UNIT-I

INDIAN CONTRACT ACT

1. Define Contract and Explain the Essentials of Contract?

Definition of Contract
According to Section 2 (h) of the Contract Act, “an agreement enforceable by law is a 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.”

Essentials of Valid Contract:

1. Offer and Acceptance
2. Legal Relationship
3. Lawful Consideration
4. Capacity of Parties
5. Free Consent
6. Lawful Objects
7. Legal formalities
8. Certainity of meaning
10. Not Expressly Declared Void

An agreement becomes enforceable by law when it fulfills essential conditions. These conditions may be called
the essentials of a valid contract, which are as follows:

1. Offer 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.
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 legal relationship. It arises when parties know that if one for the failure
of a contract. 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:
1. 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.

CASE: BALFOUR VS BALFOUR

A husband promised to pay his wife a household allowance of 30 pounds every month. Later, the parties
separated and the husband failed to pay. The wife sued for allowance. Held that the wife was not entitled for the
allowance as the agreement was social and did not create any legal obligations.

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:
1. A agrees to sell his house to B for Rs.10 Lac is the consideration for A’s promise to sell the house, and A’s
promise to sell the house is the consideration for B’s promise to pay Rs.10 Lac. These are lawful considerations.

4. Capacity of Parties:
An agreement is enforceable only if it is entered into by parties who possess contractual capacity. It means that
the parities to an agreement must be competent to contract. 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. A contract by a person of unsound mind is void ab-initio (from
the beginning).

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:
1. 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 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 the 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. Legal formalities:
According to Contract Act, a contract may be oral or in writing. 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. However, a verbal contract
if proved in the court will not be considered invalid merely on the ground that it not in writing. It is essential for
the validity of a contact that it must be in writing signed and attested by witness and registered if so required by
the law.

8. Certainity of Meaning:
“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:
1. 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. Possibilty of Performance:
The valid contract must be capable of performance “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:
1. 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.
------------------------------------------*-----------------------------------*-------------------------------
Q. Classification of Contracts?

A. Contracts on the basis of Validity

1. Valid Contract: A Contract which meets all the requirements prescribed by law is called a valid contract.
For a valid contract, the requirements mentioned in Section 10 of the Act must be satisfied. Agreements made
by the free consent of parties who are competent to contract are called valid contracts. Apart from that, it
must be made for a lawful consideration with a lawful object. Further, it should not be expressly declared
void by the Act.
2. Void Contract: Void contracts are one which is expressly declared to be void under the Act. Agreements
shown below are void as per the Act:

▪ An agreement made by an unsound person.

▪ An agreement made by mistake of fact.
▪ An agreement made with unlawful consideration.
▪ An agreement made with an unlawful object.
▪ An agreement made without consideration.
▪ An agreement in restraint of marriage.
▪ An agreement to do an impossible act.
3. Voidable Contract: An agreement which is enforceable by law at the option of one or more of the parties to
the contract, but not at the option of other or others is a voidable contract. But if the suffering party chooses
to continue the contract, it is enforceable by law. Such contracts are voidable ones if the assent of the party
is obtained by coercion, undue influence, fraud, misrepresentation.
4. Illegal Agreements: Agreements whose object or consideration is forbidden by law are called Illegal
agreements. Thus all illegal agreements are void but all void agreements are not illegal.
5. Unenforceable Contract: It is one which is good in substance but because of some technical defect, one or
both parties cannot be sued on it. these defect may be absence of writing, registration, time-barred by law of
limitation etc.

BASED ON FORMATION:
1. Express Contract
A contract is said to be an express contract, if the terms of a contract are expressly agreed upon between the
parties either by words spoken or written at the time of formation of the contract. An express promise results in
express contract. A promise is said to be an express promise, when the offer or acceptance of any promise is
made in words.
2. Implied Contract
An implied contract is one for which the proposal or acceptance is made otherwise than in words. Where the
proposal or acceptance of any promise is made otherwise than in words, the promise is known as implied promise.
Implied contracts are inferred from the circumstances of the case and conduct of the parties.

For example, when A takes a cup of milk in a hotel, there is an implied contract.

3. Quasi – Contract
A quasi-contract is one, which is created by law. In the quasi-contract, there is no intention on either side to make
a contract. In a quasi contract, rights and obligations arise not by an agreement but by operations of law.

For example, where certain letters are delivered to a wrong addressee, the addressee is under an obligation to
return the letters.

Classification of Contracts according to execution

According to the execution of the contracts, contracts are classified into 2 as

1. Executed Contract, and

2. Executory Contract.
1. Executed Contract
A contract is said to be executed contract when both the parties to contract have performed their share of
obligation.

2. Executory Contract
An executory contract is one, which is either wholly unperformed, or something remains in there to be done by
both the parties to contract. Sometimes, a contract may be partly executed and partly executory.

1. Unilateral Contract, and

2. Bilateral Contract.
1. Unilateral Contract
It is also called as one-sided contract. In a unilateral contract, only one party has to satisfy his obligation at the
time of the formation of it, the other party having fulfilled his obligation at the time of the contract or before the
contract comes into existence.
2. Bilateral Contract
A contract is said to be a bilateral contract where the obligations of both the parties to the contract are pending
at the time of formation of the contract. In this type of contract, a promise on one side is exchanged for a promise
on the other.

KINDS OF AN OFFER

Specific Offer and General Offer:

When an offer is made to a specified person or group of persons, it is called specific offer. Such an offer can be
accepted only by the person or persons to whom it is made.
Example: M makes an offer to N to sell his bicycle for Rs.800, it is a specific offer. In this case, only N can
accept it.

A general offer, on the other hand, is one, which is made to public in general and it may be accepted by any
person who fulfils the conditions mentioned in it. Both specified and general offers are valid.
Example: A announces in a newspaper a reward of Rs.1, 000 for anyone who will return his lost radio. It is
general offer.

Case: CARLIL VS CARBOLIC SMOKEBALL COMPANY

The case concerned a flu remedy called the "carbolic smoke ball". The manufacturer advertised that buyers who
found it did not work would be awarded £100, a considerable amount of money at the time. The company was
found to have been bound by its advertisement, which was construed as an offer which the buyer, by using the
smoke ball, accepted, creating a contract. The Court of Appeal held the essential elements of a contract were all
present, including offer and acceptance, consideration and an intention to create legal relations.

1. Express Offer and Implied Offer:

An offer may be made either by words or by conduct. An offer, which is made by words spoken or written, is
called an express offer. The offer, which is made by the conduct of a person, is called an implied offer.

Example:
M says to N that he will sell his motorcycle to him for Rs.40, 000. It is an express offer.
3. Cross offers:
When two parties make similar offers to each other, in ignorance of each other’s such offers are called cross-
offers. The acceptance of cross-offers does not result in complete agreement.

Example:
On 23rd December 2007, A wrote B to sell him 100 ton of iron at Rs.10,000 per ton. On the same day, B wrote
to A to buy 100 tons of iron at Rs.10,000 per ton. There is no contract between A & B because the offers wee
similar and made in ignorance of the other and so there is no acceptance of each other’s offer.
------------------------------------------*------------------------------------------------*-------------------
Q: DEFINE OFFER AND ITS ESSENTIALS?

A: Definition of Offer or Proposal

According to the Indian Contract Act 1872, proposal is defined in Section 2 (a) as “when one person will signify to
another person his willingness to do or not do something (abstain) with a view to obtain the assent of such person to
such an act or abstinence, he is said to make a proposal or an offer.”

Following are the legal rules or essentials of a valid offer:

1. It must create legal relation:

The offer must be made in order to create legal relations otherwise, there will be no agreement. If an offer does
into give rise to legal obligations between the parties it is not a valid offer in the eye of law.

Example:
1. A invites B to dinner B accept the invitation. It does not create any legal relations, so there is no agreement.
2. It must be definite & clear:
An offer must be definite and clear, if the terms of an offer are not definite and clear, it cannot be called a valid
offer. If such offer is accepted it cannot create a binding contract.

Example:
A has two motorcycles. He offers B to sell one motorcycle for Rs.27,000. It is not a valid offer because it is not
clear that which motor cycle A wanted to sell.

3. It is different from invitation to offer:

An offer is different from an invitation to offer. An invitation to offer looks like offer but legally it is not offer.
In the case of an invitation to offer, the person sending out the invitation does not make an offer but only invites
the other party to make an offer. His object is to inform that he is willing to deal with anybody who after getting
such information is willing to open negotiations with him. Such invitations for offers are not offers according to
law and so cannot become agreement by acceptance.

Example:
1. Quotations, Catalogues of prices, display of goods with prices issue of prospectus by companies are examples
of invitation to offer.

4. It must be communicated to the offeree:

An offer is effective only when it is communicated to the offeree. If an offer is not communicated to the offeree
it cannot be accepted. Thus an offer, which is not communicated, is not a valid offer. It applies to both specific
and general offers.

CASE: LALMANSHUKLA VS GAURIDUTT

The nephew of the defendant absconded and to trace him the defendant sent his servant. Later on he offered a
reward of 501/- to the person who discovered the boy. This offer came to the knowledge of the servant only after
he had already discovered the boy. In a suit filed by servant it was held that offer was not communicated and
there exists master and servant relationship.

5. It should not contain a term non-compliance of which may be assumed as acceptance:

An offer should not contain a condition the non-compliance of which may be assumed as acceptance. An offeror
cannot say that if acceptance is not communicated up to a certain date, the offer would be presumed to have been
accepted

Example:
A wrote to B offering to sell his book for Rs.500 adding that if he didn’t reply within 5 days, the offeree would
be presumed to have been accepted. There is no agreement because such condition can’t be imposed on the
offeree. It is only a one sided offer.

6. It may be conditional:
An offeror may attach any terms and conditions to the offer he makes. He may even prescribe the mode of
acceptance. There is no contract, unless all the terms of the offer are accepted in the mode prescribed by the
offeror.
Example: A asks B to send the reply of his offer by telegram but B sends reply by letter, A may reject such
acceptance because it is opposed to the prescribed mode of communication.

7. Offer must be made to obtain the assent of the other:

Offeror must make an offer for getting the assent or acceptance of the offeree. The moment the offer is accepted,
it ignites the process of formation of a contract.

To constitute a contract there must be an offer and acceptance. Acceptance is the second stage of formation of a
Contract.
-------------------------------*--------------------------------------*----------------------------------------

Q: Meaning and definition of Acceptance:

A: Section 2(b) of the Indian Contract Act defines Acceptance as "when a 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. The person making the proposal is called the “promisor”, and the person accepting the proposal is
called “promisee”,

Essential Elements of a Valid Acceptance:

(1) Acceptance must be communicated

(2) An acceptance must be absolute and unqualified

(3) Reasonable Time

(4) Acceptance should be expressed in some usual and reasonable manner, unless the proposal prescribes the
manner of acceptance.

(5) Acceptance must be made before Revocation of offer.

(1) Acceptance must be communicated:

To constitute a Valid Contract, the acceptance must be communicated and moreover, such communication
should be made to offeror. Mere intention or mental determination to accept on the part of the offeree is no
acceptance.

(2) Acceptance should be absolute and unqualified:

According to Section 7 of the Indian Contract Act 1872, acceptance must be absolute and unqualified, means
without any deviation of any kind in the proposal or without any condition. An acceptance gives rise to a binding
contract only when it is unqualified and coincides in its terms with those of the offer.

(3) Reasonable Time:

To be legally effective acceptance must be given within the specified time limit, and if no time is stipulated,
acceptance must be given within a reasonable time. Because an offer cannot be kept open indefinitely.

(4) Acceptance should be expressed in some usual and reasonable manner, unless the proposal prescribes
the manner of acceptance -
The acceptance should be expressed in usual manner or as per mode prescribed. According to Section 7(2) of the
Indian Contract Act, 1872 the acceptance must be expressed in some usual and reasonable manner unless the
proposal prescribed the manner in which it is to be accepted.
(5) Acceptance must be made before Revocation of offer -
Section 5 of the Indian Contract Act says that Offer can revoked at any time before the communication of
acceptance is posted but not afterwards. Therefore acceptance must be made before such revocation.

6)Acceptance cannot be implied from silence: No contract is formed if the offeree remains silent and does nothing
to show that has accepted the offer.

------------------------------------------*--------------------------------------------*-----------------------

Q: COMMUNICATION AND REVOCATION OF OFFER AND ACCEPTANCE

A: Communication of Offer

Section 4 of the Indian Contract Act 1872 says that the communication of the offer is complete when it comes to the
knowledge of the person it has been made to. So when the offeree (in case of a specific offer) or any member of the
public (in case of a general offer) becomes aware of the offer, the communication of the offer is said to be complete.
So when two people are talking, face-to-face or via telephone, etc the communication will be complete as soon as
the offer is made.

Example if A tells B he will fix his roof for five thousand rupees, the communication is complete as soon as the
words are spoken.

Example. A writes to B offering to fix his roof for five thousand rupees. He posts the letter on 2 nd July. The letter
reaches B on 4th July. So the communication is said to complete on 4th July.

Communication of Acceptance

Mode of Acceptance

In this case of communication of acceptance, there are two factors to consider, the mode of acceptance and then the
timing of it. Let us first talk about the mode of acceptance. Acceptance can be done in two ways, namely

A. Communication of Acceptance by an Act: This would include communication via words, whether oral or
written. So this will include communication via telephone calls, letters, e-mails, telegraphs, etc.

B. Communication of Acceptance by Conduct: The offeree can also convey his acceptance of the offer through
some action of his, or by his conduct. So say when you board a bus, you are accepting to pay the bus fare via
your conduct.

Timing of Acceptance

The communication of acceptance has two parts. Let us take a look

A. As against the Offeror: For the proposer, the communication of the acceptance is complete when he puts
such acceptance in the course of transmission. After this it is out of his hand to revoke such acceptance, so
his communication will be completed then. So, for example, A accepts the offer of B via a letter. He posts
the letter on 10th July and the letter reaches B on 14th For B (the proposer) the communication of the
acceptance is completed on 10th July itself.

B. As against the Acceptor: The communication in case of the acceptor is complete when the proposer acquires
knowledge of such acceptance. So in the above example, A’s communication will be complete on 14th July,
when B learns of the acceptance.
Revocation of Offer

The Indian Contract Act lays out the rules of revocation of an offer in Section 5. It says the offer may be revoked
anytime before the communication of the acceptance is complete against the proposer/offeror. Once the acceptance
is communicated to the proposer, revocation of the offer is now not possible.

Let us take the same example of before. A accepts the offer and posts the letter on 10th July. B gets the letter on
14th July. But for B (the proposer) the acceptance has been communicated on 10th July itself. So the revocation of
offer can only happen before the 10th of July.

Revocation of Acceptance

Section 5 also states that acceptance can be revoked until the communication of the acceptance is completed against
the acceptor. No revocation of acceptance can happen after such date. Again from the above example, the
communication of the acceptance is complete against A (acceptor) on 14th July. So till that date, A can revoke his/her
acceptance, but not after such date. So technically between 10th and 14th July, A can decide to revoke the acceptance.

-------------------------------------*-------------------------------------------------------*---------------------Q:
CONSIDERATION AND ITS ESSENTIALS

A: Definition:

As per Sec 2(d) Consideration “means When at the desire of the promisor, the promisee or any other person
has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doing
something such act or abstinence or promise is called a consideration for the promise”. QUID-PRO-QUO i.e.
something in return.

ESSENTIALS OF CONSIDERATION:

1. It must move at the desire of the promisor:

The act or abstinence forming the consideration for the promise must be done at the desire or request of the
promises.
CASE: DURGA PRASAD VS BALDEO
D on the order of the collector of the town, built at his own expense certain shops in the
Bazaar. The shop was occupied by B, who promised to pay D commission on articles in the bazaar. But later
baldeo did not do so. When D went for court it was held that D could not recover the commission as the
construction was done at the request of the collector.
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.

CASE: CHINNAYYA VS RAMAYYA

A, an old lady, gifted her property to her daughter R on the condition that she should pay certain amount annually
to A’s sister C. On the same day R, entered into an agreement with her aunt 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 amount 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:
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.
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.

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 it 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.

6. Consideration must be Lawful:

An agreement is void if it is based on unlawful consideration. The consideration of an agreement is lawful unless_

❖ It is forbidden by law

❖ Is fraudulent

❖ If it would defeat the provision of any law

❖ Involves or implies injury to the person or property of another

❖ The court regards it as immoral or opposed to public policy

--------------------------------------------------*----------------------------------------*-------------------

Q: “No consideration. No contract” -Exceptions

Ex. Nudo Pacto non oritur action, i, e, an agreement without consideration is void.

1. Written and registered agreements arising out of love and affection: - [25 (1)]

• Expressed in writing and registered under law for the time being in force for registration of document

• Natural love and affection

• Between parties standing in a near relation to each other

Example: - An elder brother, on account of natural love and affection, promised to pay the debts of his younger
brother. Agreement was put to writing and registered. Held, agreement was valid.

2. Promise to compensate [25(2)]

• Promise to compensate wholly or in part

• Who has already voluntarily done something for the promisor, something which the promisor was legally
compellable to do.
Example: - A finds B’s purse and give to him. B Promise to give A Rs.500. This is a valid contract

3. Promise to pay a time – barred debt. [Sec 25(3)]

• A debt barred by limitation con not recovered. Hence, a promise to pay such a debt is without any consideration.

• Can be enforced only when – in writing and sighed by Debtor or his authorized agent.

Example: A owes B Rs.10, 000 but the debt is barred by Limitation Act. A signs a written promise to pay B Rs.8,
000 on account of debt. This is a valid contract.

4. Completed gift- gift do not require any consideration.

5. Agency (185) – According to the Indian contract Act. No consideration is necessary to create an agency.

6. Charity- If a person promises to contribute to charity and on this faith the promises undertakes a liability to
the extent not exceeding the promised subscription, the contract shall be valid.

--------------------------------------------------*----------------------------------------*-------------------

Exceptions to the Doctrine of Privity of Contract:

The following are the exceptions to the doctrine Privity of Contract.In other words "a stranger to a contract
can sue.

