Legal Aspects of Business 554 v1
Legal Aspects of Business 554 v1
Developed by
Prof.Dr. H.R. Appannaiah
On behalf of
Prin. L.N. Welingkar Institute of Management Development & Research
!
Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)
Board Members
1. Prof. Dr. Uday Salunkhe
2. Dr. B.P. Sabale
3. Prof. Dr. Vijay Khole
4. Prof. Anuradha Deshmukh
Group Director
Chancellor, D.Y. Patil University, Former Vice-Chancellor
Former Director
Welingkar Institute of Navi Mumbai
(Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)
NOT FOR SALE. FOR PRIVATE CIRCULATION ONLY. 1st Edition, December 2016
CONTENTS
Contents
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INTRODUCTION TO LAW OF CONTRACT
Chapter 1
INTRODUCTION TO LAW OF CONTRACT
Objectives
• Essentials – Offer,
• Capacity of Parties,
• Free Consent,
• Legality of Object,
• Quasi Contract.
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Structure:
1.1 Overview
1.2 Introduction
1.3 Object of Law
1.4 Need for Law
1.5 Commercial Law or Business Law
1.6 Scope of Commercial or Business Law
1.7 Sources of Business Law
1.8 Sources of Indian Business Law
1.9 Concepts of Business Laws of India
1.10 Nature of Law of Contract
1.11 Types of Contract
1.12 Classification of Contracts in English Law
1.13 Offer [Proposal]
1.14 Acceptance
1.15 Consideration
1.16 Capacity of Parties
1.17 Free Consent
1.18 Legality of Object
1.19 Various Modes of Discharge of a Contract
1.20 Remedies for Breach of Contract
1.21 Quasi Contract
1.22 Rationale of Quasi Contracts
1.23 Theory of implied-in-fact Contract
1.24 Restoration of Theory of Unjust Enrichment
1.25 Position of Quasi Contract in Indian Law
1.26 Types of Quasi-Contracts
1.27 Summary
1.28 Self Assessment Questions
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1.1 OVERVIEW
General Caption
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INTRODUCTION TO LAW OF CONTRACT
Commercial law: Branch of law concerned with the matters which are of
commercial/business nature.
1.2 INTRODUCTION
Law is a main contributory factor for man’s welfare and wellbeing. The
study of law is of enormous practical value and vital and ever- present
force in modern life. Every individual and even more a business man needs
even more through knowledge of the law than the person not so engaged.
As he carried his business, he is confronted with problems arising out of
contract, sale of goods, bailment, agency, negotiable instruments, cyber-
crimes environmental issues, international dealing and so on. At present
situation business are facing a lot of formidable problems as every activity
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With the growth of people’s social and economic behavior has assumed a
multi-dimensional character. Most civilized societies, therefore, provide and
enforce different set of rules, regulations and principles for different kind of
social behavior. In this connection there are different branches of law both
for social, individual and business such as constitutional law, civil
procedure codes, criminal procedure codes, International law, Mercantile
law/Business law and so on. The mercantile law is referred to the branch of
law which comprises laws concerning trade, industry, business or
commerce with the increasing complexities of modern business world, the
scope of mercantile law has enormously widened. Since the business is
related to society, any activity related society and main’s welfare are
directly related, hence it is now termed as business law or legal aspects of
business or business regulations.
Prior to the enactment of the various Acts like the Contract Acts, Sales of
Goods Acts, Companies Act, The Negotiable Instrument Act, Insurance Act,
etc., business transactions were regulated by the personal laws of the
parties to the suit. The rights of Hindus and Muslims were governed by
their respective laws and usages. Where both parties were Hindus, they
were regulated by the Hindu Law and where both parties were Muslims,
the Mohammedan Law was applied. In cases where one party was a Hindu
and the other was of Muslims, the personal law of the defendant was
applied. In case of persons other than Hindus and Muslims, and also where
laws and usages of Hindus and Muslims were silent on any point, the
courts generally applied the principles of English law.
In the present era the General law applicable to all sort of persons in the
society irrespective of any religious differences. The applications are based
on nature and type of situation faced by every man in the society. Hence
the study on different activity and the practices of an individual man is
essential.
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Man is a rational and social being who comes into contact with various
types and varieties of people with different capabilities and dimensions.
The above role of the man is the different contacts and the associations
which are inevitable for the modern world. Man as a buyer, beneficiary,
promisee, tenant, taxpayer, customer and so on, is expected to observe a
set of rules or code of conduct. The object of these rules is to make human
associations possible and conducive to the state and its people.
Meaning of Law
Law is a rule of action evolved to regulate social life and to avoid conflict of
interests. Law is enacted or customary in a community and recognised as
commanding or avoiding certain action.
Law is:
• Commanding or influencing of certain actions;
• Collectively as a social system or subject of study;
• Binding force on individuals or society;
• Rule of action and procedure;
• Regularity in natural occurrences;
• Judicial remedy.
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The above different meaning of law reflection on man and has different
connotations for different people as;
Thus the meaning of law differs from person to person according to the
individual’s perception. It is, therefore very difficult to give one confirmed
and accurate definition of Law. It is often preceded by an adjective to give
it a more precise meaning, example: Civil Law, Criminal Law, Commercial
Law, Labour Law, Industrial Law, Common Law, International Law and so
on. However, in the legal sense, the word “Law” includes all the rules and
principles which regulate our relations with other individuals, with the
society and with the state.
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From the above discussions and definitions, it is clear that the law
can be applicable as the following:
a. Municipal Bodies.
b. State Legislative Assemblies.
c. Parliament
d. All statute law laid down by the state.
e. Case law laid down by the superior Courts.
f. Customs and usages practiced by the people over period of time.
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avoiding conflict with the persons with whom he comes into business
contacts. Mercantile Law, Commercial Law or Business Law are in particular
importance to business people or general public to certain extent engaged
in economic and social activities.
The term commercial law is used to denote that branch of law which is
concerned with the matters of commercial or business nature. Many a time
it deals with contractual situations, rights and obligations arising out of
commercial or business transactions.
The term commercial is used to denote the aggregate body of those legal
rules which are contracted with trade, industry and commerce.
It is also defined as, “ that branch of law which comprises laws concerning
trade industry and commerce”.
According to Slaters,
These laws are part of civil law which is connected to society directly. Some
of them are like, Law of Contracts, Sales of Goods Act, Consumer
Protection Act, Environmental Protection Act, Intellectual Property Act and
so on.
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Most civilized societies provide and enforce different sets of rules and
guiding principles for different kinds or social behaviour. Hence there are
several branches of law such as Constitutional Law, Criminal Law, Civil Law,
Industrial Law, Labour Law, Commercial Law or Business Law and so on.
The scope of commercial or business law is fairly large. It includes the law
relating to contracts, sale of goods, partnership, negotiable instruments,
insurance, insolvency, carriage of goods, company’s activities and so on. In
respect of Business Law in particular
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which is also dealing with the activities pertaining with the any class of
people who are directly or indirectly connected with the business activities.
Hence the scope of business law can be broadly classified as:
b. Common Law: This law is based upon Judicial precedent handed over
from generation to generation. It also refers to a system of law based
upon English customs, usages and traditions which were developed over
centuries by the English courts. It existed in England even prior to the
creation of the parliament, which is not written in any Statute or Act of
Parliament. Hence it is the oldest unwritten Law. Its principles are
applied even today as the law of contract. However it is not codified and
did not provide an adequate remedy to an injured party. In India the
same is codified and adoptable to the suitability.
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d. Statute Law: The Statute law is another English Mercantile Law which
is referred to the Law laid down in Acts of parliament. It is a written law
superior to and overrides any rule of the common law or equity. It is
also referred as Enacted Law. According to Salmond, “Law that has its
source in legislation may be most accurately termed enacted law, all
other forms being distinguished as unenacted”.
The bulk of the Indian Mercantile Law is Statute Law. The laws of such
category are:
Judicial decisions
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Judicial Decisions
Case Laws
India’s laws are derived from English common law and seem recognizable
to American, Canadian, British, Australian and New Zealand attorney and
others familiar with the heritage of English legal practices.
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passed in 1932, and the Indian Companies Act in 1956, amended four
times since 2000.
The Act has now been replaced by the Companies Act, 2013 after receiving
the assent of the President of India on August, 2013. The Companies Act,
2013 is divided into 29 chapters containing 470 clauses as against 658
Sections in the Companies Act, 1956. The Central Government has
appoints Thursday, 12 September, 2013 as the date on which some notified
sections the Companies Act, 2013 shall come into force.
The new law has been passed and is considered as trend changer in Indian
Corporate law the new law has been rewritten extensively with several new
provisions for investor protection, better corporate governance and
corporate social responsibility etc. It defines a number of new terms that
have come into vogue in recent times.
The bill provides for class action suit, which is key weapon for individual
shareholders to take collective action against errant companies. Better
disclosure requirements in financial statements and disclosure of interests
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iii. The forex reserves of India currently stand at US$ 230 billion. In March
1991 when India was in the throes of its financial crisis it stood at
merely US$ 5.8 billion.
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vi. India's capital markets have soared six times in five years.
viii.1/5th of the Fortune 500 companies have set up R & D centres in India.
Some like, Microsoft have their only R & D centre outside their home
country in India. IBM has its largest non – US workforce in India.
However at the same time India is far from shaking off its shackles of
poverty. There are extremes in wealth disparity. On the one hand India is
home to 36 dollar billionaires; on the other hand one out of four persons
survives at a dollar or less a day.
Overview
“All contracts are agreements but all agreements are not contract”-
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Types l Classifications
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Introduction
Business and society go hand in hand, and at the same time Law and
society are very closely related. It is often found that law changes with a
change in the society. Society lays down rules of conduct for common
good, sometimes at the expense of the individuals. Every individual should
be a man and he is a social being. Every social being should surrender a
part of his freedom to the society especially towards law that in turn
ensures him safety, security and peace. So Law aims in bringing and
maintaining peace and order in the society. One such law is the Indian
Contract Act. The law of Contracts forms the oldest branch of the law
relating to business and general transactions, as it affects every person in
one way or the other, as all of us enter into some kind of agreement or
contract everyday. Law of contract is very essential to all merchants, when
they are involved with huge money and dealings. At the same time it is
also for the general public like a person buys a movable property, hires
some goods or services, booking for a marriage hall, putting up of a show
and so on. Such contracts create legal relations giving rise to certain rights
and obligations.
Unlike other branches of law, law of contract does not apply, but it
determines the circumstance in which a Promise has been made. The
parties to an agreement may lay down their own terms and conditions. The
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The law of contract differs from other branches of law. The Act does not lay
down a number of rights and duties which the law will enforce. In this Act
the party themselves creates rights and duties which will be supported with
a limited principles.
Definition of Contract
Sir John Salmond defines a contract as, “An agreement creating and
defining obligations between two parties.”
i. Agreement
ii. Legal obligation or agreement must be enforceable by law.
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i) Agreement
What is a Promise?
A Promise is defined under Section 2 (b) as, “when the person to whom the
proposal is made signifies his assent there to, the proposal is said to be
accepted. A proposal when accepted, becomes a promise.”
Then, how does the word Proposal is defined under the Act? According to
the Act again the proposal is also defined under Section 2 (a) as, “When
one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtain the assent of that other to such act
or abstinence, he is said to make a proposal.”
agreement Promise
So, An ! should have a ! and Promise should
have Proposal.
plurality of persons
! as a person cannot enter into an agreement with
himself.
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For example, A invite B for a dinner and the invitation is accepted by B, the
obligation of A is to prepare the dinner and the obligation of B is to attend
dinner. These obligations are purely social obligations and they do not
create a legally enforceable agreement. If any one of them does not
perform his part of the social obligation, the other cannot take any action
against the former.
In connection with the above circumstance the leading case explain this
sort of situations clearly like,
Mr. Balfour was employed in Ceylon. Mrs. Balfour owing to ill health, had to
stay in England and could not accompany him to Ceylon. Mr. Balfour
promised to send her £ 30 per month, while he was abroad. But Mr. Balfour
failed to pay the agreed amount. Mrs. Balfour filed a suit against her
husband for recovering the said amount. The court held that it was a mere
domestic agreement and that the promise made by the husband in this
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case was not intended to create obligation and it was clear from the
conduct of the parties.
Thus, from the above, one can decide as, “All contracts are agreements,
but all agreements are not contracts. Only those agreements are contracts
which give rise to legal obligation.
Therefore; Agreements are wider, which may be constituted both for social
and business transactions. Whereas the contract is restricted to create
legal obligations. So all contracts should have agreement, where as all
agreement need not be termed as contract.
Thus it is said, “All contracts are agreements but all agreements are not
contracts.”
Or
Therefore Salmond rightly says, “The Law of contracts is not a whole law of
agreements or is it whole law of obligations, it is the law of those
agreements which create obligations, and of those obligations which have
their source in agreements”.
Thus “the law of contract is not the whole law of obligations” The law of
contacts is the law of those legal obligations which have their source in
agreements. The law of contracts is not concerned with those obligations
which do not arise out of agreement.
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All agreements are contracts where as all contracts are not agreement.
Hence the word agreement is wider than the contract. To make the
agreement to be contract there need to is a the legal obligations. This is
clearly given under Sec 10, Chapter II of the Contract Act as, “All
agreements are contracts if they are made by the free consent of parties,
competent to contract, for a lawful consideration and with a lawful object,
and are not hereby expressly declared to be void.” “From this it is obvious
to make a contract void or valid, there need to be certain conditions to be
followed. These conditions are termed as elements which are essential for
an agreement into contract.
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6. Free consent: The word consent means the parties must have agreed
upon the same thing in the same sense. So, the consent should come
from both the parties, that is the offeror and the accepter. The consent
must be free and genuine. When the agreement is made between the
parties, both the parties should agree upon same-thing with the same
sense. This is known as “Consensus-ad- idem” in English Law. The
consent of the parties should not be obtained by mis-representation,
fraud, undue-influence, coercion or mistake, otherwise such of the
agreement is invalid under law. Hence an agreement must be made with
free consent.
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Hence the object which is not agreeable under law or for defeat of any
law, intention of creating fraud, any injury to person and property, any
act against the public policy are not lawful objects.
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The types of contract can be grouped on the basis of the classification. This
can be classified differently connected to Indian Contract Act and English
Law.
English Law
Contract of Contract
records under seal
!
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i. Express Contract
An express contract is entered into by words which may be either
spoken or written, where the proposal and acceptance is made in
words, then it is an express contract.
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i. Valid contract
An agreement becomes enforceable by law when all the essential
elements of a valid contract are present. In other words an
agreement enforceable at law is a valid contract. According to the
Contract Act, under Sec. 10, “all agreement are contracts if they are
made by the free consent, competent parties, lawful consideration
and lawful object. Such of the contract should not declared to be
void.”
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However, he has to pay back Rs. 4000 to B and B need not pay the
balance. So here the option is left to B to make it a valid or cancel
the contract.
v. Unenforceable contracts
An unenforceable contract is a contract which is valid in itself, but
cannot be enforced in the court of Law due to some technical defects,
like absence of written form or absence of a proper stamp. Such
contracts must be sued upon by one or both of the parties. According
to Sir William Anson, “An unenforceable contract is one which is good
in substance, though by reason of some technical defect, one or both
the parties cannot be sued on it. Many a times the court of law
cannot enforce it for the reason for the expiry of date, registration
and attestation along with the other reasons given above. If the
technical defect could be cured, the contract becomes enforceable, if
it cannot be cured, the contract remains unenforceable.
Example: A borrows Rs. 20,000 from B and makes a promissory note
and a one rupee stamp is pasted on the pro-note. The agreement
though complete is unenforceable because of the technical defect.
i.e., Promissory note not being stamped properly and it is
undervalued.
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I. Executed Contract
An executed contract is one when both the parties have performed
their obligations or carried out the terms of the contract. It is referred
as a complete contract. In other sense when offeror and acceptor
have completely performed their respective obligations under the
contract, then such contract is said to be executed contract. That is,
it is a contract where under the terms of the contract nothing
remains to be done by both the party. For instance, in case of cash
sales, the contract is executed at once.
Example: A agrees to sell certain goods to B at a certain price. A
delivers the goods and B pays the price. Thus both the parties have
performed their respective obligations. Then this contract becomes
an executed contract.
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1. Formal Contract: Formal contracts and its validity depends upon their
form and they are valid even without consideration. They are two types;
I. Contract under seal. This type of contract are in writing and signed
by the parties. The following contracts should be under seal,
otherwise they are not valid:
2. Simple Contract: All contracts other than the formal ones are called
simple contracts or parol contracts. They may be created orally, in
writing and which may be implied by conduct.
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Overview
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Introduction
The term proposal and offer are considered synonymous and are used
interchangeably. The word ‘Proposal’ is used under Indian Law, whereas
the same is used as ‘Offer’ under English Law.
Meaning and Definition of Offer: Offer is basis and one of the major
element of essentials of valid contract.
According to the Indian Contract Act, Section 2(a) “When one person
signifies to another his willingness to do or to abstain from doing anything
with a view to obtain the assent of that other to such act or abstinence, he
is set to make a proposal.”
From the above definition the word ‘offer’ can be understood as lender:
Promise, Section 2(b) defines a Promise as, “When the person to whom the
proposal is made signifies his assent there to, the proposal is said to be
accepted. A proposal when accepted becomes a promise”.
The Dictionary meaning which clears both meaning of proposal and offer
as:
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Thus, proposal and offer are synonymous and all that it means is an
expression of will or intention.
Example 1: Mr. X offers to sell his computers to Mr. Y for Rs. 25,000. In
this case it is only offer. Whereas when Mr. Y, agrees to buy the same, then
it will become acceptance.
Or
Example 2: “Mr. Ashok says to Mr. Bhima, “Will you purchase my Maruti car
for Rs. 1,00,000?” In this case, Mr. Ashok is making an offer to Mr. Bhima
as he signifies to Bhima, his willingness to sell his car for Rs. 1,00,000 with
a view to obtain Bhima’s assent to purchase the car.
c. With the object of giving the consent to the other person to such act
or abstinence.
From the above three elements it can be clear that a casual enquiry,
information, a statement of fact or statement of mere intention are not
offers.
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An offer may also be implied from the conduct of the parties or the
circumstances of the case. This is referred as “implied offer”. Thus, when a
company runs a cab on a particular route, there is an implied offer by the
company to carry passengers for a certain fare. The acceptance of the offer
completes as soon as passenger boards the cab.
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Example: X offers to sell his van for a certain price, with the intention to
sell the van, is positive offer.
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Example: A creditor says to his debtor that he will not file a suit, if the
debtor is prepared to pay interest on the debt at 15% p.a, then this offer
amounts to be negative.
Cross Offer: When two parties make identical offers to each other, in
ignorance of each other’s offer, such offers are known as cross offers. They
shall not constitute acceptance of one’s offer by the other.
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d. A casual enquiry.
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3. Offer must be certain, definite and not vague: Terms of offer must
be definite, certain, unambiguous and clear or not loose and vague.
Both offeror and offeree should be clear about the legal consequences
arising out of contract. Any vague offers does not convey or
communicate what it exactly means. According to the famous case,
Taylor Vs Portington (1855); A offered to take a house on lease for
three years at £ 284 per annum if the house was put into through repair
and drawing rooms handsomely decorated according to the present
style. It was held that, the offer was too vague to result in a contractual
relationship because the term ‘Present style’ may mean one thing to A
and another to B. Hence here the agreement is void.
Example:(a) A says B, “I will sell a house” whereas A owns 5 houses.
The offer is not definite.
(b) In case of Gould Vs Gould (1970), A husband on divorce and
leaving his wife promised to pay her £ 154 a week, ‘So long as I can
manage it’. It was held that although the husband and wife who lived
apart because of break-up of their marriage, could enter into a legally
binding agreement, the vague and discretionary terms of the agreement
indicated an intention not to create legal relations.
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That is offeror may not be serious in his expression and the offer is
made just like that, but it does not constitute a valid offer.
11.Offer should not be a cross offer: Cross offer does not constitute a
valid offer as here two persons make identical offer. The court does not
approve one person is offer an offer and another persons offer is not an
offer.
Revocation of Offer
Section 6 of the Act gives the following conditions for the revocation of
offer;
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1.14 ACCEPTANCE
Overview
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Example: A offers to sell his vehicle for Rs. 5 lakhs, B accepts the offers to
purchase the vehicle for the same amount. This is acceptance.
The acceptance must be from the person to whom the offer is made. The
offer cannot be accepted by the another without the consent of the person
making it. Thus, where an offer is made by X to Y, the acceptance by Z
would be inoperative.
Offer and acceptance are the back-bone of the contract. The acceptance of
an offer is the very essence of a contract. For the validity and legal
effectiveness the following are the essential conditions of an acceptance:
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A wrote to B offering to buy his horse if he warranted her sound and quiet
in harness by which the horse is fastened and also controlled. B wrote back
to A that he accepted the offer and warranted her sound and quiet in
double harness. It was held that A was not bound by his offer as B’s reply
was, in effect, a counter offer and not an unqualified acceptance of A’s
offer.
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b. A sold his business to his manager B without disclosing the fact to his
customers. C a customer, who had running an account with A, sent
an order for the supply of goods to A by name. B received the order
and executed the same. C refused to pay the price. It was held that
there was no contract between B and C because C never made any
offer to B and as such C was not liable to pay the price to B. The
same kind of example is also taken from the case Boulton Vs Jones
(1857).
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Revocation of Acceptance
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1.15 CONSIDERATION
Overview
Meaning of Consideration
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Definition of Consideration
Apart from the Contract Act, consideration is defined in many ways and by
many persons including juries which are as follows.
In the English case, Currie Vs Misa (1875) the word consideration was
defined by Lush J as, “A valuable consideration in the sense of the law may
consist either in some right, interest, profit or benefit accruing to one
party, or some forbearance, detriment, loss or responsibility given, suffered
or undertaken by the other”.
The Indian Contract Act is giving more emphasis on consideration and the
same is incorporated in the interpretation clause by mentioning as, In this
Act the word ‘Proposal’, Promise, Consideration, agreement, void
agreement, contract etc. are used in the senses which are mentioned
under Section 2, from (a) to (j), unless a contrary intentions appears from
the context, Section 2(d) defines consideration as “When at the desire of
the promisor, the promisee, or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do or to abstain
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From the above legal definition on consideration, the following are the
analysis point which are considered as essential point of the consideration.
Examples
i. A agrees to sell his car to B for Rs. 3 lakhs. For A’s promise the
consideration is Rs. 3 lakhs. For B’s promise, the consideration is the
car.
ii. A promises to maintain B’s child and B promises to pay A Rs. 1,000
per month for the same. Here the promise of each party is the
consideration for promise of the other party.
From the definitions, the case laws, judgment and also the Act, the
following are considered as essentials of a valid considerations:
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Any Act performed at the desire or request of the third party cannot
form a consideration. Thus an act done or services rendered voluntarily,
or may also be at the desire of the third person will not amount to valid
consideration so as to support a contract.
Example: A saves B’s goods from fire without being asked to do so.
Here A cannot demand payment for his services.
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c. A return promise
In this consideration may be a promise by one party in return of a
promise by the other party.
Example: A agrees to sell his house to B for Rs. 10,00,000. Here B’s
promise to pay the sum of Rs. 10,00,000 is the consideration for A’s
promise to sell the house and A’s promise to sell the house is the
consideration for B’s promise to pay Rs. 10,00,000.
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1. Natural Love and affection [Sec. 25(1)]: As per this section, the
agreement without consideration may be valid if it is in writing and
registered and is made on account of natural love and affection
between parties standing in a near relation to each other.
Example: A for natural love and affection, promises to give his son B
Rs. 10,000. A puts his promise to B into writing and registered it,
Hence there is a contract.
4. Completed Gift: The Act under Sec. 25 states that nothing in this
section shall affect the validity, as between the donor and donee, of
any gift actually made.
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Introduction
All persons cannot be entered into a contract. For a valid contract, the
parties to a contract must have capacity i.e. competency to enter into a
contract. Section 10 of the Indian Contract Act requires the parties to be
competent to make a valid contract. According to this Section, which states
as, “All agreement are contract, if they are made by the free consent of the
parties competent to contract”. In this, the question of party’s competency
arises. So all the parties who entered into a contract must be verified with
copentency or incopentency of entering into a contract. Every person is
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presumed to have capacity to contract but there are certain persons whose
age, condition or status render them incapable of binding themselves by a
contract. In-capacity must be proved by the parties to get the benefits
under the contract.
