Business Law

Question 1: The fundamental attribute of corporate personality is that

company is a legal entity distinct from the members.Elucidate the
statement. Also specify the important features of a company.

Answer: There are certain points to enumerate when we talk about a company
having status of a legal person. Firstly, the company is a legal entity distinct
from its members. Secondly, it is important to understand the concept of Lifting
of Corporate Veil. Lastly, it should be noted that a company is a legal person
distinct from a natural person.

Amongst the above stated factors, first and foremost factor to be considered is
the separate legal status of a company. It means that a company can sue and
be sued in its own name. A company is considered to be distinct from its
members. This gives the company, a right to buy or sell properties under its own
name and enter into contracts. Also, death of members does not end the legal
existence of a company. In short, it can be said that a company enjoys perpetual
succession until it is wound up as per the law. This entitles a company to hold
bank accounts and pay taxes under its own name.

The first question that comes to mind is that why is this factor an important
factor? The best example here could be inducted from a partnership firm
wherein a partnership firm is not a separate legal entity and all the partners are
jointly and severally responsible for the firm. Thus, liability of partners in a
partnership firm is not fixed and hence even their personal assets can be
attached. This isnt the case with a company.

In the above context, it is important to note a case law named Solomon v.
Solomon & Co. Ltd. The House of Lords asserted the status of a company of an
artificial legal person. In this case, it was clearly stated, A company is a juristic
person. The members work on behalf of the company within the authority
conferred to them.

Following are some of the features of a company:
A company is an artificial legal person distinct from its members.
Limited liability of members
It has the capacity to institute legal proceedings in its own name.
It enjoys perpetual succession until wound up.
It can enter into contracts in its own name.

Question 2: What are the characteristics of negotiable Instrument?
Discuss the privileges of holder in due course as per the provisions of
the Negotiable Instruments Act, 1881? Also state the important
amendment to be incorporated under sec 138 of the act.

Answer 2:
Characteristics of a Negotiable Instrument:

1. A negotiable instrument is a valid instrument only if it is in writing.
2. For a valid negotiable instrument, no condition shall be attached to it.
3. It is easily transferable just by mere delivery. Endorsement is also one
way of transferring its ownership.
4. The payment for such an instrument is either by demand or at any future
date which is predetermined.
5. The negotiable instrument shall contain a written amount on it which is
payable to the bearer.
6. It can be useful for payment of a debt.
7. The holder of the instrument in due course has a better title to it.

Examples of Negotiable instruments:

1. Promissory Notes
2. Bills of Exchange
3. Cheques
4. Bankers Draft
5. Hundis

Privileges of Holder in due course:

1. The holder in due course enjoys a better title than the previous holders
and also the transferor. This means that the holder of due course enjoys a
title which has no defects.
For Example: X receives a bill from Y by fraud. X indorses the instrument
to A. Here, A gets a better title of the instrument and not X or Y.
2. Section 20 of the Negotiable Instruments Act, 1881 provides that the
rights of a holder in due course are not affected even if it is an inchoate
instrument.
3. Till the amount in the instrument is duly paid, all the prior transferors of
the negotiable instrument are liable to the holder in due course.
4. Section 58 of the Negotiable Instruments Act states that holder in due
course will have no effect, if the consideration was absent or was unlawful
in previous transactions.

Notable amendments to Section 138:

1. The term of imprisonment up to one year has been increased to up to
two years
2. The period to serve notice to the drawer of the cheque regarding the
dishonor of cheque has been increased to 30 days from 15 days. This
notice period is from the date on which the payee receives the information
of dishonor of cheque.

Question 3: Elaborately explain the essential features of the consumer
protection act 1986. Also briefly discuss unfair trade practice and
restrictive trade practice as discussed under consumer protection Act?