1) A trust or charge: A person in whose favor a trust or other interest in some specific immovable property has
been created may enforce it even though he is not a party to the contract

Example: A agrees to transfer certain properties to B to be held by B in trust for the benefit of C. C can enforce
the agreement (I.e, trust) even though he is not a party to the agreement

2) Marriage settlement, Partition or other family arrangements:

Where an agreement is made in connection with marriage, partition or other family arrangements and a provision
is made for the benefit of a person, he may sue although he is not a party to the arrangement
Examples: Two brothers on a partition of joint properties agreed to invest in equal share a certain sum of money
for the maintenance of their mother. In this case, she ( Mother ) was entitled to require her sons to make the
investment.

3) Acknowledgement or estoppel

If the promisor by his conduct or acknowledgment or part payment or by estoppel creates privity of contract
between himself and the stranger, the stranger can sue.

Example: A receives some money from B to be paid over C. A admits of this receipt to C. C can recover the
amount from A who shall be regarded as the agent of C.

4) Assignment of a contract: If the benefits under the contract are assigned to the third party, the assignee can
sue.

Example : Krishnan Lal Sahu Vs. Promila Bala, A.I.R (1928) 518 cal. In this case, Court held that "the assignee
of rights and benefits under a contract not involving personal skill can enforce the contract subject to the equities
between the original parties.

5) Contracts entered into through an agent

In a contract of Agency, a person appoints another person to act on his behalf with a third party. The person
who appoints another person is called 'Principal' and the person, who is appointed is called 'Agent'. When an
agent enters into a contract on behalf of the principal, the principal can enforce the contract.( here Principal is a
stranger to the Contract; the agent and other parties are parties to the Contract.

Q: CAPACITY TO CONTRACT

Minor

CAPACITY
person of
TO
unsound mind
CONTRACT
Person
disqualified by
law
1. Who is competent to make a contract:-

Section 11. Every person is competent to contract who is of age of majority according to the Law to which he is
subject, who is of sound mind and not is disqualified from contracting by any Law to which he is subject.

Age of majority:- According to section 3 of Indian majority Act-1875 every person domiciled in Indian attains
majority on the completion of 18 years of age.

Exception: - 21 years- in the following cases.

a. Where a guardian of a minor’s person or property is appointed under the Guardian and wards Act, 1890.

b. Where minor’s property has passed under the superintendence of the court of words.

Position of Agreements by Minor:-

1. Validity: - An agreement with a minor is void-ab-initio

Mohoribibee v. Dharmodas Ghose

Mr. D, a minor, mortgaged his house for Rs.20000 to a money – lender, but the Mortgagee, i.e. the money –
lender, paid him a sum of Rs.8000. Subsequently, the minor sued for setting aside the mortgage. Held that the
contract was void, as Mr. D was minor and therefore he is not liable to pay anything to the lender.

2. A minor’s has received any benefit under a void contract, he cannot be asked to return the same.

3. If a minor has received any benefit under a void contract, he cannot be asked to return the same.

4. Fraudulent representation by a minor- no difference in the status of agreement. The contract remains void.

5. A minor with the consent of all the partners, be admitted to the benefits of an existing partnership.

6. Contracts entered into by minors are void-ab-initio. Hence no specific performance can be enforced for such
contracts.

7. Minor’s parent/guardians are not liable to a minor’s creditor for the breach of contract by the minor.

8. A minor can act as an agent but not personally liable. But he cannot be principal.

9. A minor cannot become shareholder of a company except when the shares are fully paid up and transfer by
share.

10. A minor cannot be adjudicated as insolvent.

11. Guarantee for and by minor

A contract of guarantee in favour of a minor is valid. However, a minor cannot be a surety in a contract of
guarantee. This is because, the surety is ultimately liable under a contract of guarantee whereas a minor can never
be held personally liable.

EXCEPTION

• Contract for the benefit of a minor.

• Contract by Guardian

Benefit of a minor by his guardian or manager of his estate.

a. within the scope of the authority of the guardian.

b. Is for the benefit of the minor.

• Contract for supply of Necessaries.

Example:

Food, clothes, bed, shelter, shoes, medicines and similar other things required for the maintenance of his life or
for the life of his dependents, expenses for instruction in grade or arts; expenses for moral religions or intellectual
education, funeral expenses of his deceased family members, marriage expenses of a dependent female member
in the family; expenses incurred in the protection of his property or personal liberty, Diwali pooja expenses, etc.
have been held by courts to be necessaries of life. However, the things like earrings for a male, spectacles for a
blind person or a wild animal cannot be considered as necessaries.

• Liability for tort: A minor is liable for a tort, i.e., civil wrong committed by him.

Example:

A, a 14 – year – old boy drives a car carelessly and injures B. He is liable for the accident i.e., tort.

WAGERING AGREEMENTS

WAGERING AGREEMENT [30]:-

An agreement between two persons under which money or money’s worth is payable by one person to another
on the happen or non-happening of a future uncertain event is called a wagering agreement.

- X promise to pay Rs. 1000 to Y if it is rained on a particular day, and Y promise to pay Rs.1000 to X if it did
not.

- Wagering agreement is promise to give money or money’s worth upon the determination of uncertain event. -
Sir William Anson.
Essential elements of wagering agreements

(1) The must be a promise to pay money or money’s worth

(2) Performance of a promise must depend upon determination of uncertain event. It might have already happened
but the parties are not aware about it.

(3) Mutual chancels of Gains or Loss.

(4) Neither party to have control over the events

(5) Neither party should have any other interest in event.

(6) One party is to win and one party is to lose.

Ex. 1:- Agreement to settle the difference between the contract price and market price of certain goods or shares
on a particular day.

------------------------------------------------------*-----------------------------*--------------------------

CONTINGENT CONTRACT

Meaning: ‘Contingent contract’ is a contract, to do or not to do something. If some event, collateral to such
contract does or does not happen

⇒ A promises to pay B Rs.1, 00,000 if a certain, ship does not return within a year.

Essential features of a contingent contract:-

(a) It is a contract to do or not to do something

(b) Dependent on happening or non happening of an event

(c) Such on event is a collateral event (i.e. it is collateral) to the contract i.e. the event must not depend upon the
mere will of party.

(d) The event is uncertain

RULES REGARDING CONTINGENT CONTRACT:-

 Contingent
Upon

Non – Happening of Non Happening

Happening of Happening of Future conduct Specified of Specified Impossible
Uncertain Uncertain of a living Uncertain Event Uncertain Event
Future Event Events
Future Event person within Fixed within Fixed
time time
Sec 32 Sec 33 Sec 34 Sec 35 Sec 35 Sec 36

(1) Contracts contingent upon the happing of an event enforced – such event has happened [32]

A contingent contract might be based on the happening of an uncertain future event. In such cases, the promisor
is liable to do or not do something if the event happens. However, the contract cannot be enforced by law unless
the event takes place. If the happening of the event becomes impossible, then the contingent contract is void.
This rule is specified in Section 32 of the Indian Contract Act, 1872

Ex.:- A contract to pay B a sum of money when B marries e dies without being married to B contract – void

(2) Non happening of a future event: - [33]

A contingent contract might be based on the non-happening of an uncertain future event. In such cases, the
promisor is liable to do or not do something if the event does not happen. However, the contract cannot be
enforced by law unless happening of the event becomes impossible. If the event takes place, then the contingent
contract is void. This rule is specified in Section 33 of the Indian Contract Act, 1872.

Ex.:- A agrees to pay B sum of money if a certain ship does not return. This ship is sunk. The contract can be
enforced when the ship sinks.

(3) Contracts contingent on the conduct of a living person who does something to make the event or
conduct as impossible of happening [34]

If a contract is a contingent upon how a person will act at a future time, then the event is considered impossible
when the person does anything which makes it impossible for the event to happen.

Ex - A agrees to pay B a sum of money if B marries C. C married D. The marriage of B to C must now consider
impossible, although it is possible that D may die any that C may afterwards marry B.
(4) Happening of an event within a specified time [35]

There can be a contingent contract wherein a party promises to do or not do something if a future uncertain event
happens within a fixed time. Such a contract is void if the event does not happen and the time lapses. It is also
void if before the time fixed, the happening of the event becomes impossible

Ex - A promise to pay B sum of money if a certain ship return within a Year.

(5) Non – happening of an event within a fixed time [35]

Contingent contracts might be based on the non-happening of an uncertain future event within a fixed time. In
such cases, the promisor is liable to do or not do something if the event does not happen within the said time.
The contract can be enforced by law if the fixed time has expired and the event has not happened before the
expiry of the time. Also, if it becomes certain that the event will not happen before the time has expired, and then
it can be enforced by law.

(6) Contracts Contingent on an Impossible Event [36]

If a contingent contract is based on the happening or non-happening of an impossible event, then such a contract
is void. This is regardless of the fact if the parties to the contract are aware of the impossibility or not. Impossible
events [36]

Ex - A agrees to pay B Rs.1, 000 if two parallel straight lines should enclose a space.

------------------------------------------------------*-----------------------------*--------------------------

PERFORMANCE OF A CONTRACT

Sec 37:- That the parties to a contract must either perform or offer to perform, their respective promises unless
such performance is dispensed with or excused under the provisions of contract Act, or of any other law.

Performance: - Two types

1. Actual performance – actually performed – liability of such a party comes to an end.

2. Attempted performance or tender of performance refusal to accept offer of performance by promise [38]

Promisor of performance Offer promise accept does not attempted performance

Promisor is not responsible for nonperformance and they can sue the promisee for breach of contract – nor he
(promisor) thereby lose his rights under the contract.

Essentials of Valid Tender

Essential of
Valid tender

Unconditiona For whole At proper

l At a proper obligation Of exact time Reasonable
place amount and opportunity
in legal to Promisee
tender money

Tender or offer of performance to be valid must satisfy the following conditions:-

(i) It must be unconditional

Ex: - ‘X’ offers to ‘Y’ the principal amount of the loan. This is not a valid tender since the whole amount of
principal and interest is not offered.

(ii) It must be made at a proper time and place.

Ex: - If the promisor wants to deliver the goods at 1 am. This is not a valid tender unless it was so agreed;

(iii) Reasonable opportunity to examine goods.

Ex: - Delivery of something to the promise by the promisor promise must have reasonable opportunity of
inspection.

(iv) It must be for the whole obligation: - goods and amount.

Ex: - ‘X’ a debtor, offer’s to pay ‘Y’ the debt due in installments and tenders the first installment. This is not a
valid tender minor deviation – not invalid

(v) It must be made to the promise or his duty authorized agent.

Ex: - It must be person who is willing to person his part of performance.

(vi) In case of payment of money, tender must be of the exact amount due and it must be in the legal tender.

Types of Tender
 1. Tender of goods and services

When a promisor offers to delivery of goods or service to the promise, it is said to be tender of goods or services,
if promisee does not accept a valid tender, it has the following effects:

(i) The promisor is not responsible for non – performance of the contract.

(ii) The promisor is discharged from his obligation under the contract. Therefore, he need not offer again.

(iii) He does not lose his right under the contract. Therefore, he can sue the promise.

2. Tender of money

Tender of money is an offer to make payment. In case a valid tender of money is not accepted, it will have the
following effects:

(i) The offeror is not discharged from his obligation to pay the amount.

(ii) The offeror is discharged from his liability for payment of interest from the date of the tender of money.

------------------------------------------------------*-----------------------------*--------------------------

Q: DISCHARGE OF A CONTRACT

A: Introduction

A contract is said to be discharged when the obligations created by it come to an end. In other words discharge
of contract means ' termination of the contractual relationship between the parties'. There are various modes of
Discharge of Contract; a contract may be discharged either in a positive way or in negative

There are various modes of discharge of a contract which are as follows:

1. Discharge by Performance

A contract is said to be discharged if the parties to a contract fulfill their obligations arising under the
contract within the time and in the manner prescribed. In such a case, the parties are discharged and the contract
comes to an end. Performance may be:

(a) Actual performance; or

(b) Offer of performance or tender.

2. Discharge by Agreement:

A contract can also be discharged by the fresh agreement between the same parties. A contract may be terminated
by agreement in any of the following ways:

A) Novation:

Novation of contract means replacement of an existing contract by another contract. In novation the parties may
change. If the parties are not changed then the material terms of the contract must be altered in the new contract
because a mere variation of some of the terms of a contract is not novation but alteration.

Example:

A is indebted to B and B to C. By mutual agreement B’s debt to C and B’s loan to. A are cancelled and G accepts
A as his debtor. There is novation involving change of parties.

B) Alteration:

Alteration of a contract takes place when one or more of the terms of the contract are changed. If a material
alteration in a written contract is made with the consent of all the parties the original contract is discharged by
alteration and a new contract takes its place. An alteration may be a change in the amount of money, the rate of
interest, or the names of the parties. Alteration results in the discharge of the original contract.

Example:

A agrees to supply B. 1000 mounds of salt at Rs.50 a mound within 3 months from date. Later on, A and B alter
the agreement in the following way: A agrees to supply 800 mounds of salt at the same rate within 2 months
instead of three. The latter agreement puts an end to the former.

C) Rescission:

Rescission means cancellation of contract by mutual consent. A contract may be cancelled ‘by agreement
between the parties at any time before it is discharged by performance. The cancellation of agreement releases
the parties form their obligation arising out of the contract.

D) Remission:

Remission means the acceptance of lesser sum than what was due from promisor. According to the section 63, a
person who has a right to demand the performance of a contract may:
1. Remit or give up the whole or part of a debt.

2. Extend the time for performance.

Example:

A owes B Rs.5, 000. A pays to B and B accepts in full satisfaction Rs.2000. The whole debt is discharged.

3. Discharge by Subsequent Impossibility:

Initial Impossibility:

“An agreement to do impossible act is void ab-initio.” It means agreement which is obviously impossible cannot
be binding, e.g., an agreement to discover treasure by magic is void agreement.

Subsequent Impossibility:

Sometimes, a contract capable to be performed after formation becomes impossible or unlawful and as a result
void.

A) Destruction of Subject Matter:

When the parties make a contract for a particular subject matter, the contract is discharged if the subject matter
is destroyed without the fault of the promisor or promise.

Example:

A, let out a music hall to B for a number of concerts on certain days. The hall was destroyed by fire before the
date of first concert. The plaintiff sued the defendant for damages. It was held that the contract has become void
and the defendant was not liable.

C) Death or Personal in Capacity:

Where the performance of a contract depends upon the personal skill, or qualification or the existence of a given
person, the contract is discharged on the illness or incapacity or the death of that person.

Example: A and B contract to marry each other. Before the time fixed for the marriage, A dies. The contract
becomes void.

D) Change of Law:
Contracts, which are lawful when made but become unlawful later due to change in law, become impossible to
be performed. A subsequent change in law may render the contract illegal and in such cases the contract is
deemed discharged. Impossibility created by law is valid excuse for non-performance.

Example:

A sold to B 100 bags of wheat at Rs.150 per bag. But before delivery the government banned the sale and
purchase of wheat by private traders. The contract was discharged by subsequent change in law.

E) Declaration of War:

A contract entered into with an alien enemy during war is illegal and void ab initio. Contract entered into before
the commencement of war is suspended during the war. However, such contracts may be revived after the war is
over if the nature of the contract so permits.

4. Discharge by Lapse of Time:

A contract is discharged by lapse of time. The Limitation Act, 1908 laws down that a contract should be
performed within a specified period. If the contract is not performed and no legal action is taken by the promise
within the period of limitation,

Example:

A owes Rs.5000 to B. The last date for the repayment of the loan has expired and B does not file a suit against
A for three years. B loses the rights to recover the money back.

5. Discharge by Operation of Law:

A contract terminates by operation of law in the following cases:

A) Insolvency:

Where the court declares a person as insolvent, the rights and duties of such person are transferred to the officer
of court, known as Official Receiver, after the order of the court such person is discharge from his liabilities
incurred before his insolvency.

Example:

A promises to sell his car to B for Rs.2 lac. Before the performance of the contract A is declared insolvent by
court. The contract between A, & B is discharged.

B) Merger:
Merger takes place when an inferior right available to a party merges into a superior right available to the same
party under, some other contract. As a result of merger the former contract stands discharged automatically.

Example:

1. Where a man holds property under a contract of tenancy buys the property. His rights as a tenant are merged
into the rights of ownership and the contract of tenancy stands discharged by operation of law.

C) Unauthorized Material Alteration:

Where a party to the contract makes any material alteration in the contract, without the consent of the other party,
the contract can be avoided by the other Party.

Example:

A executes a promissory note in favour of B for Rs.3, 000. B by alteration exceeds the amount from Rs.3, 000 to
30,000. A may refuse to pay Rs.3, 000.

6. Discharge by Breach of Contract:

A contract must be performed according to its terms. But where the Promisor fails to perform the contract
according to the terms of the contract, there is a breach of contract by him. Breach of contract may be of two
kinds:

1. Actual Breach

2. Anticipatory breach

1. Actual Breach:

It occurs when a party fails to perform a contract, when performance is due. But, if a party, who has failed to
perform the contract at the appointed time, subsequently expresses his willingness to perform, he can do so after
paying compensation, if time is not essence of contract.

Example:

A agrees to deliver 5 bags of wheat on 1st March He does not deliver the wheat on the day. There is a actual
breach of contract.

2. Anticipatory Breach:
 Anticipatory breach of contract occurs when a party repudiates his liability or obligation under the contract
before the time for performance arrives.

------------------------------------------------------*-----------------------------*--------------------------

Q: Remedies for Breach of Contract

A: When a promise or agreement is broken by any of the parties we call it a breach of contract. So when either
of the parties does not fulfill their obligation as per the terms of the contract, it is a breach of contract. There are
a few remedies for breach of contract available to the wronged party. Let us take a look

When a Contract is broken, the aggrieved party (the party who is not in breach) has one or more of the following
remedies -

(1) Recession of the Contract

(2) Suit for Damages

(3) Suit upon Quantum Meruit

(4) Suit for Specific Performance

(5) Suit for Injunction

1) Recession - Where there is a breach of contract the aggrieved party may sue treat the contract as rescinded
and refuses further performance.

Example - A promises to B to supply 5 bags of sugar on a certain Day. B agrees to pay the price after the receipt
of the goods. A does not supply the goods. B is discharged from Liability to pay the price.