From Sec. 11 of the Act, one can draw the conclusion that the following are
the persons who are not capable to enter into a contract:
i. Minor
a. Idiot
b. Insane/ Lunacy
c. Drunkard
d. Old person
iii. Persons disqualified by any law to which they are subject, they
are:
a. A married women
b. Insolvent
c. Alien enemies
d. A convict (who is imprisoned)
e. Foreign sovereigns and ambassadors
f. Corporations
g. Professionals.
1. Minor
Who is a minor? A minor is a person who has not attained the age of
majority. For the purpose of entering into a contract, the age of majority is
eighteen years. The Indian Majority Act, 1875, provides the meaning for
majority under Sec. 3 as, “A minor is a person who has not completed
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eighteen years of age”. However for some reasons the person continued to
be a minor upto his age of 21 years. The following are the two reasons, for
the age of majority at 21 years:
From above two exceptional cases the minor attains majority only at the
age of 21 years. In England, a person becomes major on the completion of
18 years for all the purposes.
The Indian Contract Act gives special privileges and special position to a
minor. Contracts made with minors are either void or voidable. Minor binds
others, but he is never bound by others. i.e. a minor is allowed to take the
advantages but not the obligations. There is no personal liabilities for any
of this wrongs. No legal action can be taken against a minor, even for this
misbehaviour and false promises. The parents of minors are also not
responsible for the contract, unless they act as an agent.
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The following are rules protecting the minor under the Indian
Contract Act:
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negligence, he can be made liable for the tort. This is clear in the
leading case “Bornad Vs Haggis (1863).
According to this case, a minor hired a horse for riding under
expressed instructions that, not to jump on it. He rented the horse to
one of his friends, who jumped on it for a long distance, where by the
horse became sick and ultimately died.
It was held that the minor is liable for tort since it was a bare
tresspass and not within the object and the purpose of hiring.
On the whole the contract with a minor is given below on the basis its
situation/circumstance/provision.
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Next to the minor towards the disqualification for the purpose of forming of
a valid contract, the persons of unsound mind are placed. As per the
Contract Act, contracts made by persons of unsound mind are void. For the
purpose of valid contract, the essentials is “Free Consent”, A person of
unsound mind cannot give his assent for a contract. Under Sec. 12, which
deals with the capability of understanding the mind to form a contract is
also given. This Section also extents the status of mind during different
situation like:
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d. Old person: Many a time persons who are very old will lose the
memory and become weak. Such person’s mind and memory may decay
due to his old age. Even such person are considered as incapable person
for entering into a valid contract.
Person who are not recognized as persons are dis-qualified in forming the
valid contract. The following are the persons who are dis- qualified:
c. Alien enemies: Aliens are referred to the persons who are not
belonging to country or citizen of any country. An Alien is a person who
may be called as foreigner to the land. Such persons can be either an
‘alien friend’ or an ‘alien enemy’, and is created during peace or war of
any country. Generally an alien is competent to contract with citizens of
India living in India. The contractual capacity arises by such persons
during peace of the country. But if the country declared war, in such
cases the alien will be enemy and such persons cannot enter into a
contract. Contracts before the declaration war stands void during the
war and cannot be enforced.
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Overview
Free consent is very important and essential element of the valid contract.
It is essential to the creation of a contract that the parties are “ad-idem”,
i.e. they agree upon the same thing in the same sense at the same time
and their consent is free and real. Under Sec 10 of the Contract Act
provides that all the contracts are made with free consent. There is no
misunderstanding between parties regarding the subject matter or any
other essentials of the contract. It is not necessary only the consent of the
parties to the contract, but there should be ‘free consent’. Both these terms
are provided in the Contract Act.
According to Section. 13, consent is defined as, “Two or more persons are
said to consent when they agree upon the same thing in the same sense.”
From the above section, consent means that the parties should have the
identity of mind.
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Consent is said to be caused when it would not have been given but for the
existence of such coercion, undue-influence, fraud, mis- representation or
mistake.
The following are the elements which affects the free consent:
Coercion
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From the above section the following are the analysis or elements for
coercion:
a. The committing of any act forbidden by the IPC (Indian Penal Code) or
Thus, for an act to be forbidden by the IPC, there must not be merely a
threat but the act should be such as to be punishable under the IPC. The
agreement under coercion is voidable agreement
Undue-influence
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Fraud refers to deceive or to cheat. The term fraud includes all acts
committed by a person with an intention to device another person. Fraud is
the willful representation made by a party to a contract with the intent to
deceive other party or induce such party to enter into a contract.
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According to the Indian Contract Act under Section 17, Fraud is defined as,
“Fraud means and includes any of the following acts committed by a party
to a contract or with his connivance (dis- regard), or by his agent, with
intent to deceive another party there to or his agent, or to induce him to
enter into a contract.”
i. The suggestion as to a fact, of that which is not true by one who does
not believe it to be true.
Mere silence will not amount to fraud, but where the person is supposed to
talk and does not speak, in such cases it amounts to fraud. Half truth
revealed by a party also amounts to fraud.
Mis-representation
ii. Any breach of duty which without any intent to deceive, gains an
advantage to the person committing it, or anyone claiming under him,
by misleading another to his prejudice or the prejudice of any one
claiming under him.
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Mistake
Section 20,21 and 22 of the contract Act deal with the legal effect of
mistake without defining the term;
Sec.20 lays down that, “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.”
Sec.21 lays down that, “A contract is not voidable because it was caused
by a mistake as to any law in force in India. But mistake as to a law not in
force in India has the same effect as a mistake of fact.
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Overview
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Legality of Object
The formation of contract should not only present consideration for the
validity of a contract but the object should also possesses its validity. The
object must be lawful and unlawful objects are void under Contract Act.
The word ‘objects’ means purpose or design. In some cases consideration
for an agreement may be lawful but the purpose for which the agreement
is entered into may be unlawful. In such cases the agreement is void. Both
the consideration and object of the agreement must be unlawful thereby
such agreements are void. Both Section 10 and 23 of the contract Act
provides about lawful consideration and object. There is no separate
provisions for consideration and object.As object refers to purpose or
design of the contract and it also implies the manifestation of intention.
Thus if a person while in insolvent circumstances transfers to another for
consideration of some property with the object of defrauding his creditors,
the considerations of the contract is lawful but the object is unlawful. The
Contract Act along with speaking on what agreements are contracts under
Sec 10, and also speaks on what consideration and objects are lawful and
what not, under Section 23 A.
Example:
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2. ‘A’ promises to obtain for ‘B’ an employment in the public service, and
‘B’ promises to pay 10,000 rupees to ‘A’. Here also the agreement is
void as the consideration for it is unlawful.
I. If it is forbidden by law:
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Example:
III.If it is fraudulent
Example: A, B and C enter into an agreement for the division among them
for the gains acquired, or to be acquired, by them by fraud. Here the
object is unlawful and such agreements are void.
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Example:
b. ‘A’ and ‘B’ agrees to put the house of another on fire, is unlawful and
therefore void.
Example:
i. Sexual immorality, i.e., ‘A’ agrees to give his daughter to ‘B’ for
prostitution.
iii. An agreement between husband and wife for future separation, which
is considered as an interference with martial relations, and same is
considered as immoral.
iv. An agreement for future marriage after the first wife expires which is
nothing but an act against the public morale.
The term public policy may be defined as that policy of the law which
prevents the enforceability of agreements that are inimical to the interest
of the community ie., injuries to the society. Such of the act or agreement
the court regards it as opposed to public policy. Any agreement which
tends to promote corruption or injustice or is against the interests of the
public is considered to be opposed to public policy. Public policy is that
principle of law which holds that, no citizen can lawfully do that which has
a tendency to be injurious to the public.
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The following are the agreements as opposed to public policy and hence
such of the agreements are unlawful and void. These are also called as
Doctrine of public policy:
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Under the Indian Law, agreements of maintenance and champerty
are not absolutely void. They are valid if they are reasonable and
made with the bona-fide object of helping a claim believed to be just.
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Overview
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Introduction
The Contract Act provides various rights and obligations between the
parties to form a contract. When the contractual relationship subsisting
between the parties come to an end the contract is said to be discharged.
In other words, a contract is said to be discharged or terminated when the
rights and obligations created by it are extinguished. Here the parties are
no more liable under the contract, when once the discharge of the contract
exist. Thus, discharge is anend of the contract and termination of the
contractual relationship. The Act provides under different section the
various modes of discharging of a contract, which are follow as under:
I. Discharge by agreement
As per section 63 of the Act, “Every person who accepts a proposal may
dispense with or remit, wholly or in part, the performance of the promise
made to him, or may extend the time for such performance, or may accept
instead of it any satisfaction which he thinks fit. This section also provides
the modes of discharging the contract through Remission and Waiver.
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Section 62 and 63 on the whole provides the ways in which the discharge
of contract by mutual agreement is explained, which are discussed in brief,
below:
Novation
Novation refers to the substitution of a new contract for the existing one,
either between the same parties or between different parties and the
consideration for the new contract is the discharge of the old contract. It is
a transaction by which, with the consent of all the parties concerned, the
old contract is revoked and substituted by a new contract, unless there is
extinguishments of all rights and obligations under the old contract, there
is no novation. Thus, where the original debtors is given up the creditor
and an other person undertakes the liability, then it is a case of novation.
As the novation implies a fresh contract in place of original one, all the
parties to the old contract must agree to it. The new contract should be
valid and enforceable. The novation may be of following two types:
ii. It should have mutual consent of the parties and should not be made
compulsory.
iii. The replaced contract for the old one should be legally enforceable.
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In novation, the new contract must also be valid and enforceable.If not,
the parties remain bound by the original contract.
Rescission
ii. On breach of a contract by any one of the parties his aggrieved party
can rescind the contract and claim for the compensation.
iii. The parties to the contract whose consent is not free, such of them
are voidable contract, the parties whose consent is not free may
rescind the contract.
iv. When the parties to the contract shows non-performance for a long
time, and no other party has objected against it, the contract may be
taken as rescinded.
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Rescission may be total or partial. The total rescission appears where the
discharge of the contract is full or whole. The partial is the variation of the
original contract through;
c. Adding new terms without rescinding any of the terms of the original
contract.
Alteration
Example: A enters into a contract with B for the supply of goods at his
warehouse, on 1st July. Later both A and B agree to postpone the date of
delivery to 30th Nov. This change, turns to alteration of the contract.
Remission
Under the Sec. 63 of the Contract Act Remission has been explained under
the title as ‘Promisee may dispense with or remit performance or promise’
– which gives us every Promise may dispense with or remit, wholly or in
part, the performance of the promisee made to him, or may extend the
time for such performance or may accept instead of it any satisfaction
which he thinks fit.” As per this section remission may be defined as the
acceptance of a lesser sum than what was contracted for or a lesser
fulfillment of the promise made.
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In case of Kapur Chand Godha Vs Mir Nawab Himayat Ali Khan (1963).
The defendant, the eldest son of the Nizam of Hyderabad, who had
purchased jewellery for Rs. 27 lakhs from a Bombay merchant, executed a
promissory note for a price. After the military occupation of Hyderabad, a
debt settlement committee was set up by the military Governor.The
committee paid Rs. 20 lakhs to the plaintiff, the jeweler, in the full
settlement of 27 lakhs due to him, and he accepted in two installments.
But after some days he said the defendant for the balance due. The
Supreme Court held the case is covered by Sec.63 and he is not entitled to
sue.
Waiver
Merger
Merger is combining two things. Merger takes place when an inferior right
accruing to the contract mergers into a superior rights. Again on this the
inferior rights vanish and not required to be enforced.
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The term ‘accord’ may be defined as the promise to accept less amount
than what is due under the contract satisfaction refers to the payment or
fulfillment of the lesser obligation. These two terms are used in English
Law, who has no relevance under the Indian Law. Under English Law, the
old contract is discharged when the accord is followed by satisfaction.
II.Discharge by Performance
III.Discharge by Breach
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When it put in a simple word, when the promisor, prior to the due date
of performance, altogether refuses to perform his obligations under the
contract or disables himself from doing so, then there occurs a breach of
contract.
Example: A singer enters into a contract with B, the manager of a
theatre, to sing at his theatre two nights, every week during the next
two months, and B engages to pay her Rs. 1000 per night. On the sixth
night A, willfully absent herself. With the assent of B, A sings on the
seventh night. B has signified his acquiescence in the continuance of the
contract and cannot now put an end to it but he is entitled for
compensation for the damages sustained by him though A’s failure to
sing on the sixth night.
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i. Initial impossibility
As per Sec 56 of the Contract Act, under first paragraph it is said that “An
agreement to do an act impossible in itself is void.” Here the word
“impossible in itself” obviously means to something which is inherently
impossible of performance.
a. “Lex non Cogit ad impossibilla” est, i.e “the law does not recognize
what is impossible” and
Even in this case of impossibility the Law provides compensation for loss
through non–performance of act, under Sec. 56, where one person has
promised to do some thing, which he knew or with reasonable diligence,
might have known, and which the promisee did not know to be impossible
or unlawful, such promisor must make compensation, to such promisee for
any loss which such promise sustains through the non-performance of the
promise.”
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The above section will be understood with the example given below:
The same situation has been explained under Sec 56, in second paragraph
of the Contract Act which provides it as, under the sub heading as
‘Contract to’ do act afterwards becoming impossible or unlawful” – “A
contract to do an act which after the contract is made, becomes
impossible, or, by reason of same event which the promisor could not
prevent, unlawful becomes void when the act becomes impossible or
unlawful.
Subject matter is one of the essentials to form a valid contract. When the
subject–matter of a contract, subsequent to its formation, is destroyed,
without the fault of the promisor or promisee, then the contract gets
discharged.
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Example: (1) Under the case Tylor Vs Caldwell (1863), the dependent
agreed to let a music hall for a series of concerts. Before the day of
performance, the music hall was destroyed by fire. The plaintiff sued the
dependent for damages for breach of contract. It was held that the
contract had become void to the destruction of the hall and thus dependant
was not liable.
In this case, there was an agreement between the owner of a theater and
a producer, to exhibit a picture. The Municipal authority issued an order to
demolish the theatre because it was unsafe. The owner of the theatre has
no knowledge of the defective and unsafe nature of the building. In this it
was held that continued existence of the theatre was a fundamental basis
of the contract and the demolition of the theatre discharged the contact
because of supervencing impossibility.
It was held by the House of Lords that frustration had occurred in the
circumstances. As per Section 56, an abnormal rise or fall in price,a sudden
depreciation of currency, an unexpected obstacle to execution or the like
will not in itself make the contract impossible.
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d. Change of Law
All agreements turn to contracts when they are lawful. Whereas contracts
which are lawful when made but become unlawful later by reason of
change in law, becomes impossible of performance. Impossibility created
by law is a valid excuse for non performance.
e. Declaration of war
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f. Failure of pre-condition:
A contract was to hire a flat for viewing the coronation procession of the
king in 1902. The procession had to be cancelled on account of king’s
illness. A suit was filed for the recovery of the rent for the flat. It was held
that the hirer need not pay the rent as the existence of the procession was
the basis of the contract and its cancellation stands discharge of the
contract.
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Doctrine of Frustration
“Although various theories have been propounded by the judges and jurists
in England regarding the Judicial basis of the doctrine of frustration, yet the
essential idea upon which the doctrine is based, is that of impossibility of
performance of the contract, in fact impossibility and frustration are often
used inter changeable expressions.”
The actual circumstances of the above said case was, an agreement was
entered in to for the safe of land subject to the condition that the seller
would do some development work on the land. Before the work could be
completed the land was requisitioned by the Government for war purpose.
Held, the contract was not frustrated.
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remedy by way of a suit is barred, which in effect means, that the other
party is discharged from his obligation. For example, the price of goods
sold should be paid with in three years of the delivery of goods. In case of
goods on credit, payment should be made after the expiry of a fixed period
of credit, the price should be paid with in three years of the expiry of the
period of credit. If the price is paid and the creditor does not file a suit
against the buyer for the recovery of price within three years, the debt
recovery of price within three years, the debt becomes time– barred and
hence irrecoverable. Thus lapse of time terminates a contract.
Example: ‘A’ agrees to supply certain goods to ‘B’ at a certain price. Goods
are to be delivered after a week and payment is to be made on delivery. ‘A’
supplies the goods as per the agreement. But, ‘B’ does not make the
payment. ‘A’ must file the suit within three years after debt has become
due. If he does not file, the suit against ‘B’ for the price of the goods, the
debt become time barred.
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The aggrieved party, usually like to get back their money and pain in form
of claiming the damages. Damages refer to compensation in terms of
money to the aggrieved party for the loss or injury suffered by him. In the
breach of contract, the other party earns certain rights including the right
to claim damages or loss arising there from. The main aim of the
‘damages’ is Compensation not punishment. The damages are to be
awarded for the loss which naturally arose from the breach (Sec 73). In
this case the Contract Act does not seek to punish the guilty. Here the
court will compel the party for breach of the contract to make good the loss
by paying to the other party. The following are kinds of damages in order
to protect the rights of the aggrieved parties.
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Example: A promises to sell his Lorry for 2 lakhs on certain date. B agreed
to pay the price on the receipt of the lorry. A refused to sell his Lorry to B.
B need not pay the price.
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The Contract Act under sec . 75 provides s “A person who rightly rescinds a
contract is entitled to compensation for any damages which he has
substituted through the non – fulfillment of the contract.”
Again under section 66 of the Contract Act provides that such rescission
may be communicated in the same manner as the communication of the
revocation of a proposal. A party on rescinding contract is bound to restore
the advantage a received under the contract.
The following circumstances where the last may grant the rescission:
ii. Where the contract is unlawful for causes apparent on its face and
defendant is more to blame than the plaintiff.
The following are the circumstances, where the court may not grant
recession:
Practical Problems
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Liability: The main question that arises in such situations is the liability of
the defendant. As the aim of this doctrine is to prevent unjust enrichment
of one party, at the expense of the other,
The damages are usually restricted to the value of services rendered or the
cost of the goods delivered. If the damages exceed that value, the whole
concept of quasi contract will be defeated, as it will be unfair for the
defendant.
Let’s understand how to apply the term ‘quasi contract’ through the
following example: Suppose a mechanic is called to repair the car of Mr. X.
However, the mechanic thinks that Mr. Y’s car is the one belonging to Mr. X
and repairs it accidentally. Mr. Y sees the mechanic repairing his car, but he
does not stop him from doing so, because he is secretly pleased to get his
car fixed free of cost. When the mechanic asks for payment from Mr. Y, he
refuses to pay the bill. However, by implication, a quasi contract has been
created from the moment Mr. Y spotted the mechanic repairing his car and
let it continue. Mr. Y would be held liable for payment if it can be proved in
court that he was aware of the mistake of the mechanic and let him
continue.
The following are some cases where quasi contractual obligations arise:
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Under the general heading of the Quasi contract there has been grouped a
number of cases which have little or no affinity with contract. A simple
illustration is afforded by the action to recover money paid by mistake. If
the plaintiff on an erroneous interpretation of the facts, pays to the
defendant a sum of money which he does not really owe, law, no less than
justice, will require he defendant to restore it. But his obligation is
manifestly not based upon the consent, even in the extended meaning
borne by the word in the English law, and its description as a quasi
contractual liability serves only to emphasize its remoteness from any
genuine conception of contract.
This shows that there are many situations in which Law as well as justice
require that a certain person be required to conform an obligation,
although he has not broken any contract nor committed any tort. an
another example for Quasi Contract would be worthy of Quoting for the
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Rationale
The first and the most ambitious attempt to provide such a basis were
made by Lord Mansfield in Moses v. Macferlan in year 1760.
One Jacob issued four promissory notes to Moses and the latter indorsed
them to Macferlan, excluding, by a written agreement, his personal liability
on the endorsement. Even so Macferlan sued Moses on the endorsement
and he was held liable despite the agreement. Moses was thus compelled
to discharge a liability which he had excluded and, therefore, sued to
recover back his money from Macferlan.
He was allowed to do so. After making the defendant liable to restore the
money Lord Mansfield continued as follows:
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After stating that such money cannot be recovered where the person to
whom it is given can “retain it with a safe conscience”, he stated that “here
it lies for the money paid by mistake; or upon a consideration which
happens to be fail; or for money got through imposition; or extortion; or
oppression; or for an undue advantage taken off the plaintiff’s situation,
contrary to laws made for the protection of the persons under those
circumstances. In one word the gist of this kind of action is that the
defendant, upon the circumstances of the case, is obliged by ties of the
natural justice and equity to refund the money.”
The gist of this kind of action is that the defendant, upon the
circumstances of the case, is obliged by the ties of natural justice and
equity to refund the money. But apart from this it should be observed that
did not use the word equity to denote the jurisdiction of chancery but the
synonym for “jus naturale”. Nor, while he based the obligations of quasi
contract upon the duty of restoring benefits unjustly obtained, did he
assert that in every such case an action would lie. As he declared in
Weston v. Downes, ‘I am a great friend to the action for money had and
received, and therefore I am not stretching, lest I should endanger it’ thus
the principle of unjust benefit explained the cases falling within the scope
of quasi contracts: it did not automatically invoke the remedy.
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Such at least was the conclusion of Lord Sumner. After this decision it
becomes fashionable to discard Lord Mansfield’s formulation and to rely
upon an implied-in-fact contract.
After that it was Lord Haldane who maintained that common law knows
personal actions of only two classes, namely those who founded on
contract and those who founded on tort. “When it speaks of action arising
quasi ex contract it refers to only a class of action in theory which is
imputed to the defendant by fiction of law.
Lord PARKER expressly pointed out that if a promise to pay back an ultra
virus loan could be imputed to the company as quasi contractual
obligation, the result would be to validate a transaction which has been
declared to be void on the ground of public policy and the law would be
enforcing a notional contract where a express contract would have been
void.
This approach dominated the decisions for a long time and the decision
was taken to have settled that the juridical basis for the quasi contract was
the implied, notional or the fictional contract. Where the circumstances of
the case do not lead to an inference of this kind or where such inference
would be against the law, no liability will arise.
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A sum of money was paid in advance under a contract for the supply of a
machine or ‘for the supply of machinery’, and the performance was
obstructed by the outbreak of war. Their Lordship allowed the advance to
be recovered back as having paid for a consideration which had wholly
failed.
“It is clear that any civilized system of law is bound to provide remedies for
the cases of what has been called unjust enrichment or unjust benefit that
is to prevent a man from retaining the money of or some benefit derived
from, another which is against the conscience that he should keep. Such
remedies in English law are generally different from remedies in contract or
tort, and are now recognized to fall within a third category of the common
law which has been called quasi-contract or restitution”.
Thus Academic, as well as judicial, opinion has been divided upon the
merits of Lord Mansfield’s Doctrine. But in the leading modern discussion,
Goff and Jones have accepted as its rationale the principle of unjust benefit
or unjust enrichment. This principle presupposes three things:
i. First, that the defendant has been enriched by the receipt of a benefit;
ii. Secondly, that he has been so enriched at the plaintiff’s expense;
iii. Thirdly, that it would be unjust to allow him to retain the benefit.
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INTRODUCTION TO LAW OF CONTRACT
Chapter V of the Indian contract Act 1872 deals with the situations
qualifying the quasi contractual obligations under the heading “Of certain
relations resembling to those created by contract”. The chapter avoids the
words “quasi contract”, and in view of the clear statutory authorization of
the courts in India is not hindered in allowing relief under the different
sections of the Act by the theoretical considerations concerning quasi
contracts. But the English cases do provide valuable guidance:
ii. But also as to the way the provisions should be interpreted to keep
them in tune with the changing notions of justice.
Section 68 to 72 of the Indian Contract Act 1872 provides for five kinds of
quasi-contractual obligations they are as follows:
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Examples:
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INTRODUCTION TO LAW OF CONTRACT
The conditions for liability under this section may now be stated:
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INTRODUCTION TO LAW OF CONTRACT
Landlord. This did not come within the principle of this section as this
is not a “payment to another”.
b. In doing the sad thing or delivering the sad thing he must not intend
to act gratuitously; and
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INTRODUCTION TO LAW OF CONTRACT
i. A and B jointly owe 100 rupees to C. “A” alone pays the amount to C
and B, not knowing the fact pays another 100 rupees to C. C is bound
to repay the amount to B.
The Supreme Court in its decision in Sales tax Officer, Banaras v Kanhaiya
Lal Mukund Lal Saraf has accepted this interpretation of section 72.
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“A certain amount of the Sales Tax was paid by a firm under the U.P. Sales
Tax Law on its forward transactions and subsequently to the payment; the
Allahabad High Court ruled the levy of the sales tax on such transaction to
be ultra virus. The firm sought to recover back the tax money.
And as far as English, American and Australian Laws and their contentions
are concerned they do not allow the payments made under mistake of law
to be recovered.
c. The payment must be such as the other party was bound by law to
pay.
