Business Law Q & A

Topic-wise Distribution of Questions (2006-12)

Concept of Law
1. Discuss the nature and scope of business law.
2. Define mercantile law.
Refer to notes read out in the class.
Indian Contract Act 1872
1. Distinguish between Contract of Guarantee and Contract of Indemnity. (2)
Contract of indemnity
A contract by which one party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of any other person, is called a
contract of indemnity. The person who promises to make good the loss is called the
indemnifier (promisor) and the person whose loss is to be made good is called the
indemnified or indemnity-holder (promisee).
A contract for indemnity may be express or implied. An implied contract of indemnity
may be inferred from the circumstances of the case or from relationship of the parties.

Contract of Guarantee
A contract of guarantee is a contract to perform the promise, or discharge the liability, of
a third person in case of his default. The person who gives the guarantee is called the
surety, the person in respect of whose default the guarantee is given is called the
principal debtor, and the person to whom the guarantee is given is called the creditor.
A guarantee may either be oral or written. It may be express or implied and may even be
inferred from the course of conduct of the parties concerned.
2. Mention the different types of contracts. Who are not eligible to enter into a
contract? What are the circumstances under which a minor can enter into a
contract?
3. Who is a minor? Can a minor be held liable in tort? Discuss.
Classification of Contracts
1. Classification according to validity

Business Law Q & A

An agreement becomes a contract when all the essential elements are present. If one or
more of the elements are missing, then the contract becomes either avoidable, void,
illegal, or unenforceable.

Voidable contract an agreement which is enforceable by law at the option of one or

more of the parties thereto, but not at the option of the other or others, is a voidable
contract.

Unenforceable contract cannot be enforced in a court of law because of a technical

defect (ex: absence of writing, lapse of time).

2. Classification according to formulation

Express contract terms of contract expressly agreed upon (spoken or written)

Implied contract inferred from the acts or conduct of the parties or course of
dealings between them. It is not the result of any express promise or promises by the
parties but of the particular act ( ex: implied contract when one enters a commercial
transport).

Quasi-contract: created by law and not intentionally entered into by the parties.

3. Classification according to performance

Executed contract

Executory contract both parties yet to perform their obligations.

Unilateral or one sided contract only one party is to fulfill his obligation at the
time of formation of the contract, the other party having fulfilled his obligation at
the time of the contract or before the contract comes into existence.

Bilateral contract both parties yet to perform their obligation. Similar to

executory contracts.

Capacity to Contract
An agreement becomes a contract if it is entered into between the parties who are
competent to contact. Every person is competent to contact who
a. is of the age of maturity according to the law to which he is subject
b. is of sound mind, and
c. is not qualified by any law to which he is subject.

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A. Minors
According to section 3 of the Indian Majority Act, 1875, a minor is a person who has not
completed 18 years of age. In the following two cases, he attains majority after 21 years
of age:
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where a guardian of a minors person or property has been appointed under the
Guardian and Wards Act 1890

where the superintendence of a minors property is assumed by a Court of Wards

The law protects the minors from their own inexperience, and against the possible
improper design of those more experienced.

An agreement with or by a minor is void.

He can be a promise or a beneficiary

His agreement cannot be ratified by him on attaining the age of maturity

He cannot enter into a contract for partnership.

B. Persons of unsound mind

A person is said to be of sound mind for the purpose of making a contract if, at the time
he makes it, he is capable of understanding it and of forming a rational judgment or to its
effects upon his interests.
A person, who is usually of unsound mind but occasionally of sound mind, may make a
contract when he is of sound mind (and vice versa).
Idiots: Idiocy is permanent whereas lunacy denotes periodic insanity with lucid intervals.
An agreement of an idiot, like that of a minor, is void.
The position of a drunken or intoxicated person is similar to that of a lunatic.
C. Disqualification under the law two cases

A convict when undergoing imprisonment is incapable of entering into a contract

During the continuance of war, an alien enemy can neither contract with an Indian
subject nor can he sue in an Indian court.

4. Define bailment. What are the features of bailment? What are the duties of the
bailee?
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As per Section 148 in The Indian Contract Act, 1872, a" bailment" is the delivery of
goods by one person to another for some purpose, upon a contract that they shall, when
the purpose is accomplished, be returned or otherwise disposed of according to the
directions of the person delivering them. The person delivering the goods is called the"
bailor". The person to whom they are delivered is called, the" bailee".
The following are the essential elements of bailment 1. Delivery of goods
The possession of goods must transfer from one person to another. Delivery is not same
as custody. For example, a servant holding his master's umbrella is not a bailee but only a
custodian. The goods must be handed over to the bailee for whatever is the purpose of the
bailment.
2. Delivery upon contract
For a valid bailment, the delivery must be done upon a contract that the goods will be
returned when the purpose is accomplished. If the goods are given without any contract,
there is no bailment.
3. Conditional Delivery
The delivery of goods is not permanent. The possession is given to the bailee only on the
condition that he will either return the goods or dispose them according to the wishes of
the bailer after the purpose for which the goods were given. For example, when the
stitching is complete, the tailor is supposed to return the garment to the bailor. If the
bailee is not bound to return the goods to the bailor, then the relationship between them is
not of bailment. This is a key feature of bailment that distinguishes it from other type of
relations such as agency. J Shetty of SC in U Co. Bank vs Hem Chandra Sarkar 1990,
observed that the distinguishing feature between a bailment and an agency is that the
bailee does not represent the bailor. He merely exercises some rights of the bailor over
the bailed property. The bailee cannot bind the bailor by his acts. Thus, a banker who was
holding the goods on behalf of its account holder for the purpose of delivering them to his
customers against payment, was only a bailee and not an agent.
Duties of a Bailor
A bailor may give his property to the bailee either without any consideration or reward or
for a consideration or reward. In the former case, he is called a gratuitous bailor, while in
the latter, a bailor for reward. The duties in both the cases are slightly different. Section
150 specifies the duties for both kinds of bailor. It says that the bailor is bound to disclose
any faults in the goods bailed that the bailor is aware of, and which materially interfere
with the use of them or which expose the bailee to extraordinary risk. This means that if
there is a fault with the goods which may cause harm to the bailee, the bailor must tell it
to the bailee. For example, if a person bails his scooter to his friend and if the person
knows that the brakes are loose, then he must tell this to the friend. Otherwise, the bailor
will be responsible for damages arising directly out of the faults to the bailee. But the

Business Law Q & A

bailor is not bound to tell the bailee about the fault if the bailor himself does not know
about it.
Section 150 imposes a bigger responsibility to the non-gratuitous bailor since he is
making a profit out of the bailment. A non gratuitous bailor is responsible for any damage
that happens to the bailee directly because of the fault of the goods irrespective of
whether the bailor knew about it or not.
Duties/Responsibilities of a Bailee
1. Duty to take reasonable care
In English law the duties of a gratuitous and non-gratuitous bailee are different. However,
in Indian law, Section 151 treats all kinds of bailees the same with respect to the duty. It
says that in all cases of bailment, the bailee is bound to take as much care of the goods
bailed to him as a man of ordinary prudence would, under similar circumstances take, of
his own goods of the same bulk, quality, and value as the goods bailed. The bailee must
treat the goods as his own in terms of care. However, this does not mean that if the bailor
is generally careless about his own goods, he can be careless about the bailed goods as
well. He must take care of the goods as any person of ordinary prudence would of his
things.
2. Duty not to make unauthorized use (Section 154)
Section 154 says that if the bailee makes any use of the goods bailed which is not
according to the conditions of the bailment, he is liable to make compensation to the
bailor for any damage arising to the goods from or during such use of them.
Illustration - A lends horse to B for his own riding only. B allows C, a member of his
family, to ride the horse. C rides with care but the horse is injured. B is liable to
compensate A for the injury to the horse.
A hires a horse in Calcutta from B expressly to march to Benares. A rides with care but
marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to make
compensation to B.
Thus, we can see that bailee is supposed to use the goods only as per the purpose of the
bailment. If the bailee makes any unauthorized use of the goods, he will be held
absolutely liable for any damages.
3. Duty not to mix (Section 155-157)
The bailee should maintain the separate identity of the bailor's goods. He should not mix
his goods with bailor's good without bailor's consent. If he does so, and if the goods are
separable, he is responsible for separating them and if they are not separable, he will be
liable to compensate the bailor for his loss. For example, A bails 100 bales of cotton with
a particular mark to B. B, without A's consent, mixes them with his own. A is entitled to
have his 100 bales returned and B is bound to bear all expenses for separation. But if A
bails a barrel of Cape flour worth Rs 45 to B and B mixes it with country flour worth Rs
25, B is liable to A for the loss of his flour.

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4. Duty to return (Section 160)
Section 160 - It is the duty of the bailee to return or deliver according to the bailor's
directions, the goods bailed, without demand, as soon as the time for which they were
bailed has expired or the purpose for which they were bailed has been accomplished.
If the bailee keeps the goods after the expiry of the time for which they were bailed or
after the purpose for which they were bailed has been accomplished, it will be at bailee's
risk and he will be responsible for any loss or damage to the goods arising howsoever.
In Shaw & Co vs Symmons & Sons 1971, the plaintiff gave certain books to the
defendant to be bound. The defendant bound them but did not return them within
reasonable time. Subsequently, the books were burnt in an accidental file. The defendants
were held liable for the loss of books.
5. Duty to return increase (Section 163)
As per Section 163, in absence of any contract to the contrary, the bailee is bound to
deliver to the bailor, or according to his directions, any increase of profit which may have
accrued from the goods bailed.
Illustration - A leaves a cow in the custody of B to be taken care of. The cow has a calf. B
is bound to deliver the calf as well as the cow to B.
6. Duty not to set up jus tertii (Section 166)
As per Section 166 if the bailor has no title and the bailee, in good faith returns the goods
back to the bailor or as per the directions of the bailor, he is not responsible to the owner
in respect of such delivery. Thus, once the bailee takes the goods from the bailor, he
agrees that the goods belong to the bailor and he must return them only to the bailor. He
cannot deny redelivery to the bailor on the ground that the bailor is not the owner.
If there is true owner of the goods, he can apply to the court to stop the delivery of the
goods from the bailee to the bailor. This right is given to the true owner in section 167.
Rights of a Bailee
1. Right to necessary expenses (Section 158)
The bailee is entitled to lawful charges for providing his service. As per Section 158 says
that where by conditions of the bailment, the goods are to be kept or to be carried or to
have work done upon them by the bailee for the bailor and the bailee is to receive no
remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him
for the purpose of bailment. Thus, a bailee is entitled to recover the charges as agreed
upon, or if there is no such agreement, the bailee is entitled to all lawful expenses
according to this section.
In Surya Investment Co vs STC AIR 1987, STC hired a storage tank from the plaintiff.
On account of a dispute, STC appointed a special officer to take charge of the tank, who
delivered the contents as per directions of STC. Thus, the plaintiff lost his possession and
with it, his right of lien. SC held that the plaintiff is entitled to the charges even if he loses
his right of lien because the bailor has enjoyed bailee's services.

