Legal environment of business law review

Legal Environment of Business Law-Review 2014

SECTION IINDIAN CONSITUTION

What are the provisions in Indian Constitution? On what grounds is its spirit of federalism given?.

The task of framing the Constitution of India was given to the Constituent Assembly. The inaugural meeting of the Constituent Assembly was held on December 9, 1946.

Dr Sachidananda Sinha was elected provisional Chairman of the Constituent Assembly. On December 11, 1946, Dr. Rajendra Prasad was elected as Permanent Chairman of the Constituent Assembly.

The Constitution of India was enacted, signed and adopted by the Constituent Assembly on November 26, 1949.

On January 26, 1950, the Constitution of India came into force on which date India also became a Republic.

Indian constitution makes detailed provisions for the following:

Citizenship ,Fundamental Rights, Directive Principles of State Policy, Structure of the Government, Parliament and State Legislatures, Supreme Court and High Courts, Relationship between the Union and the States, Services ,Official Language and various other matters of basic importance.

What are the salient features of Indian constitution?

1.Longest written constitution in the world.

2. Consists of 22 Chapters, over 395 Articles and 12 Schedules.

3. It proclaims India to be a Sovereign Democratic Republic.

4. Fundamental Rights are guaranteed to all citizens of India.

5. Directive Principles of State Policy are incorporated.

1 Dr.M.Jeyakumaran


6. It establishes the parliamentary system of government.

7. President of the Union is the constitutional head, the Council of Ministers or the Union Cabinet is the real executive and is responsible to the Lok Sabha. . Independent Judiciary

8. It is federal in form but unitary in spirit. Distribution of Powers between center and states

9. It is neither too rigid (as some provisions can be amended by a simple majority) nor flexible (as some provisions require special majority for amendment).

10. It declares India a secular state.

11. It guarantees single citizenship to all citizens.

12. It introduces adult franchise, i.e., every adult above 18 years has the right to vote and the system of joint electorates.

13. It establishes an independent judiciary; the Supreme Court acts as a guardian of the Constitution in place of the Privy Council.

What is the preamble of Indian constitution?

The draft of the Preamble was prepared by Jawaharlal Nehru and is based on the American model. The 42nd Amendment added the words Secular and Socialist and now the preamble reads as follows.

We the People of India, having solemnly resolved to constitute India into a Sovereign Socialist Secular Democratic Republic and to secure to all its citizens

Justice, social, economic and political;

Liberty, of thought, expression, belief, faith and worship;

Equality, of status and of opportunity; and to promote among them all;

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Fraternity, assuring the dignity of the individual and the unity and integrity of the nation;In our Constituent Assembly, this twenty sixth day of November, 1949, do hereby adopt, enact and give to ourselves this constitution.

Explain CITIZENSHIP.

The Constitution of India provides for a single citizenship for the whole of India. Every person who was at the commencement of the Constitution (26 January 1950) domiciled in the territory of India and (a) who was born in India; or (b) either of whose parents was born in India; or (c) who has been ordinarily resident in India for not less than five years became a citizen of India. The Citizenship Act, 1955, deals with matters relating to acquisition, determination and termination of Indian citizenship after the commencement of the Constitution.

What are the ARTICLES OF THE CONSTITUTION?

Part Article Deals withPart I

Part II

Part Ill

Part IV

Part IV A

Part V

Part VI

Part VII

Part VIII

Part IX

Articles 1-4

Articles 5-11

Articles 12-35

Articles 36-51

Article 51-A

Articles 52-151

Articles 152-237

Article 238

Articles 239-241

Article 242-243

Territory of India, admission, establishment or formation of new states

Citizenship

Fundamental Rights

Directive Principles of State Policy

Duties of a citizen of India. It was added by the 42nd Amendment in 1976

Government at the Union level

Government at the State level

Deals with states in Part B of the First Schedule. it was repealed by 7th Amendment in 1956

Administration of Union Territories

Territories in Part D of the First Schedule and other territories, It was

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Part X

Part Xl

Part XII

Part XIII

Part XIV

Part XIV-A

Part XV

Part XVI

Part XVII

Part XVIII

Pail XIX

Part XX

Part XXI

Part XXII

Articles 244-244 A

Articles 245-263

Articles 264-300

Articles 301-307

Articles 308-323

Articles 323A-323B

Articles 324-329

Articles 330-342

Articles 343-351

Articles 352-360

Articles 361-367

Article 368

Articles 369-392

Articles 393-395

repealed by 7th Amendment in 1956

Scheduled and tribal areas

Relations between the Union and States

Finance, property, contracts and suits

Trade, commerce and travel within the territory of India

Services under the Union and States

Added by the 42nd Amendment in 1976 and deals with administrative tribunals to hear disputes and other complaints

Election and Election Commission

Special provision to certain classes ST/SC and Anglo Indians

Official languages

Emergency provisions

Miscellaneous provision regarding exemption of the President and governors from criminal proceedings

Amendment of Constitution

Temporary, transitional and special provisions

Short title, commencement and repeal of the Constitution

What are the FUNDAMENTAL RIGHTS?

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1. Right to Equality-The right to equality includes equality before law, prohibition of discrimination on grounds of religion, race, caste, sex or place of birth and equality of opportunity in matters of employment and abolition of untouchability.

2. Right to Freedom-The right to freedom includes freedom of speech and expression; right to assemble peacefully and without arms, formation, association or union; free movement throughout the territory of India; residence and the right to practice any profession or occupation; control and disposal of property.

3. Right Against Exploitation-The right against exploitation all forms of forced labour, prohibits child labour and traffic in human beings.

4. Right to Freedom of Religion -The right to freedom of religion contains religious freedom to all. All persons are entitled to freedom of conscience and the right to profess, practice and propagate religion freely.

5. Cultural and Educational Rights-It includes right of any section of the citizens to conserve their culture, language or script and right of minorities to establish and administer educational institutions of their choice.

6. Right to Constitutional Remedies- This right guarantees the right to constitutional remedies to the citizens for enforcement of their Fundamental Rights.

[Note: The right to property was also one of the fundamental rights, according to the original Constitution. This right was omitted by the 44th Amendment Act in December, 1978. It is now only a legal right.]

What are the FUNDAMENTAL DUTIES?

Duties of a citizen of India were not included in the original constitution. These have been added by the 42nd Amendment in 1976. There are ten Fundamental Duties:

To abide by the Constitution and respect its ideals and Institutions, the National Flag and the National Anthem;

To cherish and follow the noble ideals which inspired our national struggle for freedom;

To uphold and protect the sovereignty, unity and integrity of India;

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To defend the country and render national service when called upon to do so;

To promote harmony and the spirit of common brotherhood amongst all the people of India transcending religious, linguistic and regional diversities; to renounce practices derogatory to the dignity of women;

To value and preserve the rich heritage of our composite culture;

To protect and improve the natural environment including forests, lakes, rivers and wildlife, and to have compassion for living creatures;

To develop the scientific temper, humanism and the spirit of inquiry and reform;

To safeguard public property and to abjure violence; and

To strive towards excellence in all spheres of individual and collective activity so that the nation constantly rises to higher level of Endeavour and achievement.

State the DIRECTIVE PRINCIPLES OF STATE POLICY?

To secure the right of all men and women to an adequate means of livelihood; To ensure equal pay for equal work;

To make effective provision for securing the right to work, education and to public assistance in the event of unemployment old age, sickness and disablement;

To secure to workers a living wage, humane conditions of work, a decent standard of life, etc;

To ensure that the operation of the economic system does not result in the concentration of wealth;

To provide opportunities and facilities for children to develop in a healthy manner;

To provide free and compulsory education for all children up to 14 years of age; To promote educational and economic interest of scheduled castes, scheduled tribes and other weaker sections;

To organize village panchayats ;

To separate judiciary from the executive;

To promulgate a uniform civil code for the whole country;

To protect national monuments ;

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To promote justice on a basis of equal opportunity;

To provide free legal aid;

To protect and improve environment and forests and wildlife;

To promote international peace and security;

To promulgate a uniform civil code for the whole country;

To settle international disputes by arbitration.

SECTION IIINTRODUCTION OF BUSINESS LAW

Law and Society

Law pervades almost every part of human life. Without law there will be chaos and confusion in society.

No games, be it cricket, football or hockey can be played without rules to govern the players. Traffic rules

are important to regulate traffic. Knowledge of law is, therefore, necessary for all persons who live in a

society. Moreover, there is a familiar maxim ‘ignorantia juris non excusat’ (ignorance of law is no

excuse)

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What is Law?

The Oxford English Dictionary defines the word ‘Law’ as the rule made by authority for the proper

regulation of a community or society or for correct conduct in life. The term law has been defined by

some of the legal scholars in the following words:

”A law is a rule of conduct imposed and enforced by the sovereign.” —Austin

“Law is the body of principles recognised and applied by the state in the administration of justice.”

—Salmond

“Law in its most general and comprehensive sense signifies a rule of action and is applied

indiscriminately to all kinds of actions whether animate or inanimate, rational or irrational.”

—Blackstone

“Law is rule of external human actions enforced by Sovereign Political authority.” —Holland

Hence ‘law’ is a set of rules laying down rights and obligations, which the state enforces. It includes

rules and principles, which regulate our relations with other individuals and with the state.

Branches of Law

With the growth of civilisation, human being’s social and economic behaviour has assumed many facets.

It is therefore essential that multi-dimensional human activities should be controlled through different set

of rules and principles. Almost all civilised societies, therefore, provide and enforce different set of rules

and guiding principles for different kinds of social, economical, and political objectives. Hence, there are

several branches of law, such as International Law, Constitutional Law, Criminal Law, Civil Law,

Business or Mercantile Law.

What is Business Law?

The terms ‘Business’, ‘Commercial’, and ‘Mercantile’, in relation to law, are used in the same sense.

‘Business Law’ is that branch of law, which comprises laws concerning trade, industry and commerce.

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Business law refers to those rules and regulations, which govern the formation and execution of business

transactions made by various persons in the society. These provisions comprise the legal environment of

business. Business law is intended to infuse the much needed ‘certainty’ in commercial dealings.

Business law includes laws relating to contract, sale of goods, negotiable instruments, partnership,

company and many other economic laws having a bearing on trade, industry, and commerce.

Sources of Business Law in India

The main sources of business law in India are shown in the table and briefly discussed thereafter:

Self-Learning Material Sources of Business Law in India

English Law Judicial Decisions Customs and Indian Statutes

or Case Law Usages

English Common Equity Law Merchant or Statutes LawLaw Maritime Usage

English Law

Indian business law is modelled on the lines of English mercantile law, as India was under British rule

before its independence. The differences in the laws of India and England are primarily on account of

their different business environment, customs, and trade practices. The sources of business law in India

are generally the English laws which, in turn, have their roots in the following:

a) English Common Law: It refers to a system of law based upon English customs, usages, and traditions,

which were developed over centuries by the English Courts. These are unwritten or the non-statutory

laws. These are found in the reported decisions of the courts of law.