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INTRODUCTION TO LAW OF CONTRACT
Example: “B” holds land Bengal on a lease granted by the Zamindar. The
revenue payable by “A” to the Government being in arrears his land is
advertised for sale by the Government under the Revenue Law.
The sale will be annulment of “B’s lease. ’B’ to prevent the sale and the
consequent of annulment of his own lease pays to the Government the
sum due from A. A is bound to make good to B the amount so paid.
A person who finds goods belonging to another and takes them into his
custody is subject to the same responsibility as Bailee. He is bound to take
as much care o the goods as a man of ordinary prudence would under
similar circumstances take of his own goods of the same bulk, quality and
value. He must also take all necessary measures to trace its owner. If he
does not, he will be guilty of wrongful conservation of the property till the
owner is found out, the property in goods will vest in the finder and he can
retain the goods as his own against the whole world (except the owner).
Example: “F” picks up a diamond on the floor of ‘S’s shop. He hands it over
to ‘S’ to keep it till the real owner is found out. No one appears to claim it
for quite some week’s inspite of wide advertisement in the news papers. ‘F’
claims the diamond from ‘S’ who refuses to return. ‘S’ is bound to return
the Diamond to ‘F’ who is entitled to retain the diamond against the whole
world except the true owner.
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INTRODUCTION TO LAW OF CONTRACT
Ex: “A” & “B” jointly owe Rs. 100/- to “C”. A alone pays the amount to C
and B not knowing this fact pays Rs. 100/- over again to “C”. C is bound to
pay the amount to B.
1.27 SUMMARY
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INTRODUCTION TO LAW OF CONTRACT
Conceptual Type
1. Define law.
14.Define Agreement.
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INTRODUCTION TO LAW OF CONTRACT
26.What is Executory?
31.Define exceptance.
33.Define consideration.
35.What is fraud?
36.Define Proposal.
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INTRODUCTION TO LAW OF CONTRACT
39.Define Coercion.
40.Define Minor.
41.Define Mistake.
45.Define Novation.
46.What is Rescission?
Analytical Type
4. What is the difference between void agreements and void able contract?
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INTRODUCTION TO LAW OF CONTRACT
8. What are the difference between Illegal and Agreements and Void
Agreements?
11.“All contract are agreements, but all agreement are not contracts”?
Discuss.
15.Who are the parties to competent the contract? Discuss who are
incapable contracting.
Essay Type
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INTRODUCTION TO LAW OF CONTRACT
i. Coercion
ii. Undue Influence
iii. Fraud
iv. Misrepresentation
v. Mistake.
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INTRODUCTION TO LAW OF CONTRACT
REFERENCE MATERIAL
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chapter
Summary
PPT
MCQ
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SALE OF GOODS ACT, 1930
Chapter 2
SALE OF GOODS ACT, 1930
Objectives
Structure:
9. Summary
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SALE OF GOODS ACT, 1930
!
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SALE OF GOODS ACT, 1930
In trade and commerce, sales and purchase of goods are very common
transactions. These transactions may appear to be very simple but the
possibilities of complications is always there. Therefore knowledge of basic
principles of sale and purchase is very much essential for all the concerned
parties as well as for the entire community.
The Sale of Goods Act contains the basic principles as well as the legal
framework of transactions of sale and purchase.
Earlier the Sale of Goods Act was a part of the Indian Contract Act. A
separate Act was framed in the year 1930.
Basic Concepts
Definition of Sale
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SALE OF GOODS ACT, 1930
The contract may provide for the immediate delivery of the goods or
immediate payment of the price or both, or for the delivery or payment
by installments, or that the delivery or payment or both shall be
postponed.
2. Subject to the provisions of any law for the time being in force, a
contract of sale may be made in writing or by word of mouth, or partly
in writing and partly by word of mouth or may be implied from the
conduct of the parties.
3. The subject matter of sale must be ‘goods’ and movable. The transfer of
immovable property is not governed by Sale of Goods Act, 1930.
4. The consideration for sale is called price which should be stated in terms
of ‘money’. Exchange of ‘goods’ for ‘goods’ is barter and not sale.
However price may be paid partly in terms of money and partly in kind.
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SALE OF GOODS ACT, 1930
Classification of Goods
The goods which form the subject of a contract of sale may be either
existing goods, owned or possessed by the seller, or future goods Sec 6(1)
or contingent goods [Sec 6(2)].
1. Existing goods are owned by the seller at the time of sale. They are of
the following types:
i. Specific goods: These are identified and agreed upon at the time of
sale.
iii. Generic goods : These are not ascertained at the time of contract
and is defined only by description.
2. Future goods are not owned by the seller at the time of contract but
manufactured or acquired by him subsequent to formation of contract.
Where by a contract of sale the seller purports to effect a present sale
of future goods , the contract operates as an agreement to sale.
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SALE OF GOODS ACT, 1930
2. If goods are destroyed, the loss will 2. The loss will be borne by the seller
be borne by the buyer even though even though the goods may be in
they may be in possession of the seller. possession of the buyer.
3. A sale gives right to the buyer to 3. The buyer only can sue the seller for
enjoy the goods against the whole damages.
world including the seller.
4. In case of sale, the buyer can be 4. The buyer can be used only for
sued for price of goods. damages.
6.If the seller becomes insolvent after 6. The buyer cannot claim the goods.
payment of price, the buyer can claim He can only claim ratable dividend for
the goods from the official receiver. the amount paid by him.
7.The seller cannot resale the goods. 7. The original buyer may only sue the
In this case, if the subsequent buyer seller for damages.
takes in good faith and for
consideration, he gets a good title.
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SALE OF GOODS ACT, 1930
Sec (7 & 8) are applicable only in case of specific goods and not
uncertained/generic goods.
Price
(Secs. 9 & 10) In a contract of sale ‘price’ to the consideration for sale of
goods and is expressed in terms of money. It forms essential part of
contract.
Ascertainment of Price
1. Where there is an agreement to sell goods on the terms that the price is
to be fixed by the valuation of a third party and such third party cannot
or does not make such valuation, the agreement is thereby avoided:
Provided that, if the goods or any part thereof have been delivered to,
and appropriated by, the buyer, he shall pay a reasonable price therefor.
2. Where such third party is prevented from making the valuation by the
fault of the seller or buyer, the party not in fault may maintain a suit for
damages against the party in fault.
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SALE OF GOODS ACT, 1930
Definitions
2. Where a contract of sale is not severable and the buyer has accepted
the goods or part thereof, the breach of any condition to be fulfilled by
the seller can only be treated as a breach of warranty and not as a
ground for rejecting the goods and treating the contract as repudiated,
unless there is a term of the contract, express or implied, to that effect.
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SALE OF GOODS ACT, 1930
3. Nothing in this section shall affect the case of any condition or warranty
fulfilment of which is excused by law by reason of impossibility of
otherwise.
When terms of contract expressly provide for them, they are known as
express conditions or warranties. Implied conditions and warranties are
incorporated in every contract of sale unless the circumstances show a
different intention.
b. An implied warranty that the buyer shall have and enjoy quiet
possession of the goods.
c. An implied warranty that the goods shall be free from any charge
orencumbrance in favour of any third party not declared or known to
the buyer before or at the time when the contract is made.
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SALE OF GOODS ACT, 1930
c. That the goods shall be free from any defect, rendering them un-
merchantable, which would not be apparent on reasonable
examination of the goods.
ii. When the buyer makes it known to seller the purpose and depends
on his expertise.
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Condition Warranty
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SALE OF GOODS ACT, 1930
Specific goods
Unascertained goods
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SALE OF GOODS ACT, 1930
b. If he does not signify his approval or acceptance to the seller but retains
the gods without giving notice of rejection, then, if a time has been
fixed for the return of the goods, on the expiration of such time, and, if
not time has been fixed, on the expiration of a reasonable time.
1. Where there is a contract for the sale of specific goods or where goods
are subsequently appropriated to the contract, the seller may, by the
terms of the contract or appropriation, reserve the right of disposal of
the goods until certain conditions are fulfilled. In such case,
notwithstanding the delivery of the goods to a buyer, or to a carrier or
other bailee for the purpose of transmission to the buyer, the property in
the goods does not pass to the buyer until the conditions imposed by
the seller are fulfilled.
3. Where the seller of goods draws on the buyer for the price and ransmits
to the buyer the bill of exchange together with the bill of lading or, as
the may be, the railway receipt, to secure acceptance to payment of the
bill of exchange, the buyer is bound to return the bill of lading or the
railway receipt if he does not honour the bill of exchange, and, if he
wrongfully retains the bill of lading or the railway receipt, the property
in the goods does not pass to him.
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SALE OF GOODS ACT, 1930
Where goods are sold by a person who is not the owner thereof and who
does not sell them under the authority or with the consent of the owner,
the buyer acquires no better title to the goods than the seller had, unless
the owner of the goods is by conduct precluded from denying the seller’s
authority to sell.
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SALE OF GOODS ACT, 1930
v. Sale by estoppel
Where the owner by his conduct or omission, leads the buyer to believe
that the seller has authority to sell, he is estopped from denying the fact
afterwards. The buyer thus gets a better title than the seller.
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SALE OF GOODS ACT, 1930
Delivery
As per the Sale of Goods Act, Delivery is defined as the voluntary transfer
of possession from one person to another. Delivery of goods sold may be
made by doing anything which the parties agree shall be treated as
delivery or which has the effect of putting the goods in the possession of
the buyer or of any person authorised to hold them on his behalf.
Rules as to Delivery
4. Place of delivery
Whether it is for the buyer to take possession of the goods or for the seller
to send them to the buyer is a question depending in each case on the
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SALE OF GOODS ACT, 1930
contract, express or implied, between the parties. Apart from any such
contract, goods sold are to be delivered at the place at which they are the
time of the sale, and goods agreed to be sold are to be delivered at the
place at which they are at the time of the agreement to sell, if not then in
existence, at the place at which they are manufactured or produced.
5. Time of delivery
Where under the contract of sale the seller is bound to send the goods to
the buyer, but no time for sending them is fixed, the seller is bound to send
them within a reasonable time.
7. Cost of delivery
Unless otherwise agreed, the expense of and incidental to putting the
goods into a deliverable state shall be borne by the seller.
8. Mode of delivery
Delivery of goods may be actual, symbolic or constructive.
a. Where the seller delivers to the buyer a quantity of good less than he
contracted to sell, the buyer may reject them, but if the buyer accepts
the goods so delivered he shall pay for them at the contract rate.
b. Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell the buyer may accept the goods included in the
contact and reject the rest, or he may reject the whole. If the buyer
accepts the whole of the goods so delivered, he shall pay for them at
the contract rate.
c. Where the seller delivers to the buyer the gods he contract to sell mixed
with goods of a different description not included in the contract, the
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SALE OF GOODS ACT, 1930
buyer may accept the goods which are in accordance with the contract
and reject the rest, or may reject the whole.
d. The provisions of this section are subject to any usage of trade, special
agreement or course of dealing between the parties.
10.Instalment delivery
ii. Unless otherwise authorised by the buyer, the seller shall makes such
contract with the carrier or wharfinger on behalf of the buyer as may be
reasonable having regard to the nature of the goods and the other
circumstances of the case. If the seller omits so to do, and the goods
are lost or damaged in course of transit or whilst in the custody of the
wharfinger, the buyer made decline to treat the delivery to the carrier or
wharfinger as a delivery to himself, or may hold the seller responsible in
damages.
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SALE OF GOODS ACT, 1930
iii. Unless otherwise agreed, where goods are sent by the seller to the
buyer by a route involving sea transit, in circumstances in which it is
usual to insure, the seller shall give such notice to the buyer as may
enable him to insure them during their sea transit and if the seller fails
so to do, the goods shall be deemed to be at his risk during such sea
transit.
a. Where goods are delivered to the buyer which he has not previously
examined, he is not deemed to have accepted them unless and until
he has a reasonable opportunity of examining them for the purpose
of ascertaining whether they are in conformity with the contract.
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SALE OF GOODS ACT, 1930
Nothing in this section shall affect the rights of the seller where the neglect
or refusal of the buyer to take delivery amounts to a repudiation of the
contract :
Actual- In this case goods are handed over by the seller to the buyer or
his authorized agent.
Symbolic- When goods are bulky and actual delivery is not possible, the
delivery may be symbolic ,e.g. handing over the keys of the godown.
ii. When buyer holding the possession of goods, with seller’s consent,
holds them as owner.
iii. When a third person holding the possession of goods on behalf of seller,
acknowledges to hold them on behalf buyer.
i. Right to have delivery as per contract: The first right of the buyer is
to have delivery of the goods as per contract.
ii. Right to reject the goods: If the seller sends to the buyer a larger or
smaller quantity of goods than he ordered, the buyer may reject the
whole, accept the whole or accept the quantity to ordered and reject the
rest.
iii. Right to repudiate: The buyer of goods has a right not to accept
delivery thereof by installment.
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SALE OF GOODS ACT, 1930
v. Right to examine: The buyer has right to examine the goods which he
has not previously examined before he accepts them. If the buyer
repudiates the contract the seller is entitle to damages from the buyer.
b. Suit for price: If the buyer has paid the price and goods are not
delivered, he can recover the amount paid.
c. Suit for specific performance: The buyer can sue the seller for
specific performance of the contract to sell.
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SALE OF GOODS ACT, 1930
i. Duty to accept the goods and pay for them in exchange for possession:
It is the duty of the buyer to accept the goods and pay for them, in
accordance with the term of the contract of sale.
ii. Duty to apply for delivery: It is the duty of the buyer to apply for
delivery.
Unpaid Seller
a. When the whole of the price has not been paid or tendered.
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SALE OF GOODS ACT, 1930
2. The term “seller” includes any person who is in the position of a seller,
as for instance, an agent of the seller to whom the bill of lading has
been endorsed or a consignor or agent who has himself paid or is
directly responsible for, the price.
2.9 SUMMARY
Conceptual Type
2. Who is a buyer?
5. Define goods.
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SALE OF GOODS ACT, 1930
Analytical Type
4. What do you mean by Sales of Goods? What are its essentials under
Sale of Goods Act?
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SALE OF GOODS ACT, 1930
REFERENCE MATERIAL
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chapter
Summary
PPT
MCQ
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CONSUMER PROTECTION ACT, 1986
Chapter 3
CONSUMER PROTECTION ACT, 1986
Objectives
Structure:
3.1 Introduction
3.8 Summary
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CONSUMER PROTECTION ACT, 1986
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CONSUMER PROTECTION ACT, 1986
3.1 Introduction
India is a fast developing country where majority of the people still belong
to the rural areas. Such of those people are many a times innocent and
ignorant of their products. It is due to lack of information or knowledge of
the market position. Such of those persons who may be termed as
consumers. These are to be given support and protection from the
unscrupulous sellers. The marketers are to be socially responsible in
protecting the interest of the consumers. Consumers are considered as one
of the pillars of the business.
Peter F. Drucker was apt in saying, “it is the consumer who determines
what a business is … What the consumer thinks he is buying, what he
considers ‘value’ is decisive – it determines what a business is, what it
produces and whether it will prosper.”
According to Adam Smith; “Consumption is the sole end and purpose of all
production.”
The consumer is the king in a free market economy. The consumers must
be given priority to enable him to fulfill his wants and desires according to
his capacity. He is to be protected from unsafe, harmful, unsuitable
alternatives and thus he will be freed from insecurity and fear of
exploitation. Many a times the consumers may not be in a position to
approach civil court, as the matter is involved with comparatively small,
both in respect of product and price. It will thus be seen that only a social
movement can ensure such a condition.
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CONSUMER PROTECTION ACT, 1986
Even in Europe, during the middle age period, dishonest traders had their
hands cut off and punished in other ways. Sale of adultered food and drink
was subjected to criminal penalties in the 14th century.
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CONSUMER PROTECTION ACT, 1986
(a) Right to basic Food, shelter, clothing, health care and education.
needs:
(b) Right to Right to be protected against products, production
safety: processes and services which are hazardous to health
and life.
(c) Right to Right to get access to all the facts necessary to make an
information: informed and conscious choice. This right includes the
right to protection against dishonest, deceitful and
misleading advertisements.
(d) Right to Right to have access to a variety of product and services
Choice/ at competitive prices and in case of an existing
Choose monopoly the right to have assurance of satisfactory
quality and service at a reasonable price, which is a right
against exploitation.
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CONSUMER PROTECTION ACT, 1986
(f) Right to It is for right to a fair settlement of just claims, and this
redress: includes right to receive compensation for mis-
representation.
(g) Right to In this right to acquire knowledge and skill to become an
consumer enlightened consumer.
education:
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CONSUMER PROTECTION ACT, 1986
Consumer Protection Act was enacted in the year 1986 to provide a better
protection of the interests of consumers and encourage the consumer
movements through consumer councils and other authorities for the
settlement of consumer’s disputes and for matters connected therewith.
The Act gives full freedom to consumers in getting legal protection and free
from fear, complexities and technicalities involved with the various legal
procedure in the regular course of action like complaints and so on.
Moreover there is no court fees or stamp duty to be affixed, no matter
whatever may be the amount involved in the complaints. So the Act
facilitates the consumers a better, inexpensive and speedy remedy. The Act
shall be applicable to all goods and services unless otherwise, expressly
provided by the Central Government by notifications. The law shall see to
the benefit of the general public, that is the consumers. The act applies in
addition to the sale of all goods and services, in the private sector and the
public sector as well as Government agencies.
There are six consumer rights recognised by the Act in form of its objects,
and are as follows:
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CONSUMER PROTECTION ACT, 1986
The Central and State Consumer Protection Councils are to protect and
promote the above objects.
Section 2 of the Act gives provision on who can file a complaint, what type
of compliant can be filed, on what the complaint can be filed and so on.
The following are the extraction of some of the definitions;
i. Consumer:
According to the Sec 2 (1) (d), “Any person, who buys any goods against
consideration is a consumer.”
For that matter it also includes any user of such goods other than the
person who buys such goods, where such user is made with the original
buyer’s approval. However, if the goods are purchased for resale or any
commercial purpose then the buyer is not a consumer and cannot avail of
the protection under this Act.
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CONSUMER PROTECTION ACT, 1986
The following categories of persons may file a complaint under the Act:
Complaint
When one makes any allegation in writing under Section [2 (1) (c)] and to
remember in writing to invoke the provisions of this Act to obtain certain
relief on account of any grievance occasioned by:
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CONSUMER PROTECTION ACT, 1986
Again under section 12(1)B and section 12(1); A detail provision on, “who
can file a complaint”? Which is given under in detail.
Who can file a Complaint [Sec. 2(1) (B) and Sec. 12(1)]
a. A consumer; or
d. The Central Government or the State Government, as the case may be,
either in its individual capacity or as a representative of interests of the
consumers in general; or
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CONSUMER PROTECTION ACT, 1986
Further, the following are also considered as a consumer and hence they
may file a complaint:
iii. Insurance company. Where Insurance Company pays and settles the
claim of the insured, it can file a complaint for the loss caused to the
insured goods by negligence of goods/service provides. For example,
when loss caused to such goods because of negligence of transport
company, the insurance company can file a claim against the transport
company (New India Assurance Company Ltd. vs Green Transport Co.)
ii. The goods bought by him or agreed to be bought by him suffer from
one or more defects;
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CONSUMER PROTECTION ACT, 1986
iv. A trade or service provider, as the case may be, has charged for the
goods or for the services mentioned in the complaint, a price in excess
of the price fixed by any law or displayed on the goods or any package
containing such goods or displayed on the price list exhibited bby him or
agreed between the parties;
v. Goods which will be hazardous to life and safety when used, are being
offered for sale to the public in contravention of any standards relating
to safety of such goods as required to be complied with by any law or if
the trader could have known with due diligence that the goods so
offered are unsafe to the public;
Under the Sale of Goods Act also there is an implied warranty on the part
of the seller to disclose the dangerous nature of goods to the ignorant
buyer. If there is breach of this warranty, the buyer is entitled to claim
compensation for the injury caused to him.
vi. Services which are hazardous or likely to be hazardous to life and safety
of the public when used are being offered by the service provider which
such person could have known with due diligence to be injurious to life
and safety.
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CONSUMER PROTECTION ACT, 1986
Note: The terms ‘unfair trade practice’, ‘restrictive trade practice’, ‘defect’,
‘deficiency’, ‘trader’, etc. as defined under the Act have been discussed
after the next heading.
There are no set rules to decide the point of time when cause of action
arises. It depends on the facts and circumstances of each case.
Deficiency
This is given in the [Sec. 2 (1) g] under this, deficiency in relation to any
service means any fault, imperfection, short-coming or inadequacy in the
quality, nature and manner of performance which is required to be
maintained under law or has been undertaken by the opposite party to be
performed under a contract or otherwise.
Service
Under Section - 2 (1) (0) of this Act, a very comprehensive definition has
been incorporated for service. It says “Service of any description which is
made available to potential users”. The word “Potential user’s are
consumers who enjoy the facilities given through services by banking,
financing, insurance, transport, supply of electrical and other energy,
boarding or lodging or both, house construction, entertainment,
amusement and so on. Rendering of free services or personal service are
exempted under this Act. The services rendered by the doctors are covered
under the provision of this Act. In case of Tilak Raj Vs Haryana School
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CONSUMER PROTECTION ACT, 1986
Restrictive Trade Practice: Sec. 2 (1) (nn) – Under this section Restrict
Trade Practice has been defined as any trade practice which requires a
consumer to buy, hire or avail of any goods or, as the case may be,
services as a condition precedent for buying, hiring or availing of any other
goods or services.
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CONSUMER PROTECTION ACT, 1986
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CONSUMER PROTECTION ACT, 1986
iv. Eight members of the Parliament:– Five from Lok Sabha and three from
Rajya Sabha.
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CONSUMER PROTECTION ACT, 1986
a. The Central Council shall meet as and when necessary, but at least
one meeting of the Council shall be held every year.
b. The Central Council shall meet at such time and place as the
Chairman may think fit and shall observe such procedure in regard to
the transaction of its business as may be prescribed.
Objects of The Central Council: The main objects of the Central Council
is explained under Sec. 6 of the Act. Which is basically to promote and
protect the rights of the consumers. They are as follows:
(Sec. 6). Infact the objects of the central council are the various rights of
consumers recognised under the Act which are to be promoted and
protected by the council. Thus the Act (under Section 6) has enumerated
some rights of consumers which need to be protected by the council. These
rights of consumers are:
This right has been recognised by Sec. 6(a) as, “the right to be protected
against the marketing of goods and services which are hazardous to life
and property”. The rationale behind this provision is to ensure physical
safety of the consumers. The law seeks to ensure that those responsible
for bringing goods to the market, in particular, manufacturers, distributors,
retailers and the like should ensure that the goods are safe for the users.
In case of dangerous or risky goods, consumer should be informed of the
risk involved in improper use of goods. Vital safety information should be
conveyed to consumers.
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CONSUMER PROTECTION ACT, 1986
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CONSUMER PROTECTION ACT, 1986
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CONSUMER PROTECTION ACT, 1986
iii. The State Council shall meet as and when necessary but not less than
two meetings shall be held every year.
iv. The State Council shall meet at such time and place as the chairman
may think fit and shall observe such procedure in regard to the
transaction of the business as may be prescribed by the State
Government.
Act provides under Section 8, the objects of the State Council, to promote
and to protect, the rights of the consumers within the state laid down in
clauses (a) to (f) of Section-6.
The Consumer Protection Act under Chapter III explains about the
Consumer Disputes Redressal Agencies. Section 9 of the Act gives the
provision for establishment of Consumer Disputes Redressal Agencies. In
this the provision is to create a “three–tier remedial machinery” for
inexpensive and expeditions redressal of consumer grievances by way of
an alternative to the ordinary process of instituting actions before a Civil
Court with all its heavy court fees, cost and enormous delay.
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CONSUMER PROTECTION ACT, 1986
3. District Forums
The formation of District Forums and other relevance given in the Sec 10 of
the Consumer Protection Act. According to this,
Appointment:
ii. Resignation: The same Section provides that a member may resign his
office in writing, addressed to the State Government and on such
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resignation being accepted, his office shall become vacant and may be
filled by the appointment of a person possessing any of the qualification
mentioned in Sub-section (i) in relation to the category of the member
who has resigned.