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2. Right to compensation (Section 164)

As per section 164, the bailor is responsible to the bailee for any loss which the bailee
may sustain by reason that the bailor was not entitled to make the bailment, or to receive
back the goods, or to give directions respecting them. This means that if the bailor had no
right to bail the goods and if still bails them, he will be responsible for any loss that the
bailee may incur because of this.
3. Right of Lien (Section 170-171)
In general, Lien means the right to keep the possession of the property of a person until
that person clear the debts. In case of bailment, the bailee has the right to keep the
possession of the property of the bailor until the bailor pays lawful charges to the bailee.
Thus, right of Lien is probably the most important of rights of a bailee because it gives
the bailee the power to get paid for his services.
Lien is of two kinds - Particular and General.
Particular Lien
This means that the lien holder has a right to keep possession of only that particular
property for which the charges are owed. For example, A gives a horse and a bicycle to B.
A agrees to pay B charges for training the horse and no charges for keeping the bicycle.
Now, if A fails to pay charges for the horse, B is entitled to keep possession only of the
horse and not of the bicycle. He must return the bicycle.
Section 170 gives this right to the bailee. It says that where the bailee has, in accordance
with the purpose of the bailment, rendered any service involving the exercise of labor or
skill in respect of the goods bailed, he has, in absense of a contract to the contrary, a right
to retain such goods until he receives due remuneration for the services he has rendered
in respect of them.
Illustrations - A delivers a rough diamond to B to be cut and polished, which is
accordingly done. B is entitled to keep the diamond until charges for his services are paid.
A gives cloth to B, a tailor, to make into a cloth. B promises to deliver the coat as soon as
it is done and also to give 3 months credit for the price. B is not entitled to keep the coat
until he is paid.
General Lien As opposed to Particular Lien, General Lien gives a right to the bailee to keep the
possession of any goods for any amount due in respect of any goods. Section 171 says
that, bankers, factors, wharfingers, attorneys of a High Court, and policy brokers may, in
the absence of a contract to the contrary, retain as a security for a general balance of
account, any goods bailed to them; but no other persons have a right to retain, as a
security for such balance, goods bailed to them, unless there is an express contract to that
effect.
Thus, this right is only available to bankers, factors, wharfingers, attorneys of high court,
and policy brokers. However, this right can be given to the bailee by making an express
contract between the bailor and the bailee.

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4. Right to Sue (Section 180-181)

Section 180 enables a bailee to sue any person who has wrongfully deprived him of the
use or possession of the goods bailed or has done them any injury. The bailee's rights and
remedies against the wrong doer are same as those of the owner. An action may be
brought either by the bailor or the bailee.
Thus, in Umarani Sen vs Sudhir Kumar AIR 1984, a firm which had consigned the goods,
of which it was a bailee, with a carrier, was allowed to sue the carrier for loss of the
goods.
Rights of finder of goods
If a person finds something, he does not automatically become the owner of that thing.
He, in fact, becomes a special kind of a baliee in the sense that he has to keep the thing
until the owner is found. He should take care of the thing just like a bailee. Section 168
and 169 describe the rights of such finder of goods.
Section 168 - The finder of goods has no right to sue the owner for compensation for
trouble and expense voluntarily incurred by him to preserve the goods and to find out the
owner; but he may retain the goods against the owner until he receives such
compensation; and where the owner has offered a specific reward for the return of goods
lost, the finder may sue for such reward, and may retain the goods until he receives it.
Thus, if the finder has incurred expenses in finding the owner and/or in maintaining the
goods voluntarily, he can retain the possession of the goods until the owner pays the
expense to him, though the finder cannot sue the owner for the expense. His only remedy
is to keep the goods. Further, if the owner has promised a reward for the return of the
goods, the finder is entitled to the rewards, and he can even sue the owner for the reward.
He can retain the goods as well until the reward is received.
As per Section 169, the finder of the goods can even sell the goods if they are of common
objects of sale, in the following conditions 1. the finder of goods was not able to find the owner after good faith efforts.
2. the owner is found but the owner refuses to pay lawful expenses and
1. either the goods are in danger of perishing or of losing greater part of the
value
2. or the lawful charges of the finder amount to two third of the value of the
goods.
5. Distinguish between coercion and undue influence. (3)
a. Coercion
When a person is compelled to enter into a contract by the use of force by the other party
or under a threat, coercion is said to be employed. Coercion is the committing, or
threatening to commit, any act forbidden by the Indian Penal Code, 1860 or the unlawful

Business Law Q & A

detaining, or threatening to detain, any property, to the prejudice of any person whatever,
with the intention of causing any person to enter into an agreement.
When consent to an agreement is caused by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused.
A threat to commit suicide amounts to coercion.
b. Undue influence
A contract is said to be induced by undue influence where the relations subsisting
between the parties such that one party is in a position to dominate the will of the other
and uses that position to obtain an unfair advantage over the other.
A person is deemed to be in a position to dominate the will of another
a.

Where he holds a real or apparent authority over the other ex: master and servant,
doctor and patient.

b.

Where he stands in a fiduciary relationship (relation of trust and confidence) to he

other. Ex: father and son, solicitor and client, trustee and beneficiary.

c.

Where he makes a contract with a person whose mental capacity is temporarily or

permanently affected by reason of age, illness or mental or bodily distress. Ex:
attendant and patient.

6. All contracts are agreements but all agreements are not contracts Discuss
statement explaining the essential elements of a valid contract. (5)
An agreement, to become a contract, must give rise to a legal obligation of duty. The term
obligation is defined as a legal tie which imposes upon a definite person or persons the
necessity of doing or abstaining from doing a definite act or acts. It may relate to social or
legal obligations. An agreement which gives rise to a social obligation is not a contract. It
must give rise to a legal obligation in order to become a contract.
Essential Elements of a Valid Contract
2. Offer and Acceptance there must be two parties to a contract, one making an offer
and the other accepting it.
3. Intention to create legal relationship a contract does not exist without this intention.
Agreements of a social or domestic nature do not contemplate legal relationship, as
such they are not contacts.

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4. Lawful consideration consideration means an advantage or benefit moving from
one party to the other. The agreement is legally enforceable only when both parties
give something and get something in return.
5. Competency the parties to a agreement must be capable of entering into a valid
contact
- age of majority
- of sound mind
- not disqualified by any law from contracting
6. Free and genuine consent both parties agree in the same sense and at the same time.
7. Lawful object object of agreement must not be illegal, immoral, or opposed to
public policy.
8. Agreement should not be vague or indefinite.
9. Legal formalities should be followed whenever required.
7. Acceptance is to offer what a lighted match is to a train of gunpowder. Discuss
and explain the essential element of a valid acceptance.
8. Define offer and acceptance. (3)
9. Briefly discuss the rules of valid acceptance.
10. What involves the lapse of an offer? Mention the rights of a buyer and a seller
with respect to transactions via sea routes.
11. When is an offer completed/ How and when may an offer be revoked?
A contract consists of two elements agreement, and it enforceability by law.
An agreement is defined as every promise and every set of promises, forming
consideration for each other.
A promise is defined thus: When the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a
promise.
Agreement = Offer + Acceptance
Offer
At the inception of every agreement there must be a definite offer by one person to
another and its unqualified acceptance to whom the offer is made. An offer is a
proposal by one party to another to enter into a legally binding agreement with him.
The person making the offer is known as the offerer, proposer, or promisor and the person
to whom it is made is called the offeree or proposee. When the offeree accepts the often,
he is called the acceptor or promisee.

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An offer may be made by express words, spoken or written. This is known as express
offer.

An offer may also be implied from the conduct of the parties or the circumstances of
the case. This is known as implied offer.

When an offer is made to a specific person, it is called a specific offer. It can be

accepted only by the person to whom it is made. When an offer is made to the world
at large, it is called a general offer.

Legal Rules to an Offer

Offer must be made such as in law is capable of being accepted and giving rise to
legal relationships.

Terms of offer must be definite, unambiguous and certain and not loose and vague.

An offer may be distinguished from a declaration of intention and an announcement.

An offer may be distinguished from an invitation to make an offer or to do business.

A statement of price is not an offer. One must make evident intention to sell to the
other party.

Acceptance
A contract emerges from the acceptance of an offer. Acceptance is the act of assenting by
an offeree to an offer. An offer when accepted becomes a promise.
Acceptance may be express or implied. It is express when it is communicated by words,
spoken or written or by doing some required act. It is implied when it is to be gathered
from the surrounding circumstances or the conduct of the parties.
Who can accept?
When an offer is made to a particular person, it can be accepted by him alone. If it is
accepted by any other person, there is no valid acceptance.
Legal Rules as to Acceptance

It must be absolute and unqualified, i.e., it must conform with the offer. If the parties
are not ad idem on all matters concerning the offer and acceptance, there is no
contract.

It must be communicated to the offerer.

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It must be according to the mode prescribed or usual and reasonable mode.

It must be within a reasonable time.

It cannot precede an offer.

It must show an intention on the part of the acceptor to fulfill the terms of the
promise.

It must be given by the party or parties to whom the offer is made.

It must be made before the offer lapses or before the offer is withdrawn.

It cannot be implied from silence.

If the parties have not agreed upon the terms of their contract but have made an
agreement to agree in future, there is no contract.

Communication of Offer, Acceptance, and Revocation

An offer, its acceptance and their revocation (withdrawal) to be completed must be
communicated.
The communication of an offer is complete when it comes to the knowledge of the person
to whom it is made.
Communication of acceptance is complete
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as against the proposer when it is put into a course of transmission to him,

so as to be out of the power of the acceptor.
As against the acceptor when it comes to the knowledge of the proposer.

Communication of Revocation: Revocation means taking back, recalling, or

withdrawal. It may be revocation of offer or acceptance. The communication of
revocation is complete as against the person who makes it, when it is put into a course of
transmission to the person to whom it is made, so as to be out of the power of the person
who makes it; as against the person to whom it is made, when it comes to his knowledge.

A contract by telephone or telex has the same effect as an oral agreement entered into
between the parties when they are face to face. But the offeree must make sure that
his acceptance is properly received.

When does an offer come to an end?

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Business Law Q & A

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by communication of notice of revocation by the offeror at any time

before its acceptance is complete against him.

By lapse of time if it is not accepted within the prescribed time.

By non-fulfilment by the offeree of a condition precedent to acceptance.

By death or insanity of the offeror provided the offeree comes to know of

it before acceptance.

If a counter offer is made to it.

If the law is changed.

If the offer is not accepted according to the prescribed or usual mode,

provided the offeror gives notice to the offeree within a reasonable time that the
acceptance is not according to the prescribed or usual mode.

12. Define consideration with examples. (2)

Consideration is one of the essential elements to support a contract. Subject to certain
exceptions, an agreement made without consideration is nudum pactum (a nude
contract) and is void.
Consideration is a technical term used in the sense of quid pro quo (i.e., something in
return). This something is defined as consideration.
Consideration must result in a benefit to the promisor, and a detriment or loss to the
promisee, or a detriment to both.
Legal Rules to a Consideration
1. It must move at the desire of the promisor.
2. It may move from the promisee or any other person.
3. It may be an act, abstinence, or forbearance or a return promise.
4. It may be past, present, or future.
5. It need not be adequate.
6. It must be real and not illusory.
7. It must be something which the promisor is not already bound to do.