The Court may grant rescission-

(a) Where the contract is voidable or

(b) Where the contract is unlawful.

The Court may also refuse to rescind the Contract -

(a) Where the plaintiff has ratified the contract; or

(b) Where third parties have acquired rights in good faith and for value; or

(2) Suit for Damages -

Kinds of Damages -

Damages may be classified under the following heads namely -

a) Ordinary Damages –Such losses would be called the general or ordinary losses which can be seen as arising
naturally and directly out of the breach in the usual course of the things. They would be the unavoidable and
logical consequences of the breach

b) Special Damages – Special damages would be the compensation for the special losses caused to aggrieved
party by the special circumstances attached to the contract. At the time of making the contract a party may place
before the other party he would suffer some loss. If the other party still proceeds to make the contract

c) Nominal Damages – Nominal damages simply mean "very small". Where the injured party has not suffered
any loss by reason of the breach of contract, the court may award very nominal sum as damages.

d) Exemplary Damages – Exemplary damages are also known as punitive or vindicated or compensatory
damages. These Damages are allowed in case of breach of marriage or dishonor of a cheque wrongfully.

e) Liquidated Damages - If the amount of damages, in the event of the breach is determined by parties at the
time of entering into the contract, they are called "liquidated damages". Liquidated damages represent a sum,
fixed or ascertained by the parties in the contract'.

3) Suit upon Quantum Meruit: Quantum meruit literally translates to “as much is earned”. At times when one
party of the contract is prevented from finishing his performance of the contract by the other party, he can claim
quantum meruit. So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value of the work he has already
done.

(4) Suit for Specific Performance: "Specific performance" means actual carrying out of the promise. In certain
cases, the Court may direct the party in breach of contract for the actual carrying out of the promise, exactly
according to the terms of the contract. This is called specific performance of the contract. Where monetary
compensation will not be adequate relief.

Example a contract for sale of a rare antique

(5) Suit for Injunction: An Injunction is an order of the Court of Justice directing the defendant to do some
positive act or restraining the commission or continuance of some Prohibitory Act

Q . Explain briefly the significance of Information technology Act ?

 The Information Technology Act, 2000 or ITA, 2000 or IT Act, was notified on October 17, 2000. It is the law
that deals with cybercrime and electronic commerce transactions in India

Objectives of the Act

The Information Technology Act, 2000 provides legal recognition to the transaction done via electronic exchange
of data and other electronic means of communication or electronic commerce trThe objectives of the Act are as
follows:

i. Grant legal recognition to all transactions done via electronic exchange of data or other electronic means of
communication or e-commerce, in place of the earlier paper-based method of communication.

ii. Give legal recognition to digital signatures for the authentication of any information or matters requiring
legal authentication

iii. Facilitate the electronic filing of documents with Government agencies and also departments

iv. Facilitate the electronic storage of data

v. Give legal sanction and also facilitate the electronic transfer of funds between banks and financial
institutions

vi. Grant legal recognition to bankers under the Evidence Act, 1891 and the Reserve Bank of India Act, 1934,
for keeping the books of accounts in electronic form.

Features of the Information Technology Act, 2000

a. All electronic contracts made through secure electronic channels are legally valid.

b. Legal recognition for digital signatures.

c. Security measures for electronic records and also digital signatures are in place

d. A procedure for the appointment of adjudicating officers for holding inquiries under the Act is finalized

e. Provision for establishing a Cyber Regulatory Appellant Tribunal under the Act. Further, this tribunal will
handle all appeals made against the order of the Controller or Adjudicating Officer.

f. An appeal against the order of the Cyber Appellant Tribunal is possible only in the High Court

g. Digital Signatures will use an asymmetric cryptosystem and also a hash function

h. Provision for the appointment of the Controller of Certifying Authorities (CCA) to license and regulate the
working of Certifying Authorities. The Controller to act as a repository of all digital signatures.

i. The Act applies to offences or contraventions committed outside India

j. Senior police officers and other officers can enter any public place and search and arrest without warrant

k. Provisions for the constitution of a Cyber Regulations Advisory Committee to advise the Central
Government and Controller

Offences
Section Offence Penalty
Tampering with Imprisonment up to three years, or/and with fine
65
computer source documents up to ₹200,000
Hacking with computer Imprisonment up to three years, or/and with fine
66
system up to ₹500,000
Receiving stolen computer or Imprisonment up to three years, or/and with fine
66B
communication device up to ₹100,000
Using password of another Imprisonment up to three years, or/and with fine
66C
person up to ₹100,000
Cheating using computer Imprisonment up to three years, or/and with fine
66D
resource up to ₹100,000
Publishing private images of Imprisonment up to three years, or/and with fine
66E
others up to ₹200,000
66F Acts of cyberterrorism Imprisonment up to life.
Publishing information which Imprisonment up to five years, or/and with fine up
67
is obscene in electronic form. to ₹1,000,000
Publishing images Imprisonment up to seven years, or/and with fine
67A
containing sexual acts up to ₹1,000,000
Imprisonment up to five years, or/and with fine up
Publishing child
to ₹1,000,000 on first conviction. Imprisonment up
67B porn or predating
to seven years, or/and with fine up to ₹1,000,000
children online
on second conviction.
67C Failure to maintain records Imprisonment up to three years, or/and with fine.
Failure/refusal to comply with Imprisonment up to 2 years, or/and with fine up
68
orders to ₹100,000
69 Failure/refusal to decrypt data Imprisonment up to seven years and possible fine.
Securing access or attempting
70 to secure access to a Imprisonment up to ten years, or/and with fine.
protected system
Imprisonment up to 2 years, or/and with fine up
71 Misrepresentation
to ₹100,000
Breach of confidentiality and Imprisonment up to 2 years, or/and with fine up
72
privacy to ₹100,000
Disclosure of information in Imprisonment up to 3 years, or/and with fine up
72A
breach of lawful contract to ₹500,000
Publishing electronic
Imprisonment up to 2 years, or/and with fine up
73 signature certificate false in
to ₹100,000
certain particulars
 Publication for fraudulent Imprisonment up to 2 years, or/and with fine up
74
purpose to ₹100,000

Q.Write a short note on digital signature?

• Digital signatures are used to authenticate the identity of the sender. It is like signing a message in
electronic form.
• A digital signature is a protocol that produces the same effect as a real signature.
• It is a mark that only the sender can make and other people can easily recognize that it belongs to
the sender. A digital signature is also used to confirm agreement to a message.
• A digital signature must be unforgeable and authentic.
• In a digital signature process, the sender uses a signing algorithm to sign the message. The message
and the signature are sent to the receiver. The receiver receives the message and the signature and
applies the verifying algorithm to the combination.
• If the result is true, the message is accepted otherwise it is rejected.

• Digital signatures have assumed great significance in the modern world of web-commerce. Many
countries have made provisions for recognizing digital signature as a valid authorization mechanism
like paper-based signatures.

Q. Write a short note on public key & private key?

Private Key
The private key is used to both encrypt and decrypt the data. This key is shared between the sender
and receiver of the encrypted sensitive information. The private key is also called symmetric being
common for both parties. Private key cryptography is faster than public-key cryptography
mechanism.
Public Key
The public key is used to encrypt and a private key is used decrypt the data. The private key is
shared between the sender and receiver of the encrypted sensitive information. The public key is
also called asymmetric cryptography.\
UNIT-II
SALE OF GOODS & CONSUMER PROTECTION ACT

1Q.Explain the nature of a contract of sale of goods and bring out clearly the distinction

between sale and an agreement to sell?

ANS: Contract of sale of Goods:

It is a contract where by the seller transfers (OR) agrees to transfer the property in goods
to the buyer for a price.

Sale and Agreement to sell:

 In sale of goods, the property in the goods is transferred from the seller to the buyer
immediately then the contract is called sale, but where the transfer of property in the goods
passes only after the seller has fulfilled certain conditions subsequently is called an agreement to
sell.

Essentials of a contract of sale: The following are the Essential elements are necessary for contract

of sale:_

1) There must be at least two parties: there must be two distinct parties (i.e.., seller and Buyer)
to effect a contract of sale and they must be competent to contract. Section 2(1) defines ‘A person
who buys (or) agrees to buy goods is called a Buyer’ and Section 2(13) defines ‘A person who sells
(or) agrees to sell is called seller’.

2) Subject matter must be ‘Goods“. There must be some goods, the property in which is (or) is to
be transferred from the seller to the buyer. The goods which form the subject matter must be
movable.

3) Consideration is price: The consideration for the contract of sale, called price, it must be
money. Where there is no consideration, it would be a gift, there is no contract of sale. Similarly,
where goods are sold for a price, which is to be paid partly in cash and partly in goods then it is
considered as contract of sale.

4) Transfer of general property: There must be a transfer of general property from the buyer to the
seller.

5) Absolute (OR) Oualified: A contract of sale may be absolute or conditional.

6) Essential elements of a valid contract: All the essentials of a valid contract must be present in
the contract of sale.

The following are the differences between the sale and Agreement to sell are as follows

DIFFERENCE SALE AGREEMENT TO SELL

The transfer of The transfer of ownership

ownership passes from passes from seller to
1.Transfer of property buyer subsequent to the
 seller to buyer formation of agreement
immediately. to sell.

2.Nature of contract It is an executed contract. It is an executor contract.

Sale can be only in An agreement to sell is

3. Tvpe of goods. specific or existing goods. mostly in case of future

or contingent goods

If the goods are destroyed, If the goods are destroyed,

the loss falls on the buyer the loss falls on the seller
4. Risk of loss. even though the goods are even though the goods are
in the procession of seller. in procession of buyer.

In case of breach by seller, In case of breach by seller,

the buyer has the legal the buyer's remedy is to

5. Remedies for breach bv seller. right to obtain the claim damages for non-
possession of the goods. performance of the
contract.

In case of breach by buyer,

In case of breach by buyer,
the seller has the legal the seller cannot sue the
right to sue the buyer for buyer for recovery of price
6. Remedies for breach bv buyer.
recovery of price of goods. of goods. His right is limited
to claim damages.

In case of agreement to sell,

In case of sell, the seller
7.Right of resale has no right to resell the the seller can resell the
goods. goods to any other person.
 If the buyer becomes If the buyer becomes

insolvent, the official insolvent, the official

assignee/ official assignee/ official receiver
8 Insolvency of buyer receiver shall have a shall have no right over
right over the goods. the goods.

If the seller becomes If the seller becomes

insolvent,
insolvent, the official
9. Insolvency of seller. assignee/ official receiver the official assignee/
shall have no right over the official receiver shall have a
goods. right over the goods.
10. General & particular A sale is a contract plus An agreement to sell is
property merely a contract, pure and
conveyance, and creates jus
 in rem i.e., gives a right to simple, and creates Jos in

the buyer to enjoy the goods person-am i.e., gives a right

2Q. Explain the conditions and warranties of the sale of goods act, 1930?

Ans: According to section 12(1) of sales of goods act, 1930. ‘A stipulation in a contract of sale with
reference to goods which are the subject thereof may be a condition (or) a warranties

Condition and Warranties:

Condition: According to section 12(2) a ‘Condition’ is a stipulation essential to the main purpose
of the contract, the breach of which gives raise to a right to treat the contract as repudiated.
W arranty According to the section 12(3) a ‘Warranty’ is stipulation collateral to the main
purpose of the contract, the breach of which gives raise to a claim for damages but not to the
right to reject the goods and treat the contract as repudiated.

Whether a stipulation in a contract of sale is a condition (or) warranty depends in each

case of the construction of the contract. A stipulation may be a condition, through called a
warranty in a contract.

Implied Conditions: The Act prescribes some of the implied conditions in a contract. Buyer can
repudiate contract for breach of any of these conditions:-

1. Condition as to tittle: Section 14(a) In a contract of sale, unless the circumstances of the
contract are such as to show a different intention, there is an implied condition on the part of
the seller, that,

a) In case of a sale, he has the right to sell the goods and

 b) In case of an agreement to sell; he will have a right to sell the goods at the time when the
property is to pass.

Thus, if seller sells stolen goods, the buyer can repudiate the contract and claim damages
also, as the seller had no right to sale the goods.

2. Sale by description: (section 15) where there is a contract for the sale of goods by description,
there is an implied condition that that the goods shall correspond with the description. ‘Sale of
goods by description’ includes the following:

a) Where the buyer has not seen the goods and relies on their description given by the seller.

b) Where the buyer has seen the goods but he relies not on what he has seen but what was
stated to him and deviation of the goods from the description is not apparent.

c) Packing of goods may sometimes be a part of description.

3. Condition as to quantity (or) fitness: (section 16(1)) where the buyer, expressly (or) by
implication, makes known to the seller the particular purpose for which he requires the goods,
so as to show that the buyer relies on the seller's skill (or) judgment, and the goods are of a
description which is in the course of the seller's business to supply, there is an implied condition
that the goods shall be reasonable fit for the purpose. This will not apply where specific goods
are sold under their patient (or) trademark. Thus, the four conditions must be fulfilled:

a) The purpose must have been disclosed (expressed or implied) by the buyer.

b) The buyer must have relied on the seller's skill (or) judgment.

C) The seller's business must be to sell those goods.

d) The goods should not have been sold under a patient (or) trademark.

4. Conditions as to merchantability: (Section 16(2)) where goods are bought by description from a
seller who deals in goods of that description (whether he is the manufacturer or producer or not),
there is an implied condition that the goods shall be of merchantable quantity; provided that, if the
buyer has examined the goods, there shall be no implied condition as regards defects which such
examination ought to have revealed.

5. Condition implied by custom: (section 16(3)) An implied condition as to quantity (or) fitness for a
particular purpose may be annexed by the usage of trade. The purpose for which the goods are
required may be ascertained from the acts and conducts of the parties and from the nature of the
description of the article purchased.

Example: Priest (vs) last (1903):

Facts: ‘P’ asked for a hot water bottle of ‘L’, a retail chemist. He was supplied one which burst after
a few days use and injured ‘P's wife.
Judgment: ‘L’ was liable for breach of implied condition because ‘P’ had sufficiently made known
the use for which he required the bottle.

6. Sale bv sample: (Section 17) In a sale by sample the following are the implied conditions

a) The bulk shall correspond with the sample in quantity.

b) That the buyer shall have a reasonable opportunity of comparing the bulk with the sample.

c) That the goods shall be free from any defects rendering them un-merchantable, which would
not be apparent on reasonable examination of the sample.

Example: Frost (vs) Aylesbury Dairy Co.Ltd (1905):

Facts: ‘F’ brought milk from ‘A’. the milk contained germs of typhoid fever. ‘F's wife took the milk
and got infection as a result of which she died.

Judgment: ‘F’ could recover damages.

7. Condition as to wholesomeness: In the case of eatables and provisions, in addition to the implied
condition as to merchantability there is another implied condition that the goods shall be
wholesome.

Implied Warranties: The implied conditions in a contract of sale are as follows:-

1. Warranty of quiet possession: (section 14(b)) In a contract of sale, unless contrary intention
appears, it is implied that the buyer shall have and enjoy quiet possession of the goods. If the buyer
is in any way disturbed in the enjoyment of the goods in consequence of the seller's defective tittle
to sell, then the buyer is entitled to sue the select for damages.

2. 2.Warranty of freedom from encumbrances: (section 14 (C)) means that the goods are free from
any charge (or) encumbrances in favour of any third party, not declared to (or) known to the buyer.
in such a case he shall have a right to claim damages for breach of this warranty.
3. Warranty as to quantity (or) fitness by usage of trade:(Section 16(4)) An implied warranty as to
quantity (or) fitness for a particular purpose may be annexed by the usage of trade.

4. Warrantv as to disclose dangerous nature of poods: Where a person sells goods knowing that the
goods are inherently dangerous (or) they are likely to be dangerous to the buyer and that the buyer is
ignorant of the danger. In such a case the seller warn the buyer otherwise he would be held liable.

3Q. State the doctrine of ‘Caveat Emptor’ and state the exceptions to it.

Ans: Meaning: Caveat Emptor is a fundamental principal governing the law of sale of goods; it means
“Let the buyer beware”. In other words, it is no part of the seller's duty in a contract of sale of goods
to give the buyer an article suitable for some particular purpose, (or) of particular quantity, unless
the quantity (or) fitness is made an express terms of the contract. The person who buys goods must
keep his eye open, his mind active and should be conscious while buying the goods. If he makes a
bad choice, he must suffer the consequences of lack of skill and judgment in the absence of any
misrepresentation (or) guarantee by the seller.
Exceptions to principal of Caveat Emptor: The doctrine of Caveat Emptor has certain important
exceptions they are follows:-

1. Fitness for buyer's purpose: Where the buyer expressly (or) by implication, makes known to the
seller the particular purpose for which he needs the goods and depends on the skill and judgment of
the seller whose business is to supply goods of that description, in such a case there is an implied
condition that the seller must supply the goods shall be reasonably fit for that purpose.

2. Sale under a patient (or) trade name: If the buyer purchases an Article under its patient (or) other
trade name and relies on seller skills and judgment which he make known to him, in such a case there
is no implied condition that the goods shall be reasonably fit for any particular purpose.

3. Merchantable Ouality: Where the goods are brought from a seller who deals in goods of that
description weather he is the manufacturer (or) producer (or) not, there is an implied condition that
the goods are of merchantable quantity.
4. Usage of trade: An implied condition as to quality (or) fitness for a particular purpose may be
annexed by the usage of trade.

Consent by fraud: Where the consent of the buyer, in a contract of sale, is obtained by the seller by
fraud (or) where the seller knowingly conceals a defect which could not be discovered on a
reasonable examination. In such a case the doctrine of caveat emptor does not apply.

8Q. Who is “Unpaid Seller”? Explain the rights of an unpaid seller?

Ans: Mean n According to section 45(a) The seller of goods is deemed to be an unpaid seller if:-

1) The whole of the price has not been paid (or) tendered and the seller had an immediate right
of action for the price.

2) When a bill of exchange (or) other negotiable instrument was given as payment, but the same
has been dishonored, unless and until this payment was an absolute, and not a conditional
payment.
Any person who is in a position of a seller, is also a seller, and may exercise the rights conferred upon
an ‘Unpaid seller’ in the above said circumstances.