(2) A compliant shall be instituted in a District Forum within the local limits
of whose jurisdiction.
a. The opposite party or each of the opposite parties, where there are
more than one, at the time of the institution of the complaint,
actually and voluntarily resides or carries on business or has a branch
office or personally works for gain, or
b. Any of the opposite parties, where there are more than one, at the
time of the institution of the compliant, actually and voluntarily
resides, or carries on business or has a branch office, or personally
works for gain, provided that in such case either the permission of
the District Forum is given, or the opposite parties who do not reside,
or carry on business or have a branch office, or personally work for
gain, as the case may be, acquiesce in such institution; or
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a view to finding out whether such goods suffer from any defect alleged
in the complaint or from any other defect and to report its findings
thereon to the District Forum within a period of forty-five days of the
receipt of the reference or within such extended period as may be
granted by the District Forum;
e. The District Forum shall remit the amount deposited to its credit under
clause (d) to the appropriate laboratory to enable it to carry out the
analysis or test mentioned in clause (c) and on receipt of the report
from the appropriate laboratory, the District Forum shall forward a copy
of the report along with such remarks as the District Forum may feel
appropriate to the opposite party.
(2) The District Forum shall, if the compliant received by it under section
12 relates to goods in respect of which the procedure specified in sub-
section (1) cannot be followed, or if the compliant relates to any
services:
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(4) For the purposes of this section, the District Forum shall have the
same powers as are vested in a civil court under Code of Civil
Procedure, 1908 while trying a suit in respect of the following matters,
namely:
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a. To remove the defect pointed out by the appropriate laboratory from the
goods in question;
b. To replace the goods with new goods of similar description which shall
be free from any defect;
c. To return to the complainant the price, or, as the case may be, the
charges paid by the complainant;
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Provided that where the member, for any reason, is unable to conduct
the proceeding till it is completed, the President and the other member
shall conduct such proceeding de novo.
• Every order made by the District Forum under sub-section (1) shall be
signed by its President and the member or members who conducted the
proceeding.
Provided that the State Commission may entertain an appeal after the
expiry of the said period of thirty days if it is satisfied that there was
sufficient cause for not finding it within that period.
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(2) The salary or honorarium and other allowances payable to, and the
other terms and conditions of service the members of the State
Commission shall be such as may be prescribed by the State
Government.
Every member of the State Commission shall hold Office for a term of
five years or upto the age of sixty-seven years, whichever is earlier
and shall not be eligible for re- appointment.
a. To entertain:
ii. Appeals against the orders of any District Forum within the State;
and
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b. To call for the records and pass appropriate orders in any consumer
dispute which is pending before or has been decided by any District
Forum within the State, where it appears to the State Commission that
such District Forum has exercised a jurisdiction not vested in it by law,
or has failed to exercise a jurisdiction so vested or has acted in exercise
of its jurisdiction illegally or with material irregularity.
Vacancy in the office of the President: Section 18A provides that when
the office of the President of the District Forum or of the State
Commission, as the case may be, is vacant or when any such President is,
by reason of absence or otherwise, unable to perform the duties of his
office, the duties of the office shall be performed by such person, who is
qualified to be appointed as President of the District Forum, as the case
may be, of the State Commission, as the State Government may appoint
for the purpose.
Provided that the National Commission may entertain an appeal after the
expiry of the said period of thirty days if it is satisfied that there was
sufficient cause for not filing it within that period.
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Provided that every appointment under this clause shall be made by the
Central Government on the recommendation of a selection committee
consisting of the following namely:
2. The salary or honorarium and other allowances payable to and the other
terms and conditions of service of the Members of the National
Commission shall be such as may be prescribed by the Central
Government.
Every member of the National Commission shall hold office for a term of
five years or upto the age of seventy years, whichever is earlier and
shall not be eligible for re- appointment.
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a. To entertain:
b. To call for records and pass appropriate orders in any consumer dispute
which is pending before or has been decided by any State Commission
where it appears to the National Commission that such State
Commission has exercised a jurisdiction not vested in it by law, or has
failed to exercise a jurisdiction so vested, or has acted in the exercise of
its jurisdiction illegally or with material irregularity.
Provided that the Supreme Court may entertain an appeal after the expiry
of the said period of thirty days if it is satisfied that there was sufficient
cause for not filing it within that period.
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(1) The National Commission shall have administrative control over all the
State Commissions in the following matters, namely:
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(2) The State Commission shall have administrative control over all the
District Fora within its jurisdiction in all matters referred to in Sub-
section (1).
b. In the case of an order against any other person, the place where the
person concerned voluntarily resides or carries on business or
personally works for gain, is situated and thereupon, the court to which
the order is so sent, shall execute the order as if it were a decree or
order sent to it for execution.
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Provide that the District Forum, the State Commission or the National
Commission, as the case may be, may, if it is satisfied that the
circumstances of any case so require, impose a sentence of imprisonment
or fine, or both, for a term lesser than the minimum term and the amount
lesser than the minimum amount, specified in this section.
3. Jagrath Mandeli, 947, 12th Cross, J.P. Nagar, 1st Stage, Bangalore-560
078
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3.8 SUMMARY
The consumer is the king in a free market economy. In order to make the
consumers more powerful, the Consumer Protection Act, 1986 was
enacted. The various consumer’s rights are right to basic needs, right to
safety, right to information, right to choice/choose, right to be heard, right
to redress, right to consumer education and right to a healthy
environment. Consumer Protection Act was enacted in the year 1986 to
provide a better protection of the interests of consumers and encourage
the consumer movements through consumer councils and other authorities
for the settlement of consumer’s disputes and for matters connected
therewith. There are six consumer rights recognised by the Act in form of
its objects which are the right to be protected against marketing of goods
and services, the right to be informed, the right to be assured, the right to
be heard, the right to seek redressal against unfair trade practices or
restrictive trade practice or unscrupulous exploitation and the right to
consumer education.
Conceptual Type
1. Define Consumer.
2. What do you mean by Consumer dispute.
3. What is the meaning of service as per consumer protection Act?
4. Define complaint.
5. What is defect under COPRA?
6. What is deficiency?
7. Define deficiency service.
Analytical Type
1. What are the objects of the Central Consumer Protection Council?
2. What is the need for the COPRA Act 1986?
3. What are the objects of COPRA Act 1986?
4. What are the rights of a consumer?
5. Write a note a consumer redressal agency?
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Essay Type
1. How is protection of action taken in good faith? What are the powers to
remove difficulties? Explain power to makes rules and laying of rules.
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
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Chapter 4
COMPANY ACT, 2013
Objectives
Structure:
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Meaning
Proprietary and partnership forms of business organisation were unable to
cope with the increased needs of modern industry and commerce. Their
main drawbacks were limited resources, unlimited liability and absence of
continuity. Some other form of organisation which would be free of these
drawbacks was, therefore, needed. Thus, the joint stock type of
organisation was introduced. Now it is the most widely prevalent form and
by far the most important and it would not be an exaggeration to say that
modern industrial and commercial development has been primarily due to
the growth of the company form of business organisation. This form of
organisation placed heavy sums at the disposal of entrepreneurs and at the
same time reduced the business risk through the principle of limited
liability. This form is very well suited for large undertakings requiring huge
capital.
Company
A Joint Stock Company is an incorporated association formed for the
purpose of carrying on some business. Legally, it is an artificial person
having a distinctive name and a Common Seal. It may be defined as “an
artificial person created by law with a distinctive name and separate legal
entity, Common Seal, a common capital contributed by the members and
comprising transferable shares of a fixed denomination, with limited
liability and with perpetual succession”.
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Features
An analysis of the above definition reveals many distinctive features of a
joint stock company which are given below:
1. Registration
2. Separate legal entity
3. Common seal
4. Perpetuity
5. Limited liability
6. Transferability of share
Definition
Section 2(20) of the companies Act 2013, defines that ‘a company means a
company formed and registered under this Act or an existing company”.
This definition does not clarify the position. Lord Justice Lindley defined
company as “an association of many persons who contribute money or
money’s worth to a common stock and employ it in some trade or business
and who share the profit and loss arising there form”.
1. Registration
The company is created only when registered under the Companies Act,
2013. It comes into existence from the date mentioned in the certificate of
incorporation. But for the formation of a public company at least seven
persons and for private company at least two persons are necessary. These
persons agree to come together and lend their names to the Memorandum
of Association and other legal requirements of registration for the
incorporation of a company, with or without limited liability.
2. Legal Entity
Legal entity can be divided into (i) Artificial legal entity, and (ii)Separate
legal entity.
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The company can acquire and dispose of property, can enter into
contract with third parties in its own name, and can sue and be sued
in its name. This is borne out in Batas V. Standard and Land Co.
ii. Separate legal entity: A company has a legal entity distinct from
and independent of its member [Kathiawar Industries Ltd. V.C.G. of
Evacuee Property ALR (1967 Punj. 337 R.D. Singh V. Bihar State
Small Industries Corporation (1975) 45 Comp. Cas. 527]. This
establishes a claim for its independent corporate existence. The
property of the company is to be used for the benefit of the company
and not for its members or shareholders as individuals. The creditors
can recover their money only from the property of the company. They
cannot sue individual member. Similarly, the company is not liable for
the debts of the individual members. This separate legal entity is also
recognised by the Income Tax Act, whenever a company is required
to pay tax on its profits and the shareholders have to pay the tax in
their individual capacity when they receive the dividend. This
establishes a claim that a company and the shareholders are two
separate legal entities, claiming their own rights. The basic principle
of separate legal entity is more clear in the case of Salomon V.
Salomon & Co. Ltd., 1897. A.c. 22.
Another famous case of separate legal identity was Abdul haq V. Das
Mal, (1910) I.C. 595 where an employee Abdul Haq sued Das Mal,
the Director of a company, for recovery of salary. It was held that
the director cannot be sued. “The remedy lies against the company
and not against the directors or the members of company”.
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4. Perpetuity
The company created by law lives in perpetuity unlike a human being. It
never dies with retirement or death of its members as is the case with
partnership. It is created by law and an end to it can be put by the process
of law only. This establishes in law the perpetual succession which means
that once a company is established it exists irrespective of the variation or
the composition of its members This lends stability and long life to a
company form of organisation.
5. Limited Liability
Limited liability of the members is a distinct advantage of the company
form of organisation. A company may be (i) Limited by shares, or (ii)
Limited by guarantee.
Thus, we find that limited liability has enabled the companies to collect
the small savings of the people into huge share capital for the formation
of capital and utilisation for further production without affecting the
fortunes of the investors in the event of the failure of the company but
given a fair and continuous return in the event of company running
smoothly and profitably.
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6. Transferability of Shares
Sec. 44 of the Companies Act, 2013, provides that “the shares or other
interest of any member shall be movable property, transferable in a
manner provided for in the articles of the company”. Therefore, a member
may:
Corporate Personality
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Registered Company
Under the Companies act two kinds of companies can be registered viz.,
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Unlimited Companies
In the case of unlimited companies, the liability of members is unlimited
i.e., members are liable for the debts of the company to an unlimited
extent in the event of its winding up. But this type of company has become
rare.
Government Company
Under Section 2(45) of the Companies Act, 2013 a company in which not
less than 51% of the share capital is held by the Central Government and/
or by any State Government or Governments is called a Government
Company. It may be a public company or a private company. Some of the
prominent Government Companies are: Hindustan Machine Tools, Bharat
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Listed Company
Under Sec 2(52) of Companies Act, 2013 “Listed Company” means a
company which has nay of its securities listed or any recognised stock
exchange.
Foreign Company
Under Section 2(42) of the Companies Act, 2013 a Foreign Company is that
company which is incorporated in a foreign country, but which has
established a place of business in India. Although foreign companies are
not registered or incorporated in India, some of the provisions of the
Companies Act, are applicable to them. The Companies Act, has made
several sections of the Act applicable to foreign companies in order to bring
into the ambit of the provisions applicable to Indian companies.
Under Section 380 of the Companies Act, 2013 every foreign company
must, within 30 days of the establishment of its business, file with the
registrar the following documents:
c. List of the directors and secretary of the company with the required
particulars.
d. The name and address of the person authorised to receive any notice or
document etc., required to be served on the company in India.
e. The full address of the office of the company which is to be deemed its
principal office of business in India.
In case of any alteration in any of the above particulars, Section 380 of the
Act requires the company to file with the registrar a return of such
alteration within the prescribed time.
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b. where the controlling company holds more than half in nominal value of
its equity capital,
As the name suggests, under this category, one man holds practically the
entire share capital of the company, but in order to meet the statutory
requirement of minimum number of members, some dummy members,
mostly his relations or obliging friends, hold one or two shares each. This is
done to fulfil the statutory requirement of at least 7 members in case of
public and two in case of private company. Thus, one man controls the
entire company with limited liability.
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Such a company is perfectly valid in the eyes of law. It has its own entity
which is separate from the entity of its members. In Solomon v. Solomon
and Co. Ltd. Mr. Solomon was holding the entire share capital in his name
and to satisfy the statutory conditions, his wife, sons, daughters, etc. held
one share each. It was held that the company was perfectly in order. The
company of Solomon & Co. Ltd. enjoyed a separate entity of its own. It
does not matter even if Mr. Solomon held the entire shares and the rest of
the members were only dummies.
Thus, the basic principle established in Solomon v. solomon & Co. Ltd., is
followed in a number of cases, forming a basic principle of the company
form of organisation.
A private company suits the needs of those who wish to have both the
advantages of limited liability and also keep the business as private as
possible. There are some similarities between a private company and
partnership. In both these forms of organisation, shares are not freely
transferable and membership in both is confined to friends and relatives.
But the advantage of limited liability in the case of a private company
induces many businessmen to resort to this form of organisation rather
than partnership.
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Public Company
In the case of a public company the minimum number of persons required
to form a company is seven and there is no maximum limit. It can invite
the public to subscribe to its shares and it does not impose any of the
conditions necessary in the case of a private company and any person
competent to contract can become a member. To commence its business, it
must have at least three directors and also it should obtain a certificate to
commence business from the Registrar of Companies.
b. has a minimum share capital of five lakh rupees or such higher paid-up
capital, as may be prescribed.
The difference between public and private companies can be studied under
the following headings:
1. Formation
In the case of a public company, formation is difficult. Certificate of
Incorporation and also the Certificate to Commence Business will have to
be obtained from the Registrar of Joint Stock Companies. Further, consent
of the directors and a copy of their contract to purchase qualification
shares must also be filed with the Registrar. In the case of a private
company, the formation is not difficult. The company can commence
business immediately after its incorporation and there is no need to obtain
a Certificate to Commence Business. There is also no need to file
documents relating to directors.
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3. Membership
In the case of a public company, the minimum number of members
required is seven and there is no maximum limit, while in the case of
private company the minimum is two and the maximum is 200.
4. Prospectus
A public company must file a prospectus or a statement in lieu of prospects
with the Registrar before allotting shares, whereas in the case of a private
company, there is no need to file a prospectus or statement in lieu of the
prospectus.
5. Allotment of Shares
In the case of a public company, there are a number of legal restrictions on
the allotment of shares, but there are no restrictions precedent to
allotment of shares in a private company.
7. Preparation of Articles
A public company need not prepare articles and it can choose to adopt
Table ‘A’ of the Companies Act, which contains model rules and regulations.
But a private company cannot have Table ‘A’ because, by definition, it must
impose certain restrictions upon itself through relevant provisions in the
articles. Hence, in the case of a private company, compulsorily, articles will
have to be prepared.
9. Transfer of Shares
Shares of a public company are freely transferable from one person to
another and they can be quoted on the stock exchange. In the case of a
private company transfer of shares is restricted by its articles and its
shares cannot be quoted on the stock exchange.
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10.Directors
Every public company must have at least three directors and they are
subject to retirement by rotation. There is a limit on directorships in a
public company, and there are legal restrictions on the remuneration of
directors of a public company. Further, no loans to directors can be
sanctioned without the approval of the Central Government. In the case of
a private company, there should be at least two directors and they need
not retire by rotation every year. There are no limits on the directorships of
a private company and also there are no restrictions on the remuneration
of directors. Further, directors of private companies can borrow from their
company without the approval of the Central Government.
11.Shares
A public company cannot issue deferred shares and it issues only equity
and preference shares. But there is no such restriction on an independent
private company and it can issue deferred shares even with
disproportionate voting rights.
1. Only two members are sufficient for a private company at the time of
registration.
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4. A private company can proceed to allot the shares without observing the
usual restrictions applicable to allotment of shares.
7. Written consent to act as director need not be filed with the Registrar by
the director of a private company.
Even though private companies enjoy certain privileges, the Companies Act
lays down a number of restrictions on them. Some of the significant
restrictions are as follows:
1. A private limited company must have the words “private limited” as the
last words of its name.
4. Every year a private company must file with the Registrar along with the
annual return, a statement showing:
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c. That corporate share holding is less than 25% of its paid up capital.
5. Every private company must appoint qualified auditors for auditing its
accounts.
6. Every private company must file every year three copies of profit and
loss account and three copies of balance sheet with the registrar within
30 days of the annual general meeting.
7. Every private company must send a copy of its audited balance sheet
and profit & loss account to all members and debenture holders 21 days
before the annual general meeting.
Preliminary Note
The Indian Companies Act, 1956 is repealed. The new Act viz., Companies
Act, 2013, has been introduced. The historic Companies Bill, 2013 was
passed in the Lok Sabha on 18th December 2012 and in Rajya Sabha on
8th August 2013. The Act was assented by the President of India.
The first Companies Bill to replace 1956 Act was introduced in the Lok
sabha on 3rd August 2009 along with salient features of proposed new
companies Act. This new legislation had to be brought about to facilitate
the changed economic scenario of the country and around the world. The
Bill introduced in 2009 was referred to the parliamentary standing
committee on Finance for examination and report. The Committee
submitted its report on 31st August 2010.
Several amendments were proposed to the 2009 Bill and hence this Bill
was withdrawn and a new Bill incorporating all amends was introduced in
the Lok Sabha in 2011. Major and far reaching amendments were
introduced in new Bill (2011) are as follows:
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ii. A new type of company called one person company and the concept of
corporate social responsibility have been introduced.
vi. Introducing new disclosure norms such as CSR policy, developing and
implementing risk management policy, consolidating of accounts etc.
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Cost audit has been made compulsory for companies engaged in such
goods or such services as may be prescribed.
Promotion of Company
The person or persons who undertake the responsibility to bring the
company into existence is are called ‘promoter’. According to Justice
Bowen. “The term promoter is a term, not of law, but of business, usefully
summing up in a single word a number of business operations familiar to
the commercial world, by which a company is generally brought into
existence”.1 Promotion involves discovery of specific business opportunity
and subsequent organisation of the factors of production. According to
Haney, promotion may be defined as the process of organising and
planning the finances of a business enterprise under the corporate form. In
other words, the steps which are taken to persuade a number of persons to
come together for the achievement of a common objective through the
company form of organisation is called promotion.
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PROMOTERS
Promoters are those persons who conceive the business idea and convert
the business idea into a business reality. Promoters of joint stock
companies conceive the idea of forming a company.
Position of Promoter
Since a promoter takes all the required initiatives in the formation of a
company, he will be doing the pre-incorporation activities. He is neither an
agent, nor a trustee for, the company since the company is not in
existence. He enjoys a fiduciary position in relation to the company he
promotes and the prospective shareholders. Enjoying this fiduciary position
the promoters will be doing everything in conceiving the business idea and
in getting the company incorporated. While enjoying this fiduciary position,
the promoters will be everything in the best interest of the company they
promote. The promoters may not make, either directly or indirectly, any
secret profit at the expense of the company. In case they make any profit
while promoting the company, they may be compelled to account for the
same and to surrender.
Functions of Promoter
1. Conceives the Business Idea: Promoters are the first people, who
conceive the concept of business idea for establishing a business unit of
any size.
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Types of Promoters
Depending upon the types of job they perform, the promoters are classified
as under:
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“I do not say that an owner of property may not promote and form a
joint stock company stock company and then sell his property to it but I
do say that if he does he is bound to take care that he sells it to the
company through the medium of a board of directors who can and do
exercise an independent and intelligent judgement on the transaction”
a. Section lays down matter to be stated and reports to be set out in the
prospectus. He may be held liable for the non-compliance of the
provisions of this section.
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c. Besides civil liability, the promoters are criminal liable under Section
for the issue of prospectus containing untrue statements. The Act
imposes severe penalty on promotes who make untrue and deceptive
statements in a prospectus with a view to obtaining capital.
Where there are more than one promoters, they are jointly and severally
liable and if one of them is sued and pays damages, he is entitled to claim
contribution from other or others.
The death of a promoter does not relieve his estate from liability arising
out of abuse of his fiduciary position. Liability of promoters for preliminary
contracts: Preliminary contracts are contracts entered into by the
promoters on behalf of the company, before its incorporation, with third
parties.
It is very usual that the promoters enter into some contracts as agents or
trustees of the company, which has not yet come into existence. Such
contracts are legally not binding upon the company even after it comes
into existence. The company can neither ratify those contracts nor sue the
vendors on them after its incorporation because ratification requires
existence of the principal at the time when the contract was entered into.
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a. If the contract is entered into, for the purposed of the company and
such contract is warranted by the terms of incorporation. The term “for
the purpose of the company” implies that the contract should be for the
working purpose of the company.
After taking all the preliminary steps for registration, an application along
with the necessary documents, stamp duty, registration and filing fees, has
to be made to the Registrar for the issue of the certificate of incorporation.
The Registrar will scrutinise the documents and if satisfied will enter the
name of the company in the register and will issue the company its birth
certificate called the Certificate of Incorporation.
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b. The company has come into existence on the date mentioned therein,
i. The subscribers to the memorandum and all those who later become
members of the company will be a body corporate.
2 In the Companies (Amendment) Act, 1988, it is made clear that the chartered
accountant must be in whole time practice in India”. The “Secretary in whole time
practice in India” is also made eligible for signing this declaration.
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ii. The body corporate shall be capable of exercising all the functions of an
incorporated company immediately, with regard to (a) common seal, (b)
perpetual succession and (c) such liability of the members to contribute
to the assets of the company (partly paid shares) in the event of
winding up of the company.
Here it may be noted that once the registration is effected even with the
alterations in the original, it cannot be changed or annulled by the court.
“Once the certificate of incorporation is given nothing is to be inquired into
as to the regularity of the prior proceedings.”3
Capital Subscription
As observed earlier, a private company and a public company not having
any share capital can commence business immediately after obtaining the
Certificate of Incorporation, but a public company having a share capital
can commence business only after obtaining another certificate called the
‘Certificate of Commence Business’ from the Registrar of Companies.
Hence, a public company having a share capital has to undergo two
additional stages, viz, (1) The subscription stage and (2) commencement
of business stage, which have been explained in this chapter.
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Commencement of Business
As already pointed out, a public company cannot commence business
without obtaining from the Registrar a certificate called ‘certificate to
commence business’. To obtain this certificate the following conditions must
be fulfilled:
2. The number of shares allotted is not less than the minimum subscription
mentioned in the prospectus (or a statement in lieu of prospectus).
3. The directors have taken up and paid for their qualification shares. The
amount paid on a share by them is not less than the amount paid by
other members.
It may be noted that a public company having a share capital but not
issuing a prospectus to the public has only to file the documents relating to
points 3 and 5 listed above along with a copy of the ‘statement in lieu of
prospectus’.
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Now we shall summarize the duties of the secretary in connection with the
company formation under two headings, viz.,
(1) duties before incorporation and (2) duties after incorporation.
3. To help the promoters in drawing up the financial plan for the proposed
venture.
5. To secure the approval of the Registrar for the proposed name of the
venture.
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3. To call the first board meeting and get the draft prospectus, preliminary
contracts etc., approved by the board.
4. To see that his own appointment is made and confirmed at the first
board meeting.
5. To get the necessary resolution passed for the appointment of bankers,
legal advisers and other responsible officers of the company.
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7. to arrange for the opening of a bank account as per the directions of the
board.
8. To secure the necessary forms and stationery and to arrange for the
preparation of the common seal of the company.
10.To arrange with the bankers to receive the application money from the
intending investors.
14.To see that all the legal requirements for commencement of business
are complied with.
15.To see that a declaration is filed with the Registrar by one of the
directors or the secretary himself, stating that the conditions required to
be fulfilled for getting the certificate to commencement of business have
been complied with.
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A. ESOS to Employees:
[Note: The company issuing ESOS has to strictly follow the provisions of
Companies Act, 2013, regarding the meaning of employee, variation in
terms of ESOS, period of ESOS, forfeiture/refund of amount by the
company and status of ESOS].
4. The companies granting option to its employees as per ESOS, will have
the freedom to determine the “exercise price” in conformity with the
applicable accounting policies, if any.
B. To Debenture Holders:
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4. Tribunal, after hearing both Government and the company can pass any
order as it deems fit.
