement
without an agreement there can be no contract”. Just as a fire gives birth to smoke, in the same way, an
agreement gives birth to a contract.

What is agreement?: An agreement is a form of cross reference between different parties, which may
be written, oral and lies upon the honor of the parties for its fulfillment rather than being in any way
enforceable. As per section 2 (e) of Contract At 1872: ” Every promise and every set of promises,
forming the consideration for each other, is an agreement.” Thus it is clear from this definition that a
‘promise’ is an agreement.

What is a ‘promise‘?: the answer to this question is contained in section 2 (b) which defines the
term.” 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.” An agreement, therefore, comes into
existence only when one party makes a proposal or offer to the other party and that other party
signifies his assent thereto.

All agreements are not contracts: As stated above, an agreement to become a contract must give
rise to a legal obligation. If an agreement is incapable of creating a duty enforceable by law. It is not a
contract. Thus an agreement is a wider term than a contract. Agreements of moral, religious or social
nature e.g., a promise to lunch together at a friend’s house or to take a walk together are not contracts
because they are not likely to create a duty enforceable by law for the simple reason that the parties
never intended that they should be attended by legal consequences. On the other hand, legal
agreements are contracts because they create legal relations between the parties.

EXAMPLE: a) A invites B to dinner. B accepts this invitation but does not attend the dinner. A can not
sue B for damages. It is a social agreement because it does not create legal obligation. So it is not a
contract.

b) A promises to sell his car to B for one million. It is a legal agreement because it creates legal
obligations between the parties. So it is a contract.

According to section 10 of the contract act 1872, “All agreements are contracts if they are made by the
free consent of the parties, competent to contract, for a lawful consideration and with a lawful object
and not hereby declared to be void.” Thus an agreement becomes a contract when at least the
following conditions are satisfied.

1-free consent 2-competency of the parties 3-lawful consideration 4- lawful object.

Conclusion: In a nutshell, an agreement is the basis of a contract and contract is the structure
constructed on these basis. An agreement starts from an offer and ends on consideration while a
contract has to achieve another milestone that is enforceable. Due to this, breach of an agreement does
not give rise to any legal remedy to the aggrieved party while breach of contract provides legal remedy
to the aggrieved party against the guilty party. Thus we can say that all contracts are agreements but
all agreements are not contracts
Q2. Define Contract? Also explain the essentials of a Valid Contract?

A valid contract is an agreement, which is binding and enforceable. In a valid contract all the parties
are legally bound to perform the contract. According to Section 2 (h) of the Contract Act, “an
agreement enforceable by law is a contract.”

It means an agreement is regarded as a control when it is enforceable by law. To be enforceable by law,

an agreement must possess some essentials of a valid contract. According to Section 10, “all
agreements are contracts if they are made by the free consent of parties, competent to contract, for a
lawful consideration and with a lawful object and are not hereby expressly declared to be void.” When
necessary the agreement must satisfy the requirements of law regarding writing attestation or
registration. An agreement becomes enforceable by law when it fulfils essential conditions. These
conditions may be called the essentials of a valid contract, which are as follows:

1. Offers and Acceptance: For an agreement there must be a lawful offer by one and lawful
acceptance of that offer from the other party. The term lawful means that the offer and acceptance
must satisfy the requirements of Contract Act. The offer must be made with the intention of creating
legal relations otherwise, there will be no agreement. Example: A say to B that he will sell his cycle to
him for Rs.2000. This is an offer. If B accepts this offer, there is an acceptance.

2. Legal Relationship: The parties to an agreement must create a legal relationship. Agreements of a
social or domestic nature do not create legal relations and as such cannot give rise to a contract. It is
presumed in commercial agreements that parties intend to create legal relations. Example: A father
promises to pay his son Rs.500 every month as pocket money. Later, he refuses to pay. The son cannot
recover as it is a social agreement and does not create legal relations.

3. Lawful Consideration: The third essential of a valid contract is the presence of consideration.
Consideration is “something in return.” It may be some benefit to the party. Consideration has been
defined as the price paid by one party for the promise of the other. An agreement is enforceable only
when both the parties get something and give something. The something given or obtained is the price
of the promise and is called consideration. Example:A promise to obtain for B employment in the
public service, and B promise to pay 10,000 rupees to A. the agreement is void, as the consideration for
it is unlawful.
4. Capacity of Parties: According to Section 11, in order to be competent to contract the parties must
be of the age of majority and of sound mind and must not be disqualified from contracting by any law
to which they are subject. If one of the parties to the agreement suffers from minority, madness,
drunkenness etc., the agreement is not enforceable at law, except in some cases. Example: M, a person
of unsound mind, enters into an agreement with S to sell his house for Rs.2 lac. It is not a valid
contract because M is not competent to contract.

5. Free Consent: It is another essential of a valid contract. Consent means that the parties must have
agreed upon the same thing in the same sense. For a valid contract it is necessary that the consent of
parties to the contact must be free. Example: 1. A compels B to enter into a contract on the point of
the pistol. It is not a valid contract as the consent of B is not free.

6. Lawful Objects: It is also necessary that agreement should be made for a lawful object. The object
for which the agreement has been entered into must not be fraudulent, illegal, immoral, or opposed to
public policy or must not imply injury to the person or property of another. Every agreement of which
the object or consideration is unlawful is illegal and therefore void. Example: A promise to pay B Rs.5
thousand if B beats C. The agreement is illegal as its object is unlawful.

7. Writing and Registration: According to Contract Act, a contract may be oral or in writing.
Although in practice, it is always in the interest of the parties that the contract should be made in
writing so that it may be convenient to prove in the court. It is essential for the validity of a contract
that it must be in writing signed and attested by witness and registered if so required by the law.
Example: A Verbally promises to sell his book to y for Rs.200 it is a valid contract because the law does
not require it to be in writing.

8. Certainty: According to Section 29 of the Contract Act, “Agreements the meaning of which are not
certain or capable of being made certain are void.” In order to give rise to a valid contract the terms of
the agreement must not be vague or uncertain. For a valid contract, the terms and conditions of an
agreement must be clear and certain. Example: A promised to sell 20 books to B. It is not clear which
books A has promised to sell. The agreement is void because the terms are not clear.

9. Possibility of Performance: The valid contract must be capable of performance section 56 lays
down that. “An agreement to do an act impossible in itself is void.” If the act is legally or physically
impossible to perform, the agreement cannot be enforced at law. Example: A agrees with B to discover
treasure by magic, the agreement is not enforceable.

10. Not Expressly Declared Void: An agreement must not be one of those, which have been expressly
declared to be void by the Act. An agreement in restraint of trade and an agreement by way of wager
have been expressly declared void. Example: A promise to close his business against the promise of B
to pay him Rs.2 lac is a void agreement because it is restraint of trade

Q3. Define Consideration? What are the legal rules regarding Consideration?

Definition. Consideration has been defined in many ways. According to pollock"Consideration is the
price for which the promise of some other is brought and the promise thus given for value is
enforceable." It is something which is of some value in the eyes of law. According to Section 2 (d) of
the Indian Contract Act defines consideration as-
(a) when at the desire of the promisor,
(b) the promise or any other person,
(c) has done or abstained from doing, or does or abstain from doing, or promises to do or abstain from
doing,
(d) something, such act or abstinence or promise is called a consideration for the promise.