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8. It must not be illegal, immoral or opposed to public policy.
Exceptions to the fact that a contact without consideration is void.
1. Love and Affection.
2. Compensation for voluntary services.
13. a. State the circumstances in which a contract is said to be discharged.
b. Mention the consequences of a breach of contract.
14. Write short notes on breach of contract. (2)
Discharge of Contract
Discharge of contract means termination of the contractual relationship between the
parties. A contract is said to be discharged when it ceases to operate, i.e., when the rights
and obligations created by it will come to an end.
A contract may be discharged by:
1.
2.
3.
4.
5.

performance
agreement or consent
impossibility of performance
lapse of time operation of law
breach of contract

Discharge by performance
Performance means the doing of that which is required by a contract. Discharge by
performance takes place when the parties to the contract fulfill their obligations arising
under the contract within the time and in the manner prescribed. In such a case, the
parties the parties are discharged and the contract comes to an end. But if only one
performs the promise, he alone is discharged. Such a party gets a right of action against
the other party who is guilty of breach.
Performance of a contract may be by actual performance, or attempted performance or
tender.
Discharge by agreement or consent
As it is the agreement of the parties which binds them, so by their further agreement or
consent the contract may be terminated. A contractual obligation may be discharged by
agreement which may be expressed or implied.
1. Novation

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Novation takes place when a new contract is substituted for an existing one between the
same parties, or a contract between two parties is rescinded in consideration of a new
contract being entered into on the same terms between one of the parties and a third party.
Novation should take place before the expiry of the time of the performance of the
original contract.
2. Rescission
Rescission of a contract takes place when all or some of the terms of the contract are
cancelled. It may occur by mutual consent of the parties, or where one party fails in the
performance of his obligation.
3. Alteration
Alteration of a contract may take place when one or more of the terms of the contract is /
are altered by the mutual consent of the parties to the contract.
4. Remission
Remission means acceptance of a lesser fulfillment of the promise made, e.g., acceptance
of a lesser sum than what was contracted for, in discharge of the whole of the debt.
5. Waiver
Waiver takes place when the parties to a contract agree that they shall no longer be bound
by the contract. This amounts to mutual abandonment of rights by the parties to the
contract. Consideration is not necessary for waiver.
6. Merger
Merger takes place when an inferior right accruing to a party under contract merges into a
superior right accruing to the same party under the same or some other contract.
Discharge by impossibility of performance
If an agreement contains an undertaking to perform an impossibility, it is void ab initio.
Impossibility could exist at the time of the agreement, or it could arise subsequent to the
formation of the contract.
A contract is discharged by supervening impossibility when:
1. Destruction of subject matter of contract
2. Non-existence or non-occurrence of a particular state of things

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3. Death or incapacity for personal service.
4. Change of law or stepping in of a person of statutory authority
5. Outbreak of war.
In the following cases, a contract is not discharged on the ground of supervening
impossibility.
1. Difficulty of performance
2. Commercial impossibility
3. Impossibility due to failure of a third person
4. Strikes, lockouts and civil disturbance
5. Failure of one of the objects
Discharge by lapse of time
A contract is discharged if it is not performed or enforced within a specified period,
called period of limitation. The Limitation Act, 1963 has prescribed the different periods
for different contracts, e.g. period of limitation for exercising right to recover a debt is 3
years, and to recover an immovable property is 12 years. The contractual parties cannot
exercise their rights after the expiry period of limitation.
Discharge by operation of law
A contract may be discharged independently of the wishes of the parties, i.e., by
operation of law. This includes discharge
a.
b.
c.
d.
e.

by death
by merger
by insolvency (when a person is adjudged insolvent, he is discharged from all
liabilities incurred prior to his adjudication).
By unauthorised alteration of the terms of a written agreement
By rights and liabilities becoming vested in the same person.

Discharge by Breach of Contract

A contract is said to be discharged by breach of contract if any party to the contract
refuses or fails to perform his part of the contract or by his act makes it impossible to
perform his obligation under the contract. A breach of contract may occur in the
following two ways:

16

Business Law Q & A

a.

Anticipatory breach of contract this occurs when the party declares his
intention of not performing the contract before the performance is due.

b.

Actual breach of contract this occurs in two ways:

On due diligence of performance: if any party to a contract refuses or fails to

perform his part of the contract at the time fixed for performance, it is called
an actual breach of contract on due date of performance.

During the course of performance: If any party has performed a part of the
contract and then refuses or fails to perform the remaining part of the contract,
it is called an actual breach of contract during the course of performance.

Remedies for Breach of Contract

A contract gives rise to correlative rights and obligations. A right accruing to a party
under a contract would be of no value if there were no remedy to enforce that right in a
Law Court in the event of its infringement or breach of contract. A remedy is the means
given by law for the enforcement of a right.
When contract is broken, the injured party (i.e., the party not in breach) has one or more
of the following remedies:
Rescission
When a contract is broken by one party, the other party may sue to treat the contract as
rescinded and refuse further performance. In such a case, he is absolved of all his
obligations under the contract.
When a party treats the contract as rescinded, he makes himself liable to restore any
benefits he has received under the contract to the party from whom such benefits were
received. But if a person rightfully rescinds a contract he is entitled to compensation for
any damage which he has sustained through non-fulfillment of the contract by the other
party.
Damages
Damages are a monetary compensation allowed to the injured party by the Court for the
loss or injury suffered by him by the breach of contract. The object of awarding damages
for the breach of a contract is to put the injured party in the same position, so far as
money can do it, as if he had not been injured, i.e., in the position in which he would have
been had there been performance and not breach. This is called the doctrine of restitution.
Categories of Damages:

17

Business Law Q & A

a. Damages arising naturally ordinary damages
When a contract has been broken, the injured party can recover from the other party
such damages as naturally and directly arose in the usual course of things from the
breach. This means that the damages must be proximate consequence of the breach of
contract. These damages are known as ordinary damages.
b. Damages in contemplation of the parties special damages
Damages other than those arising from the breach of a contract may be recovered if
such damages may reasonably be supposed to have been in the contemplation of both
the parties as the probable result of the breach of the contract. Such damages, known
as special damages, cannot be claimed as a matter of right. These can be claimed only
if the special circumstances which would result in a special loss in case of breach of a
contract, are brought to the notice of the other party.
c. Vindictive or exemplary damages
Damages for the breach of a contract are given by way of compensation for loss
suffered, and not by way of punishment for wrong inflicted. Hence, vindictive or
exemplary damages have no place in the law of contract because they are punitive
(involving punishment) by nature. But in case of a breach of promise to marry, or
dishonor of a cheque by a banker wrongfully when he possesses sufficient funds to
the credit of the customer, the Court may award exemplary damages.
d. Nominal damages
Where the injured party has not in fact suffered any loss by reason of the breach of a
contract, the damages recoverable by him are nominal, i.e., very small, for example, a
rupee.
e. Damages for loss of reputation
Damages for loss of reputation in case of breach of a contract are generally not
recoverable. An exception to this rule exists in the case of a banker who wrongfully
refuses to honour a customers cheque. If the customer happens to be a tradesman, he
can recover damages in respect of any loss to his trade reputation by the breach. The
rule of law is: the smaller the amount of the cheque dishonoured, the larger the
amount of damages awarded.
f. Damages for inconvenience and discomfort
Damages can be recovered for physical inconvenience and discomfort. The general
rule in this connection is that the measure of damages is not affected by the motive or
the manner of the breach.

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Business Law Q & A

g. Mitigation of damages
It is the duty of the injured party to take all reasonable steps to mitigate the loss
caused by the breach. He cannot claim to be compensated by the party in default for
loss which he ought reasonably to have avoided. That is he cannot claim
compensation for loss which is really due not to the breach but due to his own neglect
to mitigate the loss after the breach.
h. Difficulty of assessment
Although damages which are incapable of assessment cannot be recovered, the fact
that they are difficult to assess with certainty or precision does not prevent the
aggrieved party from recovering them. The Court must do its best to estimate the loss
and a contingency may be taken into account.
i. Liquidated damages and penalty
Sometimes parties to a contract stipulate at the time of its formation that on the
breach of the contract by either of them, a certain specified sum will be payable as
damages. Such a sum may amount to either liquidated damages or a penalty.
Liquidated damages represent a sum, fixed or ascertained by the parties in the
contract, which is fair and genuine pre-estimate of the probable loss that might ensue
as a result of the breach, if it takes place.
Specific Performance
In certain cases of breach of a contract, damages are not an adequate remedy. The Court
may, in such cases, direct the party in breach to carry out his promise according to the
terms of the contract.
Injunction
Where a party is in breach of a negative term of a contract (i.e., where he is doing
something which he promised not to do), the Court ;may, by issuing an order, restrain him
from doing what he promised not to do. Such an order of the Court is known as
injunction.
15. D drew a bill on A in favour of P. The bill was payable on demand. When the
payee sought to present the bill for acceptance and payment, he discovered that
no such person as A existed. How will this affect the validity of the bill? To whom
should P go for the money?
16. Distinguish between void and voidable contracts.
A void contract is considered to be a legal contract that is invalid, even from the start of
signing the contract. On the other hand, a voidable contract is also a legal contract which
is declared invalid by one of the two parties, for certain legal reasons.

19

Business Law Q & A

While a void contract becomes invalid at the time of its creation, a voidable contract only
becomes invalid if it is cancelled by one of the two parties who are engaged in the
contract.
In the case of a void contract, no performance is possible, whereas it is possible in a
voidable contract. While a void contract is not valid at face value, a voidable contract is
valid, but can be declared invalid at any time.
A contract can become void if it involves any illegal activity, if the contract is made in
such a way that it cannot be executed, or if the contract is not properly structured. An
example of a void contract is a contract between a drug dealer and a buyer. This type of
contract is void because it involves an illegal activity.
There are many reasons attributed to a voidable contract. It is a situation where one party
of the contract may repudiate it. A contract involving minors is an example of voidable
contract. Although minors can enter into contracts, these agreements cannot be enforced,
as minors are at liberty to change their stand.
While a void contract is nonexistent and cannot be upheld by any law, a voidable contract
is an existing contract, and is binding to at least one party involved in the contract.
17. Write the difference between misrepresentation and fraud.
Misrepresentation
Misrepresentation is a false statement which the person making it honestly believes to be
true or which he does not know to be false. It also includes non-disclosure of a material
fact or facts without any intent to deceive the other party.
Requirements of misrepresentation
1. It must be a representation of a material fact.
2. It must be made before the conclusion of the contract with a view to inducing the
other party to enter into a contract.
3. It must be made with the intention that it should be acted upon by the person to whom
it is addressed.
4. It must actually have been acted upon and must have induced the contract.
5. It must be wrong but the person who made it honestly believed it to be true.
6. It must be made without any intention to deceive the other party.
7. It need not be made directly to the plaintiff. A wrong statement of facts made to a
third person with the intention of communicating it to the plaintiff, also amounts to
misrepresentation.
Fraud

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Business Law Q & A

Fraud exists when it is shown that
1. A false representation has been made a) knowingly, or b) without belief in the truth,
or c) recklessly, not caring whether it is true or false and the maker intended the other
party to act upon it, or
2. There is a concealment of a material fact or that there is a partial statement of a fact in
such a manner that the withholding of what is not stated makes that which is stated
false.
Essential elements of a fraud
1. There must be a representation or assertion and it must be false.
2. The representation must relate to the material fact which exists now or existed in the
past. A mere opinion, commentary, expression or hearsay or flourishing description is
not regarded as representation of fact.
3. The representation must have been made before the conclusion of the contract with
the intention of inducing the other party to act upon it.
4. The representation or statement must have been made with a knowledge of its falsity
or without belief in its truth or recklessly, not caring whether it is true or false.
5. The other party must have been induced to act upon the representation or assertion.
6. The other party, acting on the representation or assertion, must have subsequently
suffered some loss. It is a common rule of law that there is no fraud without
damage.
7. Mere silence is not fraud. The general rule is that a person before entering into a
contract need not disclose to the other party the material facts which he knows, but he
must refrain from making active concealment like concealing a crack on the surface
of a table by filling it and repolishing it.
Consequences of fraud
A contract induced by fraud is voidable at the option of the party defrauded. The
defrauded party can rescind the contract, or insist on performance of the contract, and/or
sue for damages.
18. What is Quantum Meruit?
In the law of contracts, a doctrine by which the law infers a promise to pay a reasonable
amount for labor and materials furnished, even in the absence of a specific legally
enforceable agreement between the parties.