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6. The Memorandum lays down the scope or area of the company beyond
which the company cannot go. All acts of the company which are
beyond its scope are ultra vires or illegal and they cannot be ratified by
the company.
Statutory Declaration
The declaration should be in Form No. INC-21, which is concerned with the
declaration prior to the commencement of business or exercising borrowing
powers. This Form is pursuant to Sec. 11(1)(a) of the Companies Act, 2013
and Rule 24 of the Companies (Incorporation) Rules 2014.
Skill Development
You have been designated as Company Secretary of proposed Gofast
Chemicals Ltd. Prepare an Articles of Association of the proposed company
with imaginary details for submission to Registrar of Companies to obtain
Certificate of Incorporation.
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4.3 PROSPECTUS
Prospectus – Definition
Prospectus is defined in the companies Act, 2013 under Sec. 2(70).
Accordingly, “Prospectus means any document described or issued as a
prospectus and includes a red herring prospectus referred to in sec. 32 or
shelf prospectus referred to in section 31 or any notice, circular,
advertisement or other documents inviting offers from the public for the
subscription or purchase of any securities of a body corporate”.
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Observations:
2. Sec. 23 of 2013 Act is a new section which tells about public offer and
private placement. Sec. 23(1)(a) prescribes that a public company may
issue securities to public through Prospectus. The issue is called “Public
Offer”. Public offer includes initial public offer (IPO) or further public
offer (FPO) of securities to the public by a company, or an offer for sale
of securities to the public by an existing share holder through issue of
Prospectus.
3. Terms such as Shelf Prospectus and Prospectus shown in 1956 Act are
retained in new Act (2013).
Underwriting Arrangement
The act of ensuring the sale of shares or debentures of a company, even
before offering to the public, is called underwriting and those engaged in
such activities are called underwriters. In other words, underwriters take
upon themselves the responsibility of selling the securities to the public. If
some securities remain unsold, the underwriters will have to buy them. For
this service, they charge a commission which should not exceed 5% of the
issued price of the shares and 2 1/2% of the issued price of debentures.
Underwriting Agreement
The terms and conditions under which the underwriters agree to
underwrite the shares are embodied in a document known as “underwriting
agreement” (or contract). The underwriting agreement should include the
following:
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Advantages of Underwriting
3. The company gets assurance from the underwriters for subscribing the
entire capital within a definite period and thus escaping the danger of
under capitalisation.
7. Prospective buyers are also benefited by the underwriters. The fact that
the securities of a particular concern are underwritten by a reputed firm,
acts as a guarantee for the soundness of the securities. An investor,
therefore, is in a safer position when he buys securities which have been
underwritten.
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The Companies Act, 2013 does not define the term “Capital” but capital in
business context refers to the money invested in a business by a firm in
land, building, plant, machinery, furniture and in intangible assets such as
goodwill, patent rights, trade marks, etc., are called “Fixed Assets” or
“Fixed Capital”. Money used for buying and Holding Stocks, Generated
Accounts Receivable during the course of business and outstanding and
Bank and Cash Balances held on the date of balance sheet are considered
as working or floating capital. These two types of capital (Fixed and
Working) put together constitute the concept of capital.
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CAPITAL OF COMPANY
Company form of business organization is best suited to raise funds
compared to sole proprietorship and partnership. There are several reasons
for this. Firstly, the capital of a company is raised through public issue of
shares. A company can appeal to a large number of people to contribute to
the share capital. Different types of shares can be issued to suit to the
requirement of different types of investors. Since there is no limit to the
number of owners, unlike in case of sole proprietorship and partnership, a
public company can issue shares to a large number of shareholders
( however, the maximum is two hundred (200) in a private company).
Naturally, the share capital of a public company will be large. Secondly, a
public company can augment its funds through issue of debenture. Thirdly,
a public limited company can also accept public deposit. Fourthly, public
financial institutions will finance public companies by underwriting shares,
by investing in securities and by direct lending.
Share Capital
A company raises its capital through issue of shares. Share capital of a
company consists of individual shares of fixed denomination. The shares of
a public limited company are transferable. The share capital of a company
may be nominal, authorized or registered share capital, issued capital,
paid-up capital or reserve capital.
Issued Capital: This refers to that portion of the authorized capital which
a company decides to issue for public subscription. The issued capital can
be less than or equal to the nominal capital. Normally, a company may not
issued the complete nominal capital for public subscription.
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Called-up Capital: This refers to that portion of the issued capital which
the company calls on shares.
Paid-up Capital: This refers to that portion of the called-up capital which
is paid by the shareholders.
Uncalled capital: The remainder of the issued capital which is not called
up is uncalled share capital. The company may call the uncalled capital any
time subject to the stipulated terms of the issue and provisions of its
Articles of Association
Meaning of Shares
The share capital of a company is divided into certain indivisible units of a
fixed amount. Each such indivisible unit is called a share. A share is one
fractional part of the share capital of a company. As per Sec 2(84) of the
Companies Act, " A share means a share in the share capital of the
company and includes stock,” except where a distinction between stock
and share is expressed or implied." Another way of defining shares, " a
share is a bundle of rights and obligations", in the sense that it carries with
it certain rights and liabilities for the shareholders when the company is a
going concern. The owner of the shares enjoys the right to receive a
proportionate part of other profits, if any, and proportionate part of the
assets of the company upon liquidation. The owner has the obligation to
pay for the full value of the shares.
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Classes of Shares
1. Equity Shares [(i) with voting rights or (ii) with differential rights as to
dividends, voting or otherwise in accordance with rules as may be
prescribed.]
2. Preference Shares
Equity Shares: Sec. 43 of 2013 Act states that “equity share capital” with
reference to any company limited by shares, means all share capital which
is not preference share capital.
Though the above definition appears vague, it can be said that equity
shares do not carry preferential rights enjoyed by preference shareholders.
In other words, equity shareholders do not enjoy the two important
preferential rights:
b. Preferential right as to the return of capital when the company goes into
liquidation.
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a. The company can mobilize funds from such investors who prefer
reasonable safety of their capital and fixed rate of return.
c. Capital in the form of preference shares can be raised by the comp any
for a longer term without creating charge or mortgage on its assets,
unlike in case of debenture issue.
ii. The preference share holders may enter into agreement with the issuing
company to participate in surplus profit after paying dividend to equity
shareholders.
iii. Further, the cumulative clause will provide for accumulation of dividend
in a year when dividend is not given because of non-availability of
profits.
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iv. Though the preference share holders do not enjoy normal voting rights,
they can vote on all matters affecting their interest. They cannot on
matters like, (a) When the dividends are in arrears, (b) Creation of prior
charge, (c) Heavy accumulation of debts, (d) Reorganization,
consolidation schemes, etc
The actual difference between Equity Shares and Preference Shares can be
understood from the discussion in the previous paragraphs. However, the
specific points to compare the two kinds of shares can be enumerated as
below.
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Dividend for such a year will not lapse It will be paid during the
subsequent year.
5. Equity shareholders will not get back their capital from the company
during its life time. In other words, there is no redemption of capital for
the equity shareholders during the life time of the company. However, in
case of redeemable preference shareholders the capital will be
repayable to the shareholders on the expiry of the stipulated period for
which such shares are issued.
Issue of Shares
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To the purchase of its own shares or other securities under section 68.
Where shares are issued at a premium for consideration other than cash, a
sum equal to the amount of premium must be transferred to share
premium account. The share premium account shall be disclosed in the
balance sheet every year.
ii. At least one year must have elapsed since the company became
entitled to commence business.
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For the issue of sweat equity shares the following conditions are to be
fulfilled:
The resolution shall specify the number of shares, their value and the
class or classes of directors or employees to whom such equity shares
are to be issued.
At least one year must have elapsed since the company became entitled
to commence business.
Merits of Shares
Shares here refer to share capital as defined in Sec. 2(84) of companies
Act 2013. Companies raise their capital mainly from shares, as it has
several advantages to the company. When a company issues shares, it is
essentially selling a piece of ownership of the company to investors. Shares
issued by the company can be resold many times. The resale of shares by
holders depends upon the demand for shares in stock market and
perceived value of the company that has issued it. In general following are
the merits a company enjoys by issuing shares.
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3. Credit Worthiness: Raising capital through shares does not affect any
asset position of the company. On the other hand, it enhances the credit
worthiness of the company. This means that company can raise further
capital on the security of these assets. It eases the further flow of
capital to the company.
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Demerits
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6. Legal Hurdles: The companies will have to pass through various legal
barriers to raise share capital. Companies cannot raise equity capital till
such time they are incorporated as per the provisions of companies Act.
Even issue procedure is more legal-oriented and it will be a strenuous
job for inexperienced promoters.
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COMPANY ACT, 2013
!
Figure: Mode of Issue of Securities
Private Placement
Private placement means offer of securities or invitation to subscribe to
securities, to a select group of persons through private placement offer
letter. Section 42 (2), limits the number of subscribers in case of private
placement to 50, or such number as may be prescribed [excluding qualified
institutional buyers, and employees of the company being offered securities
under a scheme of employees stock option in a financial year and on such
conditions (including the form and manner of private placement) as may be
prescribed]. This provision of the 2013 Act is in line with the provision of
the 1956 Act.
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COMPANY ACT, 2013
The 2013 Act requires that certain specified conditions are complied with,
in order to make an offer or invitation of offer by way of private placement
or through the issue of a prospectus.
The allotments with respect to any earlier offer or invitation may have
been completed.
All the money payable towards the subscription of securities shall be paid
through cheque, demand draft or any other banking channels but not by
cash.
The offers shall be made only to such persons whose names are recorded
by the company- prior to the invitation to subscribe, and that such
persons shall receive the offer by name.
The shareholders have no legal binding to accept the offer and they have
the right to renounce the offer in favour of any person. Shares of this type
are called right shares. According to Section 62, the company has to satisfy
certain conditions to make right issue which are as follows:
The time given to accept the right offer should not be less than 15 days
and not exceeding thirty days from the date of offer.
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COMPANY ACT, 2013
The notice also should state the right of the shareholders to renounce the
offer in favour of others.
After the expiry of the time given in the notice, the Board of Directors
has the right to dispose the unsubscribed shares in such a manner, as
they think most beneficial to the company.
Its free reserves [The term ‘free reserves’ should not include any change
in carrying amount of an asset or of a liability recognised in equity];
The following conditions are to be complied with for the issue of bonus
shares:
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1. To ensure that Articles permit the issue of bonus shares. If not, the
Articles shall be duly amended.
2. To ensure mat the bonus issue is within the limits of authorised share
capital of the company. If not, proper amendment shall be made in
Memorandum and Articles of the company.
4. To take decision on the bonus issue and to fix the date, time, place and
agenda of the shareholders’ meeting.
6. To issue the notice of the general meeting along with the explanatory
statement.
7. To arrange for convening the meeting and getting the resolution passed
approving the bonus issue.
8. To ensure that the norms laid down by SEBI are strictly adhered to.
13.To send circular along with allotment letter explaining how and on what
basis the allotment has been made.
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16.To file a return of allotment with the Registrar within 30 days of the
issue.
When the share capital already issued is less than the authorised capital
of the company and the proposed further issue of shares is within the
limits of the authorised capital.
When the share capital already issued is equal to the authorised capital
of the company and the intended further issue of shares is therefore,
beyond the limits of the authorised capital.
Under both the conditions, further issue of shares is possible only if the
company is authorised by its Articles to do so. If the Article do not provide
for it, then the Articles must first be altered to that effect by passing a
special resolution. In addition to this alteration, Board of directors’
resolution is required when the proposed further issue is within the limits
of authorised capital. If the further issue exceeds the limit of authorised
capital, a sanction of the shareholders by means of an ordinary resolution
must be obtained for increasing the authorised capital after the Board’s
resolution. It must be noted that if the Articles provide that a special
resolution would be required, the company must pass a special resolution
instead of an ordinary resolution.
Receiving of Applications
The following are the steps involved in the issue of prospectus and
receiving of applications:
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1. Appointment of Bankers
A public company intending to raise share capital from the public has to
appoint a scheduled bank as Banker to the Issue. A special account is to be
opened for this purpose with the banker. The banker to the issue will
receive application money and other payments on allotment and calls on
behalf of the company. The Secretary secures the consent of the bankers
and the company has to fill up a special application form for opening a
special banking account with the bankers. In order to open the bank
account, the following documents are to be supplied to the banker:
A copy of Memorandum;
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COMPANY ACT, 2013
b. Publicity and issue of prospectus: After filing with the Registrar, the
prospectus can be issued to the public, provided it should be issued
within 90 days from the date of such filing. An advertisement relating to
the issue of prospectus will be given to the press and copies of
prospectus will be made available at the company’s bankers and its
head office. Every application form for shares issued to the public must
have along with it a copy of the prospectus.
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COMPANY ACT, 2013
Allotment of Shares
5. Special Provisions
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Every listed public company, making initial public offer of any security
for a sum of Rs. 10 crores or more, shall issue the same only in
dematerialized form.
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Transfer of Shares
The shares in a company are movable property and they can be transferred
in the manner provided by the Articles of the company. Shares are the
personal property of the shareholder and he has power to transfer his
shares. It is an absolute right which cannot be taken away by any provision
in the Articles. In the absence of any restriction in the Articles of
association the shareholder can transfer his shares to any person even to a
pauper or even if the transfer is made to escape liability provided that the
transfer is real and bonafide in the sense that it is an out and out disposal
of the property without retaining any interest in the shares.
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In case of shares held in joint names, the transfer form must be signed by
all of them unless a specific authorisation is made in favour of any or some
of them. Thus, is Shanta G. Pommeret v. Sakel Papers (P) Ltd.
(1990) 69Comp. Cas. 65 (Bom.), where though four persons were shown
as transferors of shares, only three had signed the share transfer form and
fourth had not authorised the others to sign on his behalf, it was held that
transfer of shares was not valid.
Who may Transfer: Any person who has properly become member of the
company has a right to transfer his shares. An infant, who is member, has
capacity to transfer his shares. A legal representative can transfer the
shares of a deceased member.
Registration of Transfer
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Refusal by the company on the ground that the registration of transfer will
create share certificates of ,less than marketable lot and would be in
contravention of Articles of association shall not be valid. Company Law
Board in Dipak Kumar Jayantilal Shah Vs. The Atul Products Ltd. held
that there is no prohibition under the companies Act or any other Act for
holding share certificates below marketable lots. The provisions of law will
override the provisions of Articles of association.
In this case, the appellant was holding five shares in the respondent
company. He requested the company to transfer one share each in the
names of four groups of joint holders. He submitted all the relevant
documents for the purpose. The company refused registration of transfer
on the ground that it would result in creating share certificates of less than
marketable lot which would be in contravention of the provisions of the
transferability as contemplated by the Articles of association. However
since the appellant had lodged four transfer forms along with share
certificates, the company was directed to register the transfer of shares in
the transfer form first considered by the board.
Transmission of Shares
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COMPANY ACT, 2013
in this case in property in shares passes ‘not by the act the parties’, but by
‘operation’ operation of law. For instance:
ii. on the death of a shareholder, the property in shares passes to his legal
representatives who shall become entitled to shares owned by the
deceased;
iii. on the lunacy of a share holder, the property in shares passes to the
administrator appointed by the court.
Thus, it is abundantly clear that in all the above mentioned instances i.e.
on the death or lunacy or insolvency of a member the transmission of
share takes place by operation of law.
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COMPANY ACT, 2013
Lien on Shares
The death of a shareholder does not destroy the lien. The right of lien can
be exercised even though the claim has become barred by law of
limitation. Where the liability of a shareholder towards the company is
disputed by him, it does not deprive the company of its right of lien on the
shares. But a company will not be able to exercise its right of lien where
the shareholder has mortgaged his shares before he has incurred any
liability to the company and the company has notice of it. Similarly, a
company will loose its lien if it registers a transfer of shares subject to the
lien.
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In case the amount received on sale of such shares is more than the
amount due, the excess shall be payable to the former owner. Power to sell
should be exercised after a notice has been given to the shareholder
requiring him to pay the debt due to the company within a specified time.
It should be made clear that the company intends to sell the shares in
enforcement of the lien.
But a company cannot enforce the lien by forfeiting the shares. A provision
in the Articles to such effect is void amounting to reduction of capital
without an order of the Court.
But the Articles may provide that the company is not bound to recognise
such interest of third parties. Even there the ordinary rules of law and
equity will be applicable.
Surrender of Shares
The Companies Act does not provide for surrender of shares. Shares are
said to be surrendered when they are voluntarily given up. The Articles of a
company may authorise the directors to accept surrender of shares.
Surrender of shares is valid where it is done to relieve the company from
going through the formality of forfeiture of shares and the shareholder is
willing to surrender the shares. A surrender and a forfeiture have
practically the same effect, the only difference being that the former is
done with the assnt of the shareholder while the latter is done at the
instance of the company.
The company, however, cannot recover more than the difference between
the sum due to the company in respect of the shares and the sum received
by the company (Re Belton).
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COMPANY ACT, 2013
Forfeiture of Shares
The right to forfeit shares must be pursued with the greatest exactness.
Forfeiture being in the nature of a penal proceeding, the provisions of the
Articles must be strictly followed. It must be exercised by properly
appointed directors at their meeting with requisite quorum. A small or
insignificant irregularity will make the forfeiture void.
A Company can forfeit its shares only when the following conditions are
satisfied:
Before the shares are forfeited the shareholder- must be served with notice
requiring him to pay the money due on the call together with interest; the
notice shall specify a date, not being earlier than the expiry of 14 days
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COMPANY ACT, 2013
Where the notice on which the forfeiture was founded was inaccurate in
requiring payment of interest from the date of the call instead of the date
when the call was payable, the forfeiture was held invalid.
Where a notice for the forfeiture was sent by registered post. A.D. and was
returned unserved, the forfeiture was held invalid.
The forfeiture shall be valid only when the provisions of the Articles are
strictly complied with. There must be a proper resolution of the Board; The
power of forfeiture must be exercised bonafide and for the benefit of the
company.
The company shall specify the total number of shares forfeited in every
annual return submitted to the Registrar under Section 159.
It must be noted that the directors are not bound to sell shares forfeited
for non payment of calls. This reduction of capital would not require
sanction of the National Company Law Tribunal. It can be concluded from
the above decision that if the shares are forfeited for reasons other than
the non-payment of calls, re-issue of such shares should be obligatory.
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COMPANY ACT, 2013
If the shares are reissued at a price more than their face value, as is
normally the case, the excess is a premium and must, therefore, be
transferred to the share premium account.
Annulment of Forfeiture
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COMPANY ACT, 2013
ii. The provision of money by a company for the purchase of fully paid
shares in the company by trustees for and on behalf of the employees of
the company.
This section does not affect in any way the right of a company to redeem
its preference shares under Section 80 of the Act. In case of contravention
of the provisions of this section, the company and every officer of the
company who is in default shall be liable to a fine which may extend to Rs.
1,000.
However, the Companies (Amendment) Act, 1999 vide sections 77A, 77AA
and 77B and the guidelines issued by SEBI in this regard allow companies
to purchase their own shares or other securities subject to certain
conditions. The provisions of the Amendment Act along with related SEBI
guidelines are as follows:
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COMPANY ACT, 2013
ii. the securities premium account. Thus, not only share premium
money but debentures or other securities premium money can also
be used; or
c. the buy-back is less than 10% of the total paid up capital and free
reserves of the company purchasing its own shares or other specified
security. However, as regards buy-back of equity shares, it may be
noted that it cannot exceed 25% of its total paid up equity capital in
that financial year.
d. the ratio of the debt owed by the company is not more than twice the
capital and its free reserves after such buy-back. However, the
Central Government may prescribe a higher ratio of the debt for a
class or classes of companies. ‘Debt’ includes all amounts of secured
and unsecured debts.
e. all the shares or other specified securities are fully paid up;
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1. may be-
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COMPANY ACT, 2013
c. from odd lots, that is to say, where the lot of securities of a public
company, whose shares are listed on a recognised stock exchange, is
smaller than such marketable lot, as may be specified by the stock
exchange; or
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10.File Return with ROC and SEBI: A company shall after the
completion of the buy-back file with the ROC and SEBI a return
containing such particulars relating to the buy-back within 30 days of
such completion, as may be prescribed. However, the aforesaid return
shall not be required to be filed with SEBI if the company is not a listed
company.
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COMPANY ACT, 2013
(RSUs) Stock Indexed Plans (No sharing in the Capital of the Company)
Stock Appreciation Rights (SARs Phantom Stocks
ESOPs- Now covered under the ambit of Companies Act, 2013 Unlisted
Companies Listed Companies Regulated by Section 62(1)(b) of the Act
read with SEBI (ESOS and ESPS) Guidelines, 1999 Regulated by Section
62(1)(b) of the Act read with Rule 12 of Companies (Share Capital and
Debentures) Rules, 2014. Scenario under New Companies Act, 2013
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Part B
DEBENTURE
f. The debenture holder is treated as a creditor and thus does not enjoy
normal voting right.
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COMPANY ACT, 2013
c. The dividend on shares is not pre-fixed. On the other hand, the interest
on debenture is pre-fixed as per the terms of the issue of debentures.
d. Share holders (equity) may or may not get dividend. Dividend payment
depends on the profitability position of the company. Further, dividend is
at the discretion of the Board of Directors of the company. On the other
hand, payment of interest on debenture is mandatory, notwithstanding
the profitability of the company.
e. Share holders (Equity) do not receive the share amount back from the
company during the life of the company. On the other hand, debenture
amount will be returned to the debenture holders on expiry of the
stipulated period for which the debentures are issued.
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1. The company can raise funds through debenture issue without diluting
control.
However, debenture as a source of raising funds is not free from its own
demerits.
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Listing of Shares
A stock exchange does not deal in the securities of all companies. Only
those securities that are listed can be bought and sold at the stock
exchange. For the purpose of listing of securities, a company has to apply
to the stock exchange. The stock exchange after receiving application from
the company will decide whether to list the securities of the company or
not. If permission is granted by the stock exchange to deal in the securities
therein, then such a company is included in the official, trade list of the
stock exchange and this is known as the ‘listing of securities’.
Advantages of Listing
The company which wants to list its securities in the stock exchange will
have to apply to the stock exchange in a prescribed application form which
is to be accompanied by the following documents as required under the
Securities Contracts (Regulation) Act, 1956:
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4. A short historical account of the company’s growth since its inception (in
the case of established companies).
The stock exchange will pay special attention to the following points while
scrutinising the application for listing of shares by a company:
c. Calls paid in advance may carry interest, but shall not confer a right
to dividend.
3. Whether the company is of a fair size and has a broad based capital
structure and there is sufficient public interest in its securities.
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COMPANY ACT, 2013
After making a thorough scrutiny of the application and the copies of other
certificates, the stock exchange authority, if satisfied, will agree to the
listing of shares of the company and will direct the company to execute an
agreement with the stock exchange embodying the terms and conditions of
listing.
c. every person holding shares of the company and whose name is entered
as a beneficial owner in the records of a depository;
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The general rule is that any person who is competent to contract may
become a member. A contract to purchase shares is like any other contract
and other contracting parties must be competent to enter into the contract.
The provisions of the Indian Contract Act, 1872, regarding the person who
can contract would apply. The membership rights of some categories of
persons are discussed below:
The minor also can repudiate the allotment during his minority and he shall
be returned the amount he paid towards the allotment of shares. If the
name of the minor continues on the Register of members and neither party
repudiates the allotment, the minor does not incur any liability on the
shares during minority and he cannot be held a contributory at the time of
winding up.
Where a minor has been allotted shares and his name has been entered to
the company’s register of members in ignorance of his minority, the
company can remove his name when the fact of his minority comes to its
knowledge. Similarly, the minor can also repudiate the allotment at any
time during his minority. But the position will change after he attains the
majority. He has the option to repudiate his liability on shares within a
reasonable time. But where a minor received dividends on attaining
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In case of a shares holder, who nominates his minor child as nominee and
dies before minor child attains majority, the shares can be transmitted to
minor child by transmission process.
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3. Where a person has been convicted under this section, the Court may
also order disgorgement of gain, if any, made by, and seizure and
disposal of the securities in possession of, such person.
Hindu Undivided Family: It can have shares in the name of its karta.
Joint Holders: The shares of a company may also be held jointly by two or
more persons. In a public company, each joint shareholder is counted as a
separate member.
There is no direct provision for joint membership, but there are a few
indirect references. Therefore, Articles of Association of a company provide
for joint membership and sometimes-the maximum number of persons
who can be joint holders of shares is given in the Articles generally not
more than four.