Example: A agrees to sell his horse to B for Rs. 1000. Here A's promise to sell his horse is for B's
consideration to pay Rs. 1000 is A's consideration to sell his horse to B.

The essentials or legal rules of a valid consideration are as under:-

1. It must move at the desire of the promisor: In order to constitute legal consideration the act or
abstinence forming the consideration for the promise must be done at the desire or request of the
promisor. Example: A saves B’s house from the fire without being asked to do so. A cannot demand
payment for his services because A performed this act voluntarily and not at the desire of B.

2. It may move from the Promisee or any other person: The second essential of a valid
consideration is that consideration may move from the promisee or from a third person on his behalf.
In other words the act which is to constitute consideration may be done by the promise or any other
person. Example:
A, an old lady, gifted her property to her daughter R on the condition that she should pay a certain
amount annually to A’s brother C. On the same day R, entered into an agreement with her Uncle C to
pay the amount. Afterwards she refused to fulfill her promise. C filed a suit. It was held that C was
entitled to recover the amo0unt as the consideration on his behalf had moved from her sister A.

3. It may be past, present or future: It is clear from the definition of consideration that it may be
past present or future. It means that the consideration is an act, which has already been done at the
desire of the promisor, or in progress or is promised to be done in future. A) Past Consideration:
When the consideration for a present promise was given before the date of the promise it is called a
past consideration. It is not a valid consideration.

Example: 1. A has lot his pure and B a finder, delivers it to him. B cannot demand payment for his
services because of past consideration.
2. A teaches the son of B at B’s request in the month of January and in February B promises to pay A
sum of Rs.2,000 for his services. The services of A will be past consideration.

B) Present Consideration: When consideration is given simultaneously by one party to another at the
time of contract, it is called Present Consideration. The act constituting the consideration is wholly or
completely performed. Example: A sells a book to B and B pay its price immediately it is a case of
present consideration.

C) Future Consideration: When the consideration on both sides is to be given at a future date, it s
called future consideration or executory consideration. It consists of promises and each promise is a
consideration for the other.

Example: X promises to deliver certain goods to Y for Rs.1500 after a week upon Y’s promise to pay the
agreed price at the time of delivery. The promise of X is supported by promise of Y and the
consideration is executory on both sides.

4. It need not be Adequate: It is not necessary that consideration should be adequate to the value of
the promise. The law only insists on the presence of consideration and not on its adequacy. It is for the
parties to the contract to consider the adequacy of consideration and the courts are not concerned
about it.

Example: A agrees to sell his car worth Rs.200,000 for Rs.50,000 only and his consent is free. The
agreement is valid contract.

5. It must be Real: It is necessary that consideration must be real and competent. Where
consideration is physically impossible illegal uncertain or unreal it is not real and therefore shall not be
a valid consideration.
A) Physically Impossible: A promise to do something which is physically impossible. Example: A,
promise to put life in B’s dead brother on B’s promise to pay him Rs.1 Lac. B) Legally Impossible: A
promise to do something which is illegal. Example: A promise to pay Rs.1 Lac to B on his promise to
beat C. C) Uncertain Consideration: A promise to do something, which is too unclear and uncertain.
Example: A employs B for a certain work and B promises to pay A.

Q. 4 What remedies are available to an aggrieved party for the breach of the contract?

"Breach of contract" is a legal term that describes the violation of a contract or an agreement that
occurs when one party fails to fulfill its promises according to the provisions of the agreement.
Sometimes it involves interfering with the ability of another party to fulfill his duties. A contract can be
breached in whole or in part.

Remedies for Breach of Contract: Parties to a contract are obliged to perform their respective
promises. But a situation arises where one of the parties to a contract may break the contract by
refusing to perform his promise. This is what is called breach of contract. When one party commits
breach of contract, soon the other party is entitled to the following remedies. When one of the party
commits a breach of the contract, the other party becomes entitled to any of the following reliefs:

1. Rescission of the Contract: When one of the parties commits breach of contract, other party shall
further treat the contract as void or rescinded. When the contract is rescinded, the affected party is
automatically discharged from all the commitments under the contract.

Sec. 64 of the Act provides that the party who rescinds the voidable contract, shall if he has received
any benefit there under from the other party, restore such benefit to the person from whom it was
received. Further, the person who rightfully rescinding the contract is entitled to compensation for any
damage he faced from non-fulfillment of contract.
2. Damages for the loss suffered: The term “Damages” means monetary compensation payable by
the defaulting party to the affected party for the loss suffered by him when the contract was breached.
Therefore, the aggrieved party may bring an action for damages against the party who is guilty of the
breach of contract. The party who is guilty of breach is liable to pay damages to the aggrieved party.
The main purpose of awarding damages is to put the injured person in as good a position as he would
have been if performance had been rendered as promised. Therefore, the aggrieved party can recover
the actual damages and nothing more. Exemplary damages can be awarded only when the feelings of
the injured party are considered.

Types of Damages: There are four types of damages, which.can be claimed by the aggrieved party.

a. Ordinary Damages or General Damages: Damages that arise in the ordinary course of events from
the breach of contract are called ordinary damages.

b. Special Damages: Special damages are those damages that are payable for the loss arising on account
of some special or unusual circumstances. That is, they are not due to the natural and probable
consequences of the breach of the contract.

c. Exemplary or Vindictive Damages: These damages are awarded against the party who has committed
a breach of the contract with the object of punishing the erring as defaulting party and to compensate
the aggrieved party.

Generally, these damages are awarded in case of action on lost or 1br1141each of promise. E.g., breach
of contract to marry, is honour of customer’s cheque by the bank without any proper reason.

d. Nominal Damages: Nominal damages are awarded to the aggrieved party when there is only
technical violation of the legal rights. Here no substantial loss is caused. These damages are very small
in amount. They are awarded simply to recognize the right of the party to claim damages for the,
breach of the contract.

Sometimes, the damages are not an adequate remedy for breach of the contract. In such cases, the
Court may, at the suit of the party not in breach, direct the patty in breach to carry out his promise as
per the terms of the contract. This is known as specific performance of the contract.

Example: A agreed to sell an old stamp of pre-independence period to 8 for Rs.500. But subsequently, A
refused to sell it. In this case, B may file a suit against A for the specific performance of the contract.
And the Court may order A to sell the stamp to B as agreed.

Some of the cases where the Court may direct specific performance are as follows: 1. When the act
agreed to be done is such that compensation in money, for its non-performance could not afford
adequate relief. 2. When there exists no standard for determining the actual damages caused due to
the non-performance of the contract.

However, specific performance shall not be granted in the following cases: 1. Where the damages are
an adequate relief,. 2. Where the contract is determinable in its nature. 3. Where the contract involves
personal nature. 4. Where the Courts cannot supervise the carrying out of the contract. 5. Where the
contract is not fair and just.

3. Suit upon Quantum Meruit: In literal sense, the expression “Quantum Meruit” means, “as much
as earned “. In legal sense, it means payment in proportion to the work done. This principle provides
for the payment of compensation under certain circumstances, to a person who has offered the goods
or services to the other party under a contract, which under certain circumstances, could not be fully
performed.

4. Suit for Injunction: The term”Injunction” may be defined as an order of the Court instructing a
person to refrain from doing some act that has been the subject-matter of contract. Where a party has
promised not to do something and he does it, and thereby commits a breach of contract, the aggrieved
party may seek the protection of the Court under certain circumstances and obtain an injunction.