Riehts of an unpaid seller: An unpaid seller has been expressly given the right against the goods as
well as the buyer personally which as been discussed below:-

Rights of unpaid seller may broadly classified under two heads (1) rights against the goods.

(2) Right against the buyer personally.

(1) Riehts against the eoods: Again it was classified in to two types:-

(i) Where the property in the goods has passed:

(ii) Where the property in the goods has not passed

(i) Where the property in the goods has passed: Again it has classified in to three types (a) Right of
Lien. (b) Right of stoppage in transit and (C) Right of re-sale.
(a) Right of Lien : (Section 46(1)(a) and 47 to 49) The word ‘Lien’ means a right to retain possession.
An unpaid seller, who is in possession of the goods, is entitled to remain them until payment (or)
tender of the price in the following cases:-

4 Where the goods have been sold without any stipulation as to credit (or)

S Where the goods have been sold on credit but the terms of credit has expired

(or) S Where the buyer becomes insolvent.

(b) Right of stoppage in transit: (section 46(1)(b) and 50 to 52) The unpaid seller has the right of
stopping the goods in transit after he has parted with their possession to a carrier, in case of
insolvency of the buyer. The right is exercisable by the seller only if the following conditions are
fulfilled:-
1. The seller must be unpaid.

2. He must have parted with the possession of goods.

3. The goods must be in transit.

4. The buyer must have become insolvent.

5. The right is subject to provisions of the act.

(C) Ripht of re-sale: (Section 46(1)(C) and 54) The unpaid seller can resell the goods if:-

5) The seller has exercised the right of lien (or) stoppage of goods in transit.

6) Where the goods are of perishable nature (or)

7) When the seller has given a notice to the buyer of his intention to resell the goods.
 However the notice by the seller is not required if the goods are perishable.

8) The buyer fails to pay the price within a reasonable time.

(ii) where the propertv in the poods has not passed: (section 46(2)) Where the property in
goods has not passed to the buyer, an unpaid seller has, in addition to his other remedies, a right
of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit
where the property has passed to the buyer.

2. Rights against the buyer personally: An unpaid seller can enforce certain rights against the
goods as well as the buyer personally. The rights which an unpaid seller may enforce against the
buyer personally is called the rights in personam as against the right in rem (i.e.., rights against
the goods), and are in addition to his rights against the goods. The rights in personas are as
follows:-

(a) Suit for price: (Section 55)

 (a) Where under a contract of sale the property in the goods has passed to the buyer, and the
buyer wrongfully neglects (or) refuses to pay the price, the seller can sue the buyer for the price
of the goods. (Section 55(1).

(b) Where property has not passed under the contract of sale and the price is payable on a
certain day irrespective of delivery and the buyer wrongfully neglects (or) refuses to pay such
price, the seller may sue him for the price although the property in the goods has not passed and
the goods have not been appropriated to the contract. (Section 55(2).

(c) Suit for damages for non-acceptance: (section 56) An unpaid seller has the right to sue the buyer
for recovery of damages if the seller is ready and willing to deliver the goods to the buyer as per
the terms of the contract; but the buyer wrongfully neglects (or) refuses to accept the goods. As
regards measure of damages, section 73 of the Indian contract Act, 1872, applies
(d) Suit for damages for repudiation of contract: (section 60) Where the buyer repudiates the contract
before the date of delivery, the seller may either:-
 1) Treat the contract as subsisting and wait till the date of delivery.

2) He may treat the contract as rescinded and sue fro damages for the breach. This rule is known as ‘Rule
of anticipatory breach of contract’.
suit for interest: (section 61(2)(a)) In case of breach of contract on the part of the buyer, while filing
a suit for the price, the seller may sue the buyer for interest from the date of the tender of the goods
(or) from the date on which the price was payable.

9Q Right of Lien

Ans: Rieht of Lien: (Section 46(1)(a) and 47 to 49) The word ‘Lien’ means a right to retain possession.
An unpaid seller, who is in possession of the goods, is entitled to remain them until payment (or)
tender of the price in the following cases:-

S Where the goods have been sold without any stipulation as to credit (or)
 S Where the goods have been sold on credit but the terms of credit has expired

(or) S Where the buyer becomes insolvent.

Rules regarding lien:

1. Lien can be exercised for the non-payment of the price, and not for the other charges
due against the buyer.

2. The unpaid seller can exercise his lien notwithstanding that he is in possession of the
 goods (or) bailee for the buyer.

3. Where the part delivery has been made, he may still exercise his right of lien on the
reminder of goods unless he has waived the lien.

4. It is a personal right, which can be exercised only by him and not by assignees (or) creditors.

Termination of lien: The unpaid seller of goods loses his lien on the goods when

1. When the seller 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 to
himself.

2. By waiving his right of lien.

3. Where the buyer (or) his agent lawfully obtains possession of the goods.

4. Where he assents to a sub-sale by the buyer.

 5. Where he takes a security from the buyer for the payment of the price in place of his lien.

10Q Right of stoppage in transit.

Ans: Rieht of stoppage in transit: (section 46(1)(b) and 50 to 52) The unpaid seller has the right
of stopping the goods in transit after he has parted with their possession to a carrier, in case of
insolvency of the buyer. The right is exercisable by the seller only if the following conditions are
fulfil1ed:-

6. The seller must be unpaid.

7. He must have parted with the possession of goods.

 8. The goods must be in transit.

9. The buyer must have become insolvent.

10. The right is subject to provisions of the act.

The above right prevents the goods from being delivered to the buyer, and reassuring (or)
regaining possession while in transit, retaining them till the price is paid. This right is earned only
when the right of lien is lost and is available only when the buyer has become insolvent.

The unpaid seller may exercise his right of stoppage in transit by either:-

(a) By taking actual possession of the goods,

By giving notice of his claim to the carrier (or) other bailee in whose possession the goods are.
 Duration of transit:- Goods are deemed to be in transit from the time are delivered to the carrier
for transmission to the buyer until the buyer takes delivery of them. The goods are still in transit
if they are rejected by the buyer, the transit comes to an end in the following cases:-

1) If the buyer obtains delivery before the arrival of the goods at their destination.

2) If, after the arrival of the goods at their destination, the carrier (or) the other bailee
acknowledges to the buyer (or) his agent that he holds on his behalf, even if a further
destination of the goods is indicated by the buyer.

3) If the carrier wrongfully refuses to deliver the goods to the buyer.

Q.What is meant by transfer of property in goods? Explain its significance?
Ans: Meaning of property in goods: It means ownership of the goods. It is different from
possession of the goods. Possession refers to custody of the goods. There may be situations
where a person may be the owner of certain goods but not in possession of the same (or) vice-
versa.

Significance of passing of property: The time of transfer of ownership of goods decides various
rights and liabilities of the seller and the buyer:-

a) It is the owner who has to bear the risk and not the person who merly has the possession.

b) It is the owner who can take action against the third party and not the person who
merly has the possession.

c) The seller can sue for the price only if the ownership of goods has been
transferred to the
 buyer.

d) In case of insolvency of the buyer, the official receiver (or) assignee can take the
possession of goods from seller only if the owner ship of goods has been transferred to
the buyer.

e) In case of insolvency of the seller, the official receiver (or) assignee can take the possession

of goods from buyer only if the ownership of goods has not been transferred to the buyer.

QDefine Goods and explain thr types of goods?

section 2(7) of the Sale of Goods Act 1930 defines Goods. There are three types of Goods, Existing Goods, Future Goods
and Contingent Goods.

Meaning and Definition of Goods

Section 2(7) of the Sale of Goods Act defines Goods... According to Section 2(7) of the Said Act 1930 "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.

The Scope of the definition of the word "goods" under the Indian Sale of Goods Act is wider than that under the English Act.

Kinds of Goods -

There are three types of Goods which are as follows -

(a) Existing Goods

(b) Future Goods and

(c) Contingent Goods

(a) Existing Goods - In this types of goods, Goods are owned and possessed by the Seller at the time of the making of
the Contract of Sale.

Illustration -

A sells 5 bags of Sugar to B, which is laying down in the Godown... The Suger Bags are called "existing goods.
Existing goods may be divided into specific goods and Uncertain Goods.

i) Specific Goods - Goods identified and agreed upon at the time of sale is made are called "specific goods"

ii) Uncertain Goods - Goods which are not identified at the time of making the contract of sale are called uncertain
Goods.

(b) Future Goods and -

According to Section 2(6) of the said Act, "future goods" means goods to be manufactured or produced or acquired
by the seller after the making of the contract of sale.

Illustration -

X agrees to Sell Y, the grass to be grown on his land next month.

(c) Contingent Goods - Contingent Goods means "goods" the acquisition of which by the seller depends upon a
contingency of happening or non-happening of an event.

Illustration-

"ABC" agrees to sell a land to "XYZ" if he wins the race. ABC's title is subject to the contingency of winning and hence
the land is called Contingent Goods.
Q. What are the Objects of consumer protection Act, 1986?

Ans: The law relating to consumer protection is contained in the consumer protection Act, 1986. The act applies to all
goods and services. The central government however by notification published in the Official Gazette exempts any
goods (or) Services.

Objects of the Act: The following are the objectives of Consumer Protection Act, 1986. They are follows.’-

1. Better Protection of Consumers: The act seeks to provide for the better protection of the interest of consumers
and for that purpose, makes a provision for the establishment of consumer councils and other authorities for
settlement of consumer disputes and for matters connected therewith.

2. Protection of rights of consumers: The Act, seeks to promote and protect the rights of consumers such as:-
 a) The consumer has the right to be protected against marketing of goods and services which are hazardous to
life and property.

b) They have the right to be informed about the quality, quantity, potency, purity, standard and price of goods
(or) services so as to protect the consumers against the unfair trade practices.

C) The consumers also have the right to seek redressal against the unfair trade practices (or) restrictive trade
practices of exploitation of the consumers. And

d) The consumer has Right of education.

3. Consumer protection Councils: The objectives of Consumer protection Act, 1986, are sought to be promoted and
protected by the Consumer Protection Councils established at the central and State levels.

4. Ouasi-Judicial machinery for speedy redressal of consumer disputes: The Act also seeks to provide speedy and
simple redressal to consumer disputes. For this purpose, there has been set up a quasi-judicial machinery at the
district, state and central levels. These quasi-judicial bodies are supposed to give reliefs of a specific nature, and also
provide compensation to consumers whenever appropriate.

2Q. Write a short note on Consumer Disputes Redressal Agencies?

Ans: Establishment of Consumer Disputes Redressal Agencies: (Section 9)

Consumer Disputes Redressal Agencies have been established according to the section 9-27 under chapter III,
of the consumer protection Act, 1986. According to section 9, they have been established for the purpose of providing
justice to the consumers. It can be established as agencies, they are follows:
 k. Consumer Disputes Redressal Forum: A consumer disputes redressal forum is also called as ‘District
Forum’ established by the state government in each district of the state by notification. The state Government
may, if it deems fit, establish more then one District forum in a district. It has jurisdiction to entertain complaints
where the value of the goods (or) services and the compensations claimed does not exceed Rs. 5 lakh.

2. Consumer Disputes Redressal Commission: Consumer Disputes Redressal Commission it is also known
as the ‘State commission’ established by the state government in the state by notification. It has jurisdiction to
entertain complaints where the value of the goods (or) services and compensation claimed exceeds 5 lakhs but
does not exceed Rs. 20 lakhs.

3. National Consumer Dispute Redressal Commission: National Consumer Dispute Redressal Commission
it is also called ‘National Commission’ established by the central government by notification. It has jurisdiction to
entertain complaints where the value of the goods (or) services and compensation claimed exceeds 20 lakhs.
3Q. What is jurisdiction of a consumer Disputes Redressal Forum (the district forum)? In what manner is a
complaint filed before it? What procedure is followed by it after receiving a complaint?

Ans: The ‘District Forum’ (or) consumer Disputes Redressal Forum is one of the Consumer Disputes Redressal
agency dealt under section 10 to 15.

Each District forum consists of;-

a) A person who is, or has been, or is qualified to be a district judge, who shall be its president.

b) 2 other members who shall be persons of ability, integrity and standing, and have the adequate
knowledge (or) experience of, (or) have shown capacity in dealing with, problems relating to economics,
law, commerce, accountancy, industry, public affairs (or) administration, one of who shall be a women.
However, every appointment shall be made by the state government on the recommendation of a selection
committee consisting of:-
 1. The president of the state commission (i.e.., chairman),

2. Secretary, Law department of the state (i.e.., member),

3. Secretary in charge of the Department with consumer affairs in the state (i.e., member)

Every member of the District forum shall hold office for a term of 5 years (or) up to the age of 65 years,
whichever is earlier. He shall not be eligible for re-appointment.

Jurisdiction: According to the section 11, The District Forum shall have jurisdiction to entertain complaints where the
value of the goods (or) services and the compensation, if any, claimed does not exceed Rs. 5 lakhs. This is however
subject to other provisions of the Act. A complaint shall be instituted in a District Forum within the local limits of whose
jurisdiction;-

a) The opposite parties where there are more than one, at the time of the institution of the complaint, actually
and voluntarily resides (or) carries on business (or) has a branch office, (or) personally works for gain, (or)

b) Any of the opposite parties, where there are more then one, at the time of the institution of the complaint,
actually and voluntary resides (or) carries on business (or) has a branch office, (or) personally works for gain. But in
such a case either the permission of the District Forum is given, (or) the opposite parties who do not reside, (or) carry
on business (or) have a branch office, (or) personally works for gain, as the case may be, must acquiesce in such
institution; (or)

c) The cause of auction, wholly (or) part, arises.

Manner: According to section 12, a complaint, in relation to any goods sold (or) delivered (or) agreed to be sold (or)
delivered (or) any service provided (or) agreed to be provided, may be filed with a District forum by:-

a) The consumer to whom such goods sold (or) delivered (or) agreed to be sold (or) delivered (or) such service
provided (or) agreed to be provided.

a) Any recognized consumer association, whether the consumer to whom such goods sold (or) delivered (or)
agreed to be sold (or) delivered (or) such service provided (or) agreed to be provided is a member of such
association (or) not; (or)
 b) The central (or) the state governments.

Procedure: The procedure on complaint of goods may be of two types: (a) Complaint relating to goods. (b) Complaint
relating to services.

(a) Complaint relating to goods: The District forum shall, on receipt of a complaint, if it relates to any goods, refer a
copy of complaint to the opposite party mentioned in the complaint. Further it shall direct the opposite party to give
his version of the case with in a period of 30 days. This period may be extended by a further period not exceeding 15
days as may be granted by the District Forum.
Where the opposite party on receipt of a complaint referred to him denies (or) disputes the allegations
contained in the complaint, (or) omits (or) fails to take any action to represent his case within the time given by the
District Forum, the District Forum shall proceed to settle the consumer dispute in the following manner:-

1. The district forum shall obtain a sample of goods from the complainant, seal it and refer the sample so sealed
to the laboratory for test. The test be made with a view to finding out weather such goods from any defect alleged in
the complaint (or) suffer from any other defect. The report will be given to the district forum with in 45 days of the
receipt of the reference.

Before any sample of the goods referred to any appropriate laboratory for test, the District forum may
require the complainant to deposit to the credit of the forum for carrying out the

necessary analysis (or) test in relation to the goods and such fees as may be specified by the District Forum.

2. The District Forum shall remit the amount of fee deposited to its credit to the appropriate laboratory for to
carry out the test. On receipt of a report from the laboratory, the District Forum shall forward a copy of the report
along with such remarks as the District forum may fell appropriate to the opposite party.

3. If any parties of disputes the correctness of the findings of the appropriate laboratory, (or) disputes the
correctness of the methods of analysis (or) test adopted by the appropriate laboratory, the District forum shall require
the opposite party (or) the complainant to submit in writing his objections in regard to report made by the appropriate
laboratory.

4. The District Forum shall give a reasonable opportunity to the complainant as well as opposite party of being
heard as to the correctness (or) otherwise of the report made by the appropriate laboratory and also as to the report
made in relation thereto. Thereafter, it shall issue an appropriate order under section 14.

(b) Complaint relating to services: If the complaint received by the District forum relating to the services, then the
District forum shall refer a copy of such complaint to the opposite party directing to give his version of the case with
in a period of 30 days (or) such extended period not exceeding 15 days as may be granted by the District Forum.

Where the opposite party on receipt of a complaint referred to him denies (or) disputes the allegations
contained in the complaint, (or) omits (or) fails to take any action to represent his case within the time given by the
District Forum, the District Forum shall proceed to settle the consumer dispute in the following manner:-

1. On the basis of evidence brought to its notice by the complainant and the opposite party, where the opposite
party disputes the allegations contained in the complaint. (or)
 2. On the basis of evidence brought to its notice by the complainant where the opposite party omits (or) fails to
take any action to represent his case within the time given by the District Forum.

The proceedings complying with the procedure laid down above cannot be called in question in any court on
the ground that the principles of nature justice have not been complied with.

4Q. Write a short note on consumer Disputes Redressal commission (the State Commission) as to its
composition, Jurisdiction and procedure is to be followed by it.

Ans: The ‘State Commission’ (or) consumer Disputes Redressal Commission is one of the Consumer Disputes
Redressal agency dealt under section 16 to 19.

Each State Commission consists of;-

a) A person who is, or has been a judge of High Court, appointed by the state government, who shall be its
president.
 b) 2 other members who shall be persons of ability, integrity and standing, and have the adequate
knowledge (or) experience of, (or) have shown capacity in dealing with, problems relating to economics,
law, commerce, accountancy, industry, public affairs (or) administration, one of who shall be a women.

However, every appointment shall be made by the state government on the recommendation of a selection
committee consisting of:-

1. The president of the state commission (i.e.., chairman),

2. Secretary, Law department of the state (i.e.., member),

3. Secretary in charge of the Department with consumer affairs in the state (i.e., member)

Every member of the District forum shall hold office for a term of 5 years (or) up to the age of 67 years,
whichever is earlier. He shall not be eligible for re-appointment.