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ii. All the members are jointly and severally liable to make payment of
calls.
iii. A person whose name appears first in the order in which the names
stand in the Register of members, shall be entitled to vote.
iv. Notice or document may be served by the company on the Joint holders
of a share by serving it on the joint holder named first in the Register of
members in respect of the share.
vi. Joint holders of shares in a public company are not a single member.
Each of the joint member of shares is a member of the company. For
purposes of determining whether the number of members of a private
company does not exceed fifty as required by and for determining the
numbers of members required for making application under sections
241 and 242, joint holder of shares are counted as one member.
viii.In the case of transfer of shares held by joint holders, the transfer will
be effective only if the instrument of transfer is executed by all the joint
shareholders as transferors of shares. Joint members are liable jointly
and severally to pay call on shares held by them.
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xi. As regards rights of the joint shareholders to attend and vote at general
meeting it would seem that in the absence of any provision in the Act
(Sec. 47) relating thereto, a company may make its own provisions in
its Articles provided that such provision is not restrictive of any rights
given to the shareholders under the Act or is otherwise repugnant to
any provision in the Act. In the absence of any such provision in the
articles, joint holders may properly claim to be individually present and
take part in the debate at the meeting and vote on resolution decided
on a show of hands but on a poll, the voting rights can be exercised
only by all of them acting together;
xiv.As regards payment of dividend, the company can make the payment
to the first named of joint holders on the register unless instruction in
writing signed by all the joint holders has been given to the company for
making the payment of any other person.
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Termination of Membership
A person will cease to be a member of the company when his name is
removed from the register of members. It may take place in any of the
following two different ways: namely, (a) act of the Parties and (b)
Operation of Law. The former is effected voluntarily the member in
accordance with the law prescribed for this purpose whereas the latter is
an involuntary act of the party.
4. When a company sells the shares in exercise of its right of lien over
them.
1. When he dies.
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7. When share warrants are issued in exchange of fully paid-up shares and
the articles do not recognise holders of share warrants as members.
Explosion of a Member
It cannot be denied that there are some members who, by creating various
kinds of troubles for the management, try to rest undue advantage for
themselves. Can such members be expelled? has expressed the view that
the company cannot by amending the Articles of Association give itself a
power to expel a member. Such an amendment of Articles of association is
opposed to the fundamental principles of the Companies’ jurisprudence and
is ultra vires the company. Such a provision is repugnant to the various
provisions in the Companies Act pertaining to the rights of a member in a
public limited company and cuts across the scheme of the Act as it has the
effect of rendering nugatory the very power of the Central Government
(now the National Company Law Tribuinal). under section 58 of the
Companies Act, 2013 and the powers of the courts under sections 148(3)
and 235(3)(1) of the Act and is, therefore, void by the operation of the
provisions of section 6 of the Act.
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the interest of the company. An Article giving such power is not necessarily
invalid or ultra vires.
ii. To have his name borne on the register of members as well as to have
the register rectified, and in the case of refusal by the company, to
apply to the Court or National Company Law Tribunal for necessary
relief.
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vi. To inspect the registers, indexes returns and copies of certificates, etc.
kept by the company and to obtain extracts or copy thereof (Section
13).
viii.To have the first option in case of issue of new shares or a further issue
of shares (ie., the right of pre-emption) by the company (Section 62).
ix. To apply to the Court to have any variation or abrogation to his rights
set aside by the Court (Section 48).
xiii.To obtain a copy of the Profit and Loss Account and the Balance Sheet
with the Auditor’s report (Section 129, 136).
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xvi.To receive the auditors’s report at the Annual general Meeting of the
Company (Section 145)
xix.To receive a share in the capital of the company and in the surplus
assets, if any, on the company’s liquidation;
xx.To participate in passing of the special resolution that the company may
be wound up by the Court or voluntarily [Section 433, 484(1)(b)].
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Section 100 of the Companies Act confers on members holding not less
than one-tenth of the paid up share capital of a company right to
requisition an extra ordinary general meeting of the company. The section
also confers on members having not less than one-tenth of the total voting
power in a company not having a share capital to requisition an
extraordinary general meeting of the company. If the Board of directors of
the company does not within 21 days from the date of deposit of a valid
requisition in heard to any matter proceed to call a meeting for the
consideration of those matters on a day not latter than forty five days from
the date of deposit of the requisition, the meeting may be called by the
requisitionists themselves.
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ii. the contributories of the ‘A’ list (i.e., present members) are not able to
satisfy the contribution required from them in respect of their shares.
i. To take shares, when they are allotted in due time and compliance with
provisions of the Act, unless the refused to accept the shares has been
sent on the ground of non- compliance with the provisions of the Act as
regards the issue of the prospectus or as regards allotment.
ii. To pay for the shares allotted to him when the allotment is made and
when calls have been made validly and in conformity with the provisions
of the Articles.
iii. To abide by the doing of the majority of members unless the majority
acts vindictively, oppressively, mollified or fraudulently.
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Register of Members
Every company under Sec. 88(a) of the 2013 Act shall keep a register of its
members indicating separately fo reach class of equity and preference
shares held be a member residing in or outside India. Under Sec. 88(4), a
company, if so authorised by its Articles, can maintain a “foreign register”
outside India, containing the names and particulars of the members. There
is no form but the following particulars must appear in the registers.
b. In the case of company having a share capital, the shares held by each
member with numbers and amount paid or considered to be paid on
them.
c. The date on which each member’s name was entered in the register.
e. If the shares have been converted into stock, and notice of conversion
given to the registrar, it will show the amount of stock held by each
member.
For default in complying with those provisions, the company and every
officer of the company who is in default shall be liable to a fine upto which
shall not be less than Rs. 50,000 but which may extent to Rs. 3 Lakhs
and where the failure is continuing one, with a further fine of Rs. 1,000
per day during which the default continues [Section 88(5)].
Index of Members
Section 88 (Rule 6 of Companies (Management and Administration) Rules,
2014 requires every company having more than fifty members to maintain
a register of members in an index form or a separate index on the names
of the members of the company. All alterations in the register of members
must be carried to the index with fourteen days. The index should enable
the entries relating to a member to be readily found. The index must be
kept at the same place as the register of members. In case of non
compliance, the company and every officer who is in default shall be liable
to a fine which may extend to Rs. 500.
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Annual Return
Section 159 requires every company having a share capital to file with the
Registrar every year a formal return called an annual return containing the
specified particulars relating to the company. It shall be filed within 60
days from the date of the holding of the annual general meeting. Where no
annual general meeting is held, in a particular year then the annual return
has to be filed within sixty days from the last day on which the meeting
should have been held in accordance with the provisions of the Act. The
fact that no annual general meeting was held is not justification for not
complying with the requirements of the section. The directors are under an
obligation to file the annual return even if the company ceased functioning.
The object of filing the annual return is to enable the Registrar to record
the changes that have occurred in the constitution of the company during
the year. At the same time it affords an opportunity of obtaining certain
additional information which would otherwise be available only at the
company’s office, if at all.
The Annual Return should be filed in the form given in Part II of Schedule V
and must contain the particulars specified in Part I of Schedule V,
regarding-
Where the company has converted any of its shares into stock and given
notice to the Register, the amount of stock held by each of the members
concerned should be mentioned instead of the shares so converted.
In the case of a company not having a share capital, an annual return shall
be filed with the Register within sixty days from the date of the annual
general meeting. It shall contain the following particulars regarding.
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ii. the names of members with dates on which they became members and
the names of persons who have ceased to be members since the date of
the last annual general meeting with dates;
iii. all such particulars with respect to the persons who, at the date of the
return were the directors of the company, its manager and its secretary;
The annual return filed with the Registrar under Section 159 or 160 shall
be signed by a director and the manager, or secretary, if any, or by two
directors one of whom shall be the managing director where there is one.
The return shall be accompanied by a certificate signed by both the
signatories of the return stating that the return contains the facts as the
that since the date of the last annual return the transfer of all shares and
debentures and the issue of all further certificates of shares and
debentures have been appropriately recorded in the books maintained for
the purpose. In the case of private company, the certificate must further
state that the company has not, during the year, issued any invitation to
the public to subscribe to the shares or debentures of the company and
that the numbers of members does no exceed fifty, excluding the past and
the present employees of the company. [Section 161]. In case of non-
compliance the company and every officer who is in default shall be
punishable with fine upto Rs.500 for every day during which the default
continues [Section 162].
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Shareholders’ Meetings
As the name indicates, it is the meeting of shareholders of a company. The
following are the different kinds of meetings of the shareholders:
Directors’ Meetings
These meetings are open to the members of the board of directors of the
company. These meetings are of two types:
Creditors’ Meetings
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If there are any irregularities in the procedure followed for convening and
conducting a meeting, the proceedings of that meeting are not valid and
the decisions take therein will not be binding. Hence, the meeting should
be validly held. The essentials of a valid meeting are as follows:
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3. Notice regarding the holding of the meeting should be sent to all the
persons entitled to receive the notice and according to the rules and
regulations of the articles of the Company Act, as the case may be.
5. There should be an agenda for the meeting and the items discussed at
the meeting should be according to the order of the items on the
agenda. Any deviation from the order of the items on agenda however,
can be made with the consent of the members present.
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If the company fails to hold the annual general meeting as per the Sec 96
of the Act, the Tribunal is empowered to convene such a meeting, if it
receives any application from a member of the company (Sec. 97).
Section 101 provides that in the case of general meetings, a notice of not
less than 21 days must be given either in writing or through electronic
mode. Provision is also made for a shorter notice in certain cases, for
example:
a. In the case of the annual general meeting, if not less than ninety-five
percent of the members entitled to vote give their consent thereto.
b. In the case of any other general meeting, when the company has a
share capital, a shorter notice may be given by the consent of the
members holding not less than 95% paid up share capital of the
company and when the company has no share capital, the consent of at
least 95% voting powers exercisable at that meeting must be obtained.
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In the case of the meeting of the board of directors, every director must be
given notice of the meeting. The Act does not prescribe the length of
notice. However, the same may be prescribed by the Articles.
Any accidental omission (the omission must not only be designed, but also
not deliberate) to give notice to, or the non-receipt of such notice by, any
member or other persons, who is entitled to such notice for any meeting
shall not invalidate the proceedings of the meeting [Sec.101(4)].
ii. Any other information and facts that may enable members to
understand the meeting, scope and implication of items of business and
to take decision thereon [Sec. 102(1)].
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Contents of Notice
Every notice convening the meeting should state the place, day and time of
the meeting and must also contain statement of the business to be
transacted at the meeting. The meeting must be held in the same city or
town where the registered office of the company is situated, the meeting
must be held on a working day unless the company is a non-trading one,
e.g., Chamber of Commerce. The meeting must be held within the working
hours unless the members agree to hold it otherwise.
Every member of the company, the auditors of the company and the legal
representatives of the deceased member and insolvent members, if any,
are entitled to received meeting notice.
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If the notice of meeting is not deliberately sent to any single member, the
meeting becomes invalid. But accidental omission will not. In case of those
who hold share warrants and those, whose address is not known, public
notice in news paper regarding the holding of meeting is enough.
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b. If at the adjourned meeting also the quorum is not present within half
an hour from the time appointed for the meeting, the members present
will form the quorum and may transact the business which will be valid.
c. In case the meeting was called by the requisition of the members and
there is no quorum within half an hour from the time appointed for the
meeting, it shall stand dissolved
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Further, where a meeting of the Board could not be held for want of
quorum, unless the Articles of the company provide otherwise, the meeting
shall automatically stand adjourned to the same day at the same time and
place in the next week or if that day is a national holiday, till the next
succeeding day, which is not a national holiday, at the same time and
place.
Disinterested Quorum
Disinterested quorum means quorum of those directors who are not
interested, directly or indirectly in certain matters before the board
meeting i.e., for the purpose of finding the quorum. Interested directors
are excluded from the quorum or that particular resolution. Further, they
are also disqualified from voting. In the minutes of the meeting, it must be
stated that the directors who were interested in the subject matter, under
discussion were excluded to form the quorum and did not exercise their
vote for or against the motion in which they were interested. The rule of
disinterested quorum, however, does not apply to a general meeting. An
interested director is entitled to vote in the general meeting on the matter
in which he is interested.
Section 105 of the Act lays down certain provisions relating to a proxy.
They are:
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7. The proxy from must have a 20 paise revenue stamp and it should bear
the seal of the company or be signed by a duly authorised agent.
8. The proxy from should be deposited with the company 48 hours before
the meeting. If the Article provides for longer period beyond 48 hours
any proxy or instrument having validity to be proxy shall be have effect
as if a period of forty- eight hours had been specified in for such
deposit.
9. Every member has a right to inspect the proxies within 24 hours before
the time fixed for the meeting and also till the conclusion of the meeting
provided he has given not less than three days' notice to the company
of his intention to do so.
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13.A shareholder may revoke the proxy in accordance with the provisions
of the Articles and attend the meeting and vote personally.
14.In every meeting notice of a company which has share capital, (or the
Articles of which provide for voting by proxy at the meeting), there shall
be a statement that a member entitled to appoint a proxy, can appoint a
proxy. The statement should appear in meeting notice with a reasonable
prominence. The notice should be accompanied with proxy form.
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Chairman of Meetings
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Appointment of a Chairman
Generally, the promoters nominate the first chairman of the company. His
name is, therefore, mentioned in the articles. If this step has not been
taken, the directors in their first meeting after incorporation of the
company, may elect one of the directors as a chairman of the company.
The articles usually provide that the chairman shall preside over the
meetings of directors as well as the meetings of shareholders. The board
may decide to elect a new chairman every year at the first board meeting
after the annual general meeting. In addition to the chairman, a company
may have a deputy chairman or vice-chairman who can preside over the
company meetings in the absence of the chairman. If the regular chairman
and the deputy chairman are not present within 15 minutes after the
appointed time for holding the meeting, or they refuse to preside over the
meeting, the members present shall elect one among themselves as the
chairman of the meeting.
Qualities of a Chairman
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9. He should also know the rules governing the meeting over which he is
presiding.
10.He should have a thorough knowledge of the affairs of the company and
also of the industry.
Powers of a Chairman
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7. To grant a poll: When the members demand a poll, the chairman has
power to grant it. Further, he has the power to regulate the manner in
which it is to be taken.
Duties of a Chairman
1. To see that the meeting is duly convened and properly constituted. That
is, he must see that there is proper notice for the meeting, his
appointment is in order and the required quorum is present.
2. To see that the minutes of the last meeting are read, confirmed and
signed by him.
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4. To see that the motions and amendments are within the scope of the
meeting and they are properly moved and seconded.
5. To see that all members including the minority get equal opportunity to
express their views.
7. To see that the persons attending the meeting are prevented from
discussing matters in whispers among themselves and in small groups.
9. To give his ruling when a point of order is raised during the course of
the debate.
10.To exercise his casting vote, if any, judiciously and in the best interest
of the company.
12.To see that the minutes of the business conducted at the meeting are
kept and signed by him.
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2. In the meeting, when discussion takes place, all remarks related to the
topic under discussion should be addressed to the chair.
4. When the Chairman rises to speak, any person speaking at the time
should stop speaking and take his seat. However, he can resume his
speech after the Chairman has finished speaking.
11.During discussion, point of order may be raised by any person and the
Chairman's ruling on the point of order will be final and binding on all.
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Skill Development
Meetings of Directors
The directors are the representatives of shareholders and are responsible
for overall supervision of management of the company. They meet at
regular intervals say, once in a fortnight or once in a month, to discuss and
decide matters relating to the company. Usually the articles fix the dates of
board meeting e.g., on the 1st and 16th of every month. The Companies
Act has laid down that the meetings of directors must be held once in three
months or four meetings in a year. However, they may meet very often if
there is a necessity. The directors need to exercise the powers, conferred
on them by the Articles and the Act, only at the duly constituted meetings
of directors. These meetings are commonly termed board meetings.
Usually, the articles empower the board of directors to appoint committees
of directors to investigate and report on various matters relating to the
management and administration of the company e.g., opening of a branch,
introducing a new product by the company, raising of finance, etc.,
Meetings of such committees have also to be held as and when required
and these meetings are known as meetings of committees of directors.
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The Board of Directors shall exercise the following powers on behalf of the
company by means of resolutions passed in the board meeting:
d. To borrow monies.
These powers can be exercised only when the company has authorised to
exercise and do, except those that are to be exercised or done by the
company in general meeting.
Further, the Board can delegate the powers specified in (d) to (f) above, by
a resolution passed at a meeting, to the committee of directors, or the
managing director, or the manager, or any other principal officer of the
branch (if any). Powers (d) to (e) can be delegated on such conditions that
the Board may specify.
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It is clarified in this section (179) regarding (d) above i.e., “To borrow
money”, that if any banking company accepts deposits of money from the
public which is repayable after the stipulated time lapses, shall not be
deemed to be borrowing. It is further clarified that the borrowing means
the arrangement made by the company with its bankers for the borrowing
of money.
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A notice within the prescribed time (not less than seven days) specifying
the date, time and place of the meeting must be sent to every director by
the secretary, by hand delivery or through electronic means or by post
[Sec 173(3)].
The agenda should also be set along with the notice. If notice is not sent to
some directors who consequently are absent from the meeting, the
proceedings of the meeting will be considered invalid. The Act provides that
if an officer who is responsible for the issue of such notice fails to do so,
shall be punishable with a fine of up to Rs. 25,000. [Sec 173(4)].
It may be stated that the agenda which is sent along with the notice of the
meeting should contain routine items first and the other items later. The
agenda of the first board meeting, which is held with in 30 days after
incorporation, contains items relating to setting up and conducting the
company’s business such as election of chairman, appointment of
managing director, secretary, banker, approval of draft prospectus, fixing
quorum, approval of the company’s seal, etc. The agenda of subsequent
board meetings which are held frequently vary from meeting to meeting.
Generally, the items of business included in the agenda of the subsequent
board meetings relate to transfer and transmission of shares, finance and
accounts, appointment of committees, calls on shares, forfeiture and re-
issue of shares, issue of debentures, dividends, convening of general
meetings, borrowings, investment of the company’s funds, execution of
contracts on behalf of the company, appointment, promotion and dismissal
of staff, filling of a casual vacancy among directors, etc.
One person company, small company and dormant company can hold
meeting at a shorter notice (within 90 days) and at least one meeting of
Board in each half of a calendar year. [Sec 173(5)].
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Sec. 96 of 2013 Act deals with Annual General Meeting (AGM) procedure.
As per the provisions of 1956 Act, statutory meeting was held first (which
was for all practical purposes served as the AGM). It is not mentioned
anywhere in the 2013 Act, about statutory meeting. But Sec. 96 of the Act,
stipulates that in case of first AGM, it shall be held within a period of nine
months from the date of closing of the first financial year of the company.
In any other case, AGM has to be conducted within a period of six months,
from the date of closing of the financial year.
Sec. 96(1) says that every company other than One Person Company
(OPC) shall in each year hold, in addition to any other meeting, a general
meeting as its AGM. It should be specified in the meeting notice that
meeting is AGM. Further it states that not more than fifteen months shall
elapse between the date of one AGM of a company and the next one.
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neither defined under Sec. 2 of the Act, nor expressed under Sec. 96. Thus
the concept is dropped.
The Registrar, for any special reason, can extend the time to hold any AGM,
other than first AGM, by a period not exceeding three months.
Sec. 96(2) has prescribed business hours to conduct AGM, which runs
between 9 a.m. and 6 p.m. which was not stipulated in 1956 Act. Further,
AGM can be conducted on any day, other than National Holiday (which is
declared by the central government) at the registered office of the
company or at some other place within the city, town or village in which
the registered office of the company is situated.
Meeting notice for AGM should be served for all members (whose name
found in the name of register of members on the date of sending notice).
Clear twenty one days’ notice, either in writing or through electronic mode,
(as may be prescribed) should be sent to all registered members.
Shorter notice can also be given for AGM, if consent in writing or electronic
mode is given by not less than ninety-five percent of the members entitled
to vote at such meeting [Sec. 101(1)].
Other aspects, viz., (i) not holding AGM by the company (ii) and penalty for
not holding AGM, are explained in detail in chapter 7. However, if the
company is not convening AGM as per Sec. 96, the Tribunal can call AGM
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Consequence of Default
Penalty for non convening AGM as per directions of Tribunal is imposed as
per Sec. 99. The defaulting officer is fined upto rupees one lakh and further
fine of rupees five thousand for every day during which such default
continues.
v. Declaration of dividend.
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According to Section 134 of the 2013 Act, the annual report of directors
must be attached with the balance sheet and profit and loss account which
has to be sent to the members along with the notice of the meeting. The
report must be dated and signed by at least two directors, one of whom
should be the managing director, if any, The report must contain the
following particulars:
a. A brief statement on the trading results of the company in the past year.
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Under Section 129 of the Act, the board of directors of a company must
place the audited balance sheet and profit and loss account of the company
for the relevant year before the annual general meeting. The Act also
provides that a copy of the balance sheet along with the profit and loss
account and auditors’ report must be sent to every member of the
company and to every debenture holder at least 21 days before the
scheduled date of meeting. The balance sheet and profit and loss account
must be signed by two directors including the managing director (if any) or
the secretary, if authorised by the board. After the annual general meeting
is over, the secretary must file three copies of the balance sheet and profit
and loss account along with other documents annexed thereto with the
Registrar within 30 days from the date of meeting.
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The Companies Act provides that in case the annual general meeting has
not been held, the company must file with the Registrar three copies of
balance sheet and profit and loss account along with other annexed
documents within 30 days from the latest day on or before which the
meeting should have been held under the provisions of the Companies Act.
Chairman’s Speech
The director’s report which is prepared to meet the legal requirements may
not reveal all the details about the state of affairs of the company and its
prospects. Therefore, even though it is not required by law, it has become
customary for the Chairman of the company to make a speech or address
the shareholders at the annual general meeting. In his speech, the
chairman explains the information given in directors’ report in detail, states
the trading result and financial position of the company, reviews the
company’s working and progress during the year, mention the factors that
are favourable or adverse to the business of the company and refers to the
future prospects of the company. In his speech, he also makes reference to
the various economic and political problems and the policies of the
government which affect the industry in general and the company in
particular.
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One Person Company need not conduct the business of meeting as per
clause (a) of sub-section (2) of Sec. 102. The AGM of this company (OPC)
shall be conducted as per sub-sec (3) of section 122.
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[Note: This is anew section in 2013 Act, and tells about the method of
conducting AGM and Board meeting in case of OPC].
Notice
Notice is hereby given that the seventh annual general meeting of the
company will be held at the Registered Office of the company on 16th
March 2015 at 2.30 p.m. to transact the following business:
Agenda
2. Chairman’s address.
3. To receive and adopt the Directors’ report and the audited balance sheet
and the profit and loss account.
4. To declare dividend.
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Sd/-
Secretary
Place ……………….
Date 19..............
Notes:
Present:
1. Mr................................. Chairman.
2. Mr.................................
3. Mr.................................} Directors.
4. Mr.................................
5. Mr.................................
6. Mr.................................
In attendance;
Mr................................. Auditor.
Mr.................................Secretary.
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Place …………….
Date ................
Specimen of Admission Card
No.................
Objectives
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ii. If the company has no share capital, members representing not less
than one tenth of the total voting rights [Sec 100(2)(b)].
The requisition must state clearly the object for which the meeting is called
and must be deposited at the registered office of the company. The board
must call within 21days of the deposit of the requisition an extraordinary
general meeting to be held on a day not later than 45 days from the date
of the requisition.
iii. such of them (in case the company has no share capital) as represent
not less than one-tenth of the total voting power of all the members.
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The notice of the extraordinary general meeting specifying the date, time
and place of the meeting must be issued to all the members entitled to
attend and vote at least 21 days before the meeting. In addition, the notice
should be published in newspapers. The notice must state the object of the
meeting and the particulars of the special business which is to be
transacted at the meeting. If a special resolution is to be moved at the
meeting, the text of the resolution proposed to be moved should
accompany the notice.
Under Section 102 of the Act, any business transacted at the extraordinary
general meeting is deemed to be special business.
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3. Then the secretary will send 21 days notice to the members along with
an explanatory statement.
5. After reading of the notice of meeting, the chairman will proceed with
the business as per agenda.
6. Before moving any resolution on the matter, the chairman explains the
need and advisability of passing the resolution. Then the moves he
resolution which is put to vote after a thorough discussion and the result
will be declared by the chairman. If there is a demand for poll, he
should arrange for the same. If the resolution is a special resolution, it
must be passed by a three-fourths majority.
7. After the meeting, the secretary must file a duly certified copy of the
special resolution with the Registrar within 30 days of its passing. The
secretary also prepares the minutes of the meeting and will get them
approved by the chairman at the next board meeting. Further, a printed
copy of the special resolution must be embodied or annexed to each of
the articles issued by the company after the meeting.