Example: A contracted to sing only at B’s theatre and nowhere else for a certain period. Afterwards A
made a contract with C to sing at C’s theatre and refused to sing at B’s theatre. The Court refused to
order specific performance because the contract was of a personal nature but granted an injunction
against A to restrain him from singing anywhere else.

Q. 5. What is a Contract of Sale? State its essential characteristics?

Contract of sale of goods is a contract, whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a price. There can be a contract of sale between one part-owner and another. In
other words, under a contract of sale, a seller (or vendor) in the capacity of the owner, or part-owner of
the goods, transfers or agrees to transfer the ownership in goods to the buyer (or purchaser) for an
agreed upon value in money (or money equivalent), called the price, paid or the promise to pay same.
A contract of sale may be absolute or conditional depending upon the desire of contracting parties.

1. Two parties: The first essential is that there must be two distinct parties to a contract of sale, viz.,
a buyer and a seller, as a person cannot buy his own goods. However, there may be a contract of sale
between one part-owner and another, e.g., if A and B jointly own a computer, A may sell his ownership
in the computer to B, thereby making B sole owner of the goods [Sec. 4(1)]. Similarly, a partner may buy
the goods from the firm in which he is a partner and vice-versa.

2. Transfer of property: ‘Property’ here means ‘ownership’. Transfer of property in the goods is
another essential of a contract of sale of goods. A mere transfer of possession of the goods cannot be
termed as sale. To constitute a contract of sale the seller must either transfer or agree to transfer the
property in the goods to the buyer.

3. Goods: The subject-matter of the contract of sale must be ‘goods’. According to Section 2(7), “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.” Thus every kind of movable property except
actionable claim and money is regarded as ‘goods’. Goodwill, trademarks, copyrights, patents right,
water, gas, electricity, decree of a court of law, are all regarded as goods. Shares and stock are also
included in goods. ‘Actionable claims’ means claims which can be enforced by a legal action or a suit,
e.g., a book debt

4. Price: The consideration for a contract of sale must be money consideration called the ‘price.’ If
goods are sold or exchanged for other goods, the transaction is barter, governed by the Transfer of
Property Act and not a sale of goods under this Act. But if goods are sold partly for goods and partly for
money, the contract is one of sale.

5. Includes both a ‘sale’ and ‘an agreement to sell: The term ‘contract of sale’ is a generic term and
includes both a ‘sale’ and an ‘agreement to sell’ [as is clear from the definition of the term as per
Section 4(1) given earlier)]. Sale. Where under a contract of sale the property in the goods is
immediately transferred at the time of making the contract from the seller to the buyer, the contract is
called a ‘sale’ [Sec. 4(3)]. It refers to an ‘absolute sale’, e.g., an outright sale on a counter in a shop.
There is immediate conveyance of the ownership and mostly of the subject-matter of the sale as well
(delivery may also be given in future). It is an executed contract.

An agreement to sell: Where under a contract of sale the transfer of property in the goods is to take
place at a future time or subject to some condition thereafter to be fulfilled, the contract is called ‘an
agreement to sell’ [Sec. 4(3)]. It is an executory contract and refers to a conditional sale. ‘An agreement
to sell’ becomes a ‘sale’ when the time elapses or the conditions are fulfilled subject to which the
property in the goods is to be transferred [Sec. 4 (4)].

Illustration: (a) On 1 January, A agrees with B that he will sell B his scooter on 15 January for a sum of
Rs 3,000. It is an agreement to sell, since A agrees to transfer the ownership of the scooter to B at a
future time.

A agrees to purchase B’s Car for Rs 50,000 provided B stands surety for him with C. It is an agreement
to sell for B. It becomes a sale when the condition is fulfilled by B.

6. No formalities to be observed : The Sale of Goods Act does not prescribe any particular form to
constitute a valid contract of sale. A contract of sale of goods can be made by mere offer and
acceptance. The offer may be made either by the seller or the buyer and the same must be accepted by
the other. Neither payment nor delivery is necessary at the time of making the contract of sale.
Further, such a contract may be made either orally or in writing or partly orally and partly in writing or
may be even implied from the conduct of the parties. Where articles are exhibited for sale and a
customer picks up one and the sales assistant packs the same for him, there has resulted a contract of
sale of goods by the conduct of the parties

Q. 6. Who is an Unpaid Seller? State the rights of an unpaid seller?

The Sale of Goods Act, 1930 defines an unpaid seller as a seller that has not been paid the full price of
the goods that have been sold or that has received a bill of exchange or other negotiable instrument as
conditional payment, and the condition on which it was received has not been fulfilled. Interestingly,
the position of the seller's agent may sometimes be akin to that of the seller insofar as exercising the
rights of an unpaid seller are concerned. For instance, an agent of the seller to whom the bill of lading
has been endorsed or who has paid the price of the goods or is directly responsible to the seller for the
price of the goods is also deemed to be an unpaid seller. Rights of an unpaid seller against the
goods: These rights of the unpaid seller are known as ‘rights in rem’. If the property in the goods has
already been passed on to the buyer, the unpaid seller has the following rights against the goods:
1. Right of Lien: The right of lien is the right to retain possession of the goods until payment for the
same is made. Such a right is available to the unpaid seller having possession of the goods if the goods
have been sold without any stipulation as to credit or they have been sold on credit, but the term of
credit has expired. Such a right is also available in case the buyer has become insolvent. Rules
regarding lien

A. Possession of goods is important to exercise the right of lien. 2. The right of lien is not affected even
if the seller has parted with the document of title to the goods. 3. The possession of the goods by the
seller must not expressly exclude the right of lien. 4. The lien can be exercised by the unpaid seller
only for the price due and not for any other charges like warehouse rent or carriage expenses. 5. If the
unpaid seller has already made part delivery of the goods to the buyer, he may exercise lien on the
remainder.

Termination of Lien: The unpaid seller loses his right of lien on the goods in the following
circumstances:

a. If he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer
without reserving the right of disposal of the goods.

b. If the buyer or his agent lawfully obtains possession of the goods.

c. If he waives his right of lien on the goods.

2. Right of stoppage in transit: It is a right of stopping the goods while in transit after the unpaid
seller has lost possession of the goods. This right enables the seller to regain possession. Such a right is
available to the unpaid seller when the buyer becomes insolvent and when the goods are in transit.
Goods are deemed to be in course of transit if they are delivered to a carrier or other bailee for the
purpose of transmission to the buyer, until the buyer or his agent takes delivery of them. Differences
between right of lien and right of stoppage in transit

Right of Lien Right of Stoppage in Transit

1. The unpaid seller can exercise this right only if he 1. The unpaid seller can exercise this right if
keeps possession of the goods. he has lost possession of the goods.

2. This right can be exercised when the buyer is able 2. This right is exercised only when the buyer
to pay but does not pay. is insolvent.
3. This right comes to an end the moment possession 3. This right commences only when the seller
of the goods is lost by the unpaid seller. has lost possession of the goods.