21

Business Law Q & A

A party who performs a valuable service for another party usually enters into a written
contract or agreement before performing the service, particularly when the party is in the
business of performing that service. For instance, most professional roofers hired to
repair a roof insist on having a formal agreement with the owner of the house before
beginning the repairs. In the absence of an agreement or formal contract, the roofer may
be unable to recover losses in court if the transaction goes awry. Quantum meruit is a
judicial doctrine that allows a party to recover losses in the absence of an agreement or
binding contract.
By allowing the recovery of the value of labor and materials, quantum meruit prevents
the unjust enrichment of the other party. A person would be unjustly enriched if she
received a benefit and did not pay for it when fairness required that payment be made.
Quantum meruit can be used to address situations where no contract exists or where a
contract exists but for some reason is unenforceable. In such cases courts imply a contract
to avoid an unjust result. Such contracts are called quasi contracts.
Quantum meruit also describes a method used to determine the exact amount owed to a
person. A court may measure this amount either by determining how much the defendant
has benefited from the transaction or by determining how much the plaintiff has
expended in materials and services.
19. A contract of insurance is a contract of uberrimae fidei. Explain.
A legal agreement requiring the highest standard good faith. "Uberrimae fidei" or
"uberrima fides" is Latin for "utmost good faith." Insurance contracts are the most
common type of uberrimae fidei contract. Because the insurance company agrees to share
the risk of loss with the policyholder, it is imperative that the policyholder act in good
faith by fully disclosing all information that affects the insurance company's level of risk.
Full disclosure allows the insurer to protect itself by charging the policyholder a premium
that accurately reflects the level of risk it is undertaking or even refusing to issue a policy
if the risk is too high.
20. What is an agency? What are the features of a principal and agent relationship?
What are the various types of agency relationships known to you?
21. State in which ways an agency can be created. (2)
A person who has capacity to contract may enter into a contract with another (i) either by
himself, or (ii) through another person. When he adopts the latter course, he is said to be
acting through an agent. An agent is a person employed to do any act for another, or to
represent another in dealings with third persons. The person for whom such act is done,
or who is so represented is called the principal. The function of the agent is to bring his
principal into contractual relations with third persons.
Essentials of relationship of agency
There are two essentials of the relationship of agency:
1. Agreement between the principal and agent Agency depends on agreement but not
necessarily on contract. As between the principal and third persons, any person may
become an agent. As such, even a minor or a person of unsound mind may be an

22

Business Law Q & A

agent. The principal is, however, liable for the acts of such an agent.
Again, no consideration is necessary to create an agency. The fact that the principal
has agreed to be represented by the agent is sufficient detriment to the principal to
support the contract of agency.
2. Intention of the agent to act on behalf of the principal Whether a person does intend
to act on behalf of another is a question of fact. When a person does intend to act on
behalf of another, agency may arise although the contract between the parties
provides that there is no such relationship.
Creation of Agency
The relationship of principal and agent may arise from:
1. Agency by express agreement
The authority of an agent may be expressed or implied. Normally, the authority given
by a principal to his agent is an express authority which enables the agent to bind the
principal by acts done within the scope of his authority. The agent may, in such a
case, be appointed either by word of mouth or by an agreement in writing. The usual
form of a written contract of agency is the power of attorney.
2. Agency by implied agreement
Implied agency arises from the conduct, situation or relationship of parties. It may be
inferred from the circumstances of the case and things spoken or written or the
ordinary course of dealing, may be accounted as circumstances of the case.
a. Agency by estoppels
The doctrine of estoppels may be stated thus where a person by his conduct, or by
words spoken or written, leads willfully another person to believe that a certain state
of affairs exist and induces him to act on that belief so as to alter his previous
position, he is precluded from denying subsequently the fact of his state of affairs.
When an agent has, without authority, done acts or incurred obligations to third
persons on behalf of his principal, the principal is bound by such acts or obligations,
if he has by his words or conduct induced such third persons to believe that such acts
and obligations were within the scope of the agents authority.
b. Agency by holding out
This is a branch of agency by estoppel. A prior positive or affirmative act on the part
of the principal is required to establish agency subsequently.

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Business Law Q & A

c. Agency by necessity
In certain urgent circumstances the law confers an authority on a person to act as an
agent for the benefit of another, there being no opportunity of communicating with
that other. Such agency is called an agency of necessity.
Such situations arise when the agent exceeds his authority in an emergency, or a
person is entrusted with anothers property.
3. Agency by Ratification
A person may act on behalf of another without his knowledge or consent. When an
agent exceeds the authority bestowed upon him by the principal, the principal may
ratify the unauthorized act.
Negotiable Instruments Act 1881
1. State the circumstances in which a banker can refuse to honour the cheques of a
customer. (2)
A drawer of a dishonoured cheque shall be deemed to have committed an offense. For
this offense, he shall be punished with imprisonment for a term which may extend to two
years under the NI Act, or with a fine which may extend to twice the amount of the
cheque or with both provided
o Cheque has been dishonoured due to insufficiency of funds
o Cheque is for a discharge of a legally enforceable debt
o Cheque is presented within six months
o Payee or the holder in due course should have given notice demanding
payment within 30 days after receiving information of dishonour.
o The drawer is liable only if he fails to make payment within 15 days of such
notice period.
2. Define a holder in due course. What are his privileges under Negotiable
Instrument Act? (3)
3. Write notes on: Holder and Holder-in-due course.
Refer to notes given in the class.
4. Define promissory note and mention its essential features.

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

note) containing an unconditional undertaking, signed by the maker, to pay a certain
sum of money only to, or to the order of, a certain person, or to the bearer of the
instrument.

24

Business Law Q & A

The person who makes the promissory note and promises to pay is called the maker.
The person to whom the payment is to be made is called the payee.

Essential elements
o Writing
o Promise to pay
o Definite and unconditional
o Signed by the maker
o Certain parties
o Certain sum of money
o Promise to pay money only
o Bank note or currency note is not a promissory note
o Formalities like number, date, place, consideration etc.
o It may be payable on demand or after a definite period of time
o It cannot be made payable to bearer on demand.

5. State concisely the essential features of an instrument which make it negotiable.

6. How do you explain negotiable instrument? (2)

A negotiable instrument is a document which entitles a person to a sum of money and

which is transferable from one person to another by mere delivery or by endorsement
and delivery. It is a method of transferring a debt from one person to another, and
comprises a special class of contracts.

The person taking an instrument bona fide and for a value is known a holder in due
course.

Characteristics of a negotiable instrument

o Freely transferable
o Title of holder free from all defects.
o Recovery
o Presumptions
Consideration
Date
Time of acceptance
Time of transfer
Order of indorsement
Stamp
Holder presumed to be holder in due course.
Proof of protest.

Types of Negotiable Instruments

o Instruments negotiable by Statute (promissory notes, bills of exchange and
cheques).
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Business Law Q & A

o Instruments negotiable by custom or usage.
7. A customers cheque was dishonoured by a bank inspite of the sufficient balance
in the account. Is the bank liable under the Consumer Protection Act? Decide
the issue with the help of a leading case.
Refer to class notes cases in which a cheque may be dishonoured.
8. Differentiate between promissory note and a bill of exchange.
Refer to class notes.
Sale of Goods Act 1930
1. Who is an unpaid seller? What are his rights? (6)
Rights of an Unpaid Seller
The seller of goods is deemed to be an unpaid seller
a. When the whole of the price has not been paid or tendered.
b. When a bill of exchange or other negotiable instrument (such as cheque) has been
received as conditional payment, and it has been dishonoured.

The seller shall be called an unpaid seller even when only a small portion of the price
remains to be paid.
It is for the non-payment of price and not for other expenses, that a seller is termed as
an unpaid seller.
Where the goods have been sold on credit, the seller cannot be called as an unpaid
seller during the credit period unless the buyer becomes insolvent. On the expiry of
credit period if the price remains unpaid, then only the seller will become an unpaid
seller.
Where the full price has been tendered by the buyer and the seller has refused to
accept it, the seller cannot be called an unpaid seller.

The rights of an unpaid seller can broadly be classified under the following two
categories:
1. Rights against goods
2. Rights against the buyer personally
Right against the goods where the property in the goods has passed to the buyer
a.

Right of Lien

The right of lien means the right to retain the possession of the goods until the full price
is received.
26

Business Law Q & A

The unpaid seller of goods who is in possession of them is entitled to retain possession of
them until payment or tender of the price in the following cases, namely:
i.
ii.
iii.

Where the goods have been sold without any stipulation to credit.
Where the goods have been sold on credit, but the terms of credit has
expired, and
Where the buyer becomes insolvent.

The unpaid seller loses his right of lien in the following cases:
i.
ii.
iii.
iv.
v.

b.

When he delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the right of disposal of the
goods.
When the buyer or his agent lawfully obtains possession of the goods.
When the seller waives his right of lien.
When the buyer disposes of the goods by sale or in any other manner with
the consent of the seller
Where document of title to goods has been issued or lawfully transferred
to any person as buyer or owner of the goods and that person transfers the
document by way of sale, to a person who takes the document in good
faith and for consideration.

Right of Stoppage of Goods in Transit

The right of stoppage in transit means the right of stopping the goods while they are in
transit, to regain possession and to retain them till the full price is paid.
The unpaid seller can exercise the right of stoppage in transit only if the following
conditions are fulfilled:
i.
ii.
iii.

The seller must have parted with the possession of goods, i.e., the goods must
not be in the possession of the seller.
The goods must be in the course of transit.
The buyer must have been insolvent.

The sellers right of stoppage in transit is based on the principle that one mans goods
shall not be applied to the payment of others debt.
Goods are deemed to be course of transit from the time when they are delivered to a
carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his
agent in that behalf takes delivery of them from such carrier or other bailee.
Distinction between Right of Lien and Right of Stoppage in Transit
Basis of distinction

Right of lien

Right of stoppage in transit

27

Business Law Q & A

1. Possession of goods

The goods must be in actual

possession of the seller

2. Solvency

The right can be exercised

even when the buyer is
solvent but refuses to pay
the price
This right comes to an end
when the seller delivers the
goods to a carrier
The purpose of right is to
retain possession of the
goods.
This right can be exercised
by the seller himself

3. End vs. Commencement

on delivery to carrier
4. Purpose
5. Mode of exercising the
right

The goods must be in the

possession of a carrier or
other bailee who is acting as
an independent person
This right can be exercised
only when the buyer has
become insolvent.
This right commences only
when the seller delivers the
goods to a carrier.
The purpose of this right is
to regain the possession of
the goods.
This right can be exercised
by the seller through the
carrier or the other bailee.

c.
Right of Resale
An unpaid seller can resell the goods under the following three circumstances:
i.
ii.

Where the goods are of a perishable nature.

Where the seller expressly reserves a right of resale if the buyer commits a
default in making the payment.

Effects of Resale with or without Notice

Rights
In case of resale after
In case of resale without
notice
notice
1. Unpaid sellers right to
available
Not available
recover the loss on the sale
2. Original buyers right to
Not available
Available
recover the profit on resale
3. New buyers (who buys
available
available
in resale) right to acquire a
good title
2. When does property of goods pass from seller to the buyer? Discuss the exceptions to
the rule that no one can give a better title to the goods than he himself has.
3. State the difference between sale and agreement to sell. (3)
Basis of distinction
1. Transfer of ownership

Sale
Transfer of ownership of goods
takes place immediately

Agreement to sell
Transfer of ownership of goods
is to take place at a future time
or subject to fulfillment of some
condition
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Business Law Q & A

2. Executed contract or
executory contract
3. Conveyance of property

4. Transfer of risk

5. Rights of seller against the

buyers breach

It is an executed contract
because nothing remains to be
done.
Buyer gets a right to enjoy the
goods against the whole world
including seller. Therefore, a
sale creates jus in rem (right
against property)
Transfer of risk of loss of
goods takes place immediately
because ownership is
transferred. As a result, in case
of destruction of goods, the
loss shall be borne by the buyer
even though the goods are in
the possession of the seller.
Seller can sue the buyer for the
price even though the goods are
in his possession.

6. Rights of buyer against the Buyer can sue the seller for
sellers breach
damages and can sue the third
party who bought those goods,
for goods
7. Effect of insolvency of
Buyer can claim the goods
seller having possession of
from the official receiver or
goods
assignee because the ownership
of goods has transferred to the
buyer
8. Effect of insolvency of the Seller must deliver the goods to
buyer before paying the price the official receiver or assignee
because the ownership of
goods has transferred to the
buyer. He can only claim
rateable dividend for the
unpaid price.