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11.After the meeting is over he has to draft the minutes of the meeting
and get them approved by the chairman at the next board meeting.
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13.He should also file a certified copy of the special resolution with the
Registrar within 30 days of the passing of the resolution. If he fails to do
so, a fine of Rs. 20 per day will be imposed on the company till the
default continues.
14.If charges have been made in the articles or memorandum, the altered
copies of these documents must be filed with the Registrar within three
months.
....................................
Gentlemen,
We the undersigned being, the holders of more than one-tenth of the paid-
up capital of the company and being entitled to vote, hereby require you
forthwith to proceed to convene an extraordinary general meeting of the
company for the purpose of considering (here set out objects of meeting)
and for the purpose of passing such resolutions in relation thereto as may
be thought fit.
Signatures of requisitionists.
Date ..............
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Note:
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4.10 SUMMARY
Section 2(20) of the companies Act 2013, defines that ‘a company means a
company formed and registered under this Act or an existing company”.
The company is created only when registered under the Companies Act,
2013. This chapter briefly, discusses about the meaning of company, its
types and members, procedure of formation of the company, types of
meetings to be conducted in the company, duties, rights, liabilities of
various members of the company, etc.
Section - A: 20 Marks
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Section - B: 10 Marks
8. Give an analytical note on: (i) eligibility to become a member and (ii)
termination of membership.
10.Write a note on (i) contents of notice and (ii) mode of giving notice.
11.State the usual powers that the Board of Directors can exercise in their
operations.
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Section - C: 05 Marks
4. What is Incorporation?
5. What is a “Stock”?
13.What is an Agenda?
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
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Chapter 5
Cyber Law
Objectives
Information Technology Act, 2000 and its salient features, objectives and
scope
Structure:
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Introduction
Man has evolved from his original form from the past centuries. He has
come through so many stages, has made so many discoveries, and
invented so many things. But since the discovery of electricity, electronic
devices has been the most fabulous one. In the 20th century Charles
Babbage invented the computer. It is one of the most amazing inventions.
Initially it only made simple calculations. Later it became a multi purpose
machine.
Soon, with the rapid advancement, the computer became a common sight,
because of the decreasing cost and size of it. With the advent of IBM’s
personal computer. (pc), the computer was economical to purchase and
maintain. At present every organisations may be business centres,
corporate office, Institution, even at home, usage of computer has become
compulsory. In 1980 the computers have been captured place in the
society.
Today, there are computers every where. Mobiles, Calculators, PCs, ATMs
etc. are all small computers themselves, which are used for services, data
storage to entertainment. The Internet or World Wide Web (WWW) are the
advanced technology used in the computer. These brings the people closer
and make the world smaller. “World is small”, “World is flat” are all usages
used only because of computers. But this beautiful and great invention has
been mis-used by the some of the criminals. In order to protect and
regularise such crimes the law on International Technology came into force.
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a. E-Commerce in India.
b. E-Governance in India.
c. Cyber Contraventions.
d. Cyber Crimes.
Objectives of IT Acts
To provide for the use and acceptance of electronic records and digital
signatures in the Government offices and its agencies.
Scope of the Act: This is given under chapter 1 Sec. 1. as: The Act
extend to the whole of India, and unless other wise provided in the Act, it
applies also to any offence or contravention there under committed out
side India by any person.
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4. A will as defined in clause (h) of section (2) of the Indian succession Act
1925.
Definitions
According to the section 2 of the Act the following are the definitions to the
various words used in I.T. Internet, Cyber Space:-
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b. Relating to any State Law enacted under List III of the Seventh
Schedule to the Constitution, the State Government and in any other
case, the Central Government.
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(z d) “public key” means the key of a key pair used to verify a digital
signature and listed in the Digital Signature Certificate.
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24.Power of police officers and other officers to enter into any public place
and search and arrest without warrant (Section 80).
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a. Cyber-crimes.
b. Electronic and digital signatures.
c. Intellectual property.
d. Data protection and privacy.
In India, cyber laws are contained in the Information Technology Act, 2000
("IT Act") which came into force on October 17, 2000. The main purpose of
the Act is to provide legal recognition to electronic commerce and to
facilitate filing of electronic records with the Government. The information
Technology Act is an outcome of the resolution dated 30th January 1997 of
the General Assembly of the United Nations, which adopted the Model Law
on Electronic Commerce, adopted the Model Law on Electronic Commerce
on International Trade Law. This resolution recommended, inter alia, that
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all states give favourable consideration to the said Model Law while revising
enacting new law, so that uniformity may be observed in the laws, of the
various cyber-nations, applicable to alternatives to paper based methods of
communication and storage of information. The Department of Electronics
(DoE) in July 1998 drafted the bill. However, it could only be introduced in
the House on December 16, 1999 (after a gap of almost one and a half
years) when the new IT Ministry was formed. It underwent substantial
alteration, with the Commerce Ministry making suggestions related to e-
commerce and matters pertaining to World Trade Organization (WTO)
obligations. The Ministry of Law and Company Affairs then vetted this joint
draft. After its introduction in the House, the bill was referred to the 42-
member Parliamentary Standing Committee following demands from the
Members. The Standing Committee made several suggestions to be
incorporated into the bill. However, only those suggestions that were
approved by the Ministry of Information Technology were incorporated.
One of the suggestions that was highly debated upon was that a cyber café
owner must maintain a register to record the names and addresses of all
people visiting his café and also a list of the websites that they surfed. This
suggestion was made as an attempt to curb cybercrime and to facilitate
speedy locating of a cyber-criminal. However, at the same time it was
ridiculed, as it would invade upon a net surfer’s privacy and would not be
economically viable. Finally, this suggestion was dropped by the IT Ministry
in its final draft. The Union Cabinet approved the bill on May 13, 2000 and
on May 17, 2000; both the houses of the Indian Parliament passed the
Information Technology Bill. The Bill received the assent of the President on
9th June 2000 and came to be known as the Information Technology Act,
2000. The Act came into force on 17th October 2000. With the passage of
time, as technology developed further and new methods of committing
crime using Internet & computers surfaced, the need was felt to amend the
IT Act, 2000 to insert new kinds of cyber offences and plug in other
loopholes that posed hurdles in the effective enforcement of the IT Act,
2000. This led to the passage of the Information Technology (Amendment)
Act, 2008 which was made effective from 27 October 2009. The IT
(Amendment) Act, 2008 has brought marked changes in the IT Act, 2000
on several counts. The Union Cabinet has recently in September 2012,
approved the National Policy on Information Technology 2012. The Policy
aims to leverage Information & Communication Technology (ICT) to
address the country’s economic and developmental challenges. The vision
of the Policy is “To strengthen and enhance India’s position as the Global IT
hub and to use IT and cyber space as an engine for rapid, inclusive and
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12.To leverage ICT for key Social Sector initiatives like Education, Health,
Rural Development and Financial Services to promote equity and quality.
13.To make India the global hub for development of language technologies,
to encourage and facilitate development of content accessible in all
Indian languages and thereby help bridge the digital divide.
5.6 PIRACY
Piracy of software take place due to high cost of software products. The
users mainly the individuals or small business houses cannot afford to pay
high cost of software or sometimes they do not want to purchase legal
software which cost them heavily. Instead they go for the pirated software.
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the patent holder, himself may grant a license to the others for limited use
of the patent. A patent right gives the owner exclusive right to use, sell,
produce the patented item. The main reason of granting the patent right to
the developer of software is that his own researches money; time may be
used by the others. The developers prepares special software after putting
in a great labour personnel skill, money time and when this software is
created after such great efforts, which should not mis- used by others.
The rights of patent granted are not absolute. These rights are limited to a
certain number of years and the other developer can design a close
product.
b. To issue copies of the work to the public not being the copies already
in circulation.
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The law also gives the provisions for the following acts shall not
constitute an infringement of copy right:
i. In order to utilise the computer program for the purpose for which it
was supplied or
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The Law is to protect the cyber crime for the computer users theft of or
destruction of informations stored or passed by computers may be the goal
of a cyber criminal, while others may use the computer as a tool to
accompanist more abominable acts. For this the stake or local law
enforcement officials and prosecutors must be specially trained to combat
these well equipped criminals, As the law enforcement community is facing
these new challenges, a new discipline of cyber crime Investigation has
emerged. As such agencies will look favourably upon those into
technological training in cyber crime.
a. Hacking:
Its means entering some place on the networks like Internet, Intranet, LAN
and WAN where one is not permitted to enter and see those things one is
not supposed to see. Hackers are computer experts who can break the
privacy or confidential area of the computer. They can steal important data
and merge the same break the privacy or confidential area of the computer
and merge the same with other. They may add any wrong information into
any other data, which cause loss and destruction of data. The above said
crime is hacking is defined in section 66 of the information Technology
2000.
Under section section 66(2) it gives the punishment for this crime with
imprisonment up to three years or with fine which may extend up to two
lakh rupees or with both.
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b. Cracking:
It means an illegal access. Access includes the entering of another
computer, system, where it is connected Via public telecommunication
networks or to a computer system on the same network, such as a LAN
(local area network) or Internet with in an organisation.
d. Bulletin Boards:
Sharing investor information and often fraud is occurred causing loss of
millions who bank on them.
f. E-mail scans:
If is used to spread bogus investment schemes or to spread false
information about the company.
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2. Any person who fails to comply with any order under sub- section (1)
shall be guilty of an offence and shall be liable on conviction to
imprisonment for a term not exceeding three years or to a fine not
exceeding two lakh rupees or to both.
3. The subscriber or any person who fails to assist the agency referred to
in sub-section (2) shall be punished with an imprisonment for a term
which may extend to seven years.
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Save as otherwise provided in this Act or any other law for the time being
in force, any person who, in pursuance of any of the powers conferred
under this Act, rules or regulations made there under, has secured access
to any electronic record book, register, correspondence, information,
document or other material without the consent of the person concerned
discloses such electronic record book, register, correspondence,
information, document or other material to any other person shall be
punished with imprisonment for a term which may extend to two years, or
with fine which may extend to one lakh rupees, or with both.
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a. The Certifying Authority listed in the certificate has not issued it; or
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Security Guidelines
This document provides guidelines for the implementation and
management of Information Technology Security. Due to the inherent
dynamism of the security requirements, this document dose not provide an
exact template for the organizations to follow. However, appropriate
suitable samples of security process are provided for guidelines. It is the
responsibility of the recognizations to develop internal processes that meet
the guidelines set forth in this document.
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g. Training,
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are considered more sensitive, and how the organization would like the
sensitive information handled and protected. Classification, declassification,
labelling, storage access, destruction and reproduction of classified data
and the administrative overhead this process will create must be
considered. Failure to maintain a balance between the value of the
information classified and the administrative burden the classification
system places on the organization will result in long-term difficulties in
achieving success.
Fire Protection:
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Environmental Protection:
1. Water detectors shall be installed under the raised floors throughout the
operational site and shall be connected to audible alarms.
Physical Access:
4. Dual control over the inventory and issue of access cards/keys during
normal business hours to the Data Centre shall be in place. An up-to-
date list of personnel who possess the cards/keys shall be regularly
maintained and archived for a period of three years.
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6. All individuals, other than operations staff, shall sign in and sign out of
the operational site and shall be accompanied by operations staff.
8. All opening of the Data Centre should be monitored round the clock by
surveillance video cameras.
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5.9 SUMMARY
Conceptual Type
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Analytical Type
Essay Type
2. E x p l a i n t h e p r o v i s i o n s o f t h e a c t r e l a t i o n t o a t t r i b u t i o n ,
acknowledgement and dispatch of electronic records.
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
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Chapter 6
E-COMMERCE REGULATIONS
Objectives
Structure:
6.4 Summary
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India has launched projects like Digital India and Aadhar. These projects
collect sensitive and personal information and data of the netizens and
Indian citizens. Unfortunately, India has failed to enact dedicated cyber
security laws, privacy laws and data protection laws (pdf) to safeguard the
information and data collected from Indian citizens and people. In these
circumstances, online payment companies and businesses of India must be
very cautious in their online dealings and businesses in India. This is more
so when the directors of Indian companies can be held liable for cyber law
and cyber security related non compliances in India. As on date most of
the directors are not complying with cyber law and cyber security related
legal obligations.
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If Indian government really wants Digital India and online payment system
to be successful, it must think out of the box and use novel methods that
are techno legal in nature. Similarly, businesses house and entrepreneurs
dealing with financial business ventures in general and online payment
system in particular must comply with techno legal requirements of Indian
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laws. Perry4Law Law Firm wishes all the best to Indian government and
online payment entrepreneurs for their initiatives, ventures and projects.
As per the FDI policy, contained in the “Consolidated FDI Policy Circular
2015” (pdf) (FDI Policy) as amended from time to time, FDI up to 100%
under automatic route is permitted in Business to Business (B2B) e-
commerce. No FDI is permitted in Business to Consumer (B2C) e-
commerce. However, FDI in B2C e-commerce is permitted in following
circumstances:
ii. A single brand retail trading entity operating through brick and mortar
stores, is permitted to undertake retail trading through e-commerce.
In order to provide clarity to the extant policy, guidelines for foreign direct
investment on e-commerce sector have been formulated and are
enumerated below:
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Definitions
Other Conditions
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v. An e-commerce entity will not permit more than 25% of the sales
affected through its marketplace from one vendor or their group
companies.
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Indian government now plans to tap data on overseas online sales as part
of efforts to boost outbound shipments through e- commerce platforms
and channel benefits to these dedicated exporters. Indian government has
made a software for e-commerce exports that would capture data for
further action and policy decisions. This would benefit small exporters as
customized solutions can be then provided to them by Indian government.
Presently the value of items shipped through couriers is often not captured
in export data because they are categorized as samples or gifts. These are
labelled as samples because under the normal export channel exporters
have to file shipping bills and are subject to checks by custom officials,
which is cumbersome, especially for small exporters with low-value
shipments. The software intends to mitigate these rigours and further help
in claiming duty drawbacks for e-commerce exports. To give benefits to
small exporters, the director general of Foreign Trade has defined “e-
commerce” as the buying and selling of goods and services, including
digital products, conducted over digital and electronic networks.
These steps are being introduced a year after the government provided
export incentives to the shipment of goods through couriers or foreign post
offices using e-commerce in the Foreign Trade Policy of 2015-2020. At
present, exports that can avail of these sops are capped at Rs. 25,000 per
consignment, a value considered small for such purchases. Moreover, only
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Maharashtra’s FDA Orders Filing of FIRs Against Snap deal, Its CEO Kunal
Bahl, Directors and Distributors for Online Sale of Prescription Drugs.
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payment. However, this does not absolve Snapdeal of its legal obligations
and liabilities under various healthcare laws of India. Further, Snapdeal has
also failed to observe cyber law due diligence that isvery common in India
these days.
Online pharmacies are double edge swords. On the one hand, they are
beneficial to the masses as they provide easy and affordable medicines to
the patients and those who are in need of them. On the other hand, they
are potential source of spurious and dangerous substances passed as
medicines that could prove fatal in many cases.
However, projects like Digital India are suffering from many shortcomings
and this has made the Digital India project vulnerable to judicial
interventions. Just like the Supreme Court of India had to interfere in the
Aadhar and section 66A cases, the Supreme Court of India may also have
to interfere with the implementation of Digital India project. This is
because the digital India project is not supported by a well drafted and
analyzed plan and policy decision of Indian government. Further, Digital
India is also relying upon illegal and problematic platforms and technology
like Aadhar itself that makes the Digital India project itself vulnerable to
judicial attacks. So, from the present position one can easily deduce that
there is no correlation and synergy between Digital India and the
healthcare initiatives of Indian government. The healthcare laws of India
are simply outdated, irrelevant and ill-suited to meet the objective of
Digital India. Fields like e-health, m-health, telemedicine, etc. require
dedicated techno legal framework that is missing in India. As a result,
healthcare industry and healthcare entrepreneurs of India are presently
acting more on the side of violation than compliances.
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planning to use the WTO platform for securing strong trade rules for the
electronic commerce and cloud computing industry. Both of these
industries are dominantly controlled by U.S. based companies and this
would definitely help U.S and its technology companies. This proposition of
U.S. is troublesome and not acceptable to many nations of the world. Even
India would not be happy with this arrangement especially at a time when
India is reviving her electronic industry. India has already justified its
Preferential Market Access (PMA) policy for domestic telecom equipment
manufacturers. India has also formulated the merger and acquisitions
(M&A) policy and guidelines 2014 for telecom sector of India. Similarly,
Electronic System Design and Manufacturing (ESDM) policy and regulations
in India 2014 have also been enacted by India.
However, nothing can give U.S. more leverage than a binding international
treaty of WTO in this regard as almost all of the countries are Member of
WTO. This also means that countries like China, India, Brazil, South Africa,
Indonesia and other developing countries would be forced to align their
respective laws in terms of proposed agreement.
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More importantly, governments should not insist that “ICT service suppliers
use local infrastructure, or establish a local presence, as a condition of
supplying services”. Further, governments must not give priority or
preferential treatment to national suppliers of ICT services in the use of
local infrastructure, national spectrum or orbital resources. As far as India
is concerned, all these issues are bound to be agitated against and rejected
by her as they are in conflict with existing policies of India in this regard.
The Digital India project by Indian government has short listed areas like
education, judiciary, healthcare, etc. to be taken up for development and
implementation. All these fields would be strengthened by using
Information and Communication Technologies (ICT) for effective and
transparent delivery of public services in India. For instance, India would
strengthen and rejuvenate Indian Judiciary by trying to establish e-courts
under the Digital India project. Unfortunately, the e-courts project of India
has recently face a major setback when the e-committee refused to record
proceeding in courts in electronic manner.
On the positive side, the e-books project of Indian government under the
Digital India project has shown some affirmative developments. Digitization
of books is also undergoing in some of the libraries of India. We have a
national digital preservation policy of India that can be helpful in the
digitization drive in general and digital preservation in India in particular.
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Further, conflict of laws in cyberspace has added its own set of problems
while dealing with e-books at international and national levels. Intellectual
property rights protection at the international level is really tedious when
Internet and cyberspace is involved. Even a simple demand for basic
electronic details of the accused offender may take months to materialize
when foreign technology companies are involved.
There are also great chances that the terms and conditions and other legal
documents of various e-commerce players are not drafted as per Indian
laws and this would create legal problems to parties dealing with the
website. In some cases, these legal documents may be drafted in an anti-
competitive manner and may also be detrimental to the interests of the
consumers. Indian government is planning to amend the consumer
protection law of India to protect consumers’ rights in the e-commerce era.
The book’s publication industry of India is passing through a crucial and
highly competitive phase. The growing popularity of e- books and sale of
paper books at e-commerce websites have changed the way books were
published, distributed and sold in India so far.
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entered into a settlement with European Union for e-books price fixation.
The Penguin Group also settled an e-book price escalation lawsuit recently.
Back in India, the books distribution and wholesale channels have been
severely hit by the burgeoning e-commerce business of India. While
healthy competition is always welcome and is good or the consumers yet
unreasonable and unethical business practices must be curbed at the very
inception.
Books publishers in India have now decided to seek policy as well as legal
intervention against the predatory pricing tactics of Indian e-commerce
websites. The Federation of Publishers’ and Booksellers’ Associations in
India (FPBAI) had recently written to Prime Minister Narendra Modi and the
Ministries of Finance, Commerce, and Human Resource Development,
complaining about the “questionable trade practices” adopted by e-
commerce websites like Flipkart and Amazon. In fact, Myntra, Flipkart,
Amazon, Uber, etc. have already been questioned by the regulatory
authorities of India for violating Indian laws.
The FPBAI letter also seeks action to protect the publishing trade. E-
commerce websites are purchasing books at lower discounts from
publishers and distributors and sell the same at higher discounts, making a
loss in each transaction. It is indeed a questionable activity as it smacks of
the act of predatory pricing. In fact, bookstores such as Capital Book Depot
in Chandigarh, Teksons and New Book Depot in Delhi have already shut
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their shops and many others are struggling for survival due to predatory
pricing activities of e-commerce websites in India.
The most common forms of e-contracts are click wrap, browse wrap and
shrink- wrap contracts. The terms and conditions in such contracts are
made available to the contracting party in a form that is considerably
different from the standard paper contracts. In click wrap contract, the
party's affirmative acceptance is taken by means of checking on an 'I
accept' tab with the scroll box that allows accepting party to view the
terms and conditions.
In case of browse wrap agreement, the mere use (or browse) of the
website makes the terms binding on the contracting party.
In case of Shink wrap agreement, the contracting party can read the terms
and conditions only after opening the box within which the product
(commonly a license) is packed. Such agreements are relevant in the
context of e-commerce mostly because of the kind of goods associate with
shrink-wrap agreements.
The Indian Contract Act, 1872 governs all the e-contracts in India which
inter alia mandate certain pre-requisites for a valid contract such as free
consent and a lawful consideration. The question which needs to be
examined is how the requirements of Indian Contract Act would be fulfilled
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i. The contract should be entered with the free consent of the parties;
ii. There should be lawful consideration for the contract;
iii. The parties should be competent to contract;
iv. The object of the contract should be lawful.
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The courts can put the burden on the person in the leading position to
prove that the contract was not induced by the undue influence.
It is highly important to have a well thought out terms which form online
contracts in order to make sure that sufficient opportunity is provided to
the customers to familiarize themselves with the terms thereof. Besides the
above there are also various other legal, tax and regulatory issues more
specifically Security Issues, Consumer Protection Issues, Intellectual
Property Issues, Content Regulation, Intermediary Liability, Jurisdictional
Issues and issues relating to taxation which need to be taken in mind while
dealing with e- commerce transactions.
Conclusion
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Finally, for those who wish to engage in cloud computing, virtualization and
other Internet based services in India, they comply with techno legal
regulations of India. Cloud computing legal and regulatory requirements in
India for businesses and entrepreneurs are still evolving. Nevertheless,
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For instance, e-commerce laws in India are spread across multiple legal
frameworks and they are seldom followed by Indian e- commerce
stakeholders. Even foreign e-commerce players and portals are required to
be registered in India and comply with Indian laws.
Similarly, e-commerce players are required to comply with cyber law and
cyber security regulatory compliances in India. A dedicated law for cyber
security breaches disclosures is also in pipeline that would impose stringent
obligations upon e-commerce players operating in India. Companies that
would fail to comply with the cyber law due diligence requirements in India
may be punished according to Indian laws.
The cyber security challenges for Indian companies are very difficult to
manage in the absence of proper planning and management. Directors of
Indian companies and e-commerce websites can be held liable for improper
cyber security dealings in India.
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An ineffective cyber law of India and lack of cyber law skills among the law
enforcement agencies of India is resulting in increased cybercrimes and
offences through the medium of e- commerce websites in India. Further,
cyber law awareness in India is also missing that is resulting in increased
e-commerce frauds in India.
The cyber law of India is too weak to tackle cyber criminals effectively. In
fact, cyber law of India should be repealed and an effective cyber law must
be formulated as soon as possible. The cyber criminals are becoming
innovative day by day and our laws are grossly inadequate to deal with the
same.
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For instance, numerous websites, both Indian and foreign, are violating the
cyber law of India by operating illegal e-commerce websites in India. These
websites are engaging in illegal trade in wildlife, promising home delivery
of live animals, prized animal parts and rare medicinal plants from across
nations through simple internet banking formats.
What are the steps that one needs to go through for the
registration of the firm?
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One also needs to obtain the Payment gateway and Logistics for e-
commerce business
a. With no setup fees: Popular but have higher TDRs (examples are
PayUMoney, PayPal etc.)
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b. With setup fees: Less TDRs and faster processing (examples are
Payu, Ccavnue)
We have been seeing that most companies do not feel any significance to
invest in Cyber Security in the beginning of their venture but after running
the business for some time and facing the pros and cons of online business
eventually do turn investing in cyber security to save itself from penalties
or fines.
Apart from all this a User Agreement also needs to be drafted in such a
manner that it proves to be beneficial both for the user and e- commerce
company. It should be able to preserve the user rights and restrict the e-
commerce portal as it serves as an Intermediary.
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Market Size
In 1998 India had only 1.4 million internet users representing a mere 0.1%
of the total population. Over the last 15 years this number has grown
rapidly due to growth in the IT and Telecom sectors. Today India has over
137 million internet users representing about 11% of its population, and it
ranks third in the world behind only China and USA. It is also among the
three fastest growing markets for internet usage worldwide, according to a
study conducted by the Associated Chambers of Commerce and Industry of
India (ASSOCHAM) and Comscore in October 2012.