4. It is a right to retain possession. 4. It is a right to regain possession.

3. Right of Resale: The unpaid seller can resell the goods if the goods are of a perishable nature. He
can also make a resale of the goods if he has given notice to the buyer of his intention to re-sell and the
buyer has not within a reasonable time paid the price. If on resale, the seller incurs loss, he can claim
the same from the buyer as damages for breach of contract. If there is a profit on resale, he is not
bound to hand it over to the buyer. If the property in the goods has not passed to the buyer, the unpaid
seller has, in addition to all other remedies, the right to withhold delivery. Rights of an unpaid seller
against the buyer personally. These rights of the unpaid seller against the buyer are called ‘rights in
personam’. These are as follows:

a. If the property in the goods has passed to the buyer and the buyer wrongfully refuses to pay for the
goods, the seller may sue him for the price.

b. Even if the property in the goods has not passed to the buyer, the unpaid seller may sue the buyer for
the price if he wrongfully refuses to pay.

c. If the buyer wrongfully refuses to accept and pay for the goods, the seller may sue him for
non-acceptance.

d. If the buyer abandons the contract before the date of delivery, the seller may treat the contract as
existing and wait till the date of delivery or he may treat the contract as cancelled and sue the buyer for
damages for the breach.

e. If there is a specific agreement between the seller and the buyer as to interest on the price of the
goods from the date on which payment becomes due, the seller may recover interest from the buyer. If
there is no such agreement, the seller may charge interest on the price when it becomes due from such
day as he may notify the buyer.
Q. 7. Define and distinguish between a Condition and a Warranty?

Definition of Condition: Certain terms, obligations, and provisions are imposed by the buyer and
seller while entering into a contract of sale, which needs to be satisfied, which are commonly known as
Conditions. The conditions are indispensable to the objective of the contract. There are two types of
conditions, in a contract of sale which are:

● Expressed Condition: The conditions which are clearly defined and agreed upon by the parties
while entering into the contract.
● Implied Condition: The conditions which are not expressly provided, but as per law, some
conditions are supposed to be present at the time making the contract. However, these
conditions can be waived off through express agreement. Some examples of implied conditions
are:
● The condition relating to the title of goods.
● Condition concerning the quality and fitness of the goods.
● Condition as to wholesomeness.
● Sale by sample
● Sale by description.

Definition of Warranty: A warranty is a guarantee given by the seller to the buyer about the quality,
fitness and performance of the product. It is an assurance provided by the manufacturer to the
customer that the said facts about the goods are true and at its best. Many times, if the warranty was
given, proves false, and the product does not function as described by the seller then remedies as a
return or exchange are also available to the buyer i.e. as stated in the contract. A warranty can be for
the lifetime or a limited period. It may be either expressed, i.e., which is specifically defined or implied,
which is not explicitly provided but arises according to the nature of sale like:

● Warranty related to undisturbed possession of the buyer.

● The warranty that the goods are free of any charge.
● Disclosure of harmful nature of goods.
● Warranty as to quality and fitness

Key Differences Between Condition and Warranty: The following are the major differences
between condition and warranty in business law:
 1. A condition is an obligation which requires being fulfilled before another proposition takes
place. A warranty is a surety given by the seller regarding the state of the product.
2. The term condition is defined in section 12 (2) of the Indian Sale of Goods, Act 1930 whereas
warranty is defined in section 12 (3).
3. The condition is vital to the theme of the contract while Warranty is ancillary.
4. Breach of any condition may result in the termination of the contract while the breach of
warranty may not lead to the cancellation of the contract.
5. Violating a condition means violating a warranty too, but this is not the case with warranty.
6. In the case of breach of condition, the innocent party has the right to rescind the contract as
well as a claim for damages. On the other hand, in breach of warranty, the aggrieved party can
only sue the other party for damages.

Comparison Chart:

BASIS FOR
CONDITION WARRANTY
COMPARISON

Meaning A requirement or event that A warranty is an assurance given by

should be performed before the the seller to the buyer about the state
completion of another action, is of the product, that the prescribed
known as Condition. facts are genuine.

Defined in Section 12 (2) of Indian Sale of Section 12 (3) of Indian Sale of Goods
Goods Act, 1930. Act, 1930.

What is it? It is directly associated with the It is a subsidiary provision related to

objective of the contract. the object of the contract.

Result of breach Termination of contract. Claim damages for the breach.

 Violation Violation of condition can be Violation of warranty does not affect
regarded as a violation of the the condition.
warranty.

Remedy available Repudiate the contract as well as Claim damages only.

to the aggrieved claim damages.
party on breach

Q. 8. Define a Trade Mark under the Trade Mark Act - 1999? What are its essentials?

It is observed that with the prolonged use of a brand name, the products start gaining recognition and
popularity among the consumers. However, the popularity makes it available for copying it as it can be
recognized by the end number of people. Hence, it is always wise to trademark your brand, name or
logo. It is important that the trademark used is unique that it can be distinguished from the other
identical products. Let us understand what is trademark and the attributes and essentials of a good
trademark.
The Trademark Act, 1999 under Section 2 (zb) defines “trade mark” as a mark capable of being
represented graphically and which is capable of distinguishing the goods or services of one person
from those of others and may include shape of goods, their packaging and combination of colours…”
Furthermore, the Act also provided for definition of ‘mark’ under Section 2(m) which enumerates a
mark to include a device, brand, heading, label, ticket, name, signature, word, letter, numeral, shape of
goods, packaging or combination of colours or any combination thereof.

What is a trademark?: A trademark is a type of intellectual property consisting of a recognizable

sign, design, or expression which identifies products or services of a particular source from those of
others.

Essentials of a good trademark: An ideal trade mark should be attractive to sound and appearance
and suggest the quality of the product. Most importantly an ideal trademark should be made in such a
manner that it can be distinctive from other trademarks of the same class and should be able to be
registered and protected. The following are the few attributes of a good trademark that should be
considered before Trademark Registration.
 ● A trademark must be a mark which includes a device, heading, brand, label, ticket, signature,
word, letter, name, numeral, packaging or combination of colors or any combination of the
above attributes.
● It should be easy to speak and spell. A good trademark is such that the public can easily spell
and speak.
● It should be easy to remember. A good trademark that is easy to speak and spell can be easily
remembered as well. So that it becomes easy for public to
● It should not be too lengthy and complicated to be forgotten easily. If it is lengthy or
complicated, people will not bother to take the effort to memorize it and ultimately it will be
forgotten.
● It must be distinctive. It can be natural distinctiveness or acquired distinctiveness.
● The best trademarks are invented words or coined words or unique geometrical designs
● It can only be suggestive of the quality of the products, but not descriptive
● A good trademark should not be barred under the Trade Marks Act under the Prohibited classes
of trademarks

Q 9.Explain Copyright and provisions regarding registration of Copyright?

Copyright is designed as the right of an original piece of work owned by an individual. It is fixed in a
medium of expression letting the copyright holder exclusively reproduce, perform, distribute and
display the work. The original creator and the person who obtained rights to the work can register a
copyright on the same.

What is a Copyright?: Defined as the property right of an original work owned by an individual, a
copyright is fixed in a physical medium of expression, thus enabling the holder to exclusively
reproduce, distribute, perform, and display the copyrighted work. The said work may include anything
under literature, music, art, photography, cinema/film or even a computer programme, etc. Unlike a
trademark, copyright just has a single symbol i.e. ©. The symbol can be placed on the original piece of
work that has been created.