Jurisdiction: According to the section 17, The State Commission shall have jurisdiction:-
 a) To entertain complaints where the value of the goods (or) services and the compensation, if any,
claimed does not exceed Rs. 5 lakhs but does not exceed Rs. 20 lakhs ; and

b) Appeal against the orders of any district forum within the state.

c) To call for records and pass appropriate orders in any consumer dispute which is pending before (or) has
been decided by any district forum which the state where it appears to the state commission that such district
forum has exercised a jurisdiction not vested in it by law (or) has failed to exercise its jurisdiction so vested (or)
has acted in exercise of its jurisdiction illegally (or) with material irregularity.

d) The jurisdiction of the state commission shall be subject to other provisions of the Act.
Procedure: According to the section 18, the provisions of the section 12, 13, & 14 the rules made there under for
the disposal of complaints by the district forum with such modifications as may be necessary be applicable to the
disposal of the disputes by the state commission.

Appeal: According to section 19, any person aggrieved by an order made by the state commission may prefer and
appeal against such orders to the national Commission with in a period of 30 days from the date of order. The national
commission may entertain and appeal after the expiry of this period of 30 days if it is satisfied that there was sufficient
cause for not filling the appeal within that period.

.What is the composition of the National Consumer Disputes Redressal Commission (the national Commission)?
What is the jurisdiction and what is the procedure applicable to it?

Ans: The ‘National Commission’ (or) National consumer Disputes Redressal Commission is one of the Consumer
Disputes Redressal agency dealt under section 16 to 19.

Each National Commission consists of;-

 a) A person who is, or has been a judge of Supreme Court, appointed by the Central government, who shall be
its president.

b) 4 other members who shall be persons of ability, integrity and standing, and have the adequate knowledge
(or) experience of, (or) have shown capacity in dealing with, problems relating to economics, law, commerce,
accountancy, industry, public affairs (or) administration, one of who shall be a women.

However, every appointment shall be made by the Central government on the recommendation of a selection
committee consisting of:-

1. A person who is a judge of the supreme court, to be nominated by the chiefjustice of India (i.e.., chairman),

2. Secretary, Law department of the state (i.e.., member),

3. Secretary in charge of the Department with consumer affairs in the state (i.e., member)
 Every member of the District forum shall hold office for a term of 5 years (or) up to the age of 70 years,
whichever is earlier. He shall not be eligible for re-appointment.

Jurisdiction: According to the section 21, The National Commission shall have jurisdiction:-

a) To entertain complaints where the value of the goods (or) services and the compensation, if any,
claimed does not exceed Rs. 20 lakhs ; and

b) Appeal against the orders of any State Commission.

c) To call for records and pass appropriate orders in any consumer dispute which is pending before (or) has been
decided by any state Commission where it appears to the National commission that such State Commission. Had
exercised a jurisdiction not vested in it by law (or) has failed to exercise its jurisdiction so vested (or) has acted in
exercise of its jurisdiction illegally (or) with material irregularity.
Procedure: According to Section 22, the National Commission shall, in the disposal of any complaints (or) any
proceedings before it, have

1. The power of civil court as specified in section 13.

2. The power to issue an order to the opposite party directing him to do any (or) more of the things
referred to in section 14

The national commission shall follow such procedure as may be prescribed by the Central Government

Appeal: According to section 23, any person aggrieved by an order made by the National commission in exercise
of its powers, may prefer and appeal against such orders to the Supreme Court with in a period of 30 days from
the date of order. The Supreme Court may entertain and appeal after the expiry of this period of 30 days if it is .
Unfair Trade Practices.
Ans: According to section 2(1)(r), it means a trade practice which a trader, for the purpose of promoting the sales
(or) supply (or) use of any goods (or) for the provision of nay service, adopts any unfair method (or) unfair (or)
deceptive practice. It includes any of the following practices.

1. The practice of making any statement whether orally (or) in writing (or) by visible representation which:-

a) Falsely represents that the goods are of a particular standard, quantity, quality (or) grade composition,
style (or) model.

b) Falsely represents that the services are of a particular standard, quality (or) grade.

c) Falsely represents any re-build, second hand, renovated, reconditioned (or) old goods as new goods.
satisfied that there was sufficient cause for not filling the appeal within that period.

d) Represent that the goods (or) services have sponsorship, approval, performance, characteristics,
 accessories, uses (or) benefits which such goods (or) services do not have;

e) Represents that the seller (or) the supplier has a sponsorship (or) approval (or) affiliation of which such
seller of supplier does not have.

Makes a false (or) misleading representation concerning the need for (or) the usefulness of any goods (or)

services.

Gives to the public any warranty (or) guarantee of the performance, efficacy (or) length of life of a product
(or) of any goods that is not based on an adequate of proper test thereof.

g) Makes to the public a representation in a form that purports to be a warranty (or) guarantee of a product
(or) any goods (or) services (or) a promise to replace, maintain (or) repair an article (or) any part thereof
(or) to repeat (or) continue a service until it has achieved a specific result, if such purported warranty (or)
guarantee (or) promise is materially mis-leading (or) if there is no reasonable prospect that such warranty
(or) guarantee (or) promise will be carried out.
h) Materially mis-leading the public concerning the price at which a product (or) goods (or) services, have been
(or) ordinarily sold (or) provided.

i) Gives false statement (or) mis-leading facts disparaging the goods, services (or) trade of another person.
2. permits the publication of any advertisement whether in any newspaper (or) otherwise, for the sale (or) supply
at a bargain price, of goods (or) services that are not intended to be offerer for sale (or) supply at the bargain
price, (or) for a period that is, and in quantities that are reasonable, having regard to the nature of the market in
which the business is carried on, the nature and size of business of the advertisement.
 UNIT-III

INTELLECTUAL PROPERTY RIGHTS

INTRODUCTION

Intellectual property rights means all rights resulting from the application of mind or intellect in the
fields of SAIL (Science, Arts, Industrial and literature). The owners under the intellectual property
rights are conferred rights to a wide range of intangible assets, such as literary and artistic works,
inventions, symbols, designs etc. intellectual property may be categorized into creative properties
and industrial properties.

Artistic or creative works are protected by copyright laws. Copyrights of artists, painters, musicians,
sculptors, author,etc.are recognised by law. As far as the industrial properties are concerned,
‘trademarks of traders,dealers and producers’,‘patent rights of innovators,scientists’ and ‘índustrial
designs of plant engineers, industrial designs etc. are as intellectual properities.
Technological and communication revolution proved as both boon and bane. The widened scope for
markets,innovations,recognition for innovation works,and a march towards a knowledge based
economy were welcomed by one and all. The problems have driven the government of india to
enact a few laws. A few more proposals are awaiting approval from the Parliament.

OBJECTIVES OF PROTECTING INTELLECTUAL PROPERTY

➢ Ownership over the intellectual creations.

➢ Incentive for creation of intellectual property.
➢ Contribution towards economic growth.
➢ Prevention of misuse and abuse in the form of hacking and piracy.
➢ Protection of technical and/or non-technical data.
➢ Protection of plant varieties and farmers rights.

COPYRIGHT AS INTELLECTUAL PROPERTY

a) In case of a literary, dramatic or music work, not being a computer programme:

 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 public not being copies already in circulation;
III. To perform the work in public, or communicate in public;
b) In case of a computer programme:
I. To do any of the acts specified in clause(a);
II. To sell or give on commercial rental or offer for sale or for commercial rental any copy
of the computer programme:
c) In case of an artistic work:
I. To reproduce the work in any material form including depiction 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;
d) In case of cinematograph film:
I. To make a copy of the film, including a photograph of any image forming part thereof;
II. To sell, to 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 occasion;
 e) In case of sound recording:
I. To make any other sound recording embodying it;
II. To sell, to 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 non earlier occasion;
III. To communicate the sound recording to the public;

INFRINGEMENT OF COPYRIGHTS:
➢ When any person does anything of copy without a license from the owners or registrar of
copyrights.
➢ When a person sells, hires any work by way of trade display.
➢ When any person distributes any infringing copies of the work to the prejudice of the owner
of the copyright or
➢ When any person imports into India any infringing copy of a foreign book.

The following acts are not considered as infringement:

➢ Production or publication of transaction of a specific act.

➢ Making three copies of a writing work for library and reading purposes.
➢ Reproducing any matter from the pronouncement or orders of a court.
➢ Usage of literary work-for research, criticism, a report in a news paper or magazine/journal, for
discussion by members in parliament or assembly etc.
➢ Usage of solved and unsolved problems and also questions for the purpose of paper setting by
the examiners.

Procedure for Copyright Registration

➢ An app in the format of FORM IV has to have to be sent to the register along with
fees.

➢ Every application has to be signed by the applicant as well as an

Intellectual propertylawyer.
 ➢ The registrar will issue a some No. and then there is a mandatory waiting time for a
period of 30 days for any objections to be received.

➢ The registration will be done and an extract will be sent to the registrar for the entry in
the Register of Copyright.
➢ If any objection is received, the head will send a letter to both the
clients about the thatand will give a hearing to both parties clients.

➢ After that, if the objections are resolved the scrutinizer will

scrutinize the applicationand approve or reject the application as
the case may be.

Remedies are available against a copyright infringer?

The remedies provided by the Copyright Act, 1957 against infringement of copyright are:

➢ Civil remedies - these provide for injunctions, damages, rendition of

accounts, delivery and destruction of infringing copies and damages for
 conversion;

➢ Criminal remedies - these provide for imprisonment for 6months to 3yearsfines

from 50000-200000, seizure of infringing copies and delivery of infringing copies
to the owner; and

Border enforcement - the Act also provides for prohibition of import anddestruction of
imported goods that infringe the copyright of a person with the assistance of the
customs authorities of India.
TRADEMARKS AS INTELLECTUAL PROPERTY

As per section(1)(zb) of the trademarks act,1999,the term trade mark is defined as follows:

“Trademark means 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.”

The trademark act empowers the following:

➢ Appointment of controller general of patents, designs and trademarks by the government.

➢ The controller shall be the registrar of trademarks,
➢ The controller should maintain a register of trademarks.
➢ The registered owner of the trademark shall have exclusive right to use of the trademark in
relation to the goods or services with regard to which the trademark is registered.

FEATURES OF TRADEMARK:

➢ The trademark shall entail the possibility of distinguishing the goods and services of the
owner or trader from those of others.
➢ It indicates the certification to highlight the right of the trader.
➢ The term trademark may also include certain attributes such as shape and dimension of
goods, packaging, and may also include colour combination.

PROCEDURE FOR OBTAINING TRADEMARKS:

➢ A person desirous of getting the trademark registered shall apply for a search to find out
whether any registered trademark is resembling with the proposed trademark for which the
registration is sought. He/she shall apply in form TM-54 for such search.
➢ If it is found through the search report that the trademark does not resemble with any existing
trademark, the aspirant shall apply to the registrar of trademark in prescribed form for the
registration of the proposed trademark.
➢ The applicant can withdraw his application for registration before the registration of
trademark.
➢ The details pertaining to the acceptance of patent would be advertised in the appropriate
medium and the objections, if any, would be recorded.
➢ The details pertaining to the application of trademark would be advertised in the appropriate
medium [ The trademark journal published by the government] and the objections, if any,
would be recorded.
➢ When the registrar is satisfied with the procedure followed by the aspirsnt, he shall issue a
registration with the official sesl of the trademarks registry.[grant and sealing of trademarks].

PATENT AS AN INTELLECTUAL PROPERTY:

➢ A patent means “ A patent for any invention granted under this act [section z(1)(m)]”.
➢ Invention means “any new and useful
a. Art, process,method, or manner of manufacture.
b. Machine, apparatus or other article.
 c. Substances produced by manufacturer and includes any new and useful improvement
of any of them and a alleged invention [sectionz(1)(j)]”.

A patent right is useful in the following manner

➢ The invention or innovation leads to a monetary rewards.

➢ The assignee or the licensee would pay royalty to the patent holder.
➢ Patenting is a tool to avert infringement.
➢ It enhances the quality of the product, as patent is an end result of an innovation.

PROCEDURE FOR OBTAINING A PATENT:

The provisions of sections12, 22, 23, 25 and 43 of the ptent act,1970 are applicable in the respect of
registration of patents. The registration of patents involves the following stages.

➢ The first stage would be filing of application [Form ] for the registration of the patents
with the registrar of patents. Form ---- is submitted by the original inventor of the
patents. Form…. is submitted by the assignee or the legal representative of the original
is submitted by the assignee or the legal representative of the original is submitted by
the assignee or the legal representative of the original inventor. The application shall be
accompanied by a complete specification [where all the details about the invention] or a
provisional specification [where all the details pertaining to the nature of invention are
not highlighted].
➢ The second stage will be the scrutiny of the applications by the appropriate authority.
➢ The third stage involves acceptance of application and the same would be intimated in
the official gazette.
➢ The details pertaining to the application of the patent would be advertised in the
appropriate medium and the objections, if any, would be recorded.
➢ An official seal would be put to grant the patent [grant and sealing of patents]. The same
would be entered in the register of patents.

Kinds of patents
 Ordinary Patent of Patent for
patents an addition convention

Ordinary patent

An ordinary patent application may be filed if the applicant

does not have any priorityto claim or if the application is not
filed in pursuance of any preceding convention application

Convention application

Filing a convention application allowstheapplicant to

claim priority in all the convention countries. The
applicant can claim priority if the same or substantially
similar application has been filed in any of the
convention countries. The time limitfor claiming priority
is 12 months from the date on which the first
convention application was filed in a convention
country.

Patent of Addition
Suppose you have already filed for a patent and you have
come across a slight improvement in the invention. You may
not be able to file a new patent application, asit would not
satisfy the requirement for an inventive step. That is when a
patent of addition may be filed. A patent of addition
protects the improvement. There is no separate renewal fee
for a patent of addition and it expires when the main patent
expires.

What is a trade secret?

Trade secrets are intellectual property (IP) rights on

confidential information which may be sold or
licensed. In general, to qualifyas a trade secret,
the information must be

Commercially valuable because it is secret,

Be known only to a limited group of persons, and

Be subject to reasonable steps taken by the rightful holder of the

information to keep it secret, including the use of
confidentiality agreements for business partners and
employees.

The unauthorized acquisition, use or disclosure of

such secret information in a manner contrary
to honest commercial practicesby others is
regarded as an unfair practice and a violation
of the trade secret protection.

What is a Geographical Indication?A geographical indication (GI) is a sign used on products

thathave a specific geographical origin and possess qualities or a reputation that are due to
that origin.

➢ In order to function as a GI, a sign must

identify a product asoriginating in a
given place.

➢ In addition, the qualities, characteristics or

reputation of the product should be essentially
due to the place of origin. Since thequalities
depend on the geographical place of
production, there isa clear link between
theproduct and its original place of production.
 UNIT-IV
MANAGEMENT OF COMPANIES AND
MEETINGS

17Q. Define director? Explain the Powers and duties of directors & what are the qualifications and
disqualifications of directors?

Ans: Introduction: A company being an artificial person cannot act by itself. It has neither a mind
nor a body of its own. It must act through some human agency. In other words, its business should
be carried on by some persons on its behalf such person termed as directors. The directors are
the persons elected by the shareholders to direct, manage (or) supervise the affairs of the
company.

In other words, ‘The Board of directors are the brain and the only brain of the company
which is the body, and the company can does act only through them’. It is only ‘when the brain
functions that the corporation is said to be function’.

Definition: According to section 2(13) of the companies Act, 1956, defines ‘Director’ “as any
person occupying the position of director, by whatever name called. If he performs the function
of director, he would be termed a director in the eyes of law even though he may be named
differently. A director may, therefore, be defined as a person having control over the direction,
conduct, management (or) superintendence of the affairs of the company”.

Number of directors: According to the section 252(1) every public company have atleast 3
directors and according to section 252(2) every other company (i.e.., a private company is
deemed to be a public company) at least 2 directors. According to section 258, the number so fixed
may be increased (or) decreased within the limits prescribed by the Articles by an ordinary resolution
of the company in general meeting. But According to section 259, where the increase in the number
does not make the total number of directors more then 12, it cannot approved by the central
government. It is the maximum limit permitted by the Articles for its approval by the Central
government.

QUALIFICATIONS AND DISQUALIFICATIONS OF DIRECTORS

To be appointed as a director of a company, public authorities prescribe some qualifications. ‘No corporate, association
or firm can be appointed as director of a company.’ A director must (i) be an individual; (ii) be competent to enter into a

contract; and (iii) hold a share qualification if so required by the Articles of Association. As there are qualifications for
being a director, there are some disqualifications too.
The following persons are disqualified for appointment as director of a company: (i) A person of unsound mind; (ii) an
undischarged insolvent or one whose petition for declaring himself so is pending in a Court; (iii) a person who has been
convicted by a Court for any offence ...

Powers of Board of Directors:

1. General Powers: (Section 291) The Board of directors of a company is entitled to exercise all
powers and to do all acts and things which the company is authorized to do. The powers may be
subject to two conditions, they are:-

a) Firstly, the Board shall not do any act which is to be done by the company in general meeting.

b) Secondly, the Board shall exercise its powers subject to the provisions contained in that behalf
in the companies Act, (or) in the memorandum (or) the Articles of the company (or) in any
regulations made by the company in general meeting.

2. Powers to be exercised only at meeting: (Section 292) The Board of directors of a company (public
as well as private) must exercise the following powers on behalf of the company by means of
resolutions passed at the meetings of the Board:-

a) Make calls on shares, b) Issue Debentures, c) Borrow moneys otherwise than on debentures
(i.e.., public Deposits), d) Invest the funds of the company, and e) Make loans.

There are certain other powers which must be exercised only at the Board. Those powers are:-

1. To fulfill vacancies in the Board. (Section 262).

2. To sanction (or) give consent for certain contracts in which particular directors, their relatives
and firms are interested. (Section 297).

3. To receive notice of disclosure of shareholders of directors. (Section 308).

4. To appoint as managing director (or) manager a person who is already managing director (or)
manager of another company. (Section 316 & 386).