Answer:

Essential Features of the Consumer Protection Act, 1986:

1. The main objective of the Act is to give an all-round protection to the
consumers. Thus, it can be said that it is social welfare legislation.
2. The Act provides the consumers with the right to choice, consumer
education, redress and safety.
3. The provisions of the Act mark the establishment of Consumer Protection
Commissions at the central as well as state and district levels. This is
termed as the Three-tier Grievances Redressal Machinery.
4. All goods and services are brought under the purview of this Act.
(Exception: Central Government can notify goods or services to be
exempted from this Act.)
5. It provides protections to the customers against different kinds of
exploitations including unfair trade practices.

Unfair Trade Practice and Restrictive Trade Practice:
Section 2(r) of the Act defines unfair trade practice. According to Section 2r,
some of the unfair trade practice includes adopting unfair or deceptive ways to
sell the products, misleading consumers about competitive goods and price,
charging more than the Maximum Retail Price etc. Section 6(b) states that
protecting the consumer under unfair trade practices shall be one of the objects
of the Central Council.

Section 2(nnn) of the Act states the meaning of Restrictive Trade Practice. It
restricts price fixing, sale of tie-in products, collusive bidding, exclusive
distribution agreement etc. The aim is to protect the consumers from such
practices. When such Restrictive Trade Practices cause or are likely to cause
appreciable adverse effect to the competition in India, then such practices are
regulated by The Competition Act, 2002.

Case Study

Aditya Mass Communication Private Limited
Vs
A.P. state Road Transport Corporation

A.P. State Road Transport Corporation, Hyderabad advertised tender notice on
calling for tenders for display of advertisements on the buses owned by it.
According to the condition of the Tender Notice, each tender form had to be
accompanied by a demand draft for Rs 20 lakhs and tender forms completed in
all respects had to be put in the tender box. The accompanying sum of money
was the Earnest Money Deposit (E.M.D). Clause (10) of the terms provided that
the tender will be opened at 3:00 p.m. on October 31, 1996, in presence of the
tenderers or their authorized agents. Clause (14) provided that tenderers will
not be permitted to withdraw their tender after the tenders were opened .Clause
(15) provided that if the highest tenderer backs out from taking up the agency ,
for whatsoever reason, the E.M.D. paid by him will be forfeited.
Aditya mass Communication Private Limited submitted its duly filled tender
along with demand draft of Rs. 20 lakhs. In relation to this tender, another
person approached the High Court and got an order restraining the Transport
Corporation from proceeding further with the tender. Following the order, the
A.P. State Road Transport Corporation opened the tender box at 3 p.m. and
found six sealed covers. In view of the directions of the High Court, the covers
were again placed back in the tender box without opening the seals. The
signature of the tenderers and their agents was taken to this effect .The tenders
were not opened to find out the highest bidder. Aditya Mass Communication
Private Limited wrote a letter on November 11, 1996 stating that no reasons
were given to him for non-opening of the tenders and that he could not keep the
huge amount of Rs 20 lakhs locked in with all the uncertainty associated with the
tender. It, thus, requested for return of the Earnest Money Deposit. A.P. State
Road Transport Corporation replied on November 14, 1996 that the Aditya Mass
communication had signed on the note recording the proceedings of opening the
tender box and putting back sealed covers. Thus, it could not put up the
argument that no reasons for non-opening of the tender was given on it. The
letter notified that the tenders would be opened on November 16, 1996 at 11:30
hrs. Aditya Mass Communication once again wrote a letter on November 15,
1996 that the question of their participation in the opening of tenders did not
arise as they asked for the return of E.M.D. The A.P. State Road Transport
Corporation went ahead with the opening of the tender, found Aditya Mass
Communication to be the highest bidder and awarded the tender to it. Aditya
Mass Communication was informed of this but it demanded refund of Earnest
Money Deposit. The A.P. State Road Transport Corporation following the terms
of tender forfeited the earnest money deposit of Aditya Mass Communication.
Question:
1. Elaborately state the important legal issue/s covered under this case.
2. What are the essential features of a tender?
3. Give your reasons in support of your decision for the issue discussed in this
case.

Case Solution

Question 1: Elaborately state the important legal issue/s covered under
this case.