Who Can Register a Copyright?: The creator of the work, and the person who has obtained rights to
the original work can register for the copyright. If we had to narrow it down to three basic sets of
people who can apply for a copyright, they would be: a. The creator of the work b. Any person
claiming to have obtained the ownership rights from the creator of the original work c. An agent who
has been authorized to act on behalf of the aforementioned people

What Does a Copyright Protect?: It is a form of intellectual property law, which protects original
works under literature, music, art, photography, cinema/film or even a computer programme. The
copyright protects most of the works that are available in tangible form, including lyrics to a song,
tunes, pictures, graphics, sculpture, piece of architecture, sound recordings, drama, choreographed
works, parodies, signatures. All these must be viewed in more depth to get intricate details.

What are the Rights of the Copyright Owner?: The copyright gives complete and exclusive rights to
the owner of the work: The owner can choose to reproduce the work and/or authorize someone else to
do it. Any derivative work that comes from the original work is carried out by the owner of the
copyright or the authorized person. The owner can also distribute copies of his/her work to the public
in any form i.e. sale of transfer of ownership, rent the work, lease the work, etc. Any of the copyrighted
work can be performed and displayed readily in public. And the rights hold across all platforms, be it
literature, music, drama, choreography, cinema, films, audio visual works.

Steps for Copyright Registration:

Step 1: Filing the Application: Along with the requisite fee, an application needs to be submitted
either in DD/IPO. Once this application is filed, a diary number is generated and issued to the
applicant.

Step 2: Examination: There is a minimum wait of 30 days for recording and analyzing any objections
that may come up against the copyright application

a. In case of no Objection: The application goes ahead for scrutinization by an examiner. This
scrutiny gives rise to two options:

1. In case of discrepancy found during scrutiny: A letter of discrepancy is sent to the applicant letter is
generated and sent to the applicant. Based on the reply from the applicant, the registrar conducts a
hearing of the alleged discrepancy row. Once the discrepancies are sorted during the hearing, the
extracts of the same are sent to the applicant for him/her to register the copyright

2. In case of zero discrepancy: This would mean that the copyright application fulfils all criterion
required for the copyright. The applicant is then given the nod to go ahead with the registration of the
same.

b. In case of an objection filed: While we listed above the scenarios of ‘no objections’, in case one is
faced with an objection, the following proceedings take place: Authorities send out letters to the two
concerned parties, trying to convince them to take back the objection. After requisite replies from the
third party, the registrar conducts a hearing. Depending on whether the registrar accepts the reply, the
procedure takes shape

i. If the application is accepted: The application being accepted means that the objection has been
rejected. The application goes ahead for scrutinization by an examiner. This scrutiny gives rise to two
options: ii. In case of discrepancy found during scrutiny: A letter of discrepancy is sent to the
applicant letter is generated and sent to the applicant. Based on the reply from the applicant, the
registrar conducts a hearing of the alleged discrepancy row. Once the discrepancies are sorted during
the hearing, the extracts of the same are sent to the applicant for him/her to register the copyright.

iii. In case of zero discrepancy: This would mean that the copyright application fulfils all criterion
required for the copyright. The applicant is then given the nod to go ahead with the registration of the
same. (If the registration is not approved, then the applicant received a letter of rejection) iv. If
application is rejected: In case this happens, then the applicant receives a rejection letter that marks
the end of the copyright procedure

Step 3: Registration: As can be seen from the aforementioned steps, the registration solely depends
on the registrar. Once everything is cleared from the registrar’s end, the applicant receives the
copyright and can legally exercise all rights that come with the owner of that copyright. Copyright is a
form of the intellectual property law. It is registered to protect original pieces of work such as music,
art, literature, cinema/film, photography or a computer program. There are in-depth categories that
can be registered for copyright by the creators. It will give exclusive and complete rights to the creator
of the work.
Q. 10.What are various kinds of Company Meetings? Write the nature of
business that can be transacted in each Meeting

What is a Meeting?: In common parlance, the word meeting means an act of coming face to face,
coming in company or coming together. A meeting therefore, can be defined as a lawful association, or
assembly of two or more persons by previous notice for transacting some business. The meeting must
be validly summoned and convened. Such gatherings of the members of companies are known as
company meetings.

Essentials of Company Meetings: The essential requirements of a company meeting can be summed
up as follows:

1. Two or More Persons: To constitute a valid meeting, there must be two or more persons. However,
the articles of association may provide for a larger number of persons to constitute a valid quorum.

2. Lawful Assembly: The gathering must be for conducting a lawful business. An unlawful assembly
shall not be a meeting in the eye of law.

3. Previous Notice: Previous notice is a condition precedent for a valid meeting. A meeting, which is
purely accidental and not summoned after a due notice, is not at all a valid meeting in the eye of law.

4. To Transact a Business: The purpose of the meeting is to transact a business. If the meeting has no
definite object or summoned without any predetermined object, it is not a valid meeting. Some
business should be transacted in the meeting but no decision need be arrived in such meeting.

Kinds of Company Meetings: The meetings of a company can be broadly classified into four kinds.

1. Shareholders Meetings: The meetings of the shareholders can be further classified into four
kinds namely, Statutory Meeting, Annual General Meeting, Extraordinary General Meeting,
and Class Meeting.

i. Statutory Meeting: This is the first meeting of the shareholders conducted after the
commencement of the business of a public company. Companies Act provides that every public
company limited by shares or limited by guarantee and having a share capital should hold a
meeting of the shareholders within 6 months but not earlier than one month from the date of
commencement of business of the company. Usually, the statutory meeting is the first general
meeting of the company. It is conducted only once in the lifetime of the company. A private
 company or a public company having no share capital need not conduct a statutory meeting.

ii. Annual General Meeting: The Annual General Meeting is one of the important meetings of a
company. It is usually held once in a year. AGM should be conducted by both private and public ltd
companies whether limited by shares or by guarantee; having or not having a share capital. As the
name suggests, the meeting is to be held annually to transact the ordinary business of the company.

iii. Extra-ordinary General Meetings (EOGM): Statutory Meeting and Annual General Meetings are
called the ordinary meetings of a company. All other general meetings other than these two are called
Extraordinary General Meetings. As the very name suggests, these meetings are convened to deal with
all the extraordinary matters, which fall outside the usual business of the Annual General Meetings.
EOGMs are generally called for transacting some urgent or special business, which cannot be
postponed till the next Annual General Meeting. Every business transacted at these meetings is called
Special Business.

iv. Class Meetings: Class meetings are those meetings, which are held by the shareholders of a
particular class of shares e.g. preference shareholders or debenture holders. Class meetings are
generally conducted when it is proposed to alter, vary or affect the rights of a particular class of
shareholders. Thus, for effecting such changes it is necessary that a separate meeting of the holders of
those shares is to be held and the matter is to be approved at the meeting by a special resolution.

For example, for cancelling the arrears of dividends on cumulative preference shares, it is necessary to
call for a meeting of such shareholders and pass a resolution as required by Companies Act. In case of
such a class meeting, the holders of other class of shares have no right to attend and vote.

2. Meetings of the Directors: Meetings of directors are called Board Meetings. These are the most
important as well as the most frequently held meetings of the company. It is only at these meetings
that all important matters relating to the company and its policies are discussed and decided upon.