5. To make investments in companies in the same group. (Section 372).

Restrictions on powers: (section 293) The Board of Directors of a public (or) private company which
is subsidiary of a public company, shall exercise following powers only with the consent of the
shareholders in the general meetings:-

1. To sell (or) lease (or) otherwise dispose of the whole, (or) substantially the whole, of the
under taking of the company.

2. To remit (or) give time for repayment of nay debt due to the company by any director.

3. To invest the amount of compensation received by the company in respect of compulsory

acquisition of any undertaking (or) property of the company.

4. To borrow moneys where the moneys to be borrowed, together with the moneys already
borrowed by the company will exceed the aggregate of the paid-up capital of the company
and its free reserves.

5. To contribute to charitable and other funds not directly relating to the business of the
company (or) welfare of its employees, amounts exceeding in any financial year Rs.50000
(or) 5% of the average net profits of the 3 proceeding financial years, whichever is greater.

Duties of Board of Directors: Directors occupy a key position in the management and
administration of the company. Their duties are usually regulated by the Articles of the company.
The general duties of the directors of the company may be classified as:-

1. Fiduciary Duties,

2. Duties of care, skill and diligence,

1. Fiduciarv Duties: The fiduciary duties of directors are basically identical with those to any
person in a fiduciary position. They must exercise their powers;-

a) Honestly: and

b) In the interest of the company and share holders.

 As a fiduciary they must not place them self in a position in which their conflict their duties
to their company and their personal interests. These fiduciary duties are owed to the company
and not to the individual shareholders and they must not make a secrete profits out of their
position.

2. Duties of care, skill and diligence: Directors should carry out their duties with such care, skill
and diligence as is reasonably expected from persons of their knowledge and status. The standard
of care, skill and diligence depending up on;-

a) The type and nature of work;

b) The division of power between directors and other officers;

c) The general usage and customs of that type of business’ and

d) Whether directors work gratuitously (or) remuneratively.

Example: City Equitable Fire Insurance Company Limited. (1925):

Facts: The directors of an insurance company left the management of the company's affairs
almost entirely in the hands of ‘B’, the managing director. Owing to ‘B's fraud, a large amount of
the company's assets disappeared. ‘B’ and the firm in which he was a partner had taken a huge
loan from

the company, and the cash at blank (or) in hand included L 7300 in the hands of the company's
stockbrokers, in which ‘B’ was a partner. The directors never enquired as to how these items were
made up.

Judgment: The directors were negligent. (However, the Articles protected the directors from
liability as there was no willful neglect (or) default and consequently they were not held liable.

Other Duties: The other Duties of a director are:-

a) To attend Board meetings.

 b) Not to delegate his functions except to the extent authorized by the Act (or) the
constitution of the company; and

c) To disclose his interest.

18Q. Briefly state the provisions of the companies Act, 1956, regarding the mode Appointment
of Directors of a company?

Ans: Introduction: A company being an artificial person cannot act by itself. It has neither a mind
nor a body of its own. It must act through some human agency. In other words, its business should
be carried on by some persons on its behalf such person termed as directors. The directors are
the persons elected by the shareholders to direct, manage (or) supervise the affairs of the
company.

In other words, ‘The Board of directors are the brain and the only brain of the company
which is the body, and the company can does act only through them’. It is only ‘when the brain
functions that the corporation is said to be function’.

Definition: According to section 2(13) of the companies Act, 1956, defines ‘Director’ “as any
person occupying the position of director, by whatever name called. If he performs the function
of director, he would be termed a director in the eyes of law even though he may be named
differently. A director may, therefore, be defined as a person having control over the direction,
conduct, management (or) superintendence of the affairs of the company”.

Number of directors: According to the section 252(1) every public company have atleast 3
directors and according to section 252(2) every other company (i.e.., a private company is deemed
to be a public company) at least 2 directors. According to section 258, the number so fixed may
be increased (or) decreased within the limits prescribed by the Articles by an ordinary resolution
of the company in general meeting. But According to section 259, where the increase in the
number does not make the total number of directors more then 12, it cannot approved by the
central government. It is the maximum limit permitted by the Articles for its approval by the
Central government.

Appointment of Directors:

1. First Directors: (Section 254 of clause 64 of table ‘A’)

a) The articles of a company usually name the first directors by their respective names (or)
prescribe the method of appointing them.

b) If the first directors are not named in the articles, the number of directors and the names
of the directors shall be determined by in writing by the subscribers of the memorandum
(or) a majority of them.

c) If the first directors are not appointed in the above manner, the subscribers of the
memorandum who are individuals become directors of the company. They shall hold
office until directors are duly appointed in the first annual general meeting.

2. Appointment of Directors by the companv: (Section 255 to 257) According to the section 255
except first director the subsequent directors are appointed by share holders in general meeting.
Such directors are liable to retire by rotation. In the case of public (or) private company which is
a subsidiary of a public company, at least 2/3'd of the total number of directors shall be liable to
retire by rotation. This means not more than 1/3'd of the total directors may be appointed on a
permanent basis, of the directors liable to retire by rotation. Those who are retiring are however
eligible for re- appointment.

3. Appointment of Directors by Board: (Section 260, 262, & 313) The Board of Directors may
appoint Directors under various sections in different cases:-

a) As Additional Directors: (Section 260) The Board of directors may appoint additional
directors from time-to-time. If so, authorized by its articles without consulting the shareholders.
Additional Director holds office up to the next annual general meeting. The number of directors
including the additional director should not exceed the maximum number of directors as
determined by the articles of the company.
 b) In a casual Vacancy: (Section 262) A casual Vacancy may arise by death, resignation,
retirement, insolvency (or) disqualification of a director. The board of directors may fill this
vacancy subject to regulations in the articles. The casual directors shall hold office only up to the
date of original director's tenure.

c) As alternate director: (Section 313) The board may appoint alternative director in the
place of original director if the articles authorizes. He his appointed to act as a director in place of
the original director during the absent of original director remains for more then 3 months from
the state in which the meetings of the Board are ordinarily held. Such alternative director shall
hold office only till the original director returns.

4. Appointment of directors by third parties: (Section 255) The Articles may authorize third
parties to appoint nominees to the board of the company. The number of such nominees should
not exist 1/3'd of total number of directors, such directors are not liable to retire by rotation. The
third party means it may be debenture holders, banking company (or) financial institution etc..,

5. Appointment by proportional representative: (Section 265) The Articles of a company

may provide for the appointment of director by proportional representation. But it should not
less then 2/3'd of the total number of directors of a public company (or) private company which
is a subsidiary of a public company according to the principle of proportional representation.

6. Appointment of director by the central government: (section 408) The central

government has the power under section 408, to appoint directors as on order passed by the
company law Board for to efficiency safeguard the interest of the company (or) its share holders
(or) the public interest for to prevent mis-management. Such directors can hold office for a period
of not exceeding 3 years on any one occasion. The power can be exercised by the company law
board either on a reference made by the central government;-

a) Not less than 100 members of the company.

b) Members of the company not holding less than 1/10" of the voting powers.

A director appoint by the central government is not required to hold qualification shares
is to retire by rotation.
 19Q. Explain Corporate Social Responsibility (CSR) in detail.

Ans. CORPORATE SOCIAL RESPONSIBILITY

● MEANING OF CSR :-
Rule 2(C) of the companies (corporate social responsibility policy) rules, 2014 defines the term
“corporate social responsibility (CSR)” which means and includes but is not limited to :

(i) Projects or programs relating to activities specified in schedule vii to the Act;

● APPLICABILITY :-
Under section 135 of the companies Act, 2013 every companies:

1. Having net worth of Rs 500C or more; or

2. Having turnover of Rs 1000C or more; or
3. Having net profit of Rs 5C or more

During any financial year shall constitute a CSR committee of the board .

● MEANING OF “NET PROFIT” :-

Rule 2(f) of the CSR rules, 2014 provides meaning of the net profit of a company as per its
financial statement prepared in accordance with the applicable provision of the Act, but shall not
include the following, namely:

i. Any profit arising from any overseas branch or branches of the company of the company , whether
operated as a separate company or otherwise; and
ii. Any divided received from other companies in India , which are covered under and complying with
the provision of section 135 Act :
In case of a foreign company covered under these rules, net profit means the net
profit of such company as per profit and loss account prepared in terms of clause (a(1)) of section
381 read with section 198 of the Act.
 ● Constitution of CSR committee :-
The CSR committee shall be constituted in the following manner:

i. An unlisted public company or a private company covered under section 135(1) which is not
required to appoint an independent director pursuant to section 149(4) of the Act, shall have
its CSR committee without such directors;
ii. A private company having only two directors on its board shall constitute its CSR committee
with two such directors;
iii. With respect to foreign company covered under these rules, the CSR committee shall comprise
of a least two persons of which one person shall be nominated by the foreign company.

● FUNTIONS OF CSR COMMITTEE :-

Section 135(3) provides that the CSR committee shall:

a) Formulate and recommend to the board, a CSR policy , which will indicate the activities to be
undertaken by the company as specified in schedule vii;
b) Recommend the amount of expenditure to be incurred on the activities referred to in the CSR
policy;
c) Monitor CSR policy from time to time.

● MEANING OF CSR POLICY :-

CSR policy under rule 6 of the companies (CSR policy) rules, 2014

Rule 6 provides that:

1. The CSR policy of the company shall, inter-alia, include the following namely:
a) A list of CSR projects or programs which a company plans to undertaken falling within the
schedule vii of the Act, specifying modalities of execution of such project or programs and
implementation schedules for the same; and
b) Monitoring process of such projects or programs:
 Provided that the CSR activities does not include the activities undertaken in pursuance of
normal course of business of a company.

Provided further that the board of directors shall ensure that activities included by a
company in it corporate social responsibility policy are related to the activities included in
schedule vii of the Act.

2. The CSR policy of the company shall specify that the surplus arising out of the CSR projects or
programs or activities shall not form part of the business profit of a company.

● CSR ACTIVITIES :-

The Board of a company may decide to undertake its CSR activities approved by the CSR
committee, through a registered trust or a registered society or a company established by the
company or its holding or subsidiary or associate company under section 8 of the Act or
otherwise:

Provided that------

i. If such trust, society or company is not established by the company or its holding or subsidiary or
associate company, it shall have an established track record of three years in undertaking similar
programs or projects;
ii. The company has specified the project or programs to be undertaken through these entities, the
modalities of utilization of funds on such projects and programs and the monitoring and reporting
mechanism
iii. A company may also collaborate with the companies for undertaking projects or programs or CSR
activities in such a manner that the CSR Committee of respective companies are in a position to report
separately on such projects or programs in accordance with these Rules.
iv. U/S 135(5) the CSR projects or programs or activities undertaken in India only shall amount to CSR
expenditure.
v. The CSR projects or programs or activities that benefits only the employees of the company and their
families shall not be considered as CSR activities in accordance with section 135 of the Act.
vi. Companies may build CSR capacities of their own personnel as well as those of their implementing
agencies through institutions with established track records of at least three financial years but such
 expenditure shall not exceed five percent of total CSR expenditure of the companies in one financial
year.
vii. Contribution of any amount directly or indirectly to any political party under section 182 of the Act,
shall not be considered as CSR activity.

● LIST OF CSR ACTIVITIES :-

Schedule vii of the companies Act, 2013 sets out the activities, which may be included by
companies in their CSR policies.

These activities relate to:

i. Eradicating hunger, poverty and malnutrition, promoting health care including preventive
health care and sanitation and making available safe drinking water;
ii. Promoting education, including special education and employment enhancing vocation skills
especially among children, women, elderly, and the differently able and livelihood
enhancement projects;
iii. Promoting gender equality, empowering women, setting up homes, day care centre and such
other facilities for senior citizens and measures for reducing inequalities faced by socially and
economically backward groups;
iv. Ensuring environmental substitutability, ecological balance, protection of flora and fauna,
animal, welfare, agro-forestry, conservation of natural resources and maintaining quality of
soil, air and water;
v. Protection national heritage , art and culture including restoration of building and sites of
historical importance and work of art; setting up public libraries; promotion and development
of traditional arts and handicrafts;
vi. Measures for the of benefit armed forces veterans, war windows and their dependents
vii. Training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic
sports;
viii. Contribution of prime minister’s national relief fund or any other fund set up by the central
government for socio-economic development and relief and welfare of the scheduled castes,
the scheduled tribes, other backward classes, minorities and women;
 ix. Contributions or funds provided to technology incubators located within academic institutions
which are approved by the central government;
x. Rural development projects.

Q.Write a short note on corporate Governance?

corporate governance is the system of rules, practices, and processes by which a firm is directed
and controlled. Corporate governance essentially involves balancing the interests of a company's
many stakeholders, such as shareholders, senior management executives, customers, suppliers,
financiers, the government, and the community.since corporate governance also provides the
framework for attaining a company's objectives, it encompasses practically every sphere of
management, from action plans and internal controls to performance measurement and
corporate disclosure.

Corporate governance includes the processes through which corporations' objectives are set and
pursued in the context of the social, regulatory and market environment. These include monitoring
the actions, policies, practices, and decisions of corporations, their agents, and affected
stakeholders

Explain the position of a Director.

Ans. It is very difficult to define precisely the position of directors in a company.The Companies Act,2013 is
also silent on this issue.Directors have been described sometimes as trustees,sometimes as agents or sometimes
as managing partners.
They have some attributes of all of them,but they are neither trustees nor managing partners in full sense of the
term.
The legal position can be discussed as under-
1.Directors as agents
2.Directors as trustees
3.Directors as officers in the company
4.Directors as employees
5.Directors as managing partners

1.DIRECTORS AS AGENTS :
Directors are,in the eyes of law,agents of the company for which they act.The general principles of the law of
agency apply to the company and its directors. Directors are merely agents of a company.The company itself
cannot act in its own person for it has no person;it can only act through directors and the case is as regards those
directors merely the ordinary case of principal and agent.Wherever an agent is liable those directors would be
liable;where the liability would attach to the principal and principal only,the liability is the liability of the
company. Where the directors make contracts on behalf of the company,they incur no personal liability provided
they act within the scope of their authority.In such a case,the company alone would be liable.
Directors incur a personal liability in the following circumstances-
i) where they contract in their own names.
ii) where they use the company’s name incorrectly ,e.g.by omitting the word’ltd’.
iii)where director’s exceed their power e.g where they borrow in excess of the limits imposed upon them.
But the position of directors differ from that of the agents in the following respects:
i) Notice to an agent amounts to a notice to the principal.However a notice to a director does not amount to a
notice to the company except where director is entrusted with a duty to receive the same.
ii) whereas agents are appointed directors are elected.
iii) The agents work for commission but it is not so in case of directors.
iv) The ordinary agent acts according to the instructions of his principal but directors do not.
v)An agent may enter into a contract in his own name.A director cannot enter into a contract in his own name.If
he does so,the company is not liable.
vi)An agent may not disclose the name of his principal.A director must disclose the name of his principal.
Hence the directors are not agents in the true sense.

2) DIRECTORS AS TRUSTEES :
The directors have also been described as trustees of the company.’A trustee is a person who is the owner of the
property,deals with it as principal as owner and a master,subject only to an equitable obligation to account to
some person to whom he stands in relation of trustee.
i) Directors as trustees of the company’s money or property-
As trustees of the company’s money or property,directors are accountable for their proper use and are required
to refund or restore the same if improperly used.Such property must be applied for the specified purposes of the
company and a mis-application of it is a breach of trust.And ever since joint stock companies were
invented,directors have been held liable to make good moneys which they have misapplied upon the same footing
as if they were trustees.Thus, when directors pay dividends out of capital even though the company has not
earned profits,they are liable for breach of trust.
ii) Directors as trustees of powers conferred uopn them-
The directors of a company are trustees for the company,and with reference to their,power of applying funds of
the company and for misuse of the power they could be rendered liable; as trustees and on their death the cause
of the action survives against their legal representatives.
Directors are the trustees of the powers conferred upon them and they must exercise those powers bonafide and
for the benefit of the company as a whole.Buckley also supports the above view.He has observed-
“Directors are the trustees of the powers commited to them as for instance,of the power of approving transfer of
shares;of the power of allotment of shares;of the power of employing the funds of the company;of the power of
making calls;or receiving payment of calls in advance;of the power of forfeiting shares and as trustees they may
be rendered liable for their misuse”.
Directors are trustees of the company and not of individual shareholders.The principle has been firmly established
in pervival v wright.
Directors bought shares from a shareholder,while they are negotiating the sale of the company nat a very high
price.The directors did not disclose the fact to the shareholder.It was held the purchase of the shares was good.
But it is not accurate to call them trustees in a strict legal sense:
i)A trustee can’t be an employee of the trust but a director can be an employee of the company.
ii)A person can be a director in a maximum of 15 companies.A person can be a trustee in any number of trusts.
iii)The property of a trust is vested in the trustees merely manage the property of the company which isd not
vested in them.
iv)A trustee is not remuneration but a director is entitled to remuneration|(including sitting fee for attending board
meeting).
v)An artificial person can become a trustee but an artificial person cannot become a director.
Director may better be considered nto stand in a fiduciary position towards the company and be treated as a quasi
trustee.
3) DIRECTORS AS OFFICERS-
Under section 2(59),”officer”includes any director,manager or key managerial personnel or any person in
accordance with whose direction or instruction the Board of Directors or any one or more of direction is or are
accustomed to act.
Under section 2(59)of the Companies Act,they are liable to certain penalities if the provisions of the Companies
Act are not complied with.
Moreover whether or not na director is in the employment of the company,he shall always be treated as an officer
of the company.
4) DIRECTORS AS EMPLOYEES-
Although directors are agents of t5he company,they are not employees or servants of the company.Hence they
cannot claim their remuneration as a preferential creditor in the event of winding up of a company under section
327 of the Companies Act 2013.
But where any director,besides being a director,is also in the service or employment of the company such as
secretary,manager,accountant or otherwise,he will be treated as an employee.As such he will be entitled to the
remuneration and other benefits admissible to him as an employee in addition to his rights as a director to sitting
fee etc.A managing director holds such a double role.
5) DIRECTORS AS MANAGING PARTNERS-
The Directors are also sometimes described as managing partners because like a partner of a firm, they manage
the affairs of the company and they are also usually important shareholders of the company. They do all
proprietorial fun ctions like alloting shares, making calls, forfeiting shares etc.
However, all the partners of a firm act on the prinicpal of mutual agency. But it is not so in the case of directors.
A director has no authority to bind the other directors and shareholders . Morepover, directors are subject to
retirement by rotation whereas partners of a firm are not. Hence, the directors are not managing partners in the
full sense.
Thus, directors are described as trustees, agents or managing partners. It does not matter much what you call
them, so long as you understand what their true position is , which is that they are commercial men, managing a
trading concern for the benefit of themselves and all other shareholders .
They Board of directors are the brain and the only brain of the company which is the body and the company can
act only through them.
Q4. Explain the liablities of a Director.
Ans. The liabilities of directors may be discussed under the following four heads:
A. Liability to third parties : This may arise
1. Under the Act: Liability of directors to third parties may arise in connection with the issue of prospectus which
does not contain the particulars required by the Companies Act, or which contains material misrepresentations.
Directors may also incur personal liability:-
a. On their failure to repay application money if minimum subscription has not been subscribed (Sec.69)
b. On an irregular allotment of shares to an allottee (and likewise to the company) if loss or damage is sustained
(Sec.71).
c. On their failure to repay application money if the application for the securities to be dealt in on a recognized
stock exchange is not made or is refused(Sec.73).
d. On failure by the company to pay a bill of exchange, hundi, promissory note, cheque or order for money or
goods wherein the name of the company is not mentioned in legible characters (Sec.147)
2. Independently of the Act. Directors, as agent of a company, are not personally liable on contracts entered into
as agents on behalf of the company.But there are a number of exceptions to this rule. If a director fails to exclude
personal liability, for instance, by signing on company’s behalf, he is personally liable to the holder of such
instrument. He is personally liable if acts if he acts in his own name.