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b) Equity: It refers to that branch of the English Law, which was developed separately from the common

law. It is based on the principle of ‘fairness’, and concepts of justice developed by the judges whose

decisions became precedents.

c) Law Merchant or Maritime Usage: It refers to the usages or customs of merchants and traders that have

been ratified by the courts of law. The object is to protect the interest of trade. The courts in these cases

assume that the parties have dealt with each other on the footing of customs or usages prevailing

generally. This law, thus, gets incorporated into the common law and the courts honour it.

d) Statute Law: The statute law refers to the law laid down in the Acts of Parliament. It is superior to and

overrides any rules of the common law, equity or law merchant. The courts of law interpret the meaning

of such enactments and apply them.

Judicial Decisions or Case Law

The judicial decisions, usually referred to as precedents, are binding on all courts having jurisdiction

lower to that of the court, which gave the judgment. This is also called judge made law.

Customs and Usages

Customs or usages of a particular trade also guide the courts in deciding disputes arising out of mercantile

transactions. Such a custom or usage must be widely known, certain and reasonable, and must not be

opposed to any legislative enactment. But, where a statute specifically provides that the rules of law

contained therein are subject to any well-recognised custom or usages of trade, the latter may override the

statute law

Indian Statutes

The constitution of India confers power to enact law on its parliament and legislatures of states.

When a bill is passed by the parliament/state legislatures and assented to by the President or

Governor of a state, it becomes an ‘Act’ or ‘Statute’. The bulk of Indian Mercantile Law is

statute law. The Indian Contract Act, 1872, The Negotiable Instruments Act, 1881, The Sale of 10 Dr.M.Jeyakumaran


Goods Act, 1930, The Indian Partnership Act, 1932, The Companies Act, 1956 are instances of

the statute law.

Business Law and Managers

Knowledge of relevant aspects of law is necessary for proper functioning of any business.

Managers may face a variety of situations that would involve legal issues. A broad understanding

of business law or legal aspects of business is necessary for managers. Knowledge of business

law enables them to arrive at correct decisions, and this is one of the essential functions of

managers. Thus, law is a major factor in decision making. Therefore, it is necessary that all

managers have a working knowledge of the important business laws and the legal system.

Summary

Law permeates every part of human activity. No civilised society can exist without a legal order.

Ignorance of law is no excuse for any human being. Law is a rule of conduct imposed and

enforced by authority. There are various branches of law like International Law, Constitutional

Law, Criminal Law, Civil Law, Business Law or Mercantile Law. The terms Business,

Commercial or Mercantile Law are used in the same sense. Business law refers to rules and

regulations concerning Trade, Industry, and Commerce. The main sources of business law in

India are English law, Judicial decisions (or Case law), Customs and Usages, and Indian statutes.

Knowledge ofbusiness law is necessary so that various managerial decisions, which managers

are required to take in their day- to-day activities, are within the boundaries of law.

SECTION IIIINDIAN CONTRACT ACT

Define Contract

A contract is an agreement made between two parties and enforceable by law. An agreement

consists of a proposal by one party and its acceptance by the other party. Two or more parties

who enter into an agreement must agree upon the subject matter in the same sense and at the

11 Dr.M.Jeyakumaran


same time, i.e. consensus ad idem. An agreement, in order to be a contract, must give rise to

legal consequences and remedies in the Law Court in case of its breach.

What are the Essentials of a Contract?

There must be 1. an agreement i.e. proposal and acceptance 2. an intention to create legal

relations 3. Lawful consideration 4. parties competent to contract 5. free consent 6. lawful object

7. certainty 8. possibility of performance 9. not expressly declared void, and 10. In writing or

registered / stamped where there is such a requirement by law.

Give the Classification of Contracts.

Contract can be classified as below:

Valid - enforceable by law.

Void - Not enforceable by law.

Voidable - Enforceable at the option of one party only.

Illegal - Contrary to law

Unenforceable - Due to lack of proof or some technical defect cannot be enforced in a

Court of law.

Executed - Performed by both the parties or by one party.

Executory - Performance by both the parties is yet to take place.

Partly Executed, partly executory - One party has performed but the other party has yet to

perform.

Contingent - Contract is performed only on happening of some future uncertain event.

This is also called conditional contract.

Quasi-Contract - an obligation created by law.

What do you Mean by Proposal?

12 Dr.M.Jeyakumaran


When one person signifies to another his willingness to do or to abstain from doing anything,

with a view to obtaining the assent of that other to such act or abstinence he is said to make a

proposal.

Explain the Legal Rules Regarding a Valid Proposal:.

1. A proposal must be made by express words spoken or written or implied when it is inferred

from the conduct of the proposer or from the circumstances of the case

2. The terms must be certain and not loose or vague

3. Must give rise to legal consequencesand be capable of creating legal relations

4. It must be distinguished from invitation to proposal

5. May be ‘specific’ or ‘general’

6. Must be communicated to the proposee

7. Should not contain a term, the non-compliance of which would amount to acceptance

8. Can be made subject to any terms and conditions, and

9. Two identical cross-offers donot make a contract.

What is Revocation and Lapse of Proposal?

A proposal lapses under circumstances like after stipulated or reasonable time, by not being

accepted in the mode prescribed, by rejection, by death or insanity of either party, by rejection,

before acceptance, and by destruction of the subject matter. It is revoked by non fulfillment of a

condition precedent to acceptance.

What is Acceptance?

A contract emerges from the acceptance of a proposal. The proposal is said to be accepted when

the person to whom the proposal is made signifies his assent thereto.

What are the Essentials of a Valid Acceptance?

1. Must be absolute and Unqualified

2. Expressed in some usual and reasonable manner 13 Dr.M.Jeyakumaran


3. Mental acceptance is not sufficient

4. Acceptance must be communicated to the proposer

5. Acceptance must be given within reasonable time and before the proposal lapses and / or is

revoked

6. It is acceptance of the terms and conditions of the proposal

7. It can be implied

8. It must be made by the person to whom the proposal is made. General offer way beaccepted

by anyone

9. If the act is done in ignorance of the proposal, it is no acceptance.

Explain Communication of Proposal, Acceptance and Revocation

The Communication of a proposal is complete when it comes to the knowledge of the person to

whom it is made. The communication of an acceptance is complete - as against the proposer

when it is put in a course of transmission to him, so as to be out of the power of the acceptor; and

as against the acceptor when it comes to the knowledge of the proposer. The communication of a

revocation is complete as against the person who makes it, when ti is put into a course of

transmission to the person to whom it is made, so as to be out of the power of the person

revoking; and as against the person to whom it is made, when it comes to his knowledge.

Define Consideration

Meaning: Consideration means something in return. When at the desire of the promisor, the

promisee or any other person has done or abstained from doing, or does or abstain from doing, or

promises to do or abstain from doing, something, such act or abstinence or promise is called a

consideration for the promise.

What are the Essentials of a Valid Consideration?

1. Consideration must move at the desire of the promisor

2. It may move from the promisee or any other person

3. Consideration may be past, present or future 14 Dr.M.Jeyakumaran


4. It must be ‘something of value’ 5. It must be legal 6. Consideration is doing something or

abstaining from doing something.

Explain No Consideration no Contract.

An agreement made without consideration is void. No consideration is required in case of

1. An agreement made on account of natural love and affection

2. Agreement to compensate for past voluntary service

3. Agreement to pay a time barred debt

4. Completed gift

5. Contract of agency

6. Remission by the promisee, of performance of the promise, and

7. Contribution to charity.

What is Capacity of Parties?

Every person is competent to contract who is of the age of majority according to the law to

which he is subject, and who is of sound mind, and is not disqualified from contracting by any

law to which he is subject.

Who is a Minor?

A minor is one who has not completed the age of 18 years. The position of agreements by a

minor is

1. Absolutely void and inoperative as against him

2. That there is no restitution

3. Agreement beneficial to a minor is valid

4. No ratification on attaining the age of majority

5. The rule of estoppel does not apply

6. Minors property is liable for necessaries

7. Minor can be an agent15 Dr.M.Jeyakumaran


8. Minor can be admitted in partnership only for profit

9. Minor can be admitted in partnership only for profit

10. Minor cannot be declared insolvent

11. Specific performance cannot be ordered for minor’s agreement

12. Surety for a minor is liable

13. A minor cannot be a shareholder of the company, unless the shares are fully paidup and the

articles of association donot prohibit.

Persons of Unsound Mind:

Agreements entered in by person of unsound mind are void. A Lunatic or a Drunken or

Intoxicated person can enter into a contract when he is of sound mind. Agreements of an idiot are

void. Persons of unsound mind are liable (only their property) for necessaries supplied to them or

their legal dependants.

Persons disqualified by law: Such persons are –

1. Alien enemy

2. Foreign sovereigns and ambassadors

3. Convict

4. Company beyond the objects contained in its memorandum of association

5 Insolvents.

What is Free Consent?

two or more persons are said to consent when they agree upon the same thing in the same sense.

Contracts in order to be valid must be made by the free consent. Consent is said to free when it is

not caused by

1. Coercion, or

2. Undue influence, or

3. Fraud, or 16 Dr.M.Jeyakumaran


4. Misrepresentation, or

5. Mistake. When Consent is not free, the contract is voidable at the option of the party whose

consent was so caused.

Coercion:

Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code,

or the Unlawful detaining, or threatening to detain any property, to the prejudice of any person,

whatever, with the intention of causing any person to enter into agreement.

Undue Influence:

A Contract is said to be induced by “Undue Influence’ where the relations subsisting between the

parties are such that one of the parties is in a position to dominate the will of the other, and uses

that position to obtain an unfair advantage over the other.

Fraud:

Fraud exists

1. When a false representation has been made

2. Knowingly, or without belief in its truth, or

3. Recklessly, not caring whether it is true or false, and

4. The maker intended the other party to act upon it

5. with an intention to deceive. It also exists when there is a concealment of a material fact.

Misrepresentation:

It is a misstatement of a material fact made innocently with an honest belief as to its truth or non-

disclosure of a material fact, without any intent to deceive the other party.

Mistake:

It is an erroneous belief concerning something. Mistake is of two types

1. Mistake of Law17 Dr.M.Jeyakumaran


2. Mistake of Fact.

Mistake of Law:

is again of two types

1. Mistake of Indian law. It does not vitiate a contract because ignorance of law is no excuse

2. Mistake of foreign law. It is treated as a mistake of fact.

Mistake of Fact:

It may be a

1. Bilateral mistake. Where both the parties to an agreement are under a mistake as to a matter of

fact essential to the agreement; the agreement is void.