Answer: Important legal issue is whether applying for tender amounts to
acceptance or not and that in a specific case given where the high court had
issues directions for not going ahead, the very act of opening of tender box at
3:00 p.m. would amount to violation of the High Court Order and that pursuant
to such violation which makes their act void ab initio would it be possible to say
that Aditya Mass Communication need not adhere to clause 15.

Question 2: What are the essential features of a tender?

Answer: Essential features of a valid tender:
There shall be no condition attached to it.
It is necessary that the tender must be made at a proper place and
time.
An offer to perform shall be for the whole obligation.
Reasonable opportunity shall be provided.
A tender of money shall be in proper form and hsall be made to a
proper person.

Question 3: Give your reasons in support of your decision for the issue
discussed in this case.

Answer: In my opinion Aditya Mass cannot fall into the Clause 15 herein
because the Clause 14 specifically says that once a tender is opened then it
cannot be withdrawn. But, it is specifically stated that the box was opening and
six covers were found which were placed back without opening the seals,
meaning it was unopened and Clause 14 stated that only tenders opened could
not be withdrawn. So, in this situation, the tender was never open. Thus, Aditya
Mass is not bound by Clause 14, which in turns shows that the act of
Transportation in forfeiting the amount in spite of Aditya Mass time and again
communicating to them that they were not interested renders their act in
violation of natural justice.




Multiple Choice

Question 1: After exercising the right of lien, the seller can resell the goods of
perishable nature---
(a) After giving 7 days notice of resale to buyer
(b) After giving one week's Notice
(c) Without giving any notice
(d) None of these

Question 2: Annual - general Meeting is required to be held---
(a) By a private company only
(b) By a public company only
(c) By a company limited by guarantee only
(d) By all kinds of companies

Question 3: An acceptance is complete and effective only when it has been---
(a) Communicated to the offerer
(b) Merely mentally accepted
(c) Externally manifested
(d) Kept in the drawer

Question 4: Name of a company can be changed by passing a special resolution
and with the approval of--
(a) The company law tribunal
(b) The Central Government
(c) The Registrar of Companies
(d) none of the above

Question 5: A contract becomes voidable if it has been caused by---
(a) Coercion
(b) Fraud
(c) Undue Influence
(d) All of them

Question 6: If the goods have perished, the contract of sale of such specific
goods, will become---
(a) voidable
(b) void
(c) illegal
(d) None of these

Question 7: Articles can be altered by---
(a) Ordinary resolution
(b) Special Resolution
(c) Resolution requiring special notice
(d) Unanimous resolution

Question 8: A contract entered into between the parties by words is called---
(a) An express contract
(b) An implied contract
(c) A quasi Contract
(d) An excited contract

Question 9: A prospectus is issued---
(a) By a Private Limited Company
(b) By a Public Limited Company
(c) By a Company limited by Guarantee
(d) None of these

Question 10: When, before the contract becomes due for performance, the
promisor declares his intention of not performing his promise, it is called---
(a) Remission
(b) Waiver
(c) Alteration
(d) Anticipatory breach

Question 11: A bailment cannot be made about---
(a) Car
(b) Furniture
(c) Money
(d) Television

Question 12: The damages which arise in the usual course of things happening
from the breach of contract, are called---
(a) Remote Damages
(b) Ordinary damages
(c) Special damages
(d) Nominal Damages

Question 13: When a person is employed to represent another in dealings with
third person, it is a contract of---
(a) Bailment
(b) Guarantee
(c) Agency
(d) Pledge

Question 14: Which of the following is not an essential element of a contract of
sale---
(a) Goods as subject matter
(b) Transfer of property in goods
(c) Price
(d) Railway receipts

Question 15: Which of the following does not relate to 'termination of agency by
operation of law'---
(a) Death of principal
(b) Insolvency of principal
(c) Destruction of subject-matter
(d) Revocation of authority by the principal

Question 16: Limited liability means liability of its---
(a) Debtors is limited
(b) Creditors is limited
(c) Members is limited
(d) Debenture holders is limited