B. Liability to the company. The liability of directors towards the company may arise from-
1. Ultra Vires acts. Directors are personally liable to the company in respect of ultra vires acts and it is not
necessary to prove fraud in such cases, e.g., when they pay dividends out of capital or when they dissipate the
funds of the company in ultra vires transactions. They are liable jointly and severally and, inter se, they have a
right to rateable contribution.
2.Negligence. A director may incur liability for the negligence in the exercise of his duties. There is no statutory
definition of negligence, and as such each case has to be decided after due consideration of the particulars facts
thereof. The question to be answered in each case is:Has the question to be answered in each case is:”Has the
director exercised the necessary care and shown the necessary diligence in the discharge of his duties?”if he has
not,he is liable. If he has,there is no question of liability.It is essential in an action for negligence that the company
suffers some damage,as negligence without damage or damage without negligence is not actionable.
3. Breach of trust: Directors of company,being in a fiduciary position,hold the position of trustees as regards its
money and property which comes into their hands and of the powers entrusted to them by the articles. They must
discharge their duties as such trustees in the best interest in the company. They are laiable to the company for
any loss resulting from the breach of trust. Directors are also accountable to the company for any secret profits
they might have made in transactions on behalf of the company.
4. Misfeasance: Directors are liable to the company for misfeasance which means ‘willful misconduct’ of
directors which they may be sued in a law court. In case of misfeasance proceedings the directors may apply for
relief under sec.633.
C. Liability for breach of statutory duties: There are numerous statutory duties of directors which they must carry
out. Most of these duties relate to maintenance of proper accounts, filing of returns or observance of certain
statutory formalities. If they fail to perform these duties, they render themselves liable to penalties.
D. Liability for acts of his co-directors: A director is not liable for the acts of his co-directors provide he has no
knowledge and he is not a party. His co-directors are not his servants or agents who can by their acts impose
liablility on him.

Q5. Explain the provisions related with the appointment and duties of a Managing director.
Ans. The term Managing director includes a director occupying the position of a Managing director. A managing
director means a director who is entrusted with substantial powers of management which would not otherwise
be exercisable by him. These powers may be conferred upon him by virtue of an agreement with the company or
a resolution passed by the company in general meeting or by its board of directors or by virtue of its Memorandum
or Articles of Association. Managing Director shall exercise his powers subject to superintendence, control and
direction of its Board of Directors. He is the whole time director and is the chief executive of the company.
Appointment:
1. Compulsory appointment of managing or whole time director( Sec269): Every public company or a private
company which is a subsidiary of a public company having paid up share capital of Rs 5 crores or more shall
have a managing or whole time director.
2. Prior approval of the central government unless appointment is in accordance with the conditions specified in
Schedule XIII: No shall appointment shall be made except with the prior approval of the Central Government.
However no such approval is required when the appointment is made in accordance with the conditions specified
in schedule XIII, which prescribes the conditions to be fulfilled for the appointment of a managing director.
3. Provisions relating to appointment where it requires approval of the central Government:
a. Every application seeking approval to the appointment of a managing director shall be made to the Central
Government within a period of 90 days from the date of such appointment.
b. The Central Government shall not accord its approval to the application if it is satisfied that –
i. the managing director is, in its opinion, not a fit and proper person to be appointment as such or such
appointment is not in the public interest.
ii. the terms and conditions of the appointment of the managing director are not fair and reasonable.
c. The central government may accord approval for a period lesser than the period for which the appointment is
proposed to be made.
d. if the appointment is not approved by the Central Government, the person appointed shall vacate his office on
the date on which the decision of the central government is communicated to the company. If he fails to vacate
his office, he shall be punishable with fine which may extend to Rs.500 for everyday during which he omits or
fails to vacate such office.
4. Appointment in contravention of the requirements of Schedule XIII: An appointment without the approval of
the Central Government may sometimes be made by a company, in contravention of the requirements of schedule
XIII. In such a case if the Central Government suo motu or on any information received by it is prima facie of
the opinion that such an invalid appointment has been made, the Central Government can refer the matter to the
Tribunal.
Disqualification of managing director: Sec 237
a. is an undischarged insolvent, or has at any time been adjudged an insolvent.
b. suspends, or has at any time suspended, payment to his creditors, or makes, or has at any time made,
composition with them.
c. is or has at any time been convicted by a Tribunal of an offence involving moral turpitude.
Number of managing directorships: Sec 316
It cannot exceed two. Any person may be appointed as a managing director in a public company or in a private
company which is a subsidiary of a public company, provided he is not holding the office of the managing
director or the manager in any other company. The Central Government may permit any person to be appointed
as a managing director of more than two companies.
Term of the office: Sec 317
It cannot exceed 5 years at a time. There is nothing to prohibit reappointment, re-employment or the extension
of a managing director. This does not apply to a private company which is not a subsidiary of a public company.
Q6. Write short notes on Managerial Remuneration.
Ans. The total managerial remuneration of the directors and the manager in respect of an financial year shall not
exceed 11 percent of the net profit of the company for that financial year computed in the manner laid down in
secs.349,350 and 351.The percentage shall be exclusive of the fees payable to the directors for attending the
meetings of the board of directors,or a committee thereof.
within the 11 percent limit of the maximum remuneration, a company may pay monthly remuneration to its--
(a) managing or whole time director in accordance with the provisions of sec.309(which deals with remuneration
of directors),or
(b) manager in accordance with the provisions of sec.387(which deals with remuneration of manager).
Q7. Write short notes on Loans to Directors.
Ans. LOANS TO DIRECTORS(SEC 295) :
Without obtaining the previous approval of the central government,a company (referred to as the lending
company) shall not,directly or indirectly,make any loan to--
(a)(i)any director of the lending company,or(ii)to the directors of its holding company,or(iii)to any partner or
relative of any director;
(b)any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d)any body corporate whose board of directors or manager is accustomed to act in accordance with the
directions of the board of directors,or of any director or directors,of the lending comapany.
sec 295 also prohibits a company from--
(i) giving of any guarantee for a loan taken by a director from any other person and providing of any security
for any such loan,and
(ii) providing of any guarantee or security for a loan given by a director to any other person.

Q. Define meeting. Explain the essentials of a valid meeting.

Ans. The word Meeting implies the coming together of a certain number of members for transacting the business.
A meeting can validly transact any business if the following requirements are satisfied:
1. Proper Authority: The proper authority to convene the meeting is the Board of Directors of the company. If
the directors do not call the meeting then the members or the company law boards may call the meeting.
2. Notice of the Meeting: A proper notice of the meeting should be given to the members and all others who are
entitled to attend the meeting. A general meeting may be called by giving not less than 21 days prior notice in
writing to the members. A general meeting can be called by giving a shorter notice of less than 21 days if it is so
agreed voluntarily by the members entitled to vote. Every member of the company shall be given a notice who
is entitled to vote, auditor or auditors, the persons on whom the share of the insolvent or deceased may have been
devolved. Every notice of the meeting shall specify the place, and time of the meeting and also the content of the
business to be transacted in the meeting. Delibrate omission to give the notice even to the single member may
invalidate the meeting. Accidental Omission does not invalidate the meeting.
3. Quorum: Quorum means the minimum number of members who must be present in order to constitute a valid
meeting and transact business. The quorum is generally fixed by the Articles. If the Articles do not provide then
the following rules apply:
a. 5 members personally present in the case of a public company and 2 members in the case of any other company
if the number of members in the meeting is less than 1000 members.
b. 15 members personally present in the case of a public company if the number of members is more than 1000
members
c. 30 members personally present in the case of a public company if the number of members in the meeting is
more than 5000 members
d. If within half an hour the quorum is not present, the meeting shall stand dissolved. It shall stand adjourned to
the same day, place and time in the next week.
e. If at the adjourned meeting also the required quorum is not present within half an hour, the members present
shall be the quorum.
4.Chairman of the meeting: A chairman is the presiding officer of the meeting. Unless the Articles of a company
otherwise provide, the members personally present at the meeting shall elect one of themselves to be the chairman
of the meeting on a show of hands. If a poll is demanded on the election of the chairman, it shall be taken
forthwith.
5. Minutes of the Meeting: Minutes are the records of what the company and the directors do in the meetings.
Every company shall keep a record of all proceedings of every general meeting and of all proceedings of every
meeting of its board of directors and of every committee of the board.This is done by making entries of the
proceedings in the books kept for that purpose within 30 days of the conclusion of every such meeting . These
records are known as minutes. The book in which the record of the proceedings of a meeting is kept is known as
the minutes book. Each page should be numbered and signed by the chairman. The minutes of each meeting shall
contain a fair and correct summary of the proceedings at the meeting so that the absentee shareholders may be in
the position to form some reliable idea of what transpired at these meetings.
Explain the various types of meetings.
Ans. The meetings of a company may be classified as Statutory meeting, Annual meeting, Extra-ordinary
meeting, Class meeting.
Statutory Meeting:
Every company limited by shares and every company limited by guarantee and having a share capital shall,
within a period of not less than one month and not more than six months from the date of commencement of
business. This is the first meeting of the shareholders of a public company and is held only once in the life time
of a company.
At the commencement of the statutory meeting, the board shall produce a list showing the names, addresses and
occupations of the members of the company and number of shares held by them respectively.
The members present at the meeting shall be at liberty to discuss any matter relating to the formation of the
company.
The meeting may adjourn from time to time. At any adjourned meeting, any resolution, whether before or after
the former meeting, may be passed. Adjourned meeting has the same powers as the original meeting.
If default is made in complying with the provisions every director or any other officer of the company who is in
default shall be pubishable with fine which may extend to Rs. 5000.
The board of directors shall atleast 21 days before the day on which the meeting is tobe held, forward a report
called the statutory report to every members of the company. The notice of the meeting shall mention that the
meeting is the statutory meeting.
The statutory report of a company contains all the necessary information:
a. Total number of shares allotted
b. Total amount of cash received by the company in respect of all the shares allotted
c. An abstract of the receipts and of the payents made upto a date within 7 days of the report.
d. Names, addresses, occupations of the directors, auditors and managers and secretary and the changes which
have occurred in such names , addresses, occupations etc since the date of the incorporation.
e. The particulars of the contracts which is to be submitted to the meeting for the approval or for modification.
f. The arrears due on calls from every from every director and manager.
g. Particulars of any commission or brokerage in connection with the issue of sale of shares and debentures to
any director.
The statutory report shall be certified as correct by not less than 2 directors of the company and the board shall
submit a copy of the certified report to the registrar for registration.

Annual General Meeting: Every company shall in each year hold a general meeting as its Annual General
Meeting and shall specify the as such in the notice calling it. There shall be an interval of more than 15 months
between one annual general meeting and the other. A company can hold its first annual general meeting within
a period of 18 months form the date of its incorporation. The Regitrar can extend the time for holding any general
meeting by a period of not exceeding 3 months.
Every annual general meeting shall be called by giving a notice not less than 21 days in writing. It may be called
in shorter notice if it is agreed by all the members entitled to vote in the meeting.
Every Annual General Meeting shall be called during the business hours and not on any public holiday. It shall
be held in the registered office or in the place where the registered office is located.
If a company fails to hold an Annual General Meeting, any member can apply to the Company Law Board for
calling the meeting. The company and every member who is in default shall be punishable with fine.
The company law board can call a meeting and may also give directions as it thinks fit.
It is only at the Annual General Meeting of the company that the shareholders can exercise any control over the
affairs of the company. They also get an opportunity to discuss the affairs of the company.

Extra-Ordinary General Meeting: Any meeting of a company other than the Annual General Meeting and
Statutory Meeting is called as the Extra Ordinary Meeting. It is called for transacting some urgent or special
business which cannot be postponed till the next annual general meeting. It may be convened by the Board of
Directors or by the requisionists themselves on the failure of the Board of Directors.
The Board of Directors may call an extra ordinary general meeting on its if the business to be transacted cannot
be postponed till the next annual general meeting.The requisite number of members of a company may also ask
for an extra ordinary general meeting to be held. The requisition for such a meeting by the members shall be
signed in the case of a company having a share capital, by holders of not less than 1/10 th of the paid up capital of
the company having the right of voting in regard to the matter of requisition or in the case of a company not
having a share capital, by members representing not less than 1/10th of the total voting power in regard to the
matter of requisition. The Board shall proceed to call a meeting within 21 days from the date of the deposit of a
valid requisition.The meeting shall be held within 45 days from the date of the deposit of the requisition.
Every shareholder of a company has a right to requisition an extraordinary general meeting. If the Board of
directors fails to call a meeting as required by the requisionist as represent either a majority in values of the paid
up share capital held by all of them or not less than 1/10th of the paid up share capital of the company not having
the right of voting,which is less or in the case of a company not having a share capital, by the requisionists
representing not less than 1/10th of the total voting power of all the members of the company.

Class Meetings: Class meetings of shareholders of different classes of shares where a company has more than
one class of shares – Equity shareholders meetings, Preference shareholders meetings, Debenture holders
meetings etc.
Q. Write short notes on Proxies.
Ans. A person entitled to attend and vote at a meeting may vote either in person or by proxy. A proxy is an
authority to represent and vote for another person at a meeting. It is also an instrument appointing a person as
proxy. The instrument appointing a proxy shall be in writing snf signed by the appointer or his attorney duly
authorised in writing. A proxy in order to be effective shall be deposited with the company 48 hours before the
meeting. There is nothing in law to exclude Sunday in the computation of the 48 hours before a meeting before
which proxies have to be delivered. If the Articles do not otherwise provide –
a. A proxy can vote only on a poll.
b. A member of private company cannot appoint more than one proxy to attend on the same occasion.
c. A member of a company not having a share capital cannot appoint a proxy.

Q. Write short notes on voting and poll.

Ans. The motions proposed in a general meeting of a company are decided on the votes of the members of the
company. A shareholders vote is a right of property and prima facie may be exercised by him as he thinks fit in
his own interest. The voting may be by a show of hands or voting by poll.
Voting by show of hands: In taking a vote by show of hands, the duty of the chairman is to count the hands raised
and to declare the result accordingly. Proxies cannot be used on a show of hands. A declaration by the chairman
as evidence by an entry in the minutes book shall be the conclusive evidence of the fact that the resolution has
been carried out by sow of hands.
Voting by poll: In case of the public company having a share capital, a poll shall be taken on a demand by any
member or members present in person or by proxy and holding shares in the company –
a. which confer a power to vote on the resolution not being less than 1/10 th of the total voting power in respect
of the resolution.
b. on which an aggregate sum of not less than Rs.50000 has been paid up.
In the case of the private company having share capital, a poll shall be taken on demand by one member having
the right to vote on the resolution and present in person or by proxy if not more than seven such membes are
personally present.
In case of any other company, a poll shall be taken on de,and by any member or members present in person or
by proxy and having not less than 1/10th of the voting power in respect of the resolution.

Define Resolution. Explain the different types of resolutions.

Ans. The questions which generally come for consideration at the general meeting of a company are presented
in the form of proposals called motions. A motion may be proposed by the chairman of the meeting or by any
other members of the company. A motion after the close of discussion is formally put to vote by the show of
hands. It may either be carried or rejected. If a motion is carried, it becomes a Resolution.
There are three kinds of resolutions under the companies act.
1. Ordinary Resolution: An ordinary resolution is a resolution passed at a general meeting of a company by a
simple majority of votes i.e., votes cast in favour of the resolution exceeds votes cast against it, including the
casting vote of the chairman. The votes may be cast by members in person or by proxy. Ordinary Resolution is
necessary for the following Purposes:
a. Ratification of name and adoption of new name
b. Issue of share capital
c. Alteration of share capital
d. Re-issue of redeemed capital
e. Adoption of statutory report
f. Passing of annual accounts and balance sheet
g. Appointment of auditors and fixing their remuneration
h. Appointment of managing/whole time director.
i. Appointment of first directors who are liable to retire by rotation.
j. Increase or reduction of the directors within the limit fixed by the Articles.
k. Removal of director and appointment of a director in his place.
l. Approval of appointment of sole selling agents.
m. Appointment and fixation of remuneration of liquidators ina members voluntary winding up.
n. Winding up a company voluntarily in certain events.
o. Nomination of a liquidator in a creditors voluntary winding up.