It is an executory contract
because something remains to be
done
Buyer does not get such right to
enjoy the goods. It only creates
jus in personam (right against
the person)
Transfer of risk of loss of goods
does not take place because
ownership is not transferred. As
a result, in case of destruction of
goods, the loss shall be borne by
the seller even though the goods
are in the possession of the
buyer.
Seller can sue the buyer for
damages even though the goods
are in the possession of the
buyer.
Buyer can sue the seller for
damages only
Buyer cannot claim the goods
even when he has paid the price
because the ownership has not
transferred to the buyer. The
buyer who has paid the price can
only claim rateable dividend1.
Seller can refuse to deliver the
goods unless he is paid full price
of the goods because the
ownership has not transferred to
the buyer.

4. Distinguish between Contract of Hire Purchase and Installment Sale.

Basis of distinction
1. Regulating law

Sale
All contracts of sale are
governed by Sale of Goods
Act, 1930

Hire-purchase agreement
The Hire-purchase
agreements are governed by
Hire Purchase Act, 1972

Value of expected income from a property.

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Business Law Q & A

2. Nature of contract

It is contract of sale

3. Possession of goods

Possession of goods need

not necessarily be
transferred immediately
Ownership of goods is
transferred immediately

4. Transfer of ownership of
goods

5. Right to terminate

The buyer has no right to

terminate the contract of
sale

6. Right to repossess the

goods

The seller has no right to

repossess the goods. He can
sue for price.
The buyer can transfer a
good title to third party
because ownership of goods
has been transferred.
A contract of sale need not
necessarily be in writing

7. Transfer of good title to

third party
8. Compulsion as to be in
writing
9. Benefits of implied
conditions and warranties
under the Sale of Goods Act
10. Sales tax

The benefits of implied

conditions and warranties
are available
In case of sale of taxable
goods, sales tax is levied.

11. Treatment of payment

made by installment

The payment made by the

buyer is treated as payment
towards the price of goods

It is an agreement of hiring
and hence an agreement to
sell
Possession of goods is
necessarily transferred
immediately
Ownership of goods is
transferred on the payment
of the last installment when
the option to purchase is
exercised.
The hirer has right to
terminate the agreement at
any time before the
ownership is transferred.
The hire-vendor has a right
to repossess the goods if the
hirer defaults.
The hirer cannot transfer a
good title to third party
because ownership of goods
has not been transferred.
The hire-purchase
agreement must be in
writing
The benefits of implied
conditions and warranties
are not available.
In case of hire of even
taxable goods, sales tax is
not levied.
The payment made by the
hire purchases is treated as
hire charges for the use of
goods till the option to
purchase the goods is
exercised.

5. What is condition of warranty?

Conditions and Warranties
A stipulation in a contract of sale of goods may be a condition or warranty.
Condition
A condition is a stipulation -

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Business Law Q & A

i.
which is essential to the main purpose of the contract, and
ii.
the breach of which gives the aggrieved party a right to terminate the contract.
Warranty
A warranty is a stipulation
i.
which is collateral to the main purpose of the contract, and
ii.
the breach of which gives the aggrieved party a right to claim damages but not a
right to reject goods and to terminate the contract.
Ex: X asks a car dealer for a car suitable for touring. Dealer suggests a car and X buys it
but subsequently finds it unsuitable for touring purpose. Since suitability of the car for
touring purpose was the main condition, X can reject the car and claim refund.
Ex: X asks the dealer to suggest a good car. The dealer suggests one and states that the
car can run 20 km/l. However, the car actually gives only 15 km / l. This was a warranty.
X cannot reject the car but is entitled to claim damages.
Express and Implied Warranties and Conditions
Express conditions and warranties are expressly provided in the contract. For example, a
buyer desires to buy a SONY TV model no. 2062. Here, model no. is an express
condition. In an advertisement for Khaitan fans, guarantee for 5 years is an express
warranty.
Implied Warranty and Conditions
These are implied by law in every contract of sale of goods unless a contrary intention
appears from the terms of the contract.
Implied Conditions
a.
Condition as to Title there is an implied condition on the part of the seller that
i) in the case of a sale, he has a right to sell the goods, and ii) in the case of an agreement
to sell, he will have a right to sell the goods at the time when the property is to pass.
Ex: X purchased a car from Y. After six months Z, the true owner of the car,
demanded it from X. X had to return it to its true owner. X was entitled to recover
the full price even though several months had passed.
b.
Sale by description Where there is a contract of sale of goods by description,
there is an implied condition that the goods shall correspond with description. The main
idea is that the goods supplied must be same as were described by the seller.
Ex: X purchased from Y 5000 tins of canned fruit to be packed in cases each
containing 50 tins, but Y supplied cases containing 25 tins. X was entitled to
reject the goods because the goods were not packed according to the description.
d.
Sale by Sample A contract for sale by sample has a term in the contract, express
or implied, to that effect. Such sale by sample is subject to the following three
conditions:
i.
The goods must correspond with the sample in quality.

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Business Law Q & A

ii.

d.
e.

f.

g.

The buyer must have a reasonable opportunity of comparing the bulk with
the sample.
iii.
The goods must be free from any defect which renders them
unmerchantable and which would not be apparent on reasonable
examination of the sample. Such defects are called latent defects and are
discovered when the goods are put to use. It may be noted that the seller
cannot be held liable for apparent or visible defects which could be easily
discovered by an ordinary prudent person.
Sale by sample as well as by description If the sale is by sample as well as by
description, the goods must correspond with the sample as well as the description.
Condition as to Quality or Fitness There is no implied condition as to the quality
or fitness for any particular purpose of goods supplied under a contract of sale. In
other words, the buyer must satisfy himself about the quality as well as the
suitability of the goods. This is expressed by the maxim caveat emptor (let the
buyer beware).
Condition as to Merchantable Quality Where the goods are bought by
description from a seller who deals in goods of that description (whether he is the
manufacturer or producer or not), there is an implied condition that the goods
shall be of merchantable quality. The goods must be free from latent or hidden
defects.
Condition as to Wholesomeness In case of eatables or provisions of foodstuffs,
there is an implied condition as to wholesomeness. Condition as to
wholesomeness means that the goods are fit for human consumption.

Implied Warranty
a.
Warranty as to quiet possession There is an implied warranty that the buyer shall
have and enjoy quiet possession of the goods. The reach of this warranty gives
buyer a right to claim damages from the seller.
b.
Warranty of Freedom from Encumbrances There is an implied warranty that the
goods are free from any charge or encumbrance in favour of any third person if
the buyer is not aware of such charge or encumbrance. The breach of this
warranty gives buyer a right to claim damages from the seller.
c.
Warranty to Disclose Dangerous Nature of Goods In case of goods of dangerous
nature the seller must disclose or warn the buyer of the probable danger. If the
seller fails to do so, the buyer may make him liable for breach of implied
warranty.
Companies Act 1956
1. Distinguish between public company and private company. (5)
1. Private company
According to Sec 3(1) (iii), a private company means a company which has a minimum
paid up capital of Rs 100,000 or such higher paid up capital as may be prescribed, and by
its Articles

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Business Law Q & A

a. Restricts the right to transfer its shares, if any. This restriction is meant to preserve
the private character of the company.
b. Limits the number of its members to 50 not including its employee-members
(present or past).
c. Prohibits any invitation to the public to subscribe for any shares in, or debentures
of the company.
d. Prohibits any invitation or acceptance of deposits from persons other than its
members, directors or their relatives.
2. Public company
A public company means a company which
a. Has a minimum paid-up capital of Rs 5 lakh or such higher paid-up capital, as
may be prescribed;
b. Is a private company which is a subsidiary of a company which is not a private
company.
Every public company, existing on the commencement of the Companies (Amendment)
Act, 2000, with a paid-up Capital of less than Rs 5,00,000 shall, within a period of two
years from such commencement, enhance its paid-up capital to Rs 5,00,000.

1.
2.
3.
4.
5.

6.
7.

Differences between a public company and private company

Parameter
Public company
Private company
Minimum paid-up
Rs 5,00,000
Rs 1,00,000
capital
Minimum no. of persons 7
2
required to form the co.
Maximum no. of persons No restrictions
50
Minimum no. of
3
2
directors
Restriction on
The directors must file with Not required
appointment of directors the Registrar a consent to
act as directors or sign an
undertaking for their
qualification shares.
Restriction on invitation Can invite general public to Such invitation to public is
to subscribe for shares
subscribe for shares in, or
prohibited.
debentures of the company.
Transferability of
The shares and debentures
The right to transfer shares
shares/debentures
are freely transferable.
and debentures is restricted
by the Articles.

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Business Law Q & A

8. Quorum

If the Articles do not

provide for a larger
quorum, then minimum is 5
members.
9. Managerial remuneration Cannot exceed 11% of net
profits

Minimum 2 members.

No restriction.

2. What do you mean by a company? What are the essential features of a

company?
A company, in common parlance, means a group of persons associated together for the
attainment of a common end, social or economic. Registered or Incorporated
companies are those companies incorporated under the Companies Act, 1956 or some
other Companies Act. Companies incorporated under the Companies Act, 1956 are
mostly business companies but they may also be formed for promoting art, chart,
research, religion, commerce, or any other useful purpose.
Definition of a Company
A voluntary association of people A company, in broad sense, may mean an association
of individuals formed for some common purpose. It has capital divisible into parts,
known as shares. At the same time it is an artificial person created by a process of law. It
has a perpetual succession and a common seal. It exists only in contemplation of law, i.e.,
it is regarded by the law as a person.
An artificial person A company has no body, no soul and no conscience nor is it subject
to imbecilities of the body. It is not visible, save to the eye of the law. These physical
disabilities make a company an artificial person. But then a company really exists and it
is not a fictitious entity.
Characteristics of a Company
1. Separate legal entity
A company is in law regarded as an entity separate from its members. In other words, it
has an independent corporate existence. Any of its members can enter into contracts with
it in the same manner as any other individual can and he cannot be held liable for the acts
of the company even if he holds virtually the entire share capital. The companys money
and property belong to the company and not to the shareholders (although the
shareholders own the company).
2. Limited liability
A company may be a company limited by shares or a company limited by guarantee. In a
company limited by shares, the liability of members is limited to the unpaid value of the

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Business Law Q & A

shares. For example, if the face value of a share in a company is Rs 10 and a member has
already paid Rs 7 per share, he can be called upon to pay not more than Rs 3 per share
during the lifetime of the company. In a company limited by guarantee, the liability of
members is limited to such amount as the members may undertake to contribute to the
assets of the company, in the event of it being wound up.
3. Perpetual succession
A company is a juristic person with perpetual succession. As such it never dies; nor does
its life depend on the life of its members. It is not in any manner affected by insolvency,
mental disorder or retirement of any of its members. It is created by a process of law and
can be put to an end to only by a process of law. Members may come and go but the
company can go on forever (until dissolved). It continues to exist even if all its human
members are dead. Furthermore, a companys existence persists irrespective of the
change in the composition of its members.
4. Common seal
Since a company has no physical existence, it must act through its agents and all such
contracts entered into by its agents must be under the seal of the company. The common
seal acts as the official signature of the company.
5. Transferability of shares
The capital of a company is divided into parts, called shares. These shares are, subject to
certain conditions, freely transferable, so that no shareholder is permanently or
necessarily wedded to company.
6. Separate property
As a company is a legal person distinct from its members, it is capable of owning,
enjoying and disposing of property in its own name. Although its capital and assets are
contributed by its shareholders, they are not private and joint owners of its property. The
company is the real person in which all its property is vested and by which it is
controlled, managed and disposed of.
7. Capacity to sue.
A company can sue and be sued in its corporate name. It may also inflict or suffer
wrongs. It can in fact do or have done to it most of the things which may be done by or to
a human being.
3. Define prospectus. What are the features of a prospectus? Explain the
consequences of mis-statement in a prospectus. (4)
Prospectus

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Business Law Q & A

In order to finance its activities, a company needs capital which is raised by a public
company by the issue of a prospectus inviting deposits or offers for shares and debentures
from public. A private company is prohibited from making any invitation to the public to
subscribe for any shares in, or debentures of, the company. Hence it need not issue a
prospectus.
The central theme of a prospectus, from the money raising point of view, is that it sets out
the prospects of the company and the purpose for which the capital is required. The
prospectus is the basis on which the prospective investors form their opinion and take
decisions as to the worth and prospects of the company.
Sec, 2 (36) defines a prospectus as any document described or issued as a prospectus
and includes any notice, circular, advertisement or other document inviting deposits from
the public or inviting offers from the public for the subscription or purchase of any shares
in, or debentures of, a body corporate.
A prospectus must be in writing. Furthermore, a document is not a prospectus unless it is
an invitation to the public to subscribe for shares in, or debentures of a company. Under
the proviso to subsection (3) of sec 67, the offer or invitation to subscribe for shares or
debentures made to fifty persons or more shall be treated as made to the public.
A prospectus can be issued by or on behalf of a company only when a copy thereof has
been delivered to the Registrar for registration. The registration must be made on or
before the date of publication thereof.
Contents of a Prospectus
1.
2.
3.
4.
5.
6.
7.
8.
9.