The total size of India’s consumer retail market was about $470 billion in
2011 and is expected to grow to $675 billion by 2016 and to $850 billion
by 2020, with a cumulative-annual-growth rate (CAGR) of 7%. In
comparison, India’s total e-commerce market was worth about $2.5 billion
in 2009 and grew to $6.3 billion in 2011 and more than doubled to $14
billion in 2012. The percentage of internet users shopping online is less
than 10% at approx 10 million users. But this number is growing at a rate
of 30% annually versus the global average growth rate of 8-10%.
E- commerce Segments
E- commerce in India can be broadly divided into the Business- to-Business
(B2B) and the Business-to-consumer (B2C) segments. In this post we will
be focusing on the trends, opportunities and challenges in the B2C
segment. According to Forrester, the Business to Consumer (B2C) e-
commerce market in India is set to grow at the fastest rate within the Asia-
Pacific region at a CAGR of 57% between 2012-16. So far about 75-80% of
all e-commerce transactions in India are travel related, comprising mainly
of online booking of airline tickets, railway tickets and hotel bookings. The
biggest players in the travel category are MakeMytrip.com, Yatra.com and
the Indian Railways’ IRCTC website for railway bookings.
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Of these e-tailing is the largest and fastest growing segment. The most
popular categories here are similar to those in other markets and include
consumer electronics, computer hardware, mobile phones, books and
apparel. This list is rapidly expanding to include new categories such as
appliances, furniture, pet care, organic foods, health care, cosmetics and
beauty products. In many ways, India’s e-commerce market is at the same
stage of growth as the US was at in the late nineties and China was at
about 6 to 7 years ago.
Key Drivers
In 2011 the non-travel e-commerce market size was about $600 million
and it is estimated to touch $9 billion in 2016 and $70 billion by 2020 –
with an impressive CAGR of 61%. By all accounts it appears that the
growth of e-commerce in India is at an inflection point. There are multiple
drivers to this growth including:
Availability of much wider product range (including long tail and Direct
Imports) compared to what is available at brick and mortar retailers.
Busy lifestyles, urban traffic congestion and lack of time for physical
shopping
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MARKET PARTICIPANTS
The opportunity to tap into this exploding new market of online shoppers
has predictably led to a gold-rush among Indian entrepreneurs and venture
capitalists. It is no surprise therefore that more than $700 million was
invested in 2012 into Indian e-commerce companies. Of the 379
technology product start-ups launched as of October 2012, 193 were e-
commerce companies. Flipkart which was founded in 2007 has quickly
emerged as a leader in this space and received an investment of $150
million in venture capital in 2012 – one of the largest to date in any Indian
internet company. It reported $100 million in e-commerce revenues last
year and is targeting $1 billion in revenues by 2015.
Amazon.com the world’s leading e-commerce site also entered the Indian
market last year with the launch of Junglee.com – a product and price
comparison website that aggregates information from different e-
commerce websites. Amazon is following a different model by bringing
sellers and buyers together and not directly handling the transaction. Other
established players include eBay which also offers a marketplace for buyers
and sellers.
Local Challenges
In spite of the huge opportunity due to the size and growth of the market,
e-commerce in India has its own set of unique challenges. E- commerce in
most mature markets such as the USA works because of certain efficiencies
in payment and delivery mechanisms which are missing or underdeveloped
in India.
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model. The problem is compounded by the fact that most e-tailers also
offer free shipping to acquire and retain customers.
The second challenge is dealing with the actual logistics and delivery of
goods ordered online. This is both inefficient and unreliable due to poor
roads, traffic congestion and an overall weak transportation infrastructure
coupled with India’s vast size. In fact much of the investment into e-
commerce companies is going into logistics. Many e-tailers are setting up
their own warehouses and delivery centers to extend their reach and
streamline operations.
In order to improve their chances for success companies are learning and
adopting certain strategies. The successful companies in India are focusing
on strong customer service and establishing trust with buyers. This leads
to repeat buyers, lowers the customer acquisition and retention costs and
improved profitability. In addition, some companies are differentiating
themselves by focusing on niche product categories and market segments.
To outlast their competition companies will also need to build a strong
brand. This is what Amazon was able to do in the USA, and probably what
Flipkart and some of the other larger players are emulating and trying to
do in India. There are bound to be further acquisitions and consolidations
and many more brutal shakeouts as the market matures.
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Your terms and conditions should outline that buyers are entering into a
contract to when they purchase goods from your website. Outline the
terms of delivery, shipping, refunds and payments, exclusions of liability
and terms of use for your website. Finally, specify the choice of law and
jurisdiction of wherever you’re based – this will shift the case to your own
legal system, so you don’t find yourself negotiating some unknown foreign
law interpreting your terms in the event of legal issues.
This can be extremely damaging for your business, especially given the
often slim operating margins. You can protect yourself from fraud to a
certain extent, but you probably won’t be able to avoid being targeted if
you reach any scale. Your best option is to keep a record of all transactions
and refund behaviour, and attempt to identify patterns that might give you
a case against a particular customer. While expensive and uncertain legal
routes are available, most e-commerce operators just take the hit and
move on.
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Choosing a reliable payment processor can help weed out the fringes of
fraudulent activity, but you also need to remain vigilant and monitor what’s
going on in your business if you want to stay one step ahead.
Refunds Policy
Refunds are an important part of building trust with customers, and you
will hamper conversions if you don’t recognise that refunds will sometimes
be required. It is wise to be liberal in your refunds policy, and you must
refund can celled purchases within the statutory ‘cooling off’ period – 14
days. You can ask the customer to pay the cost of returns, and you are
entitled to expect goods to be returned to you in a merchantable condition.
Accepting that refunds are a natural part of the business, and responding
promptly in handling refund requests will help assure customers that you
care, while ensuring you don’t end up shy of consumer selling regulation.
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You can keep refunds low by using better photos on your product pages,
improving the accuracy of your descriptions, and making sure your
products are well packages and promptly despatched. Try to make it easy
for your customers to keep your product, by limiting the potential reasons
they could request a refund.
Ultimately, refunds can hit your bottom line, and this can become a
problem as you try to scale your shop if you don’t keep a grip on the
reasons your customers are refunding. Track refund activity and the
reasons for refund requests, so you can work on getting the percentage
down.
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3. What Happens And Who Pays For Returns?: Returns are a fact of
life in e-commerce, and it’s useful to be upfront about how your returns
process works, and who bares the costs of return shipping. Specify this
within your terms and conditions, even if you have an external refunds
policy in place.
5. Delivery Terms: It’s also useful to take into account your delivery
terms, or to directly reference your shipping policy if you have one in
place. When your customers accept these terms, you can solve so many
support issues or refund requests, simply by referring to the terms and
processes laid down in your delivery terms. Provided they are fair and
reasonable, as you must be at all times in drafting terms relating to
consumers, you will likely cover your back for more situations.
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Online privacy is a big issue as many e-commerce sites collect and retain
personal information about customers. Some of the personal data you will
likely obtain would include a customer’s name, address, email address, and
possibly their credit card and other types of financial information. As the e-
commerce site owner it is your responsibility to ensure this personally
identifiable information is protected, and that when you collect such data
you comply with federal and state privacy laws.
E-commerce site owners should provide a privacy policy and post it on the
e-commerce website. This policy should clearly identify what kinds of
personal information you will collect from users visiting your website, who
you will share the information you collect with, and how you will use and
store that information
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6.4 SUMMARY
E-commerce players are banking on the Indian internet growth story. The
fact that an average online user is spending more time online gives these
players the opportunity to draw more users to their websites through
innovative marketing strategies such as those revolving around social
media. Furthermore, to fully utilize the opportunity, players need to
leverage the growing number of mobile devices in the country. They should
focus on developing mobile- compatible websites and applications. This
would allow customers to log on to easy-to-access platforms and browse e-
commerce websites on their mobile devices. e-commerce players also need
to focus on innovation to tackle challenges arising from low credit and debit
card penetration. They could consider working with financial intermediaries
to develop payment systems, such as escrow services, for resolving issues
around security and product delivery. The RBI could step in and reduce the
number of online transaction failures by defining service metric quality and
monitoring it at regular intervals. This would enable it keep a close eye on
the performance of financial intermediaries and plug gaps as soon as they
occur.
Online retail not only focuses on web capabilities but also on how well the
peripheral aspects of online retail are taken care of. Online retail players
pay as much attention to inventory management, logistics and warehouse
management as they do to their online platforms. They need to invest time
and money on all these, since customer experience is a function of how
well they work in sync. There is significant scope for online retail players to
focus on new product delivery models and payment mechanisms, since
customers are facing problems with the options available. The online retail
market presents an attractive opportunity for entrepreneurs, since it is
growing rapidly and still forms only a miniscule portion of organized retail.
Moreover, there are a number of under penetrated segments such as online
groceries in online retail. Players also have opportunities in sectors
impacted by online retail, e.g., logistics, in which last-mile reach is a
problem. While organized retail players are attracted by opportunities
presented by the online retail sector, they have critical questions pertaining
to modes of entry, pricing decisions and customer segmentation.
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3. What are the steps to be taken for setting up market for e- commerce
business in India.
6. Which are the standard terms and condition for e-commerce in India.
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
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INTELLECTUAL PROPERTY LEGISLATIONS
Chapter 7
INTELLECTUAL PROPERTY LEGISLATIONS
Objectives
Structure:
7.1 Introduction
7.2 The Patent Act, 1970
7.3 Kinds of Patents
7.4 Administration of Patent System in India
7.5 Working of Patents, Compulsory Licences and Revocation
7.6 Compulsory Licences (Section 84)
7.7 Register of Patent Agents
7.8 Penalties [Section 118-124]
7.9 Summary
7.10 Self Assessment Questions
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INTELLECTUAL PROPERTY LEGISLATIONS
Overview
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INTELLECTUAL PROPERTY LEGISLATIONS
2. Patentee: “Means the person for the time being entered on the register
as the grantee or proprietor of the patent.” [Sec. 2(1) (p)]
3. True and First Inventor: “Does not include either the first importer of
an invention into India, or a person to whom an invention is first
communicated from outside India.” [Sec 2(1) (y)]
7.1 INTRODUCTION
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v. Industrial designs;
vi. Trade marks, service marks and commercial names and designations;
vii.Protection against unfair competition and; all other rights resulting from
intellectual activity in the industrial, scientific, literacy or artistic fields.
a. Industrial designs
b. Literary, artistic and Scientific works
c. Protection against unfair competition
d. Scientific discoveries
e. Performances of artists and programmes etc.
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INTELLECTUAL PROPERTY LEGISLATIONS
GATT, WTO and TRIPS “GATT“ (General Agreement on Trade and Tariff) was
established in 1947, with a 22 member state. Since 1947- 1993,8 rounds of
discussion took place between the member states to formulate rules and
regulations relating to international trade. The object of GATT was to reduce the
interference of the governments throughout the globe and to develop trade and
commerce, especially to develop underdeveloped countries and to protect their
rights to do their business without any condition by the developed nations.
For the first time “Intellectual Property” rights were included in the Uruguay
Round in 1986.
The last and eight URUGUAY Round held in 1993. During this round the most
conflicted “DUNKEL DRAFT” was born.
Sir Arthur Dunkel was the Director General of GATT, who retired on 20-6-1993.
The Uruguay Rounds, which was ended on 15-12-93 incorporated the Dunkel
Draft. Where three countries signed, including India. P.V Narasimha Rao’s
government, signed Dunkel Draft along with other countries for which the
opposition parties and other persons opposed it. This round was recognized as
the biggest negotiation mandate on trade ever agreed. Later GATT was changed
into WTO (World Trade Organisations) in 1995. WTO was established in Geneva
on a permanent basis.
In connection with intellectual property, the specialized council for Trade Related
Aspects of Intellectual Property Rights (TRIPS) came into existence on a
permanent basis. w.e.f. form 1.1.95 “TRIP AGREEMENT’ has become very
popular in relation to the Intellectual property rights throughout the world.
The council of TRIP is an independent body within the WTO. The council
implements and monitors the progress of the TRIP’s agreement by co-operating
with WTO, World Intellectual property organization (WIPO), UNESCO, as well as
other International organizations.
The TRIP contains all necessary legal provisions relationed to copy rights, trade
marks, Industrial designs, patents, protection of un-disclosed information etc.
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INTELLECTUAL PROPERTY LEGISLATIONS
In India, the British Rulers enacted the Patents and Designs Act, 1911 after
several amendments since 1856, the first Patent Act in India was passed
which gave exclusive rights to the patentees for a period of 14 years. There
was no further development of Patent Laws in India as we were under the
clutches of British Rule. Then, after independence, the parliament
appointed two expert committees headed by Justice Bakshi Teak Chand in
1950 and Justice Raja Gopal Iyangar in 1959. These committees found that
the foreign companies misused the Patent Laws of India. This led to a
debate in Parliament and finally the bill was passed on 19th Sept 1970 and
was notified as the Patent Act 1970. Thereafter the Patent and Design Act
1911 was split into two. Namely: (1) The Design Act 1911 and (2) The
Patent Act, 1970.
The Patent Act, 1970 has incorporated several new provisions preventing
the misuse of patents, which was further amended in 1999 and in 2002.
India is a member State of World Intellectual Property Organisation (WIPO)
an International Organisation, responsible for the promotion, protection of
Intellectual property throughout the world.
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i. Industrial progress,
iii. Use or sell the method or the product patented for a limited period of
time.
Definitions: See 2 (1) of the Act defines the various terms used in the Act:
1. “Appellate Board” means the Appellate Board referred to in section 116.
[Section 2(1) (a)]
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11.“Patents” means a patent granted under this Act and includes for the
purposes of specified sections and chapters of this Act, a patent granted and
the Indian Patents and Designs Act 1911. [Section 2(1) (m)]
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INTELLECTUAL PROPERTY LEGISLATIONS
12.“Patent Agent” means a person for the time being registered under this
Act as a patent agent. [Section 2(1) (n)]
14.“Patentee” means the person for the time being entered on the register as
the grantee or proprietor of the patent. [Section 2(1) (p)]
17.“True and First Inventor” does not include either the first importer of an
invention into India, or a person to whom an invention is first communicated
from outside India. [Section 2(1) (y)]
Meaning of Inventions
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What are not inventions: As per section 3 (as amended in 2002), the
following are not inventions within the meaning of this Act::
d. The mere discovery of any new property or new use for a known substance
or of the mere use of known process, machine or apparatus unless such
known process results in a new product or employs at least one new
reactant;
i. Plants and animals in whole or any part thereof other than micro-organisms
but including seeds, varieties and species and essentially biological processes
for production or propagation of plants and animals;
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INTELLECTUAL PROPERTY LEGISLATIONS
m. A presentation of information;
Three kinds of patents are granted under different provisions of the Act.
These are:
A patent of addition remains in force only as long as the patent for the
original invention remains in force.
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INTELLECTUAL PROPERTY LEGISLATIONS
Under the Patents Act – 1970 – The Head Office is located at Calcutta and
has branches at Delhi, Mumbai, and Chennai having jurisdiction over the
North, West and South Zones respectively.
Who is a Patentee?
When a person invents and applies for patent and fulfills all the conditions,
he gets a patent from the government. According to Sec. 48 of Patent Act
1970, a patentee or his licensee enjoys the following rights.
A patentee shall have exclusive right by himself, his agent or licensee to:
Under WTO agreement India had to provide “Product Patent” to MNCs for
inventions relating to pharmaceutical and agro-chemical products from
1-1-95 and the grant of such patents providers exclusive Marketing Rights
for 5 years after attaining marketing approval or grant of patent which ever
is earlier.
This applies to inventions for which patent applications are filed on or after
1-1-95 in India or abroad. Thus, “Product Patent” and Exclusive marketing
Rights are not available for products developed and patented abroad before
1-1-95.
In order to meet these obligations under Article 70(8) and (a) of TRIP
agreement of WTO, the Patent Amendment Act, 1999 in a new chapter IV
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INTELLECTUAL PROPERTY LEGISLATIONS
Following are the steps for grant of a patent under this Act.
a. By any person who claims to be the true and first inventor of the
invention.
2. An application under Sub Sec. (1) may be made by any of the person
referred to there in either alone or jointly with any other person (Sec.
6):
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INTELLECTUAL PROPERTY LEGISLATIONS
d. Defence Employees are not eligible to apply for patents except in the
manners laid down in special regulations applicable to them.
1. Every application for a patent shall be for one invention only and shall
be made in the prescribed form and filed in the patent office.
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INTELLECTUAL PROPERTY LEGISLATIONS
a. A patent shall be the prescribed form and shall have effect throughout
India.
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INTELLECTUAL PROPERTY LEGISLATIONS
which the patent is granted, may be made or used, and any process in
respect of which the patent is granted may be used, by any person, for
the purpose merely of experiment or research including the imparting of
instructions to pupils; and
1. Subject to the provisions of this Act, the term of every patent granted,
after the commencement of the Patents (Amendment) Act, 2002, and
the term of every patent which has not expired and has not ceased to
have effect, on the date of such commencement, under this Act, shall
be twenty years from the date of filing of the applicant for the
patent.
2. A patent shall cease to have effect if renewal fee is not paid within the
prescribed period extended period under this section.
3. The period shall be extended to such period, not being more than six
months longer than the prescribed period, as may be specified in a
request made to the Controller if the request is made and the renewal
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INTELLECTUAL PROPERTY LEGISLATIONS
fee and the prescribed additional fee paid before the expiration of the
period so specified.
4. Notwithstanding anything contained in any other law for the time being
in force, on cessation of the patent right due to non- payment of
renewal fee or on expiry of the term of patent, the subject matter
covered by the said patent shall not be entitled to any protection.
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INTELLECTUAL PROPERTY LEGISLATIONS
2. Where such an offers is made, the Controller shall advertise the offer in
the prescribed manner and also notify every person other than the
patentee whose name appears in the register as having an interest in
the patent.
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INTELLECTUAL PROPERTY LEGISLATIONS
b. [omitted];
d. That claim is not an invention within the meaning of this Act; [e, f omitted]
f. The complete specification does not sufficiently and fairly describe the
invention and the method by which it is to be performed;
g. That the scope of any claim of the complete specification is not sufficiently
and clearly defined;
i. That the subject of any claim is not patentable under this act.
k. Applicant for the patent has failed to disclose to the Controller the
information required by section 8 or has furnished information which in any
material particular was false to his knowledge;
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INTELLECTUAL PROPERTY LEGISLATIONS
n. That the complete specification does not disclose or wrongly mention the
source or geographical origin of biological material used for the invention.
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INTELLECTUAL PROPERTY LEGISLATIONS
According to Section 67
3. The register shall be kept under the control and management of the
Controller.
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INTELLECTUAL PROPERTY LEGISLATIONS
a. That patents are granted to encourage inventions and to secure that the
inventions are worked in India on a commercial scale and to the fullest
extent that is reasonably practicable without undue delay; and
f. That the patent right is not abused by the patentee or person deriving
title or interest on patent from the patentee, and the patentee or a
person deriving title or interest on patent from the patentee does not
resort to practices which unreasonably restrain trade or adversely affect
the international transfer of technology; and
g. That patents are granted to make the benefit of the patented invention
available at reasonably affordable prices to the public.
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INTELLECTUAL PROPERTY LEGISLATIONS
At any time after the expiration of 3 years from the date of the sealing of
patent, any person interested may make an application to the Controller
alleging that the reasonable requirements of public are not satisfied and
patented invention is not available to the public at a reasonable price and
praying for the grant of a compulsory licence to work the patented
invention.
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INTELLECTUAL PROPERTY LEGISLATIONS
4. Such application shall ordinarily be decided within one year of its being
presented to the controller.
The controller while ordering the grant of a licence, may, direct that the
licence shall operate:
Where two or more patents are held by the same patentee and an
applicant for a compulsory license establishes that the reasonable
requirements of the public have not been satisfied with respect to some
only of the said patents, then if the Controller is satisfied that the applicant
cannot efficiently or satisfactory work the licence granted to him under
those patents without infringing the other patents held by the patentee, he
may, by order, direct the grant of a licence in respect of the other patents
also to enable the licensee to work the patent or patents in regard to which
a licence is granted under section 84.
Where the terms and conditions of a licence been settled by the controller,
the licensee may, at any time after he has worked the invention on a
commercial scale for not less then twelve months, make an application for
the revision of the terms and conditions on the ground that these have
proved to be more onerous than originally expected and the licensee is
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INTELLECTUAL PROPERTY LEGISLATIONS
b. That the interests of any person for the time being working or
developing an invention in India under the protection of a patent are not
unfairly prejudiced.
1. In settling the terms and conditions of a licence under section 84, the
Controller shall endeavour to secure:
ii. That the patented invention is worked to the fullest extent by the
licensee and with reasonable profit to him;
iii. That the patented articles are made available to the public at reasonable
prices.
vi. That the licence is for the balance term of the patent unless a shorter
term is consistent with public interest;
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INTELLECTUAL PROPERTY LEGISLATIONS
4. The provisions of sections (83, 87, 88, 89 and 90) shall apply in relation
to the grant of licenses under this section as they apply in relation to
the grant of licenses under section 84.
Which may arise or is required, as the case may be, including public health
crises, relating to AIDA, HIV, tuberculosis, malaria or other epidemics, he
shall not apply any procedure specified in section 87 in relation to grant of
licence.
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INTELLECTUAL PROPERTY LEGISLATIONS
Provided that the holder of the compulsory licence shall have the right
to object to such termination.
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INTELLECTUAL PROPERTY LEGISLATIONS
Relief’s in suit for infringement: (1) The relief’s which a court may
grant in any suit for infringement include an injunction (subject to such
terms, if any, as the court thinks fit) and, at the option of the plaintiff,
either damages or an account of profits. [Section 108(1)]
(2) The court may also order that the goods which are found to be
infringing and materials and implement, the predominant use of which is in
the creation of infringing goods shall be seized, forfeited or destroyed, as
the court deems fit under the circumstances of the case without payment
of any compensation. [Section 108(2)]
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INTELLECTUAL PROPERTY LEGISLATIONS
Drawings: If the invention can be explained with the help of the drawings,
such drawings should be prepared as per the rules of 16 to 19 of the
Patent Rules 1972 and should be filed:
b. In the right hand corner, the no. of sheets and sheet number.
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INTELLECTUAL PROPERTY LEGISLATIONS
c. In the right hand, bottom corner the signature of the applicant or his
agent.
As per sec. 125 as per patent (Amendment) Act 2002 requires the
controller shall maintain “register” of patents in which shall be entered,
the names and addresses of all persons qualified to have their names so
entered u/s 126. The rule also makes the controller should keep the
register of patents in electronic force.
1. a. He is a Citizen of India
b. He has completed the age of years.
c. He has obtained a degree from any university of India.
d. Paid fees as may be prescribed
Sec. 127 says that subject to the provisions contained in this Act and to
any rules made, there under every patent agent whose name is entered in
the register shall be entitled.
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The Patent (amendmend) Act, 2002 has replaced the old XIX chapter
dealing with appeals to new chapter XIX titled “Appeals to the Appellate
Board”
Appellate Board
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INTELLECTUAL PROPERTY LEGISLATIONS
1. No appeal shall lie from any decision, order or direction made or issued
under this Act by the Central Government, or from any act or order of
the Controller.
2. An appeal shall lie to the Appellate Board from any decision, order or
direction of the Controller of Central Government under section 15, 16,
17, 18, 19, 20, 25, 27, 28, 51, 54, 57, 60, 61, 63, 66, 69, 78, 84, 85,
88, 91, 92 and section 94.
3. Every appeal shall be in the prescribed from and shall be verified in such
manner as may be prescribed and shall be accompanied by a copy of
the decision, order or direction appealed against and by such fees as
may be prescribed.
4. It shall be made within three months from the date of the decision,
order or direction, as the case may be, or within such further time as
the Appellate Board may, allow.
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of the Board and shall, when so directed, amend the entries in, or
rectify, the register in accordance with such order.
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INTELLECTUAL PROPERTY LEGISLATIONS
1. By obtaining the patent right, the patentee would have the exclusive
right to use his invention and it makes no difference if his invention is
known to others from the date of patent.
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c. To apply for a licence or hold any licence under a patent granted under
this Act. (Section 134)
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7.9 SUMMARY
Conceptual Type
Analytical Type
1. Explain different kind of patent.
2. What are the applications for restoration or renewal of a lapsed patent?
3. What is impact of WTO on the local and state regulations?
4. Describe the settlement rules of WTO.
5. State the provisions relating to patent agents.
6. Write a note on “patent for a new substance” under the patents Act
1970.
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Essay Type
1. What is meant by opposition for grant of patent? What are the rules/
procedure in this regard?
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
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