2. Unilateral mistake - where only one of the parties is under a mistake as to a matter of fact, the

contract is not voidable.

Explain the Legality of Object and Consideration.

The object and the consideration of an agreement must be lawful. Otherwise the agreement is

void. It is unlawful, if

1. It is forbidden by law

2. It is of such a nature that if permitted it would defeat the provisions of any law

3. It is fraudulent

4. It involves or implies injury to a person or property of another

5. The court regards it as immoral or opposed to public policy.

Explain the Agreements Expressly Declared Void.

1. Made by incompetent persons

2. Made under a bilateral mistake of fact

3. Made without consideration

4. The meaning of which is uncertain 18 Dr.M.Jeyakumaran


5. The consideration or object is unlawful

6. To do impossible acts

7. In restraint of marriage

8. In restraints of trade

9. In restraint of legal proceedings

10. Wagering agreements.

What is Contingent Contract?

A contingent contract is a contract to do or not to do something if some event collateral to such

contract does or does not happen. The essentials of a contingent contract

1. Its performance depends upon the happening or non-happening in future of some event

2. The event must be collateral, and

3. Uncertain.

What are the Rules Regarding Contingent Contract?

1. Enforcement of contracts contingent on happening of a future uncertain event can only be

done only when the event happens

2. Enforcement of contracts on the non-happening of a future uncertain event can only be done

only when the happening of the event becomes impossible, and not before

3. Contracts contingent on future conduct of a living person, is considered impossible, when such

person does anything which renders it impossible

4. Contracts contingent on a specified event happening within a fixed time, would become void

if at the expiration of the time fixed such event does not happen or becomes impossible

5. Agreements contingent on impossible events are void.

Define Quasi-Contract:

It is an obligation imposed by law upon a person for the benefit of another even in the absence of

a contract.19 Dr.M.Jeyakumaran


Kinds of Quasi-Contract:

1. Claim for necessaries supplied to a person incapable of contracting or on his account

2. Reimbursement of person paying money due by another, in payment of which he is interested

3. Re-imbursement of person enjoying benefit of non-gratuitous act

4. Responsibility of finder of goods

5. Liability of person to whom money is paid or thing delivered by mistake or under Co-ercion.

What is Performance of Contract?

Performance of Contract means fulfulling of the terms of the contract by the respective parties to

the Contract. Only the promisee can demand performance of the promise.

Contract can be performed

1. In a personal contract by the promisor personally

2. In a non-personal contract by the promisor, by a third person on behalf of the promisor or by

the legal representative if the promisor is dead, and

3. In case of joint promisors by them jointly.

Discuss about Discharge of Contract:

It means discontinuation of the contractual relations between the parties. Various modes of

discharges of a contract are by

1. Performance - actual or implied

2. Mutual Consent or agreement. This can be done by novation, rescission, alteration, remission

or waiver

3. Subsequent or supervening impossibility or illegality

4. Lapse of time 5. Operation of law

6. Breach of contract - can be anticipatory or actual.

What are the Remedies for Breach of Contract?20 Dr.M.Jeyakumaran


A breach of contract occurs if any party refuses or fails to perform his part of the contract or by

his act makes it impossible to perform his obligation under the contract.

The Various Remedies of Breach of Contract:

1. Rescission of contract

2. Suit for damages – which can be ordinary or general, special, exemplary, nominal, and

liquidated

3. Suit for specific performance

4. Suit for injunction

5. Suit for quantum merrit.

Discuss about Indemnity and Guarantee.

Indemnity:

A contract, by which one party promises to save the other from loss caused to him by the

conduct of the promisor himself, or by the conduct of any other person, is called a contract of

Indemnity. The person who promises to make good the loss is called Indemnifier. The person

whose loss is to be made good is called the indemnified or indemnity holder.

Guarantee:

A contract of guarantee is a contract to perform the promise or discharge the liability of a third

person in case of his default. There are three parties to a contract of guarantee, principal debtor,

creditor and the surety. These are two kinds of guarantee namely specific or continuing. A surety

is discharged from liability by

1. Giving a notice of revocation

2. Death of surety

3. Variance in terms of contract

4. Release or discharge of principal debtor

5. Arrangement by creditor with principal debtor without surety’s consent

6. Creditors act or omission imparting surety’s eventual remedy

7. Loss of security, and 8. Invalidation of contract of guarantee21 Dr.M.Jeyakumaran


Distinguish Bailment and Pledge

Bailment:

A bailment is the delivery of goods by one person to another for some purpose, upon a contract

that they shall, when the purpose is accomplished, be returned or otherwise disposed by

according to the direction of the person delivering them. The person delivering the goods is

called the bailor. The person to whom the goods are delivered is called the bailee. There are three

kinds of bailment, gratuitous, non-gratuitous or Pawn (Pledge). The duties of bailey are

1. To take reasonable case of goods delivered to him

2. Not to make unauthorised use of goods entrusted to him

3. Not to mix good bailed with his own goods

4. To return the goods

5. To return accretions to the goods, and

6. Not to set up any adverse title.

The duties of bailor are

1. To disclose faults / defects in goods bailed

2. To repay necessary expenses in case of gratuitous bailment

3. To repay any extra ordinary expenses in case of non-gratuitous bailment

4. To indemnify bailey, and to receive back the goods.

The Right of bailee are

1. Enforcement of bailor’s duties

2. To deliver goods to one of several joint bailors

3. To deliver goods, in good faith, to bailor without title, and

4. Lien which may be general or particular.

The Right of bailor are 22 Dr.M.Jeyakumaran


1. Enforcement of bailee’s duties

2. To terminate bailment if the bailee uses the goods wrongfully, and

3. To demand return of goods at any time in case of gratuitous bailment.

What is Pledge or Pawn?

The bailment of goods as security for payment of a debt or performance of a promise is called

pledge. Pledge is a kind of bailment.

What is Agency?

An agent is a person employed to do any act for another or to represent another in dealings with

third persons. The person for whom such act is done, or who is represented, is called the

principal. The contract which creates the relationship of principal and agent is called an agency.

Principal must be a person competent to contract. A minor or a person of unsound mind can be

appointed as agent, but in such a case the principal shall be liable. No consideration is necessary

to create an agency.

How will you Creat Agency?

Can be done by

1. Express agreement,

2. Implied agreement -which may be by estoppel, or by holding out or by necessity

3. Ratification 4. Operation of law. Sub-agent is a person employed by an agent. Substituted

agent is one who is appointed at request of the principal and then the agent drops out altogether

from the scene.

What are the Duties of agent ?

1. To follow principal’s directions or customs

2. To carry out the work with reasonable skill and diligence 23 Dr.M.Jeyakumaran


3. To render accounts

4. To communicate, in case of difficulty

5. Not to deal on his own account in the business

6. Not to make any profit out of his agency except his remmuneration

7. On termination of agency by principal’s death or insanity to protect and preserve the interests

entrusted to him; and

8. Not to delegate authority.

What are the rights of agent ?

1. To receive remuneration

2. Retainer

3. Lein

4.To be indemnified against consequences of lawful acts

5. To be indemnified against consequences of acts done in good faith

6. To compensation for injuries sustained by him due to principal’s neglect or want of skill, and

Stoppage of goods in transit.

What are the obligations of a Banker to a customer?1) Obligation to Honour cheques2) Obligation to maintain secrecy of Account3) Obligation to keep proper Records of Transactions.4) Obligation to Abide by customer’s Instructions.

23) Define agency?An ‘agent’ is a person employed to do any act for another or to represent

another in dealings with third persons. The person for whom such act is done or who is so represented is called the “principal”.

24) What are the different kinds of agents?1) Auctioneer2) Banker

24 Dr.M.Jeyakumaran


3) Broker4) Factor5) Del credere agent6) Commission agent7) Indentor8) Insurance agent

25) State the Agent’s authority and liability of principal?The competency or capacity of an agent to bind his principal by his acts is

known as ‘agent’s authority’. An agent enjoys.a) Actual or real authorityb) Ostensible or apparent authority, andc) Agent’s authority in emergency.

26) How will terminate the Agency?i) By act of partiesii) By operation of Law.

25 Dr.M.Jeyakumaran


SECTION IVINDIAN SALES OF GOODS ACT

Define Contract of Sale.

A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the

property in goods to the buyer for a price. Goods here mean only movable goods. Price must be

expressed in money.

Differentiate Sale and Agreement to Sell.

In a sale the property in the goods is transferred from the seller to the buyer. In an agreement to

sell, the transfer of the property in the goods is to take place at a future time or subject to some

condition thereafter to be fulfilled. An agreement to sell becomes a sale when the time elapses or

the conditions are fulfilled subject to which the property in the goods is to be transferred.

How a Contract of Sale is made?

A contract of sale may be made in writing or orally or partly in writing and partly orally or may

be implied from the conduct of the parties. There must be an offer to buy or sell goods for a price

and acceptance of such offer. It may provide for the immediate delivery of the goods or

immediate payment of the price or both, or for the delivery or payment by instalments or that

both is done at a future date. It may be for existing or future goods.

What is a Stipulation?

A Stipulation in a contract of sale with reference to goods which are the subject thereof may be a

Condition or a Warranty.

What is a Condition?

26 Dr.M.Jeyakumaran


A Condition is a stipulation essential to the main purpose of the contract. Its breach gives a right

to the buyer to repudiate the contract.

What is a Warranty?

A Warranty is a stipulation collateral to the main purpose of the contract. Its breach gives rise to

a claim for damages but not a right to treat the contract as repudiated.

Distinguish Express and Implied Conditions and Warranties

In a Contract of sale, conditions and warranties may be express or implied. They are express

when they are mentioned in the contract by the parties. Implied conditions and warranties are

those which are implied by law unless the parties stipulate to the contrary.

Implied Conditions

These are conditions.

1. as to title

2. a sale by description

3. in a sale by sample

4. in a sale by sample as well as description

5. as to fitness or quality

6. to merchantability

7. as to wholesomeness.

Implied Warranties

In a contract of sale, unless there is a contrary intention, there is an impled warranty that

1. The buyer shall have and enjoy quiet possession of the goods

2. the goods are free from any charge or encumberances

3. that the seller will disclose the dangerous nature of goods to the ignorant buyer.

What is ‘Caveat Emptor’?

This means ‘let the buyer be aware’. The doctrine of Caveat Emptor does not apply 27 Dr.M.Jeyakumaran


1. When there is custom or usage of trade

2. When there is a fraud by the seller

3. When the buyer intimates the purpose to the seller and depends upon his skill or judgment

4. In case of implied conditions and warranties.

What are the Rules for Transfer of Property?