Question 17: In a contract of sale, property means---
(a) Raw Materials
(b) Movable goods
(c) Ownership
(d) Immovable property

Question 18: The goods which are yet to be acquired by the seller, are called---
(a) Existing Goods
(b) Contingent Goods
(c) Unascertained goods
(d) Future goods

Question 19: Acceptance of an offer is complete as against the offeror as soon
as---
(a) The offerer knows about it
(b) The letter of acceptance is posted
(c) The letter of acceptance is signed by offeree
(d) The letter is handed over to a delivery person

Question 20: If a company fails to pay its debts suit can be filed against the---
(a) Directors
(b) Members
(c) Officers
(d) Company

Question 21: A contract with a minor is---
(a) Illegal
(b) Valid
(c) Void
(d) Voidable

Question 22: Who is liable for the supply of necessaries to a minor---
(a) His guardian
(b) His Manager
(c) His property
(d) He himself

Question 23: In return for a new television, Raju agrees to give his old television
valued at Rs. 3,000 and an amount of cash worth Rs. 5,000 to Ganesh. This is a-
--
(a) Barter
(b) Exchange
(c) Contract of sale of goods
(d) Sale of approval

Question 24: Which of the following rights is held by an unpaid seller---
(a) Right of lien
(b) Right of stoppage in transit
(c) Right of resale
(d) All of these

Question 25: Which of the following is not a remedy for breach of contract---
(a) Rescission of the contract
(b) Restitution of benefit
(c) Suit for damages
(d) Alteration of the contract

Question 26: A contract by which one party promises to save the other from loss
is called---
(a) Contract of guarantee
(b) Contract of indemnity
(c) Quasi contract
(d) None of these

Question 27: Surety's liability is---
(a) Primary
(b) Secondary
(c) Absolute
(d) None of these

Question 28: Crossed cheques payable to bearer are negotiated by---
(a) Endorsement & delivery
(b) Delivery
(c) Assignment
(d) None of these

Question 29: In a contract of sale, which of the following is treated as implied
condition---
(a) That the seller has title to goods
(b) That goods are similar to description
(c) That goods are according to sample shown
(d) All of these

Question 30: Consideration must move at the desire of---
(a) The Promisor
(b) The Promisee
(c) A third party
(d) None of them

Question 31: Which of the following sentence is a valid promissory note---
(a) I promise to pay Mohan or order Rs. 1,000.
(b) I promise to pay Hari Rs. 2,000 worth of shares..
(c) I promise to pay Naraynan in East India Bonds
(d) I promise to pay Rakesh Rs. 5,000 and to deliver 50 kg of sugar.

Question 32: A stipulation collateral to the main purpose of the contract, is
called a---
(a) Condition
(b) Warranty
(c) Guarantee
(d) None of these

Question 33: A person who receives a negotiable instrument for consideration,
before maturity, and in good faith, is called---
(a) Holder for value
(b) Holder
(c) Holder in due course
(d) None of these

Question 34: A director must vacate his office if he fails to obtain qualification
shares within---
(a) 1 week
(b) two weeks
(c) One month
(d) two months

Question 35: A private company has at least---
(a) 7 members
(b) 3 members
(c) 3 directors
(d) 2 Members

Question 36: A cheque payable to order may be negotiated---
(a) by delivery
(b) By endorsement
(c) By endorsement & delivery
(d) None of these

Question 37: Which of the following endorsements is invalid---
(a) Restrictive endorsement
(b) Conditional endorsement
(c) Special endorsement
(d) Partial endorsement

Q39: When a cheque bears across its face an addition of the words "&" between
two parallel transverse lines, it is called---
(a) Special crossing
(b) Restrictive crossing
(c) General crossing
(d) Double crossing

Question 39: Which of the following is a mode of discharge of contract---
(a) By impossibility of performance
(b) By lapse of time
(c) By breach of contract
(d) All of the above

Question 40: Which of the following rights are available to a finder of goods---
(a) Right of lien
(b) Right to file a suit for reward
(c) Right of sale of goods
(d) All of these