General information on the company

Capital structure of the company (authorized, issued, subscribed, and paid up capital)
Terms of the present issue
Particulars of the issue (object, project cost, means of financing etc).
Company, management, and project.
Outstanding litigations of the company
Management perception of risk factors.
Financial information report of the auditors and accountants
Statutory and other information.

Misstatements in Prospectus and their Consequences

If there is a misstatement or withholding of material information in a prospectus, and if it
has induced any shareholder to purchase shares, he can
1. Rescind the contract
2. Claim damages from the company whether the statement is fraudulent or an innocent
one.

36

Business Law Q & A

Where a prospectus contains any untrue statement, every person who authorized the issue
of the prospectus is punishable with imprisonment which may extend to 2 years, or with
fine which may extend to Rs 5000 or with both. He will not be liable if he can prove
either
1. That the statement was immaterial, or
2. That he had reasonable ground to believe that the statement was true.
Red Herring Prospectus
This is a prospectus which does not have details of either price or number of shares being
offered or the amount of issue. This means that in case price is not disclosed, the number
of shares and the upper and lower price bands are disclosed. On the other hand, an issuer
can state the issue size and the number of shares are determined later.
Statement in lieu of Prospectus
Where a public company does not invite public to subscribe for its shares, but arranges to
get money from private sources, it need not issue a prospectus to the public. In such a
case the promoters are required to prepare a draft prospectus known as statement in lieu
of prospectus, which shall contain the information required to be disclosed by Schedule
III of the Act.
4. State the detailed procedure of registration of a prospectus. (2)
The main idea of issuing a prospectus is to facilitate the collection of finance for a
company. The prospectus of a company set outs the purpose of the company and the
reason why the capital is required. It consists of basic financial information of the
company. The prospective investors take their decision, whether to invest or not based on
the prospectus of the company. Under section 2 (36) of the Companies Act ,1956, a
prospectus is defined as, any document described or issued as a prospectus and includes
any notice, circular, advertisement or other document inviting deposits from the public or
inviting offers from the public for the subscription or purchase of any shares in, or
debentures of , a body corporate. A prospectus must be in writing and it should be dated
and the date is considered to be the date of publication of the prospectus, unless the
contrary is proved.
Under section 60 of the Companies Act, 1956, the prospectus of a company can be
published only after registration with the Registrar. However, it can be issued within 90
days, once the copy of the prospectus is sent to the Registrar. The copy should have the
signatures of the proposed directors or the authorized agents.
Few other mandatory documents that should be accompanied with the copy are:
consent of the expert to the issue.
copy of material contracts.
written consent of the person named in the prospectus, such as a banker or a lawyer.
The purpose objects for registration of a prospectus are:
To keep a legal record of the terms and conditions based on which the shares and
debentures are issued.

37

Business Law Q & A

To identify the accountability of the persons issuing the prospectus, for whatever is
stated in the prospectus.

5. Write notes on Memorandum of Association and Article of Association. (3)

Memorandum of Association
The Memorandum of Association is a document of great importance in relation to the
proposed company. It contains the fundamental conditions upon which alone the
company is allowed to be incorporated. It is the charter of the company, and lays down
the operation of the company. It also regulates the external affairs of the company in
relation to outsiders. Its purpose is to enable shareholders and those who deal with the
company to know what its permitted range of enterprise is.
The purpose of the Memorandum is two-fold:
1. The prospective shareholders shall know the field in, or the purpose for, which their
money is going to be used by the company and what risk they are undertaking in
making investment.
2. The outsiders dealing with the company shall know with certainty as to what the
objects of the company are and as to whether the contractual relation into which they
contemplate to enter with the company is within the objects of the company.
Contents of Memorandum
The Memorandum of every company shall contain the following clauses:
1. The name of the company, with Limited as the last word of the name in the case of
a public limited company and with Private Limited as the last words of the name in
the case of a private limited company.
2. The State in which the registered office of the company is to be situated.
3. The objects of the company which shall be classified as:
- The main objects of the company to be pursued by the company on its
incorporation and objects incidental or ancillary to the attainment of main objects;
and
- Other objects of the company not included in (a).
4. In case of companies (other than trading corporations) with objects not confined to
one State, the States to whose territories the objects extend.
5. Limited liability. The Memorandum of a company limited by shares or by guarantee
shall also state that the liability of its members is limited.

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Business Law Q & A

6. Share capital. In the case of a company having a share capital, the amount of share
capital with which the company is to be registered and the division thereof into shares
of a fixed amount. In such a company each subscriber shall take at least one share and
shall write opposite his name the number of shares he takes. The Memorandum of a
company limited by guarantee shall also state that each member undertakes to
contribute a certain sum to the assets of the company, if need be, in the event of being
wound up.
Articles of Association
The Articles of Association are the rules, regulations and bye-laws for the internal
management of the affairs of a company. They are framed with the object of carrying out
the aims and objects as set out in the Memorandum of Association.
The Articles are next in importance to the Memorandum of Association which contains
the fundamental conditions upon which alone a company is allowed to be incorporated.
They are as such subordinate to, and controlled by, the Memorandum.
In framing the Articles of a company care must be taken to see that regulations framed do
not go beyond the powers of the company itself as contemplated by the Memorandum of
Association.
Contents of Articles
Articles usually contain provisions relating to the following matters:
1. Share capital, rights of shareholders, variation of these rights, payment of
commissions, share certificates.
2. Lien on shares.
3. Calls on shares.
4. Transfer of shares.
5. Transmission of shares.
6. Forfeiture of shares.
7. Conversion of shares into stock.
8. Share warrants.
9. Alteration of capital.
10. General meetings and proceedings.
11. Voting rights of members, voting and poll, proxies.
12. Directors, their appointment, remuneration, qualifications, powers and proceedings of
Board of Directors.
13. Manager.
14. Secretary.
15. Dividends and reserves.
16. Accounts, audit and borrowing powers.
17. Capitalisation of profits.
18. Winding up.

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Business Law Q & A

Alteration of Articles
Companies have been given very wide powers to alter their Articles. The right to alter the
Articles is so important that a company cannot in any manner, either by express provision
in the Articles or by an independent contract, deprive itself of the power to alter its
Articles. Any clause in the Articles that restricts or prohibits alteration of Articles is
invalid. If, for example, the Article of a company contain any restriction that the company
shall not alter its Articles, it will be contrary to the Companies Act and therefore,
inoperative.
Limitation to alteration
1. Must not be inconsistent with Act.
2. Must not conflict with the Memorandum.
3. Must not sanction anything illegal.
4. Must be for the benefit of the company.
5. Must not increase liability of members.
6. Alteration by special resolution only.
7. Approval of Central Govt. required when a public company is converted into a
private company.
8. Breach of Contract. A company is not prevented from altering its Articles even if such
an alteration would result in breach of some contract. The affected party may,
however, file a suit for damages for the breach of contract.
9. Must not result in expulsion of member. An assumption by the Board of Directors of a
company of any power to expel a member by amending its Articles is illegal and void.
Any provision in the Articles conferring such a power on the Board of Directors is
repugnant to the various provisions in the Companies Act pertaining to the rights of a
member in a public limited company.
10. Alteration may be with retrospective effect.
The Articles are subordinate to the Memorandum. The Articles cannot give powers to a
company which are not conferred by the Memorandum nor can they purport to create
rights which are inconsistent with the Memorandum.
6. Enumerate different steps to be taken by the promoters from the formation of a
company to the commencement of business.
7. Discuss the circumstances in which a company may be wound up by the
Tribunal (2).
Winding Up and Dissolution of Companies
A company is brought into existence by a legal process and when for any reason, it is
desired to end its existence, it must again be by the process of law. Winding up of a
company is a process of putting an end to the life of a company. It is a proceeding by
means of which a company is dissolved and in the course of such a dissolution its assets
are collected, its debts paid off out of the assets of the company or from contributions by

40

Business Law Q & A

its members, if necessary. If any surplus is left, it is distributed among the members in
accordance with their rights. During the process of winding up the company still exists
and has corporate powers until dissolution. Till dissolution the property of the company
remains vested in the company.
It is worth noting that the company is not dissolved immediately on the commencement
of the winding up proceedings. As a matter of fact, the winding up of a company precedes
its dissolution i.e. the winding up is the prior stage and the dissolution, next. On the
dissolution, the company is no more in existence, and its name is struck off by the
Registrar from the register of companies.
Winding up by Tribunal
A company may be wound up by an order of the Tribunal. This is called compulsory
winding up. The Tribunal will make an order for winding up on an application by any
person enlisted in section 439.
Section 433 lays down the following grounds where a company may be wound up by a
Tribunal:
1. Special resolution.
If the company has by a special resolution resolved that it may be wound up by the
Tribunal, the Tribunal may pass a winding up orders. The powers of the Tribunal in such
a case is discretionary and should be exercised only where a bona fide case is made out.
The Tribunal may refuse to order winding up where it is opposed to public or companys
interest.
2. Default in filing statutory report, or holding statutory meeting.
The company must hold the statutory meeting within 6 months from the date on which
the company is entitled to commence its business. And before the holding of the meeting,
the statutory report by the directors must also be delivered to the Registrar for
registration. If a company makes a default in delivering the statutory report to the
registrar or in holding the statutory meeting, the Tribunal may order winding up of the
company either on the petition of the Registrar or on the petition of the contributory.
3. Failure to commence business with time.
Where a company does not commence its business within a year from its incorporation,
or suspends its business for a whole year, the Tribunal may order for its winding up.
4. Reduction of membership.
Where the number of members is reduced to below 7 in the case of public company and
below 2 in case of a private company, the Tribunal may order the winding up of the
company.
5. Inability to pay debts.

41

Business Law Q & A

6. Just and equitable.
The Tribunal can order the winding up of a company when the Tribunal is of the opinion
that it is just and equitable that the company should be wound up.
7. Default in filing P/L account B/S or Annual Return.
8. Acted against Sovereignty & Integrity of India.
9. Sick Industrial Company u/s 424G.
Petition for Winding Up
The Tribunal does not choose to wind up a company of its own motion. It has to be
petitioned. Section 439 of the Companies Act enumerates the persons who can file a
petition to the Tribunal:
1.
2.
3.
4.
5.
6.

The company.
Any creditor or creditors including any contingent or prospective creditor or creditors.
Any contributory2 or contributories.
All or any of the aforesaid parties, together or separately.
The Registrar.
Any person authorized by the central government under section 234.