Rules for ascertaining when the property in goods passes to the buyer are the following:

1. Where there is a contract for the sale of unascertained goods, no property in the goods is

transferred to the buyer unless and until the goods are ascertained

2. Where there is a Contract for the sale of specific or ascertained goods, the property in them is

transferred to the buyer at such time as the parties to the contract intend it to be transferred. To

ascertain the intention of the parties, relevant issues are; terms of the contract, the conduct of the

parties and the circumstances of the following rules will be relevant.

A) Specific Goods:

1. When goods are in a deliverable state

2. If the seller has to do something to make goods deliverable, then when the seller has done

such thing, and notice thereof is given to the buyer.

b) Unascertained or Future Goods:

If such goods are sold by description, property passes, when goods according to the description

are unconditionally appropriated, and the buyer is given a notice thereof.

c) Goods Sent on Approval:

In such goods, property passes when the buyer signifies his approval or acceptance or when he

does some act adopting the transaction if he retains the goods without giving notice of rejection,

property passes when the time agreed for returning the goods expires or a reasonable time has

expired.28 Dr.M.Jeyakumaran


Duty of Seller and Buyer

Seller’s duty is to deliver the goods and the buyer’s duty is to accept and pay for the goods as per

the terms of the contract of sale.

What is Delivery of Goods?

Delivery means voluntary transfer of possession of goods from the seller to the buyer. It may be

actual, symbolic or constructive.

Explain the Rules as to Delivery

1. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent

conditions.

2. A delivery of part of the goods, in progress, of the delivery of whole, amounts to, for the purpose of

passing the property in such goods, as a delivery of the whole.

3 Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies

for delivery.

4. The place of delivery is the place at which they are at the time of the sale.

5. If the goods are in possession of a third party, there is no delivery until such third party acknowledges

to the buyer that he holds the goods on his behalf.

6. Where the seller is bound to send the goods to the buyer but no time for sending them is fixed, they

must be sent within a reasonable time.

7. Expenses of making delivery are borne by the seller and expenses of obtaining delivery by the buyer.

8. If the seller sends to the buyer a larger or a smaller quantity of goods than he ordered, the buyer may

a) reject the whole, or

b) accept the whole, or

c) accept the quantity he ordered and reject the rest.

9. If the seller delivers, with the goods ordered, goods of a wrong description, the buyer may accept the

goods ordered and reject the rest or reject the whole.

29 Dr.M.Jeyakumaran


10. Unless otherwise agreed, the goods are not to be delivered by instalments.

Who is an Unpaid Seller?

A seller of goods is deemed to be an unpaid seller –

1. When the whole of the price has not been paid or tendered

2. When a bill of exchange or other negotiable instrument has been received as a conditional payment,

and the condition on which it was received has not been fulfilled by reason of the dishonor of the

instrument, or otherwise.

What are an unpaid seller rights?

1. As Against the Goods

i. Right of Lien:

It is available to the unpaid seller when

a) the goods have been sold without any stipulation as to credit;

b) the goods have been sold on credit, but the term of the credit has expired;

c) the buyer becomes insolvent.

ii.Right of Stoppage in Transit:

When the buyer of goods becomes insolvent the unpaid seller who has parted with the possession of the

goods has the right of stopping them in transit. The seller may resume possession of the goods, as long as

they are in the course of transit and may retain them until payment or tender of the price. The unpaid

seller may exercise this right of stoppage in transit either by taking actual possession of the goods, or by

giving notice of his claim to the carrier or other bailee in whose possession the goods are.

iii.Right of Re-sale:

The unpaid seller can re-sell the goods— Where the goods are of a perishable nature- Where he has

exercised his right of lien or stoppage in transit and given notice to the buyer of his intention to re-sell the

goods and where the buyer has not within a reasonable time paid the price; and—Where the seller

expressly reserves a right of re-sale in case the buyer should make default.

2. Right of Withholding Delivery

30 Dr.M.Jeyakumaran


Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his

other remedies, a right of withholding delivery similar to and coextensive with his rights of lien and

stoppage in transit where the property has passed to the buyer.

3. As Against the Buyer Personally

i. Suit for Price:

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 for the goods according to the terms of the contract, the seller may sue him for

the price of the goods.

ii.Damages for Non-acceptance:

Where the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue him for

damages for non-acceptance.

iii. Repudiation of Contract before Due Date:

Where the buyer in a contract of sale repudiates the contract before the date of delivery, the seller

may either treat the contract as subsisting and wait till the date of delivery, or he may treat the

contract as rescinded and sue for damages for the breach.

iv. Suit for Interest:

The seller can recover interest on price from the date on which the payment became due, if there

is a special agreement to that effect.

What is Auction Sale?

A sale by auction is a public sale where different intending buyers try to outbid each other. The

goods are ultimately sold to the highest bidder

Discuss Carriage by Sea

31 Dr.M.Jeyakumaran


In case of sea transit, the duty of insuring the goods is thrown on the buyer. There are three common types of contracts as regards carriage by sea, i.e. when the seller sends goods to the buyer involvingsea transit.. What are FOB andCIF contracts?a) C.I.F. Contracts: It means “Cost-Insurance-Freight”. C.I.F. contract includes the price ofthe goods, cost of insurance and freight charges. The seller agrees to sell the goods inclusiveof the cost of the goods, its insurance and freight charges. In the C.I.F. contract, if there is a breach of contract or if the goods are not according to the specifications, the buyer may reject the goods and recover theprice paid by him.

b) F.O.B. Contract: F.O.B means “Free on Board”. The seller puts the goods on board at hisown expense. No sooner the goods are placed on the board, the seller’s liability ceases, andthe buyer’s liability begins. The buyer is responsible to pay freight and also insurance chargesand other expenses. The seller pays cost of loading and other expenses for placing the goodson ship. The seller gives the notice of the shipment to the buyer to enable him to insure thegoods. Failure to give notice makes the seller liable for risk, unless the buyer waives thenotice. The buyer must name the ship on which the goods are to be delivered, or he mustauthorize the seller to select the ship, failing which the seller can sue for damages for no acceptance.

What are Ex-shipcontracts?

c) Ex-Ship Contracts: By ex-ship contract, the seller does not merely ship the goods, but hehas to deliver the goods to the buyer after the arrival of the ship on the port of delivery tobuyer’s place where the goods are to be delivered at his own expense. The seller has to paythe freight. The property in the goods passes to the buyer only when the goods are deliveredto him. The goods are at the seller’s risk during the voyage.

32 Dr.M.Jeyakumaran


SECTION VNAGOTIABLE INSTRUMENT ACT

The law relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881.

What is a Negotiable Instrument?A ‘negotiable instrument’ means a promising note, bill of exchange or cheque

payable either to order or to bearer.

Define Negotiation?Section 14 of the Negotiable Instrument Act lays down that “when a

promissory note, till of exchange or cheque is transferred to any person, so as to constitute that person the holder there of, the instrument is said to be negotiated”.

Discuss the Characteristics of a Negotiable Instrument

An instrument in order to be treated as a negotiable instrument must be

1. in writing,

2. signed by the maker / drawer,

3. a promise or order to pay,

4. Unconditional,

5. payment in money,

6. for a certain sum,

7. payable at a time certain to arrive and

8. draweee must be named or described withreasonable certainity.

What are the Presumptions?

The presumptions laid down by the Act in favour of negotiable instruments are as to

a) consideration,

b) date,

c) time of acceptance,

d) time of transfer,

33 Dr.M.Jeyakumaran


e) order of endorsement,

f) stamping,

g) holder in due course, and

h) proof of interest.

Define Promissory Note.

A promissory note is an instrument in writing (not being a bank note or a currency note)

containing an unconditional undertaking signed by the maker, to pay a certain sum of money

only to, or to the order of, a certain person or to the bearer of the instrument.

Define Bill of exchange.

A bill of exchange is an instrument in writing containing an unconditional order, signed by the

maker, directing a certain person to pay a certain sum of money only to, or to the order of, a

certain person or to the bearer of the instrument.

Define Cheque.

A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable

otherwise than on demand and it includes the electronic image of a truncated cheque and a

cheque in the electronic form.

What is Crossing of Cheque?

When a cheque bears across its face two parallel transverse lines, the cheque is said to be

crossed. The payment of a crossed cheque can be obtained only through another banker. The

crossing may be general, special or restrictive.

State provisions related to Bouncing of Cheque.

A drawer of a dishonoured cheque is punishable to imprisonment up to two years or with a fine

up to twice the amount of the cheque, if certain conditions are fulfilled. These conditions are,

1. Cheque should have been dishonoured due to insufficiency of funds, 34 Dr.M.Jeyakumaran


2. cheque should be presented within its validity,

3. Cheque was issued for the discharge of legally enforceable debt or other liability,

4. Payee is to give notice demanding payment within thirty days of dishonour,

5. Drawer is allowed to make payment within fifteen days after receiving the notice, and

6. A written complaint to a Metropolitan Magistrate or a Judicial Magistrate of the first

class is made within one month of cause of action arising. If the cheque issued by a

company is dishonoured, then the company and the person in charge of or officer of the

company may be prosecuted independently or jointly.

Define Negotiation.

When a promissory note, bill of exchange or cheque is transferred to any person, so as to

constitute that person the holder thereof, the instrument is said to be negotiated.

Who is a Holder?

The holder of a negotiable instrument means any person entitled to the possession of the

instrument in his own name and to receive or recover the amount due thereon from the parties

thereto.

Who is a Holder in due Course?

Holder in due course means any person who for consideration became the possessor of a

promissory note, bill of exchange or cheque, if payable to the bearer, or the payee or endorse

thereof, if payable to the order, before the amount mentioned in it became payable, and without

having sufficient cause to believe that any defect existed in the title of the person from whom he

derived his title.

State the Privileges of a holder in due course.

He enjoys the following privileges

1. He gets a better title than that of the transfer,

2. Privileges in case of inchoate stamped instruments upto the value of the stamps fixed,

3. All prior parties are liable to him,

35 Dr.M.Jeyakumaran


4. Acceptor of a fictitious bill is liable to a holder in due course provided the latter can show that

the first endorsement on the bill and the signature of the supposed drawer are in the same

handwriting,

5. Privilege when an instrument delivered conditionally is negotiated,

6. Estopped against denying original validity of instrument,

7. Estopped against denying capacity of payee to endorse.

Define Endorsement.

When the maker or holder of a negotiable instrument signs the same, ortherwise than such a

maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed

thereto, or so signs for the same purpose a stamped paper intended to be completed as a

negotiable instrument, he is said to endorse the same, and is called the endorser.