Since the administration of the company lies in the hands of the Board, it should meet frequently for
the proper conduct of the business of the company. The Companies Act therefore gives wide discretion
to the directors to frame rules and regulations regarding the holding and conduct of Board meetings.
The directors of most companies frame rules concerning how, where and when they shall meet and
how their meetings would be regulated. These rules are commonly known as Standing Orders.
3. Meetings of Debenture Holders: The debenture holders of a particular class conduct these
meetings. They are generally conducted when the company wants to vary the terms of security or to
modify their rights or to vary the rate of interest payable etc. Rules and Regulations regarding the
holding of the meetings of the debenture holders are either entered in the Trust Deed or endorsed on
the Debenture Bond so that they are binding upon the holders of debentures and upon the company.

4. Meetings of the Creditors: Strictly speaking, these are not meetings of a company. They are held
when the company proposes to make a scheme of arrangements with its creditors. Companies like
individuals may sometimes find it necessary to compromise or make some arrangements with their
creditors, In these circumstances, a meeting of the creditors is necessary.

Q. 11.Explain the duties of a Director of a Company?

Duties of the Directors:

A. Fiduciary duties: As fiduciaries, the directors must: (a) Exercise their powers honestly and bona
fide for the benefit of the company as a whole; and (b) Not to place themselves in a position in which
there is a conflict between their duties to the company and their personal interests. They must not
make any secret profit out of their position. If they do, they have to account for it to the company.

B. Duties of care, skill and diligence: Directors should carry out their duties with reasonable care
and exercise such degree of skill and diligence as is reasonably expected of persons of their knowledge
and status. He is not bound to bring any special qualifications to his office.

C. Standard of care: The standard of care, skill and diligence depends upon the nature of the
company’s business and circumstances of the case. They are various standards of the care depending
upon:
(a) The type and nature of work
(b) Division of powers between directors and other officers
(c) General usages and customs in that type of business; and
(d) Whether directors work gratuitously or remuneratively

D. Duty to disclose interest: Where a director is personally interested in a transaction of the

company, he is required to disclose his interest to the board. An interested director is neither to vote
on the matter of his interest nor his presence shall count for the purposes of quorum.
E. Duty to attend board meetings: The Act only says that the office of a director is automatically
vacated if he fails to attend three consecutive meetings of the board or all meetings for a period of 3
months, whichever is longer. Moreover, a director’s habitual absence may become evidence of
negligence.

F. Duty not to delegate: A director should not delegate his functions to another person. But
delegation of functions may be made to the extent to which it is authorized by the Act or the
constitution of the company.

12. Discuss the procedure to appoint and remove a Director of a Company

Meaning of Directors and Board of Directors and their appointments

On incorporation, a company becomes a legal artificial person but it cannot act by itself and
consequently it has to depend upon some human agency to act in its name. The members have no
inherent right to participate in the management of the company. The directors are collectively referred
to as BOARD. The board is the managerial body constituted by the members to whom is entrusted the
whole management of the company.

According to Section 2 (34) of the Companies Act, 2013, “Directors means a director appointed to the
board of a company.”

According to Sec.2 (10) of the Indian Companies Act, 2013, “Board of Directors” or “Board”, in relation
to a company, means the collective body of the directors of the company;

1. Appointment of First Directors (Sec. 152): First directors mean the director of the company who
assumes office from the date of incorporation of the company. The first directors of a company may be
named in its articles of association and if it is not mentioned, then the subscribers of the memorandum
of association who are individual, shall be deemed to be the first directors of the company, until the
directors are not appointed in accordance with Section 152.

In case of a public company, if the article provides any share qualification, only such subscribers as
possess the necessary share qualification shall be deemed to be directors. The articles at the time of
registration may contain the names of the first directors until directors are appointed in the first
general meeting.

2. Appointment of Directors by Members in the General Meeting (Sec. 152(2): Except for the first
director, the subsequent directors are appointed by the company in the general meeting. Sec. 152(2)
provides that not less than 2/3 of the total number of directors of a public company, or of a private
company which is a subsidiary of a public company must be appointed by the company in general
meeting. These directors must be subject to retirement by rotation. The remaining directors of such a
company and a purely private company are appointed by the company in general meeting

3. Appointment by Board of Directors: The directors are appointed in the general meeting by the
members. But, the Board of Directors may also appoint the directors, in the following way:
a. Additional Directors: Section 161, of the Act, lays down that the Board may appoint additional
directors if the article of association of a company empower the Board of Directors to do so.
b. Casual Vacancies: Section 161 empowers the Board of Directors to appoint the directors in the casual
vacancy which may occur due to any reasons like, death, resignation, insanity, insolvency etc of the
directors.
c. Alternate Directors: The Board Meeting may be held at a time when a director is absent for a period
of more than three months from the state and in such a situation, an ‘alternate director’ is appointed.

4. Appointment of Directors by Central Government: At least 100 members of the company or the
members of the company who hold at least one-tenth of the total voting power, approach the Central
Government for appointing a director to safeguard the interest of the company or its members or the
public or to curb the oppressive and mismanagement of company’s affairs. The term of appointment
of the directors by the Central Government should not exceed 3 years and he may be removed by the
Central Government for appointing another person to hold the office.

5. Appointment of Directors by Third-Parties if the Article provides : A company may have

‘nominee directors’ which is permissible in a company if the articles of association gives power to such
third parties to appoint their nominee on company’s board. Here the third party may be debenture
holders, financial corporations, banking companies who have advanced loans to the company to
safeguard their interests that the money is only used for the purpose for which it was borrowed.

6. Appointment of Directors By small shareholders if the article provides: The Small

Shareholders, in case of a public company having:
i. A paid-up capital of five cores rupees or more, and
ii. one thousand or more small shareholders.
may have a director elected by such small shareholders in the manner as may be prescribed.
The directors are appointed by ordinary resolution i.e. through the majority of the shareholders.

7. Appointment of directors by professional representation (Sec. 163): The Directors of a company

are generally appointed by simple majority. As a result majority shareholders controlling 51% or more
votes may elect all directors and a substantial minority of 49% may not find any representation on the
board. This section give power to the minority shareholders to elect directors through single
transferable vote and cumulative voting.

Removal of Directors
A director of a company can be removed by

(a) Removal by shareholder: Section 169 empowers the company to remove a director by ordinary
resolution. Special notice is required of any resolution to remove a director or to appoint somebody in
his place at the meeting at which he is removed. On receipt of such notice, the company will
immediately send a copy thereof to the director concerned. He may make any representation in writing
and the copy of such representation may be sent by the company to every member. Where the copy of
the representation is not sent to the members, in that case the director concerned may require the
representation to be read at the meeting.

(b) Removal by the Tribunal: On an application to the Tribunal for prevention of oppression and
mismanagement, the tribunal may terminate or set aside or modify any agreement between the
company and the managing director, or any other director or manager. On such termination, the
director cannot serve the company in a managerial capacity for a period of five years from the date of
the order of termination, without the permission of the tribunal. The director on removal cannot sue
the company for damages or compensation for loss of office. Directors appointed by the state
government as a nominee director can be removed by such government.
Q 13. What do you understand by the Winding up of a Company? What are the
various modes of Company Winding up?

Meaning: Winding up of a company is defined as a process by which the life of a company is brought to
an end and its property administered for the benefit of its members and creditors. In words of Professor
Gower, “Winding up of a company is the process whereby its life is ended and its Property is
administered for the benefit of its members & creditors. An Administrator, called a liquidator is
appointed and he takes control of the company, collects its assets, pays its debts and finally distributes
any surplus among the members in accordance with their rights.”