8. A takes proceedings against the Directors of a company of which he is a member to

compel them to make good losses instead by owing to their fraud. Will he succeed?
9. Write notes on appointment of a director of a company.
Appointment of Director
According to Sec. 2 (13) of the Companys Act, 1956, director includes any person
occupying the position of director by whatever name called. A director may be defined as
an individual who directs, controls, manages or superintends the affairs of a company. As
a body, they frame the general policy of the company, direct its affairs, appoint the
companys officers, ensure that they carry out their duties and recommend to the
shareholders regarding distribution of dividend. The directors of a company are
collectively referred to as the Board of directors or Board.
Directors are, in the eyes of the law, agents of the company for which they act. The
general principles of the law of agency apply to the company and its directors. The
company itself cannot in its own person for it has no person; it can only act through
directors and the case is as regards those directors merely the ordinary case of principal
and agent. Wherever an agent is liable those directors would be liable; where the liability
2

The term contributory means every person liable to contribute to the assets of a company in the event of
its being wound up. It includes the holders of any shares which are fully paid up and includes any person
alleged to be a contributory.

42

Business Law Q & A

would attach to the principal and principal only, the liability is the liability of the
company.
Sec. 252 provides that every public company must have at least 3 directors and every
private company must have at least 2 directors.
Directors may be appointed in the following ways:
1. First Director. The first directors are usually named in the articles. The articles may
also provide that both the number and the names of the first directors shall be
determined in writing by the subscribers to the memorandum or a majority of them.
Where the company has no articles or the articles are silent regarding the appointment
of directors, the subscribers to the memorandum who are individuals shall be deemed
to be the first directors of the company.
2. Appointment by company. Appointment of subsequent directors is made at every
annual general meeting of the company. Section 255 provides that not less than two
third of the total number of directors of a public company, or of a private company
which is subsidiary of a public company must be appointed by the company in
general meeting. These directors must be subject to retirement by rotation.
Example: A company has six directors. It can appoint only 2 directors (1/3rd of six) as
permanent directors if it wants to do so. The remaining four directors shall be liable to
retire by rotation.
The object of Section 255 is to prevent the mischief of self perpetuating management.
At every subsequent annual general meeting one third of the directors of a public
company or a private company which is not a subsidiary of a public company are liable to
retire by rotation. If the number is not three or a multiple of three, then the number
nearest to one third must retire from office.
The directors to retire by rotation at every annual general meeting must be those who
have been longest in office since their last appointment. As between persons who become
directors on the same day, those who are to retire will, subject to any agreement among
themselves, be determined by lot.
10. Discuss the different documents that are required to be drafted for registration
of a company and raising of capital by a company.
Before a company is formed, certain preliminary decisions are necessary, e.g., whether it
should be a private company or a public company, what its capital should be, and whether
it is worthwhile forming a new company or taking over the business of an already
established concern. All these decisions are taken b certain persons known as
promoters. They do all the necessary preliminary work incidental to the formation of a
company.

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Business Law Q & A

Documents to be filed with the Registrar

Before a company is registered, it is essential to ascertain from the Registrar of
Companies (for the State in which the registered office of the company is to be situated)
if the proposed name of the company is approved. Then the following documents duly
stamped together with the necessary fees are to be filed with the Registrar:
1. The Memorandum of Association duly signed by the subscribers.
2. The Articles of Association, if any, signed by the subscribers to the Memorandum of
Association. A public company limited by shares need not have its own Articles of
Association. It may instead adopt Table A in Schedule I of the Act.
3. The agreement, if any, which the company proposes to enter into with any individual
for appointment as its managing director or whole-time director or manager.
4. A list of the directors who have agreed to become the first directors of the company
(this applies to a public company limited by shares) and their written consent to act as
directors and take up qualification shares.
5. A declaration stating that all the requirements of the Companies Act and other
formalities relating to registration have been complied with.
Certificate of Incorporation
When the requisite documents are field with the Registrar, the Registrar shall satisfy
himself that the statutory requirements regarding registration have been duly complied
with. If the Registrar is satisfied as to the compliance of statutory requirements, he retains
and registers the Memorandum, the Articles and other documents filed with him and
issues a certificate of incorporation, i.e., of the formation of the company. By issuing
the certificate of incorporation, the Registrar certifies under his hand that the company is
incorporated and in the case of a limited company, that the company is limited.
A certificate of incorporation given by the Registrar in respect of a company is conclusive
evidence that all the requirements of the Companies Act have been complied with in
respect of registration.
Three important consequences follow:
1. The company becomes a distinct legal entity. Its life commences from the date
mentioned in the certificate of incorporation.
2. The company acquires a perpetual succession. The members may come and go, but it
goes on forever, unless it is wound up.

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Business Law Q & A

3. The companys property is not the property of the shareholders. The shareholders
have a right to share in the profits of the company when realized and divided.
Likewise, any liability of the company is not the liability of the individual
shareholders.
Prospectus
In order to finance its activities, a company needs capital which is raised by a public
company by the issue of a prospectus inviting deposits or offers for shares and debentures
from public. A private company is prohibited from making any invitation to the public to
subscribe for any shares in, or debentures of, the company. Hence it need not issue a
prospectus.
The central theme of a prospectus, from the money raising point of view, is that it sets out
the prospects of the company and the purpose for which the capital is required. The
prospectus is the basis on which the prospective investors form their opinion and take
decisions as to the worth and prospects of the company.
11. State the power of the directors of a company.
Generally, a Director plays a dual role, (i) as an agent of the company; and (ii) as a person
with a fiduciary duty to the company, while discharging his duties. A Director rarely has
powers to discharge his duties as an individual Director. It is the Board that has the power
and authority to carry on the activities of the company and to meet the business
objectives of the company as a team.
Acting individually, a Director has no power to act on behalf of the company in any
matter, except to the extent to which any power or powers of the Board have been
delegated to him by the Board, within the limits prescribed under the Companies Act or
any other law. Contracts entered into by a Director are binding on the company only if
they are within his actual authority or if the articles of association of the company, or the
companys bye-laws or internal rules of management (Articles), provide for the
delegation of such power by a Board resolution, whether or not such power has actually
been delegated. The exception is a Managing Director, who has ostensible authority to
enter into contracts on behalf of the company.
12. Explain the doctrine of ultravires in the Companies Act 1956.
Doctrine of Ultra Vires
A company has the power to do all such things as are
1. Authorized to be done by the Companies Act, 1956.
2. Essential to the attainment of the objectives specified in the Memorandum.
3. Reasonably and fairly incidental to its objects.

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Everything else is ultra vires the company. Ultra means beyond and vires means
powers. The term ultra vires for a company means that the doing of the act is beyond
the legal power and authority of the company. The purpose of these restrictions is to
protect the investors and creditors of the company.
If an act is ultra vires he company, it does not create any legal relationship. Such an act is
absolutely void and even the whole body of shareholders cannot ratify it and make it
binding on the company.
13. Write short note on Doctrine of Indoor Management.
The Doctrine of indoor management is a presumption on the part of the the people
dealing with the company such as the shareholders that the internal requirements with
regard to the articles of association and memorandum of association have been complied
with.
The doctrine of indoor management helps in protection of external members from the
company and states that the people are entitled to presume that the internal proceedings
are as per the documents submitted with the registrar of companies.
They are not allowed to go into the procedural aspect, such as the fact that the internal
proceedings might not happen regularly, or what are the proceedings before the directors,
in an extraordinary general meeting.
Consumer Protection Act 1986
1. Explain the financial and territorial jurisdiction of various Redressal Agencies
under Consumer Protection Act.
2. Mention the composition of the District, state and National Commission. How
can one appeal to the State and National Commission?
3. Discuss the different levels of authority under CPA.
Consumer Redressal Forums
The most important feature of the Act is the provision for setting up three-tier quasijudicial machinery popularly known as consumer courts at national, state and district
levels. The apex court, National Commission, functions in Delhi. Every State
Government has a State Commission. At present there are 35 State Commissions. The
third tier is in each district and is called district forum.
District Forum
District Consumer Disputes Redressal forum, commonly known as District forum is the
lowest authority having only original jurisdiction i.e. deciding the consumer complaint.
Sec. 9 of the Act provides for the establishment of a District Forum by the State
Government in each district of the State by notification. The State Government may
establish more than one District Forum in a district if it deems fit to do so.

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The composition of a District Forum shall comprise a President (who has been or is
qualified to be a District Judge) and two other members, one of whom shall be a woman.
The members should be not less than 35 years of age, possess a bachelors degree from a
recognized university and shall be a person of integrity, ability and standing, and shall
have adequate knowledge and experience of at least 10 years in dealing with problems
relating to economics, law, commerce, accountancy, industry, public affairs or
administration. Every member of the District Forum shall hold office for a term of five
years or upto the age of 65 years or whichever is earlier.
Section 11 provides for the jurisdiction of the District Forum under two criteria
pecuniary and territorial.
Under pecuniary limits, the District Forum can entertain complaints where the value of
goods or services and the compensation, if any, claimed does not exceed rupees twenty
lakhs.
With respect to territorial limits, a complaint 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 branch office or personally works for gain,
b. The cause of action, wholly or in part, arises.
State Commission
State Consumer Disputes Redressal Commission commonly known as State Commission
is the second highest authority having original as well as appellate jurisdiction over the
entire state. The Act provides for the establishment of such a body by the State
Government in the State by notification.
The composition of the State Commission consists of a President (a person who is or has
been a judge of a High Court) and not less than two, and not more than such number of
members, as may be prescribed, and one of whom shall be a woman. The members of the
State Commission shall have the same qualifications as required of the members of the
District Forum.
Section 17 of the Act provides that the State Commission shall have jurisdiction to
entertain
a. Complaints where the value of goods or services and compensation, if any, claimed
exceeds rupees twenty lakhs but does not exceed rupees one crore; and
b. Appeals against the orders of any District Forum within the State; and
c. 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.

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Business Law Q & A

In the exercise of its appellate jurisdiction, the State Commission may entertain appeals
only against the orders of any District Forum within the State.
National Commission
National Consumer Disputes Redressal Commission, commonly known as National
Commission is the highest authority having original as well as appellate jurisdiction all
over India. Section 9 provides for the establishment of this body by the Central
Government by notification in the official gazette.
The National Commission shall consist of a President (a person who is or has been a
judge of the Supreme Court) and not less than four, and more than such number of
members, as may be prescribed, and one of whom shall be a woman. The members of the
National Commission shall have the same qualifications as required of the members of
the State Commission and District Forum.
Section 21 provides that the National Commission shall have jurisdiction
a. To entertain complaints where value of goods or services and the compensation, if any,
claimed exceeds rupees one crore.
b. To entertain appeals against the orders of any State Commission; and
c. To call for the records and pass appropriate orders in any consumer dispute which is
pending before, or has been decided by any State Commission such that 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.
4. Define consumer. Write the objectives of Consumer Protection Act, 1986.
Mention the rights of Consumer under the Act. (4)
Objectives
The Consumer Protection Act, 1986 seeks to provide for protection of the interests of the
consumers in general. The Act has recognized the following six rights of the consumers:
1. Right to consumer education
The right to consumer education is an important right available to the consumers.
Information about the consumer products in the market and for the proper functioning of
the legal system it is necessary that the knowledge of the availability of a legal remedy
should be so widely explained, advertised and circulated, so that people as a whole
become conscious of their rights.
2. Right to safety
The consumer has a right to be protected against marketing of goods which are hazardous
to life and property of the consumers. For example, adulterated food is dangerous to life
and poor quality cement is dangerous to life as well as to property.
3. Right to seek redressal