Explain the types of Endorsement

1. Blank or general,

2. Full or special,

3. Restrictive,

4. Partial ,

5. Conditional or qualified,

6. San Recourse,

7. Sans Frais, and

8. Facultative.

36 Dr.M.Jeyakumaran


SECTION VIPARTNERSHIP ACT

Define Partnership

Partnership is the relation between persons who have agreed to share the profits of a business

carried on by all or any of them acting for all.

What are the Essential elements of a partnership ?

1- Agreement,

2- Two or more persons,

3- Carrying on a business,

4- Sharing of profits, and

5- Mutual agency.

Persons who have entered into partnership with one another are called individually ‘partners’ and

collectively a firm, and the name under which their business is carried on is called the ‘firm

name’.

A partnership firm is not a person in the eyes of law. A Partnership is different from their

associations like joint hindu family, co-ownership and clubs. Registration of firm is optional.

What are the rights of a partner ?

1- To take part in business,

2- To be consulted,

3- Access to accounts,

4-Share profits,

5- Interest on capital,

37 Dr.M.Jeyakumaran


6- Interest on advances,

7- To be indemnified,

8- To use partnership property,

9- Agent of firm,

10- To permit introduction of new partner,

11- To retire,

12-Not to be expelled, and

13- Outgoing partner to share subsequent profits.

Explain the Duties of a partner?

1-General duties like to be just and faithful to other, to render true accounts, to carry on the

business of the firm to the greater common advantage and to provide full information to all

partners,

2- To indemnity for loss caused due to fraud or willful neglect,

3- To attend diligently, 4- Not to claim remuneration,

5-To contribute to losses,

6- To use firm’s property for business,

7- To account for personal profits,

8- To account for profits in competing business,

9- To act with authority,

10- Joint and several liability for acts of firm, and

11- Not to assign his partnership rights.

A firm is reconstituted when there is a change in the composition of its partners without affecting

the continuity of the firm. There are two types of dissolution,

1- Dissolution of firm, and

2- DissolutionNof partnership.

38 Dr.M.Jeyakumaran


Dissolution of firm may take place in two modes,

1- Without court order, and

2-Dissolution by the court.

What is Limited liability partnership (LLP) ?

partnership firm entails unlimited liability for its partners, where the chief advantage of forming

a company under the Companies Act, 1956 is the limited liability of its members. A company is

required to carry out a number of legal formalities. To get the advantage of limited liability as

well as that of partnership establishment of limited liability partnership (LLP) has now been

given legal recognition. LLP Act has now been enacted and the professionals can now form

partnership firm with limited liability. This would promote a new era of entrepreneurship.

Forming an LLP has all the advantages of a sole trader or partnership like flexibility in taking

decisions, less legal formalities than that of a joint stock company and the advantage of a limited

liability. A firm of professionals like chartered accountants lawyers and company secretaries

may take benefit of such a partnership under the LLP Act.4.

What are the ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP FIRM?

• Advantages of the Partnership Form of Business Organisation:

a) Easy to form

b) Availability of large resources

c) Better decisions

d) Flexibility in operations

e) Sharing of risks

f) Protection of interest of each partner

g) Easy Dissolution -

39 Dr.M.Jeyakumaran


• Disadvantages of Partnership form of Business Organisation:

a) Unlimited Liability:

b) Uncertain Life:

c) Danger of Implied Agency

d) Limited resources:

e) No transferability of share

Explain Different kinds of partnership .

1. General or Unlimited Partnership

It is a kind of partnership in which the liability of all the partners is unlimited General

partnership, on the basis of the duration of existence of the firm can be classified into two types:

Partnership–at–will [Section 7].

Where no provision is made by contract between the partners for the duration of their

partnership, or for the determination of their partnership, such a partnership is called “partnership

at will”. The life of such a partnership continues as long as the partners are willing to continue it

as such. Any partner can dissolve a firm by giving a notice in writing to the effect that he wants

to withdraw from the firm

b. Particular Partnership [Section 8].

It is a partnership which is formed for a particular period of time or for the completion of a

specified venture. Such a firm is dissolved immediately on the completion of the particular

period or purpose, as the case may be.

2. Limited Partnership

40 Dr.M.Jeyakumaran


It is a kind of partnership in which the liability of some of the members is limited only to the

extent of their individual share in the capital of the firm. A limited partnership consists of two

types of partners: general partner and limited partner. Each of the general partners has unlimited

liability for the debts of the partnership, but the limited partner's liability to the debts of the

partnership is limited to the contribution each has made to the partnership. This kind of

partnership is very common in Europe and U.S.A.

Define Partnership Deed. Explain its contents.

A partnership firm can be formed through an agreement among two or more persons. The

contract/agreement that forms the basis of the relationship between the partners specifies the

terms and conditions that bind the partners into the relationship. This agreement may be written

or oral. But it is desirable to have the partnership agreement in writing to avoid any

misunderstanding among the partners. The partnership agreement, also known as Partnership

Deed or Articles of Partnership, is a document which is signed by all the partners and which

contains all the matters determining and governing the mutual rights, duties and liabilities of the

partners in the conduct and management of the affairs of the partnership firm.

Some of the contents of the Partnership Deed are outlined below:

a) Name of the firm.

b) Date of agreement and principal place of business.

c) Names and addresses of all the partners.

d) Nature of business proposed to be carried on by the firm.

e) Duration of the partnership, if any.

f) Amount of capital contributed by each partner.

g) Amount of withdrawal of each partner.

h) Ratio of distribution of profits and losses among the partners.

i) Salary/Commission payable to partners.

j) Interest on capital and interest on drawings.41 Dr.M.Jeyakumaran


k) Rights, duties and obligations of partners

l) Procedure for admission or retirement of partners.

m) Method of revaluation of assets or liabilities on admission, retirement or death of a partner

n) Manner of dissolving the firm and the mode of settlement of accounts on such dissolution.

o) Maintenance of books of accounts and their audit.

p) Loans and advances to the firm by the partners and the rate of interest payable on them.

q) Mode of valuation of goodwill on admission, retirement or death of a partner.

r) Procedure for settlement of disputes among partners by arbitration.

s) Operation of bank account

Further, the contents of a partnership deed can be altered only with the consent of all the

partners.

Explain the different types of Partners

There are different types of partners as mentioned below:

a. Active Partner

A partner who takes active part in the management of the partnership firm is known as active or

working or managing or general partner. His liability is unlimited.

b. Sleeping Partner or Dormant Partner

The partners who contribute capital to the firm’s business, share profits and losses of the firm but

do not participate in the day-to-day functioning and management of the business are called

sleeping or dormant or financing partners.

c. Nominal or Ostensible Partner

These partners only allow the firm to use their name as a partner. They do not invest any capital

or share profits and they also do not take part in the conduct of the business of the firm.

However, they remain liable to third parties for the acts of the firm.

d. Partner in Profit Only

He is a partner who shares the profits of the firm but is not liable for the losses. Usually he has

no voice in the management of the firm. But his liability to third parties is unlimited.42 Dr.M.Jeyakumaran


e. Partner by Estoppel

If a person falsely represents himself as a partner of any firm or behaves in a way that somebody

can have an impression that such person is a partner and on the basis of this impression transacts

with that firm, then that person is held liable to the third party. The person who falsely represents

himself as a partner is known as partner by estoppel. He cannot later on deny that he is not a

partner.

f. Partner by Holding out

When a person who is not really a partner in a business, is described as a partner to others, then

he must at once deny it when he comes to know about it. If he keeps quiet, then he is liable to

other persons who do business with that partnership firm, believing that he is also a partner. Such

a person is called partner by holding out.

g. Sub-Partner

When a partner enters into an agreement with a third party to share his (partner) interest in the

property and profit of the firm, the third party is called a sub-partner. Such a sub-partner has no

rights against the firm, nor is he liable for the debts of the firm.

h. Minor as a Partner

Legally, a minor (i.e., a person who has not completed 18 years of age) cannot become a partner

because he is incapable of entering into a contract. He may, however, be admitted to the benefits

of partnership with the consent of all partners, under certain conditions. A minor can only share

the profit of the business. In case of loss, his liability is limited only to the extent of his share in

the profits and property of the firm.

Explain Minor as a partner.

As a minor has no contractual capacity, he cannot become a partner in a partnership firm.. The

position of a minor partner may be studied under the following two heads:

a. Position before attaining majority43 Dr.M.Jeyakumaran


a) He has a right to share the property and profits of the firm as may have been agreed upon.

b) He has a right to have access to and inspect and take a copy of the accounts of the firm.

c) His liability is limited only to the extent of his share in the profits and property of the firm.

b. Position after attaining majority

On attaining majority the minor partner has to decide within six months by giving notice whether

he shall continue in the firm or not. If he fails to give such notice, he is deemed to have become a

partner. If he decides to or is deemed to be a partner, he becomes personally liable to the firm

from the date, on which he was admitted as minor partner. If he decides not to continue as a

partner, he is not liable for the debts of the firm after the date of notice.

State provisions related to Registration of partnership firm.1.Registration of a partnership firm in India is not compulsory.

2.The Indian Partnership Act, 1932, provides that if the partners so desire, they may register their

firms with the Registrar of Firms of the state.

3.A partnership firm can be registered at any time by filing a statement in the prescribed form.

4.The form should be duly signed by all the partners and sent to the Registrar of Firms along

with the prescribed fee.

5.The statement should contain the necessary details such as name of the firm, principal place of

its business, name and address of each partner, date of admission of each partner, date of

commencement of business of the firm and duration of the firm.

6.On receipt of the statement and the fees, the Registrar makes an entry in the Register of Firms

and then issues a certificate known as the Certificate of Registration. The firm is thereupon

considered to be registered.

7.Any change in the above particulars must be communicated to the Registrar of Firms within a

reasonable period of time so that necessary alteration may be made in the Register of Firms.

44 Dr.M.Jeyakumaran


8.Registration of partnership in case of a partnership firm is merely a reliable evidence of the

existence of the firm. Non-registration in no way invalidates the transactions of the firm.

10.However, an unregistered firm is denied certain rights, some of which are mentioned below:

a) An unregistered firm cannot sue a partner(s) of the firm.

b) An unregistered firm cannot file a suit against third parties to enforce its claims exceeding

rupees one hundred, but a third party can file a suit against the firm to claim their rights.

Discuss about the Dissolution of partnership firms?Dissolution of a partnership firm is different from dissolution of a partnership. When one partner

dies, retires or becomes insolvent, but the remaining partners continue to carry on the business of

the firm, the partnership ends but the firm is not dissolved. Dissolution of the firm takes place

when there is dissolution of partnership between all the partners of a firm.