Modes of Winding up of a Company: As per section 270 of the Companies Act 2013, the procedure
for winding up of a company can be initiated either: a) By the tribunal or, b) Voluntary.

a) Winding up by the tribunal: As per new Companies Act 2013, a company can be wound up by a
tribunal in the below mentioned circumstances:
1. When the company is unable to pay its debts
2. If the company has by special resolution resolved that the company be wound up by the tribunal.
3. If the company has acted against the interest of the integrity or morality of India, security of the
state, or has spoiled any kind of friendly relations with foreign or neighboring countries.
4. If the company has not filled its financial statements or annual returns for preceding 5 consecutive
financial years.
5. If the tribunal by any means finds that it is just & equitable that the company should be wound up.
6. If the company in any way is indulged in fraudulent activities or any other unlawful business, or any
person or management connected with the formation of the company is found guilty of fraud, or any
kind of misconduct.

b) Voluntary winding up of a company: The company can be wound up voluntarily by the mutual
decision of members of the company, if:
a) The company passes a Special Resolution stating about the winding up of the company.
b) The company in its general meeting passes a resolution for winding up as a result of expiry of the
period of its duration as fixed by its Articles of Association or at the occurrence of any such event
where the articles provide for dissolution of company.

Procedure for Voluntary Winding Up:

1. Conduct a board meeting with 2 Directors and thereby pass a resolution with a declaration given by
directors that they are of the opinion that company has no debt or it will be able to pay its debt after
utilizing all the proceeds from sale of its assets.

2. Issues notices in writing for calling of a General Meeting proposing the resolution along with the
explanatory statement.

3. In General Meeting pass the ordinary resolution for the purpose of winding up by ordinary majority
or special resolution by 3/4th majority. The winding up shall be started from the date of passing the
resolution.

4. Conduct a meeting of creditors after passing the resolution, if majority creditors are of the opinion
that winding up of the company is beneficial for all parties then company can be wound up voluntarily.

5. Within 10 days of passing the resolution, file a notice with the registrar for appointment of
liquidator.

6. Within 14 days of passing such resolution, give a notice of the resolution in the official gazette and
also advertise in a newspaper.

7. Within 30 days of General meeting, file certified copies of ordinary or special resolution passed in
general meeting.

8. Wind up the affairs of the company and prepare the liquidators account and get the same audited.

9. Conduct a General Meeting of the company.

10. In that General Meeting pass a special resolution for disposal of books and all necessary documents
of the company, when the affairs of the company are totally wound up and it is about to dissolve.

11. Within 15 days of final General Meeting of the company, submit a copy of accounts and file an
application to the tribunal for passing an order for dissolution.

12. If the tribunal is of the opinion that the accounts are in order and all the necessary compliances
have been fulfilled, the tribunal shall pass an order for dissolving the company within 60 days of
receiving such application.

13. The appointed liquidator would then file a copy of order with the registrar.

14. After receiving the order passed by tribunal, the registrar then publishes a notice in the official
Gazette declaring that the company is dissolved.

Q 14. What is the effect or consequence of the Winding up of a Company?

Consequences of Winding up order:

(a) The Tribunal must, as soon as the winding up order is made, cause intimation thereof to be sent to
the Official Liquidator and the Registrar within a period not exceeding seven days from the date of
passing of the order.
(b) The petitioner and the company must also file with the Registrar a certified copy of the order. If
default is made, then every person responsible for default shall be liable to punishment with fine up to
Rs. 1000 for every day.
(c) The order of winding up is deemed to be notice of discharge to the officers employees and workmen
of the company except when the business of the company is continued for the beneficial winding up of
the company .
(d) All actions and suits against the company are stayed, unless the Tribunal gives leave to continue or
commence proceedings. Further, any suit or proceeding pending in any other Court shall be transferred
to the Tribunal in which the winding up of the company is proceeding.
(e) The order operates in the interests of all the creditors and all the contributories, no matter who in
fact asked for it.
(f) The Official Liquidator, by virtue of his office, becomes the Liquidator of the company and takes
possession and control of the assets of the company.
(g) All the powers of the Board of directors cease and the same are then exercisable by the Liquidator.
(h) On the commencement of winding up, the limitation remains suspended in favour of the company
till one year after the winding up order is made.
(i) Any disposition of the property of the company, and any transfer of shares in the company or
alteration in the status of members made after the commencement of the winding-up shall be void .
(j) Any attachment, distress or execution put in force, without leave of the Tribunal, against the estate
or effects of the company after the commencement of the winding up shall be void; but not for the
recovery of any tax or impost or any dues payable to Government.
(k) Any sale held, without leave of the Tribunal, of any of the properties or effects of the company after
the commencement of winding up shall be void.
(l) Any floating charge created within 12 months immediately preceding the commencement of
winding up is void unless it is proved that the company after the creation of the charge was solvent.

Consequences of Voluntary winding up:

(a) Effect on status of company: The company shall cease to carry on its business except if it is
required to secure a beneficial winding up. It may be for reconstruction and the business may have to
be carried on so as to facilitate the smooth taking over.
(b) Board’s power to cease: On the appointment of the Liquidator, all the powers of the Board of
directors cease and go into the hands of the Liquidator.
(c) Avoidance of transfers : All transfer of shares and alterations in the status of members, made after
the commencement of winding up, are void unless sanctioned by the Liquidator or the transfer is made
to the Liquidator.
(d) Discharge of employees : A resolution to wind up voluntarily operates as notice of discharge to the
employees of the company. Summary: The module has dealt with the process of winding up, modes of
winding up and the grounds on which a company can proceed for winding up. The effects and
implications of winding up for a company are also summarized.
SAQs:

1. Write the differences between Void Agreement and Voidable Contract

The following is the main difference between Void Agreement and Voidable Contract:

1. A void agreement has from the very beginning no legal effects. It is unenforceable at law. A voidable
contract is one which one of the parties may affirm or reject at his option. It is valid and enforceable till
it is repudiated or restricted.

2. The defect in the case of voidable contract is curable and may be condoned. But a void agreement is
void ab initio and its defects are incurable.

3. In the case of void agreement even claiming under such contract while in the case of a voidable
contract, a third party can acquire a valid title from a person claiming under such a contract.

4. Since a void agreement is unenforceable at law three does not arise may question of compensation
on account of non-performance of the agreement. But in case of voidable contract, a person is entitled
to compensation for loss or damages suffered by him on account of the non-performance of the
contract.

5. A voidable contract does not affect the collateral transactions. But where the agreement is void on
account of illegality of the object, the collateral transaction will also become void.

2. Can a Stranger to a contract sue?

It is general law of contract that a person who is not a party to the contract cannot sue upon it. A
stranger to a contract cannot sue in English as well as in India through it may be made for his benefit.
This means that unless there is a privity of contract, a party cannot sue on it.

A stranger to a contract cannot sue expect in the following cases:

1. Trust: In the case of trust, the beneficiary may enforce the contract even though he is stranger to
contract creating the trust.
2. Where provision is made in a marriage settlement: Where an agreement is made in a connection
with marriage and a provision is made for the benefit of a person he may take advantage of that
agreement although he is not party to it.

3. Where provision is made in a partition or family settlement: Such members though not parties to
the agreement can sue on the footing of the arrangements.

4. Where a charge is created in favour of a stranger on specific immovable property: A stranger to a

contract can sue for the money made payable to him by it where the money is charged on immovable
properties.