2. Special Resolution: A special resolution satisfies certain rules such as intention to propose the resolution as a
special resolution, notice has been duly given of the general meeting, votes cast in favour of the resolution by
members are not less than 3 times the number of votes cast against the resolution by members so entitled and
voting, an explanatory statement setting out all material facts concerning the subject matter of the special
resolution. A copy of the every special resolution together with the copy of the explanatory statement shall within
30 days of the passing of the resolution be filed with the registrar. Special Resolution is necessary for the
following:
a. Alteration of Memorandum for changing the registered office and also for changing the Objects clause.
b. Change of name with the consent of the central government.
c. Alteration of articles
d. Reduction of share capital
e. Conversion of uncalled capital into reserve capital
f. Variation of shareholders right
g. Payment of interest out of capital
h. Fixing of remuneration of the directors
i. Applying to the court for winding up
j. Authorising the liquidator of a company to accept the shares as consideration.
k. Disposal of books and papers of a company in voluntary winding up when its affairs have been completely
wound up.

3. Resolution requiring a special notice: A Resolution requiring a special notice is not an independent class of
resolutions. It is only a different kind of an ordinary resolution of which notice of the intention to move a
resolution has to be given to the compay by the proposer. The notice should be given 14 days before. A special
notice is required for a resolution in the following cases:
a. Appointment of an auditor other than retiring one
b. Provision that a retiring auditor shall not be re-appointed.
c. Removal of a director before the expiry of his period.
d. Appointment of a director in place of one who is removed.
 UNIT-V
WINDING UP

Q. Define Winding up. List out different types of winding up of a company.

Ans. Winding up of a company is the last stage in the life of the company. It means a proceeding by which a
company is dissolved. The assets of the company are disposed off, the debts are paid off out of the realised assets
and the surplus is then distributed ampng the members in proportion of their holdongs in the company. According
to Prof Gower, Winding up is a process whereby a company’s life is ended and its property administered 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.
There are three types of winding up.
1. Winding up by the court.
2. Voluntary Winding up
3. Winding up subject to the supervision of court.

Q2. Under what circumstances the court orders for the compulsory winding up.
Ans. Winding of the company under the order of the court is also know as Compulsory Winding up (Section
433). A company may be wound up compulsorily by the court under the following circumstances.
1. Special Resolution of the company: Usually when the members of the company decide to wind up the company
under the supervision of the court they pass a special resolution in the general meeting of the company. This
method is not much common because members usually prefer to voluntarily wind up the company which is more
cheaper and speedier.
2. Default in delivering the statutory report to the registrar or in holding the statutory meeting: A petition can be
made either by the Registrar or the contributory.
3. Failure to commence,or suspension of the business : If the company has not begun its business within a year
from its incorporation or suspends its business for the whole year, the court may order for winding up. But it is
not wound up if there are reasonable prospects of the company starting the business or there are good reasons for
the delay.
4. Reduction in the membership: If,at any time, the number of members of the company is reduced in the case of
public company, below 7 and below 2 in case of private company, the court may order for winding up.
5. Inability to pay debts: A company may be wound up if it is unable to pay off its debts. The test is whether the
company has become commercially insolvent i.e., the existing and probable assets would be insufficient to meet
the liablities of the company.
6. Just and equitable: The court may order for compulsory winding up if it satisfies the just and equitable
clauses….
a. when the substratum of the company is gone i.e., the object for which it is incorporated has substantially failed.
b. when the company is carrying on the business at a loss and there is no reasonable hope that the object of trading
can at a profit can be attained.
c. when the existing and probable assets of the company are insufficient to meet its existing liabilities.
d. when the management is carried on in such a way that the minority is disregarded or oppressed.
e. where there is a deadlock in the management
f. where public interest is prejudiced
g. where the company is formed to carry out fraudulent and illegal business.
h. where the company is mere bubble and does not carry out any business or hold any property.

Q3. Explain the voluntary winding up of the company.

Ans. Voluntary winding up means winding up by the creditors or the members of the company without the
interference of the court. A company may be wound up voluntarily by passing either an ordinary resolution or a
special resolution. Within 14 days of the passing of the resolution the company shall give notice of the resolution
by advertisement in the official gazette and also in few newspapers circulted in the district where the registered
office is situated.
Members Voluntary Winding Up:
In Members Voluntary Winding Up, a declaration of insolvency has to be made by a majority of the director at
the Board Meeting, that the company has no debts or that it will be able to pay off its debts within 3 years in full
from the commencement of the winding up. The declaration shall have its effect only when it is made within 5
weeks immediately before the date of the resolution and delivered to the Registrar for registration.
Provisions applicable to a Members Voluntary Winding Up: Sec 490 to 498
1. The company in general meeting shall appoint one or more liquidators for the purpose of winding up its affairs
and distributing its assets.
2. On the appointment of the liquidator, all the powers of the Board Of Directors, whole time directors, Managng
Director shall cease except when the company or the liquidators in the general meeting sanction them to continue.
3. If there is any vacancy in the office of the liquidator due to death, retirement, resignation etc.,the company
may fill the vacancy.
4. The company shall give notice to the Registrar regarding the appointment of the liquidator or liquidators within
10 days of the event to which it relates.
5. The liquidator has the power to accept shares, etc., as the consideration for the sale of property during the
winding up procedure.
6. If the liquidator is at time of the opinion that the company will not be able to pay its debts in full within the
period stated in the declaration, he shall summon a creditors meeting and lay down the statement of assets and
liabilities before them.
7. In the event of the winding up continuing for more than one year, the liquidator shall call a general meeting of
the company at the end of each year.
8. As soon as the affairs of the company are fully wound up, the liquidator shall make up an account and show
how the winding up has taken place. He shall then call a final meeting of the members by advertisement
specifying time,place,object of the meeting in the official gazette and in few newspapers circulated in the district
where the registered office is situated. After the final scrutiny by the official liquidators the company shall be
deemed to be dissolved.

Creditors Voluntary Winding Up: (Sections 500 to 509)

A voluntary winding up of the company in which a declaration of its solvency is not made is referred as a creditors
voluntary winding up.
Provisions applicable to Creditors Voluntary Winding Up:
1. The company shall call a meeting of the creditors of the company on the day on which there is to be held the
general meeting at which the resolution for voluntary winding up is to be proposed. The notice should be
advertised once atleast in the official gazette and in 2 newspapers circulating in the district where the registered
office is situated.
2. Notice of any resolution passed at a creditors meeting shall be givenby the company to the registrar within 10
days.
3. The creditors and the members at their respective meetings nominate a liquidator. If they nominate different
members, the creditors nominee shall be the liquidator.
4. The creditors at their meeting may appoint a committee of inspection consisting of not more than 5 members.
If such a committee is constituted, the company may also appoint not more than 5 members to the committee. If
the creditors and members do not agree on a common list, the court may constitute a committee of inspection.
5. The liquidators remuneration is decided either by the committee or the creditors or the court.
6. On the appointment of the liquidator, the powers of the Board of Directors shall cease. But the committee or
the creditors may sanction the continuance of the board.
7. In case of any vacancy due to death, resignation, etc., in the office of the liquidator, the creditors may fill the
vacancy.
8. The liquidator has a power to accept shares as consideration for sale of property provided that the sanction is
given by the court or the committee of inspection.
9. The liqidators shall call a general meeting of the company and a meeting of the creditors every year within 3
months from the close of every year.
10. As soon as the affairs of the company are fully wound up, the liquidator shall make up an account of the
winding up and call a general meeting in order to declare that the company is dissolved.

Q4. Write short notes on Petition.

Ans. An Application to the court for the winding up of a company is made by a petition. Petition can be presented
by the following:
1. Sec 439(1)(a) - A company may itself present a petition to the court.
2. Sec 439(1)(b) - A Petition to the court may be filed by the creditor or creditors.
3. Sec 439(1)(c) – A contributory or contributories can file a petition for winding up if the statutory requirement
of membership reduces, if he is an original allottee, if he has held his shares, if his shares have disvolved on him
through the death of the previous holder.
4.Sec 439(1)(d) – A petition may be presented by all or any of the parties together or separately.
5. Sec 439(1)(e ) – The registrar can file a petition for winding of the company
6. Sec 439(1)(f) – The central Government may present a petition of winding up to the court.

Q5. Define Official Liquidator. Explain the duties and powers of the liquidator.

Ans. Official Liquidator – Section 448

For the purpose of the winding up of the companies by the court –
a. there shall be attached to each High Court an official liquidator appointed by the Central Government. The
Official Liquidator shall be whole time officer. If the Central Government considers that there will not be
sufficient work for the whole time officer, it may appoint a part-time officer to act as Official Officer.
b. the Official Receiver attached to a District Court for insolvency purposes shall be the Official Liquidator
attached to the District Courts.
c. The Central Government shall also appoint one or more Deputy or Assistant Official Liquidators to assist the
Official Liquidator in the discharge of his functions.

Liquidator: Section 449 : On the winding up order being made in respect of a company, the Official Liquidator
shall by virtue of his office become the liquidator of the company.

Provisional Liquidator: Section 450 : At any time after the presentation of a winding up and before the making
of a winding up order, the court may appoint the Official Liquidator to be the liquidator provisionally.

Duties Of A Liquidator:
1. The Liquidator shall conduct the proceedings in the winding up the company and perform duties imposed by
the court.
2. The Official Liquidator shall as soon as practicable after the receipt of the statement of affairs of the company
submit a preliminary report to the court containing the information regarding the capital issued, subscribed, paid-
up and the estimated assets and liabilities, cause for the failure of the company, any information desirable as to
the matter relating to the business, company.
3. The Official Liquidator may make further report stating the manner in which the company was promoted or
formed. Any other matter which is desireable to be brought to the notice of the court. Any report which states
that fraud is committed.
4. The liquidator or the provisional Liquidator shall take into his custody all the properties, actionable claims to
which the company is entitled.
5. The Liquidator shall have regard to any directions which may be given by resolutions of the creditors or
contributories at any general meeting or by the committee of inspection.
6. The Liquidator may summon general meetings of the creditors or contributories whenever he thinks fit for the
purpose of ascertaining their wishes.
7. The Liquidator may apply to the court for directions in relation to any particular matter arising in winding up.
He shall also use his own discretion in the matters of the assets of the company.
8. The Liquidator shall keep proper books for making entries or recording minutes of the proceeding at meetings
and such other matters as may be prescribed.
9. The Liquidator shall present to the court an account of his receipts and payments as liquidator. The account
should be in prescribed form and duly verified. The liquidator shall cause the audited account or its summary to
be printed. He shall send a copy of the account to every creditor and every contributory.
10. The Liquidator shall, within 2 months of the expiry of each year from the commencement of winding up, file
a statement duly audited by a qua;ified auditor of the company.

Powers Of the Liquidator :

1. Powers Exercisable with the sanction of the court:

a. To institute or defend suits and other legal proceedings, civil or criminal in the name of and on befalf of the
company.
b. To carry on the business of the company so far as may be necessary for the beneficial winding up of the
company.
c. To sell the movable and immovable properties and its actionable claims
d. To raise money on the scrutiny of the company’s assets.
e. To do all such things as may be necessary for the winding of the company.

2. Powers exercisable without the sanction of the court:

a. To do all acts and to execute all documents and deeds on behalf of the company.
b. To inspect the records and returns of the company.
c. To prove, rank and claim in the insolvency of any contributory for any balance against his assets and to receive
dividends.
d. To draw, make, endorse and accept any bills of exchsnge, hundi, promissory note on behalf of the company.
e. To take out letters of administration to any deceased contributory
f. To appoint an agent to do any business.

3. Powers exercisable in case of onerous contracts:

The term onerous means a right to property in which the obligation attacing to it exceeds the advantage to be
derived from it. The liquidator may disclaim the onerous contracts and properties. This shall be done within 12
months of winding up.
Q6. Write short notes on Contributories.
Ans. The term Contributory means every person liable to contribute to the assets of the company in the event of
its being wound up and includes the holder of any shares which are fully paid up. The List of Contributories shall
be prepared in two parts – List A and List B.
List A includes the present members of the company whose names appear in the Company’s register at the time
of winding up of the company.
List B includes the past members of the company who ceased to be the members within one year preceeding the
commencement of winding up of the company. In the event of winding up of the company, contributories shall
be liable to contribute to the assets of the company to an amount sufficient for payment of its debts and liabilities,
costs, charges and expences of the winding up and for the adjustment of the rights of the contributories among
themselves.

Q7. Explain the consequences of the winding up.

Ans. The Consequences of winding up are as follows:
1. Consequences as to shareholders: In a company limited by shares, a shareholder is liable to the extent of the
face value of the shares held by him. His liability continues even after the company goes into liquidation. In a
company limited by guarantee the members are liable to contribute up to the amount guaranteed by them.
2. Consequences as to servants and officers: A winding up order shall be deemed to be a notice of discharge to
the officers and employees of the company. Such a discharge shall relieve them from all obligations under their
contract of service. A voluntary winding up shall also operate as a notice of discharge to the company’s servants.
3. Consequences as to proceedings against the company: When a winding up order has been made and a Official
Liquidator is appointed as provisional liquidator, no suit or other legal proceedings against the company shall be
commenced except by leave of the court. If a suit is pending agains the company at the date of the winding up,
it shall not be proceeded with against the company except by the leave of the court.
4. Consequences as to costs: If assets are insufficient to satisfy the liabilities, the court may order for payment of
the costs charges and expences of the winding up out of the assets of the company. The payment shall be made
in such an order of the priority as the court thinks fit.
5. Consequences as to creditors:
a. Secured and Unsecured creditors: A secured creditor has 3 alternatives before him:
i. He may rely on his security and ignore the liquidation.
ii. He may value his security and prove for the deficit
iii. He may surrender his security and prove for the whole debt.
b. Preferential payments: In a winding up, some unsecured creditors are paid, subject to the provisions of sec
529-A in priority to the secured creditors. These payments are known as preferential payments.
i. All revenues, taxes, cesses,and rates due to the Central Government or the State Government.
ii. All wages and salary of any employee, in respect of services rendered to the company and due for a period not
exceeding 4 months.
iii. All amounts due in respect of contributions under Employees State Insurance Act,1948.
iv. All amounts due in respect of any compensation or liability under the Workmens Compensation Act,1923.
v. All sums due to the employees under Provident Fund
vi. Expenses of any investigations held.
viii. Advances paid by the third parties to pay the salaries and wages

Write a note on Insolvency and Bankruptcy Code , 2016.

Ans : Insolvency and Bankruptcy Code (IBC) 2016 was implemented through an act of Parliament. It got
Presidential assent in May 2016.

Centre introduced the IBC in 2016 to resolve claims involving insolvent companies.
The bankruptcy code is a one stop solution for resolving insolvencies, which previously was a long process that did
not offer an economically viable arrangement. The code aims to protect the interests of small investors and make
the process of doing business less cumbersome. The IBC has 255 sections and 11 Schedules.

IBC was intended to tackle the bad loan problems that were affecting the banking system.

Companies have to complete the entire insolvency exercise within 180 days under IBC. The deadline may be
extended if the creditors do not raise objections on the extension. For smaller companies, including startups
with an annual turnover of Rs 1 crore, the whole exercise of insolvency must be completed in 90 days and the
deadline can be extended by 45 days. If debt resolution doesn't happen the company goes for liquidation.

In India, the Insolvency and Bankruptcy Code, 2016 is one matured step towards settling the legal position

with respect to financial failures and insolvency. To provide easy exit with a painless mechanism in cases of

insolvency of individuals as well as companies, the code has significant value for all stakeholders including

various Government Regulators. Introduction of this Code has done away with overlapping provisions

contained in various laws –

● Sick Industrial Companies (Special Provisions) Act, 1985

● The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
● The Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002

● The Companies Act, 2013.

Before the enactment of this Code, there were multiple agencies dealing with the matters relating to debt,

defaults, and insolvency which generally leads to delays, complexities and higher costs in the process of

Insolvency resolution.

The sole intention of the Insolvency and Bankruptcy Code, 2016 is to provide a justified balance

between-
 ● an interest of all the stakeholders of the company, so that they enjoy the availability of
credit

● the loss that a creditor might have to bear on account of default

The objective behind Insolvency and Bankruptcy Code, 2016 are listed below-

1. To consolidate and amend the laws relating to re-organization and insolvency resolution
of corporate persons, partnership firms, and individuals.

2. To fix time periods for execution of the law in a time-bound settlement of insolvency (i.e.
180 days).

3. To maximize the value of assets of interested persons.

4. To promote entrepreneurship
5. To increase the availability of credit.
6. To balance all stakeholder’s interest (including alteration). Balance to be done in the
order of priority of payment of Government dues.

7. To establish an Insolvency and Bankruptcy Board of India as a regulatory body for

insolvency and bankruptcy law.

8. To establish higher levels of debt financing across a wide variety of debt instruments.
9. To provide a painless revival mechanism for entities.
10. To deal with cross-border insolvency.

11. To resolve India’s bad debt problem by creating a database of defaulters.

Q7 Explain the manner of filing an application for removal of the company's name .

Ans : After the preparation of required documents and crossing the checks, company can apply
for Removal of Name with ROC.
1. An eligible company can apply for Removal of name from register of companies electronically in
Form STK-2 along with the fee of five thousand rupees under sub-section (2) of section 248 of the
act

2. Form STK-2 shall be signed by a director duly authorized by board in their behalf, where a director
concerned doesn’t have a registered Digital Signature Certificate, a physical copy of the form duly
filled in shall be signed manually by the director duly authorized in that behalf and shall be attached
to Form STK-2.

3. Form STK-2 shall be certified by a CA/CMA/CS in whole time practice

4. The registrar shall put the name of the applicant and date of making application in Form STK-6, on
the MCA portal on a daily basis , giving thirty days time for raising objection, if any, by the
stakeholders..

5. The Registrar of Companies shall, simultaneously intimate the concerned regulatory authorities,
viz, the Income-tax authorities, central excise and service-tax authorities having jurisdiction over the
company, about the proposed action of the removal names of such companies and seek objections,
if any, to be furnished within a period of thirty days from the date of issue of the letter of intimation
and if no objections are received within thirty days from the respective authority, it shall be presumed
that they have no objections to the proposed action.

6. The registrar of companies on passing of time specified, shall cause a notice under subsection (5)
of section 248 of striking off the name of the company to be published in Official Gazette in Form
STK-7 and he same shall also be placed on the official website of the MCA