Thus, dissolution is of two types:

a) Dissolution of partnership

b) Dissolution of firm

a) Dissolution of partnership: Dissolution of partnership means the termination of the original

partnership agreement. The business can continue after such dissolution. Dissolution of

partnership takes place (even when there is no dissolution of the firm) under the following

circumstances:

(i) Completion of the adventure/expiry of the term of partnership

(ii) Death of a partner

(iii) Insolvency of a partner

(iv) Retirement of a partner

In all the above cases, the remaining partners may continue the firm in pursuance of an

agreement to that effect. If they do not continue, then the dissolution of the firm takes place

automatically.

45 Dr.M.Jeyakumaran


b) Dissolution of firm: The dissolution of firm implies:

- The termination of the contractual relationship between all the partners, and

- The end of the partnership business

On dissolution of the firm, the assets of the firm are realized and the creditors are paid off. The

business cannot be continued after dissolution of the partnership firm.

Dissolution of firm may take place in any of the following circumstances or ways:

1. Dissolution by Agreement (Sec.40) This is also known as voluntary dissolution.

2. Compulsory dissolution (Sec 41)

3. Dissolution on the happening of certain contingencies (Sec 42)

4. Dissolution by notice of partnership-at-will (Sec 43)

5. Dissolution through Court (Sec 44)

46 Dr.M.Jeyakumaran


SECTION VIICOMPANY LAW

What is a company ?

A ‘Company’ implies an association of persons for some common object(s). A Company under

the Act is defined to mean a “company formed and registered under the Companies Act, 1956 or

under any of the previous company law”.

Explain the nature of a Company.

A company is characterised by the features like

1-Incorporate association, 2- Artificial legal person, 3- Separate legal entity, 4- Perpetual

succession, 5- Limited liability, 6- Transferable shares, 7- Common seal, 8- Can hold separate

property, 9- Capacity to sue and being

What are the classifications of companies?

Companies can be classified on the basis of mode of incorporation into chartered companies,

statutory companies and registered company. On the basis of liability of members companies are

classified into limited by shares, limited by guarantee and unlimited. Based on number of

members, a private company has minimum two and maximum fifty whereas the minimum

number in a public company is seven and maximum is limited by number of shares. Other type

of companies are government companies, foreign company, holding and subsidiary company and

producer company.

47 Dr.M.Jeyakumaran


What is Lifting the Corporate Veil?

At times, the facade of corporate personality might have to be removed to identify the persons

who are really guilty. This is known as ‘lifting the corporate veil’. The court may lift the

corporate veil under

a) statutory provisions, and

b) judicial interpretation.

Under statutory provisions these are included i) Reduction in membership, ii) Misrepresentation

in prospectus, iii) Fraudulent Conduct of business, iv) Failure to return application money, v)

Mis-description of name, vi) Non-payment of tax, vii) Liability of Ultra-vires act, viii) Liability

of promoters for reincorporation contracts, ix) Directors with unlimited liability, and x) Holding

subsidiary company.

Under judicial interpretations, courts have lifted corporate veil, i) For determining the enemy

character of a company, ii) For the benefit of revenue, iii) For prevention of fraud and improper

conduct, and iv) others like where company is avoiding welfare legislation or where company is

mere sham or cloak.

Discuss the Formation of a Company?

The whole process of formation of a company may be divided into four stages namely

i) promotion,

ii) registration,

iii) iii) floatation, and

iv) iv) commencement of usiness.Promotion denotes

preliminary steps taken for the purpose of registration of the company. The persons who

undertake these steps are called promoters. The promoters of the company prepare memorandum

48 Dr.M.Jeyakumaran


and articles of association and other necessary documents. These documents are filed with

Registrar of Companies (ROC).

ROC after scruitinising these documents and on being satisfied that they are in order, issues the

certificate of incorporation. This certificate is conclusive as to all the requirements of the Act

with respect to registration have been duly complied with. A private company can commence its

business on receipt of certificate of incorporation. A public company has to raise capital and for

this purpose issue a prospectus if subscription of capital is sought from public or issue a

statement in lieu of prospectus when share capital is sought to be arranged through friends and

relatives. To get the certificate to commence business, a public company must have received the

minimum subscription viz. 90% of the entire issue on complying with some other formalities,

ROC grants the certificate to commence business. Now, a public company can commence its

business.

Explain about Memorandum of Association.

Memorandum of association of a company is an important document. It defines as well as

confines the powers of the company. The memorandum of a limited company is to contain its

name, the name of the state in which registered office is to be situated; the objects, the liability,

and the subscription clause. A company can only act as per the objects given in the memorandum

of association. Any action beyond this is Ultra-vires (beyond the powers of the company) and

hence void. All the clauses of the memorandum, except the subscription clause can be changed

by following the procedure provided in the Act.

Discuss about Articles of Association.

The articles of association of a company are its bye-laws or rules and regulations. It controls the

internal management of the company and defines the powers of its offices. It also establishes a

contract between the company and the members and between members inter se. Articles are

subordinate to memorandum. Articles contain provisions relating to share capital, rights of

49 Dr.M.Jeyakumaran


shareholders, shares and stock, meetings, directors. Articles may be altered by passing a special

resolution. Alterations must not be inconsistent with the Act, or any other statute; or it must not

be illegal or opposed to public policy and must be in the interest of the company. The

memorandum and articles when registered are public documents and can be inspected by anyone

on payment of a nominal fee. Thus there is a presumption that any person dealing with company

has read and understood these documents. This is known as ‘doctrine of constructive notice’.

This doctrine is subject to another doctrine namely ‘indoor management’. This doctrine of

indoor management provides that the persons dealing with the company are not bound to inquire

into the regularity of internal proceedings. This relief under indoor management is not available

where the outsider has knowledge of irregularity or in case of forgery or even negligence.

What is Prospectus? Explain its purposes?

A public company normally invites public to subscribe to its share capital. For this purpose a

prospectus is required to be issued. A prospectus means any document described or issued as

prospectus and includes any notice, circular, advertisement or other documents inviting deposits

from the public or inviting offers from the public for the subscription or purchase of any shares

or debentures of a body corporate. The prospectus must be dated, signed and registered with the

registrar. Prospectus must contain the information as per Parts I, II and III of Schedule II to the

Act. The golden rule of prospectus is that there must be full, frank and honest disclosure of all

facts. There should not be any errors of commission or omission i.e. no mis-statements. Any

misstatements in prospectus entails civil and criminal liability. Civil liability may include

rescission of contract, damages or compensation. Criminal liability entails imprisonment up to 2

years or fine up to Rs 50,000 or both.

An offer document by the issue houses offering shares to the public is known as deemed

prospectus. Where a public company does not invite public to subscribe for its shares, but

arranges to get money from private sources, it need not issue a prospectus.

50 Dr.M.Jeyakumaran


The promoters, in such a case are required to prepare a draft prospectus known as ‘statement in

lieu of prospectus’. This is also required to be filed with the Registrar. Public financial

institutions and scheduled banks have been allowed to file ‘shelf prospectus’ which will remain

valid upto one year. Thus, such institutions and banks need not issue a prospectus every time

they offer securities to public. They only need to file an ‘Information memorandum’ with respect

to changes in the financial position, etc.

A ‘red herring prospectus’ is a prospectus which does not have complete particulars on the price

of securities offered and quantum of securities offered. SEBI acts as the administrative authority

in relation to any complaints relating to prospectus.

Who can become the Member in company?

A member means a person who has either subscribed to the memorandum or who agrees in

writing to become member and whose name appears in the register of members. A member does

not include a bearer of a share warrant. A member is also called a shareholder except in some

cases like the legal heir of a member is a shareholder but not member till his name is entered in

the register of the members.

A company, a foreigner, a registered society or trade union can become members but a

partnership firm (although partners in their individual capacity can become members), official

receiver or liquidator cannot become a member. A person’s membership can be terminated in

many ways like on transfer forfeiture, or surrender of shares or when he is adjudged insolvent or

when the contract is rescinded.

Discuss about Share and Share Capital.

The capital of a company is divided into a number of indivisible units of a fixed amount. Each of

these units is known as a ‘share.’ A ‘share certificate’ issued by a company specifies the shares

held by a member and is prima-facie evidence of the title of member to the shares. ‘Stock’ is the

aggregate of fully paid shares, consolidated and divided for the convenient holding into different 51 Dr.M.Jeyakumaran


parts. It may be transferred or split up into fractions of any amount. There are two types of shares

namely preference shares or ordinary shares. Ordinary or equity shares can now be issued with

disproportionate rights as to voting or dividend. Preference shares have preferential rights as to

dividend or return of capital when the company goes into liquidation. Preference shares can be of

many types like cumulative or non cumulative, participating or non-participating, redeemable or

irredeemable, convertible or non-convertible.

A public company limited by shares, if so authorized by its articles, with previous approval of

the central government, with respect to fully paid shares may issue share warrants. This is a

bearer document of title to shares specified therein. Share transfer must be effected within two

months of the application of transfer. The transfer instrument must be valid and proper. A

company has power to refuse transfer against which appeal can be filed within a period of 2

months. There are provisions in the Act for nomination, forfeiture and surrender of shares. A

company limited by shares or a company limited by guarantee having a share capital is

prohibited from buying its own shares. The Companies (Amendment) Act, 1999 has, however,

allowed purchase of its own shares by a company subject to the conditions laid down in the Act.

The Act divides share capital into two kinds namely preference and equity or ordinary. Share

capital can be altered or reduced subject to the conditions provided in the Act.

Explain about Borrowings, Loans, Debentures and Investments

Every trading company has an implied power to borrow. A non-trading company, must, in its

memorandum or articles, contain an express power to borrow. A public company cannot exercise

borrowing power unless certificate to commence business is obtained by it. No borrowing is

permissible beyond the aggregate of the paid up capital of the company and its free reserves

unless prior sanction is obtained in general meeting. Loan includes debentures or any deposit of

money by one company with another company. Debentures may be of many types like registered

or unregistered, secured or unsecured, redeemable or irredeemable, convertible or non-

convertible.

52 Dr.M.Jeyakumaran


‘Investments’ for the purposes of the Act means the investing of money in shares, stock,

debentures or other securities. Investments made by a company must be made and held in

company’s own name. All certificates or letters of allotment must be in the custody of the

company. Inter corporate loans and advances are subject to various provisions of the Act.

Write short notes on Company Management and Administration

The Act defines a director as including ‘any person occupying the position of a director by

whatever name called’. The persons through whom a company acts and does its business are

termed as directors, collectively known as Board of Directors. Only an individual can be

appointed as a director. Minimum number of directors in a private company is two and in a

public company three. Maximum number is as provided in the articles.

A person can hold directorship, at the same time, in upto 15 companies. The Act provides no

qualifications but enumerates certain disqualifications for directorship like insolvency, unsound

mind etc. First directors are appointed by subscribers to memorandum. Subsequent directors are

appointed by shareholders or by third parties or by the central government. Casual, additional

and alternate directors are appointed by the Board.