5. Where the promisor has by his conduct privity of contract with the stranger: Thus, if A admits to C
for the money, that he had received money from B for payment to c, he constitute himself as the agent
of C, who can successfully recover the amount from A.

6. Where it is conductive to justice.

7. Contract entered into by an agent can be enforced by the principal.

8. Covenants Running with the land: At the time of transfer of immovable property, a notice that the
owner of the land is bound due to certain obligations created by a agreement relating to land, the new
purchaser will be bound by them though he was not a party to the original covenant.

3. Distinguish between Sale and an Agreement to Sell

Sale’ and ‘Agreement to Sell’ can be distinguished on the following grounds:

1. In a sale the buyer becomes the owner of the goods at the time of making a contract but in an
agreement to sell the buyer becomes owner of goods at a later time.

2. A sale makes the buyer the owner of the goods. He can exercise all the proprietary rights in respect
of them, such as an action for conversion or detenue. He acquires a jus in rem, that is, a right against
the goods. The effect is that if the seller refuses to deliver the goods, the buyer may sue for recovery of
the goods by specific performance. If the seller has resold the goods to another person, the buyer may
follow the goods in his hands, unless that other had bought them in good faith and without notice.
On the other hand, an agreement to sell is a contract pure and simple. It is not a conveyance. The
buyer’s rights are only personal against the seller, that is, a jus in personam. He can sue only for
damages for breach and not for recovery of goods.

3. In a sale, since the ownership in the goods has passed to the buyer, the risk of loss, if any, of the
goods is on the buyer. But in an agreement to sell, the seller remains the owner of the goods and,
therefore, he runs all the risks.

4. In a sale, if the buyer commits default, the seller may sue him for the price, that is, for specific
enforcement of the contract. In an agreement to sell, the seller’s only remedy is to sue for damages for
breach.

5. Sale is an executed contract, where there is a contract plus a conveyance, whereas an agreement to
sell is termed as an executory contract pure and simple.

4. What is Free Consent?

Two or more persons are said to consent when they agree upon the same thing in the same sense. It
means that there is no contract if the parties have not agreed upon the same thing in the same sense.

Absence of a contract may arise from a number of causes, namely

1) by reason of an error as to the nature of the contract itself
2) by reason of an error as to the identity of the party with whom all the cases
there is no contract at all because in the law of contract consensus ad idem is a condition essential to
the formation of a contract.
It is essential to the creation of a contract that both parties should agree to the same thing in the same
sense. In such situations, a person who ha made an agreement should not be held responsible to it,
because his consent is not real. Contract Act lays down that consent is said to be free when it is not
caused by coercion undue influence fraud misrepresentation, or mistake.
In other words when the consent is obtained by coercion, undue influence misrepresentation or fraud
there is no free consent, and the contract is voidable at the option of the party whose consent was not
free. The various reasons, which make consent un-free, are discussed one by one in detail.

Coercion: In simple words, coercion is the threat used by one party against another for compelling him
to enter an agreement. Section 15 of the Indian Contract Act defines coercion as the committing or
threatening to commit any act forbidden by Indian Penal Code or an unlawful detaining or threatening
to detain, any property of any person with the intention of inducing any person to enter into an
agreement. It is immaterial whether the Indian Penal Code is or not in force in the place where the
coercion is employed. Coercion is said to have been employed when a person was forced to enter into a
contract by use or under the threat of use of physical force by the other person committing or
threatening to commit any act forbidden by Indian Penal Code. It is important to note the intention o
the person using the coercion and against whom it is used.

Burden of Proof: The burden of proof that coercion was used lies on the party who to set aside the
contract on the ground of coercion.

5. Rights of Consumer

Who is Consumer?: All of us are consumers of goods and services. For the purpose of the Consumer
Protection Act, the word "Consumer" has been defined separately for "goods" and "services".

A) For the purpose of "goods", a consumer means a person belonging to the following categories: One
who buys or agrees to buy any goods for a consideration which has been paid or promised or partly paid
and partly promised or under any system of deferred payment. It includes any user of such goods other
than the person who actualy buys goods and such use is made with the approval of the purchaser.

B) For the purpose of "services", a "consumer" means a person belonging to the following categories:
One who hires or avails of any service or services for a consideration which has been paid or promised
or partly paid and partly promised or under any system of deferred payment. It includes any
beneficiary of such service other than the one who actually hires or avails of the service for
consideration and such services are availed with the approval of such person.
Rights of Consumer:

1. Right to be protected against the marketing of goods and service that is hazardous to life and
property.

2. Right to be informed about the quality, quantity, potency, purity, standard and price of goods or
services so as to protect the consumer against unfair trade practices.

3. Right to choice wherever possible , access to a variety of goods and services at competitive prices.

4. Right to be heard and to be assured that consumers' interests will receive due consideration at
appropriate forums.

5. Right to seek redressal against unfair trade practices unscrupulous exploitation of consumers.

6. Right to consumer education.

7. Right to clean and healthy environment

6. Requisites of a Meeting

Requisites of a Valid Meeting

If the business transacted at a meeting is to be valid and legally binding, the meeting itself must be
validly held. A meeting will be considered to be validly held, if:
a) It is properly convened by proper authority.
b) Proper notice must be served. (Sec. 101 and Sec. 102 of the Companies Act, 2013)
c) Proper quorum must be present in the meeting. (Sec. 103 of the Companies Act, 2013)
d) Proper chairman must preside the meeting. (Sec. 104 of the Companies Act, 2013)
e) Business must be validly transacted at the meeting.
f) Proper minutes of the meeting must be prepared. (Sec. 118 and 119 of the Companies Act, 2013)

Proper Authority to Convene Meeting: A meeting must be convened or called by a proper authority.
Otherwise it will not be a valid meeting. The proper authority to convene general meetings of a
company is the Board of Directors. The decision to convene a general meeting and issue notice for the
same must be taken by a resolution passed at a validly held Board meeting.
Notice of Meetings: A meeting in order to be valid must be convened by a proper notice issued by the
proper authority. It means that the notice convening the meeting be properly drafted according to the
Act and the rules, and must be served on all members who are entitled to attend and vote at the
meeting. For general meeting of any kind at least 21days notice must be given to members. A shorter
notice for Annual General Meeting will be valid, if all members entitled to vote give their consent.

Quorum of Meetings: Quorum is the minimum number of members who must be present at a meeting
as required by the rules. Any business transacted at a meeting without a quorum is invalid. The main
purpose of having a quorum is to avoid decisions being taken at a meeting by a small minority which
may be found to be unacceptable to the vast majority of members.

Chairman of a Meeting: ‘Chairman’ is the person who has been designated or elected to preside over
and conduct the proceedings of a meeting. He is the chief authority in the conduct and control of the
meeting.

Agenda of Meetings: The word ‘agenda’ literally means ‘things to be done’. It refers to the programme
of business to be transacted at a meeting. Agenda is essential for the systematic transaction of the
business of a meeting in the proper order of importance.

Minute: Minute of a meeting contains a fair and correct summary of the proceedings of a meeting.
Minutes must be prepared and signed within 30 days of the conclusion of the meeting. The minute
books of meetings must be kept at the registered office of the company or at such other places as may
be approved by the board.

Proxy: The term ‘proxy’ is used to refer to the person who is nominated by a shareholder to represent
him at a general meeting of the company. It also refers to the instrument through which such a
nominee is named and authorised to attend the meeting.