The Act also provides appointment of director by small shareholders. Before appointing a

director, his prior consent is required to be signed with the Registrar and the company. Directors

can be removed by shareholders, central government or the Tribunal (NCLT). It is difficult to

state the exact legal position of a director. Although a director acts as agent, trustee, managing

partner or employee, yet he is none of them. The board shall be entitled to exercise all such

powers and to do all such acts and things, as the company is authorised to exercise and do.

However, the board cannot exercise any power or do any act or thing which is exercisable by the

company in general meeting. Directors’ duties include to act in good faith, to take reasonable 53 Dr.M.Jeyakumaran


care and to disclose interest. Managing director is a director who is entrusted with substantial

powers of management and his tenure is five years and eligible for reappointment.

Write note on Company Meetings and Resolutions.

Company can only act through persons who take various decisions in meetings.

A valid meeting must be duly convened, legally constituted and properly conducted. General

aspects of meetings relate to chairman, notice, voting, agenda and quorum. Meetings of company

can be of a) shareholders, b) directors, and c) creditors and debenture holders.

Shareholders meetings include statutory meeting, annual general meeting, extraordinary general

meeting and class meetings. A motion is a proposal under consideration by members in a

meeting before it is voted upon.

A resolution is any motion voted upon and agreed to in a meeting and entered in minutes.

Resolutions are of two types - ordinary or special. When a motion is passed by simple majority

of the members voting at a general meeting, it is called ordinary resolution. Special resolution is

when the votes cast in favour, should not be less than three times the votes cast against.

Resolutions requiring special notice mean that the notice of intention to move the resolution

should be given to the company not less than 14 clear days before the meeting at which it is to be

moved. The Act also provides passing of resolutions by postal ballot.

Discuss about Accounts and Audit

Every company is required to maintain proper books of account with respect to all receipts and

expenditure, sales and purchases, assets and liabilities and summarised account of all branch

offices. These books are to be kept on accrual basis and as per double entry system of

accounting.

54 Dr.M.Jeyakumaran


Books of account can be inspected by any director, registrar, authorised officers of central

government and of SEBI. These books are to be preserved for 8 years. Balance sheet and profit

and loss account are required to be authenticated (signed by atleast two directors). Annual

accounts (Balance sheet and profit and loss account) are to be sent to every member, filed with

the registrar and adopted in the AGM. An auditor of a company is a practising chartered

accountant.

Disqualifications for an auditor entail a body cooperate, an officer/employee, indebted to the

company for over Rs 1000 or disqualified for appointment as auditor of any body corporate

which is the company’s subsidiary or its holding company or a subsidiary of its holding

company. First auditor is appointed by the board and subsequent auditor by shareholders. Under

the Act, the auditor has certain rights and duties and he is required to submit an auditor’s report.

The Act also has provisions for cost audit, National Advisory Committee on Accounting

Standard and for Audit Committee.

Explain about Prevention of Oppression and Mismanagement.

The management of companies is based on the rule of majority. One of the exceptions to this rule

is where prevention of oppression and mismanagement is applicable.

‘Oppression’ has not been defined in the Act. It means visible departures from the standards and

a violation of the conditions of fair play.

The term ‘mismanagement’ would mean that the affairs of the company are being conducted or

such affairs are likely to be conducted in a manner which is prejudicial to public interest or

prejudicial to the interests of the company. In case of oppression of members and

mismanagement of company, a requisite number of shareholders can apply for appropriate relief

to the Tribunal for winding-up, or the Tribunal / central government for appropriate relief.

Requisite number of members who should sign such an application in respect of company having

share capital is not less than 100 members or 1/10 of the total number of its members, which ever

55 Dr.M.Jeyakumaran


is less, or by any member(s) holding not less than 1/10 of the issued share capital. In case of a

company not having share capital, requisite number is 1/5 of the total number of members of the

company.

The notice of every application made to the Tribunal for the prevention of oppression and

mismanagement must be given by the Tribunal to the central government. The central

government can make any representation which the Tribunal will consider before making a final

order. Relief can be granted if the application is made by majority shareholders who have been

rendered completely ineffective by the questionable acts of a minority group. The Tribunal has

all the necessary powers to end oppression as well as mismanagement.

Some of the powers are

a) the regulation of conduct of the company’s affairs in future,

b) purchases of shares by another member,

c) reduction of share capital,

d) termination or modification of any agreement with the director or any third party,

e) setting aside of any transfer of any property,

f) prevent the change in the board, or g) any other matter considered just and equitable.

The central government has also the powers to prevent oppression or mismanagement and to

remove managerial personnel.

Explain about Compromises, Arrangements, Reconstruction and Amalgamation

‘Compromise’ means settlement or adjustment of claims in a dispute by mutual concessions. The

expression ‘arrangement’ includes a re-organisation of the share capital of the company by the

56 Dr.M.Jeyakumaran


consolidation of shares of different classes, or by the division of shares into shares of different

classes or by both these methods.

Compromise/arrangement when the company is a going concern involve the procedure for an

application to the Tribunal, meeting of creditors/ members, resolution by 3/4th majority, sanction

by the Tribunal, binding on all members and creditors, Tribunal’s order to be filed with the

registrar and is appeal able. Compromise/arrangement during the winding up of company entails

that the liquidator may apply to the Tribunal. ‘

Reconstruction’ means when a company transfers the whole of its undertaking and property to a

new company, under an arrangement by when the shareholders of the old company are entitled to

receive some shares or other similar interest in the new company. A reconstruction is made to

enlarge the operations of the company or for reorganization.

The Term ‘amalgamation’ implies combination of two or more companies or the business of two

or more companies into one company or into the control of the company. Where the central

government is satisfied that it is essential in the public interest that two or more companies

should amalgamate, then the central government may order the amalgamation of those

companies into a single company.

Explain Winding up of a Company

Winding up of a company is a process whereby its life is ended and its property administered for

the benefit of its creditors and members. An administrator, called liquidator is appointed and he

takes control of the company, collects its assets, pays its debts and finally distributes any surplus

among the members in accordance with their rights. There are two modes of winding up:

a) Compulsory winding up or under order of the Tribunal.

b) Voluntary winding up.

A company may be wound up by the Tribunal on these grounds namely57 Dr.M.Jeyakumaran


a) By the company passing a special resolution,

b) Default in holding statutory meeting or in delivering statutory report to the registrar,

c) Failure to commence business within a year from the date of incorporation,

d) Reduction in membership below the minimum required,

e) Inability to pay debt of Rs. one lakh,

f) When in the opinion of the Tribunal it is just and equitable,

g) Default of company’s filing its balance sheet,

h) If the company has acted against the interests of sovereignty and integrity of India, and

i) When the company has become sick and is unlikely to become viable in future. A petition for

winding up may be made by the company, any creditor, any contributory, the registrar, any

person authorized by the Central Government, the official liquidator or the central or state

government. Every company is to file with the Tribunal a statement of affairs along with the

petition for winding up. When the company is opposing a petition for winding up, a statement of

affairs is to be filed by the company.

The consequences of the winding up order by the Tribunal are

i) Intimation is sent to the official liquidator and the registrar,

ii) Winding up order is filed with the registrar within 30 days,

iii) The order is notified in the Official Gazette,

iv) Winding-up order is deemed to be notice of discharge for employees,

v) Suits stayed unless the Tribunal gives leave to continue,

vi) Order operates in the interests of all creditors and contributories,

vii) Official liquidator is the liquidator, and viii) Board’s powers come to an end.

58 Dr.M.Jeyakumaran


The Tribunal hands over the statement of affairs to the liquidator and may direct the constitution

of a Committee of Inspection. Besides this the Tribunal has general powers like, to stay winding

up, to settle the list of contributories, to set off claims, to make calls, to order payment into bank

of money due to the company, to exclude creditors not proving on time, to adjust the right of

contributories, to summon persons suspected of having the property of the company, to order

public examination of promoters, directors etc., to arrest an absconding contributory, to order

costs and to order the dissolution of the company.

Liquidator’s main duty is to conduct the winding-up process. He discharges all the functions of

the board so long as the company is not dissolved/liquidated. For discharge of his duties he has

certain powers. His powers can be divided into two parts - one exercisable with the sanction of

the Tribunal - like to carry on business of the company, to sell the property of the company, to

raise money, to compromise etc., and second exercisable without the sanction of the Tribunal

like inspect the records and returns of the company with the registrar, or appoint any agent.

Voluntary winding-up is of two kinds

a) Members voluntary winding-up, and

b) Creditors voluntary winding-up.

Voluntary winding-up has effects

i) On status of company,

ii) Corporate powers to continue until dissolution,

iii) Board’s power to cease on liquidator’s appointment

iv) On company’s employee, and

v) Avoidance of transfer of share.

vi) In members voluntary winding up two conditions are to be satisfied

59 Dr.M.Jeyakumaran


vii) firstly a declaration of solvency is made and secondly shareholders resolution is to be

passed. In both types of voluntary winding-ups a meeting of shareholders or creditors

is held. Liquidator is appointed and notice of his appointment is given to the registrar.

Board’spowers cease on appointment of the liquidator. Any vacancy in the office of

liquidator is filled and a final meeting is held where a resolution for the dissolution of

the company is passed. Although both members and creditors can resort to voluntary

winding up of a company, yet there are some differences in these two types of

voluntary winding up.

SECTION VIIICONSMER PROTECTION ACT

1. Define Consumer protection Act?

The Consumer protection Act, 1986 attempts to provide an inexpensive, Simpler

and quicker access to redressal of consumer grievances. The Act has provided machinery

where by consumer can file their complaints against defective goods or deficient service

with consumer forums.

2. Sate any two objectives of consumer protection Act?

* To provide an inexpensive, simpler and quicker access to redressal of

Consumer grievances.

* To provide a machinery against defective goods or deficient services with

60 Dr.M.Jeyakumaran


Consumer forums.

3. What are the various rights of consumers recognised under the consumer

protections Act?

1. Right to safety

2. Right to Information

3. Right to Choose

4. Right to be Heard

5. Right to seek Redressel against Exploitation

6. Right to consumer Education

4. Who is consumer?

‘Consumer means’ any person who buys any goods for a consideration which has

been paid or promised or partly paid and partly promised, or under any system of

deferred payment, and includes any person who uses such goods with the approval of the

buyer.

5. Define ‘Unfair’ trade practice?

‘Unfair trade practice’ means a trade practices which. For the purpose of

promoting the sale, use or supply of any goods or for the provision of any services,

adopts any unfair method or unfair or deceptive practices.

6. What is meant by restrictive trade practice?

61 Dr.M.Jeyakumaran


“Restrictive trade practice” means a trade practice which tend to bring about

manipulation of price and of its conditions of delivery or to affect flow of supplies in the

market relating to goods or services in such a manner as to impose on the consumer’s

unjustified costs or restrictions.

7. Define Consumer Dispute

“Consumer dispute” means a dispute where the person against whom a complaint

has been made denies or disputes the allegations contained in the complaint.

8. What are the rights of consumers to be protected by central council?

1.Right to safety

2.Right to information

3.Right to Choose

4.Right to be heard

5.Right against exploitation

6.Right to education

9. Discuss about consumer disputes redressel agencies.

The Consumer protection Act,1986 provides for a three –tier remedial machinery for

speedy redressel of consumer disputes namely

There are three such agencies

a) District Forum

b) State Commission and

62 Dr.M.Jeyakumaran


c) National Commission.

District Forum is for one or more district and a consumer can file his claim if the limit of the

claim is upto Rs. 20 lakhs. Appeal from the decision of the District Forum is to be filed within 30

days of its order to the State Commission.

A State Commission is for one or more states. A consumer can file his claim if the claim is

above Rs. 20 lakhs but below one crore. Appeal from the decision of the State Commission can

be filed within 30 days of its order to the National Commission.

National Commission is one for the whole of India. A Consumer can file his claim if it is more

than Rs. 1 crore. Appeal from the decisions of the National Commission can be made in the

Supreme Court of India.

10. State the powers of the consumer forums?

1.Power similar to those of civil court

2.Additional power of the consumer forums(Rule 10)

3.Power to issue order.

How a Complaint is Made and Dealt With?

A complainant can make a complaint before the appropriate consumer dispute redressal agency

in relation to any defect in goods or deficiency in service. The complaint relating to any goods or

services is given to the opposite party within 21 days to allow him to give his version in 30 days.

If the defect in goods needs analysis or testing by a laboratory, a sample of the goods is sent to

the laboratory for a report within 45 days. The report is given to the opposite party. Complaint

shall be decided within 3 months if no laboratory test is required and within 5 months if the

laboratory test is required.

63 Dr.M.Jeyakumaran


Discuss the possible Findings of redressel agency.

The consumer dispute redressal agencies can arrive at any of these findings

a) to remove defects,

b) to replace goods,

c) to return the price,

d) to pay compensation,

e) to remove deficiencies in services,

f) to discontinue the unfair trade practice or the restrictive trade practice,

g) not to offer hazardous goods for sale,

h) to withdraw hazardous goods,

i) to cease manufacture of hazardous goods,

j) to pay such sum as may be determined by such agency k) to issue corrective advertisement,

SECTION IXIncome Tax Act and VAT

1. What is Tax planning?

Tax planning can be defined as an arrangement of one’s financial and

economic affairs by taking complete legitimate benefit of all deductions,

exceptions, allowance and rabbet so that tax liability reduces to minimum.

2. Define Tax Evasion?

64 Dr.M.Jeyakumaran


Tax Evasion means avoiding tax by illegal mean, e.g., by suppressing facts,

by not maintaining correct records, by falsifying facts, by giving false statements

and would be punished in normal course.

3. What are the need for corporate Tax planning

Every transaction entered into by a businessman will have direct and

immediate impact on the tax liability of the person carrying on the business from

the angle of income tax and surtax as well as sales tax, excise duty and customs

duty with increasing burden of direct taxes, like income tax, gift tax, wealth tax,

etc

4. What is Income Tax?

Income Tax is one of the major sources of revenue for the Government.

The responsibility for collection of income-tax vests with the central Government.

This tax is leviable and collected under Income Tax act, 1961

5. What do you mean direct Tax?

Direct taxes are those which a person pays directly from his income, wealth

or estate. Direct taxes are paid after the income or benefit reaches the hands of the

person. It is in proportion of the benefit derived.

6. Write short note on Indirect Tax

Indirect taxes are what the consumers and buyers pay to the state, while

buying goods or availing services. It is a tax attached not to the income of a

person, but to goods and services consumed.

7. State the objectives of Tax planning

1. Increase in disposable income

65 Dr.M.Jeyakumaran


2. Shield Against High Taxation

3. Inequity in Tax Burden

4. Maximum Deductions allowed to Business persons, minimal to others

5. Avoidance of Litigation

6. Curb on tax evasion

8. Give any two differences between Tax Evasion and Tax planning

Tax Evasion Tax planning

1. It means willful and deliberate

Under-statement of income Over-

statement of expenses / Losses

and under-payment of tax

2. It is an offence under the law, Liable

to penalty / prosecution

1. It means systematic arrangement

of affairs with a view to minimize

incidence of tax, in conformity will

provisions of Law

2. It is permissible under law if it is

not by way of colorable device to

Shorter unit legal provisions

9. What is meant by Tax Management?

Tax management is concerned with compliance with legal obligations

under the tax laws. A thorough under standing of legal provisions and timely

compliance with them is essential to proper and effective tax management

10. What are the elements of Tax Management

1. Planning and execution of tax related matters, such as maintenance of books of

account, compliance with audit requirements

2. Deduction of tax at source where necessary

3. Payment of installments of advance tax on time

4. Filing of tax returns on or before the due date66 Dr.M.Jeyakumaran


5. Getting the assessment done.

11. State any two differences between Tax management and Tax planning

Tax Management Tax planning

1. It means planning of tax matters Such as

maintenance of books of Accounts, getting

the audited filling of returns, appeals etc

2. It has focus on the past present and the

future

1. It is a wider term and includes tax

management

2. It essentially concerns itself with the

future

12. List out the authorities under the IT act?

The following are the appellate levels provided under the IT Act:

ü Commission of Income Tax (Appeals)

ü Appellate Tribunal

ü The High Court

ü The supreme court

13. What are the procedure of filling appeal?

ü Appeal against an order of commissioner (Appeals) must be filed within

60 days of the data on which the order is communicated

ü In order case of order under sec. 158 BC with in 30 days

ü The appeal must be in the prescribed form No. 36/36A and

accompanied by the prescribed fee.67 Dr.M.Jeyakumaran


14. State the types of direct taxes

1. personal income Tax

2. Corporation Tax

3. Wealth Tax

4. Gift Tax

15. list out the types of Indirect Taxes

1. Customs Duty

2. Excise Duty

3. Value added Tax

16. What do you understand by value added tax

VAT is an multi-stage tax, levied only on value Added at each stage in the

chain of production of goods and services with the provision of a set-off for the

tax paid at earlier stages in the chain..

17. Define Input Tax?

It means tax paid or payable by registered dealer in the course of business

on the purchase of any good made from a registered dealer

18. What is the VAT Rate structure?

ü The VAT rates are : 1% gold, silver precious metals, gems and precious stones

ü 4% essential goods and primary raw materials

ü 12.5% on goods not covered in any schedule

19. Define ‘output Tax’

It means the tax charged or chargeable under this Act by registered dealer

in respect of the sale of goods in the course of his business

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20. State any five features of VAT

1. Registration

2. Incidence, levy and collection of Tax

3. Input tax credit

4. Rate of taxes

5. Composite dealers

21. Write any five shortcoming of VAT?

1. Continuance of CST under VAT regime

2. Difference tax treatment

3. Movement of goods

4. Incentive schemes

5. Exemption schemes

22. List out any differences between sales Tax and VAT?

Sales Tax VAT

1. Single point Tax

2. Narrow based

3. High Administrative costs

4. Need intensive control

5. Double taxation tax on tax

1. Multipoint Tax

2. Broad based

3. Automated administration

4. Self regularly

5. No cascading effect off taxes

23. What is sales tax Act?

Sales Tax is a tax on the sales of goods. It is an Indirect Tax, under the

constitutions of India in which both central and state Government are empowered

to levy tax on sale of goods subject to certain conditions.69 Dr.M.Jeyakumaran


24. State any two objects of control Sales Tax

ü To tax sale of goods in the course of inter – state trade and commerce and to

exclude sale with in the state

ü To enforce registration of dealers under the ACT for effective collection

assessment and prevention of tax evasion

25. Give any three salient provisions of state sales Tax

ü State sales Tax applied on sale and purchase of goods within the state

ü State sales Tax Act enacted through state legislative

ü Rate of sales tax is contained in the various schedules included in the Act

SECTION XCOPYRIGHT ACT

What is Copyright?

The copyright subsist in 70 Dr.M.Jeyakumaran


1 – original literary, dramatic, musical and artistic works,

2 - cinematograph films, and

3 - sound recordings.

Copyright means the exclusive right in all the works in which the copyright subsists. The author

of the work is the first owner of the Copyright therein. The owner of the copyright may assign to

any person the copyright, either partially or wholly. The term of the copyright in any literary,

dramatic, musical or artistic work is 60 years. The term of broadcasting reproduction right is 25

years and of performers right in 50 years. The infringement of copyright gives rise to civil

remedies such as injunction or damages and penalties of imprisonment upto 3 years and fine upto

Rs. 2 lakhs.

SECTION XIPATENT ACT

71 Dr.M.Jeyakumaran


What is Patent?

The law relating to patents is contained in the Patents Act, 1970. Patent is granted only for

inventions which are new and useful. Patent is a grant from the government, which confers on

the grantee, for a limited term, the exclusive privilege of making, selling and using an invention

and also authorizing others to do so.

Explain Some of the inventions which are not patentable .1 - frivolous,

2 - contrary to public order or morality,

3 - mere discovery of any new property or a known substance,

4 – methods of agriculture or horticulture,

5 - mathematical or business methods,

6 - method of playing games,

7 - presentation of information,

8 - topography of integrated circuits,

9 - which in effect is traditional knowledge, and

10 - relating to atomic energy.

How to make patent application?A patent application can be made by true and first inventor, his assignee or their legal

representative. Every application shall be for one invention and accompanied by provisional or

complete specifications. Every application shall be published and sent to an examiner for a

report. If any opposition to the grant of patent is made, it shall be decided by the controller. If the

invention is relevant for defense purposes, then the Central Government may give directions as

to prohibiting the publication of information. The term of the patent shall be 20 years from the

date of filing of the application for the patent. The patentee has exclusive right to prevent third

parties from making, using or importing the patented product in India. The Controller may grant

the patent for the improvements or modification as a ‘patent of addition.’

The Controller has powers

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1 - to allow the application for the patent or complete specifications,

2- for the restoration of a lapsed patent and

3 - to allow surrender or to revoke the patent.

A register of patent is kept in the patent office. All the particulars regarding the patent are

entered in the register. The register is prima-facie evidence of entries made in the register. The

head office of the patent office is at Kolkata and branch offices are at Mumbai, New Delhi and

Chennai. The Central Government may use the invention for government purposes and also can

acquire an invention for a public purpose for adequate compensation. For any infringement of

patent, the court may grant injunction, seizure of goods or damages.

73 Dr.M.Jeyakumaran

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