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Business Law Q & A

The consumer has been given the right to seek redressal against unfair trade practices or
their unscrupulous exploitation. The consumer should have some means of redress when
goods fail to live up to their promise or indeed cause injury.
4. Right to be heard
The right to be heard also includes the right to be assured that the consumer interest will
receive due consideration at appropriate forums. The consumer disputes should be
resolved in a fair and expeditious manner.
5. Right to choose
The right to choose means the right to be assured, wherever possible, access to a variety
of goods and services at competitive prices. Fair and effective competition must be
encouraged in order to provide consumers with the greatest range of choice among
products and services at the lowest price.
6. Right to information
The consumer has been given the right to be informed by the producer about the quality,
quantity, potency, purity, standard and price of goods so as to protect the consumer
against unfair trade practices. The right to obtain adequate information is an important
right which enables the consumer to take intelligent decision at the time of purchasing
any goods or hiring any services.
The Consumer Protection Act provides cheap and quick redressal of genuine consumers
grievances and it is a matter of paramount public importance that no person should
misuse the remedies available under this Act for lodging false complaints on the basis of
fabricated evidence and harass the persons who supply goods or render services.
Definition of a Consumer
A consumer means a person who
i. BUYS any goods for a consideration which has been paid or promised or partly paid
and partly promised, or under any system of deferred payment and includes any
user of such goods when such use is made with the approval of such person, but
does not include a person who obtains such goods for resale or for any
commercial purpose; or
ii. HIRES or avails of any services for a consideration which has been paid or promised
or partly paid or partly promised, or under any system of deferred payment and
includes any beneficiary of such services when such services are availed of with
the approval of the first mentioned person but does not include a person who
avails of such services for any commercial purpose.
To seek redressal under the Consumer Protection Act, it is necessary to first prove that
one is a consumer as defined under the Act. The definition of the term consumer as
given above is quite comprehensive one so as to cover not only consumer of goods but
also consumer of services. The definition is wide enough to include in the term
consumer not only the person who buys any goods for consideration but also any user
of such goods with the approval of the buyer.

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Business Law Q & A

Persons buying goods either for resale or for use in a large scale profit making activity
will not be consumers entitled to protection under the Act. However, a person who
bought goods for self-employment will be eligible as consumer.
Thus, definition of a consumer covers
i. One who buys or agrees to buy goods for a consideration for personal use.
ii. One who uses such goods with permission of buyer of goods.
iii.One who obtains goods on hire purchase or lease.
iv. One who hires or avails of any services for a consideration.
v. One who uses the services with permission of person who has hired the services.
vi. One who obtains services on deferred payment basis i.e. hire purchase or lease.
vii One who buys goods or hires services exclusively for purpose of earning his
livelihood as self-employment.
The term consumer does not include (a) One who buys goods for commercial purposes
(b) One who has not bought the goods.
5. What is the procedure for filing Appeals under the Consumer Protection Act?
Mode of Complaint
1. A complaint in relation to any goods sold or delivered or agreed to be sold or delivered
or any service provided or agreed to be provided may be filed with a District Forum
by:
a. The consumer to whom such goods are sold or delivered or agreed to be sold or
delivered or such services provided or agreed to be provided.
b. Any recognized consumer association whether the consumer to whom the goods
sold or delivered or agreed to be sold or delivered or service provided or agreed to
be provided is a ember of such association or not;
c. One or more consumers, where there are numerous consumers having the same
interest, with the permission of the District Forum, on behalf of, all consumers so
interested; or
d. The Central or the State Government.
2. Every complaint shall be accompanied with such amount of fee and payable in such
manner as may be prescribed,
3. On receipt of a complaint the District Forum may, by order, allow the complaint to be
proceeded with or rejected (a complaint may not be rejected unless an opportunity of
being heard is given to the complainant). The admissibility of the complaint shall
ordinarily be decided within twenty one days from the date on which the complaint
was received.
4. Where a complaint is allowed to be proceeded with, the District Forum may proceed
with the complaint in the manner provided under this Act.
Any person aggrieved by an order made by the District Forum may prefer an appeal
against such order to the State Commission within a period of thirty days from the date of

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Business Law Q & A

order. However, 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 filing it
within that period.
However, no appeal by a person, who is required to pay any amount in terms of an order
of the District Forum, shall be entertained by the State Commission unless the appellant
has deposited in the prescribed manner 50% of that amount or twenty five thousand
rupees, whichever is less.
Any person aggrieved by an order made by the State Commission may prefer an appeal
against such order to the National Commission within a period of thirty days from the
date of order. However, 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.
However, no appeal by a person, who is required to pay any amount in terms of an order
of the State Commission, shall be entertained by the National Commission unless the
appellant has deposited in the prescribed manner 50% of that amount or thirty five
thousand rupees, whichever is less.
Any person aggrieved by an order made by the National Commission may prefer an
appeal against such order to the Supreme Court within a period of thirty days from the
date of such order. However, no appeal by a person, who is required to pay any amount in
terms of an order of the National Commission, shall be entertained by the Supreme Court
unless the appellant has deposited in the prescribed manner 50% of that amount or fifty
thousand rupees, whichever is less.
Remedies
A forum can provide the following remedies:
1. It can require the concerned party to remove the defect in the good;
2. To replace the good with a new one;
3. To return the excess price charged;
4. To pay compensation to the consumer for any loss or injury suffered by the consumer
due to the negligence of the opposite party;
5. To discontinue the unfair trade practice; or
6. To remove the deficiency in the service.
6. Write notes on Caveat Emptor. (2)

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Business Law Q & A

Caveat Emptor' is a Latin phrase which means Buyer Beware', coined perhaps when
buyers did not have many rights and the risks were higher that they could be sold poor
quality goods. In modern times buyers perhaps, now have many rights and organizations
help them and balance the power between buyer and seller and there is now probably
great liability on the part of the seller to ensure they are selling merchandisable goods.
In olden days, the principle of Caveat Emptor, which meant buyer beware, determined
the relationship between seller and buyer. In the era of open markets, buyer and seller
came face to face, seller exhibited his goods, buyer thoroughly examined them and then
purchased them. It was assumed that he would use all care skill while entering into
transaction.
It is the obligation of the seller that he would disclose about the quality of the product. In
addition, the personal relation between the buyer and the seller was one of the major
factors in their relations. But with the growth of trade and its globalization the rule no
more holds true. It is now impossible for the buyer to examine the goods before hand and
most of the transactions are conducted by correspondence. Further, on account of
complex structure of the modern goods it is only the producer or seller who can assure
the quality of goods. With manufacturing activity become more organized, the producers
or sellers are becoming stronger and organized whereas the buyer are still weak and
unorganized. In the age of revolutionized Information Technology and with the
emergence of E-Commerce related innovations. As a result, buyer is being misled, duped
and deceived day in and day out.
Shop & Establishment Act
1. Mention the objectives and provisions of Shops and Establishment Act. (3)
2. Write short notes on Shops and Establishment.
Shop and Establishment Act is to provide statutory obligation and rights to employees
and employers in the unorganised sector of employment, i.e., shops and establishments.
Scope and Coverage
A state legislation; each state has framed its own rules for the Act.
Applicable to all persons employed in an establishment with or without wages,
except the members of the employer's family.
State government can exempt, either permanently or for a specified period, any
establishments from all or any provisions of this Act.
Main Provisions
Compulsory registration of shop/establishment within thirty days of
commencement of work.
Communications of closure of the establishment within 15 days from the closing
of the establishment.
Lays down the hours of work per day and week.
Lays down guidelines for spread-over, rest interval, opening and closing hours,
closed days, national and religious holidays, and overtime work.

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Business Law Q & A

Rules for employment of children, young persons and women
Rules for annual leave, maternity leave, sickness and casual leave, etc.
Rules for employment and termination of service.
Maintenance of registers and records and display of notices.
Obligations of employers.
Obligations of employees.
Shops & Establishment Act is a State Act.

Fair Trade Practice

1. Write short notes on Fair Trade Practice.
The provisions of Unfair Trade Practices were introduced in 1984, by amending the
Monopolies and Restrictive Trade Practices Act (MRTP Act). The practices of firms often
raise questions about truthfulness and fairness in the representation of the products and
services, in advertisements and schemes and modalities used for the promotion of the
products and services etc.
The changing context of liberalization and globalization required better regulation and
the strengthening of institutional support. The MRTP Act, in its interpretation and
working, has been inadequate in dealing with the holding of contests and schemes for the
promotion of goods and services, and with comparative advertising. Even the limited
regulation being provided through the MRTP Act has been transferred to the Consumer
Protection Act. At the same time, a Competition Act has been brought in to regulate
monopolies and anti-competitive or restrictive trade practices.
The working of two particular dimensions of unfair trade practices have been most
interesting holding of games and contests and disparaging goods of competitors.
Trade Marks, Patents and Copyrights
1. Write notes on Trademark. (2)
Trade marks are an integral component of modern business. A trade mark is a symbol
which indicates the source of particular goods. Producers of the goods devise different
trade marks which are distinct from others. Trade marks facilitate marketing of goods and
services by enabling the buyers to identify the goods / services with the producers and
traders supplying them. The exclusive right to the use of the mark, enables the owners to
build goodwill and reputation in the expression of its identity and to prevent others from
misleading consumers into wrongly associating products with an enterprise from which
they do not originate. Trade marks may consist of letters, numerals or combination of
both or a pictorial representation or a combination of words.
2.
3. The Central Government, through notification in the Official Gazette, appoints a
person to be known as Controller-General of Patents, Designs and Trade Marks, who
acts as the Registrar of Trade Marks. A record called the Register of Trade Marks is
kept at the office of the Trade Mark Registry, which has entries with respect to
registered trade marks with the names, addresses and descriptions of the proprietors,
notifications of assignments and transmissions, the names, addresses and descriptions

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of registered users, disclaimers, conditions, limitations and such other matters relating
to registered trade marks.
4.
5. The Parliament enacted Trade Marks Act 1999, replacing the Trade and
Merchandise Marks Act, 1958. The new Act was put into effect from September
2003. The new law has been enforced in following with the commitments made by
India as a signatory to the Trade Related to Intellectual Property (TRIPS) agreement
under the General Agreement on Tariff and Trade (GATT). If the ACT of 1958 was a
nationalist in the sense that it aimed at reducing the presence of foreign trade marks
and guarding the marks of domestic firms, the new law has reversed the tide by
giving an overwhelming protection to foreign trade marks.
6. Write short notes on Patents.
To safeguard the fruits of research and development it is necessary for a country to
create intellectual property. Intellectual property is of two kinds:
i)
Industrial Property i.e. patents, designs and trademarks.
ii)
Copyrights granted to authors, musicians, artists etc.
With the coming into existence of WTO (World Trade Organisation) of which India is a
member, Trade Related Intellectual Property Rights have gained considerable importance
and generated a lot of debate within and outside India because of its likely far reaching
effects on trade, commerce, domestic industry and international trade.
At present, patents are granted for inventions under Patent Act 1970 and Patent Rules
1972.
Till now, Patent laws in India provided protection to drugs, chemicals and pharmaceutical
industry and agriculture from competition from multinational corporations. This
protection was possible because laws in India provided process patent as against
product patent.
Since India had been a signatory to GATT (General Agreement on Trade & Tariff), the
Govt. of India was committed to implement clauses related to TRIPS by amending its
Patent Act 1970. The major provision related to introduction of product patent, increase
in Patent period to 20 years, patenting of agricultural hybrid seeds etc.
Definition
A patent, generally speaking, is a grant from government, conferring on the grantee, for a
period of limited period of time, the exclusive privilege of making, selling and using the
invention for which a patent has been granted and also of authorizing others to do so.
Patent is granted in respect of invention. In simple words, invention is something new
which did not exist before. It is the creative work of someone who got some idea
spontaneously and by physical operation converted it into practice. To be patentable, an

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invention must be new, involve an inventive step (i.e. non-obvious) and be capable of
industrial application.
Patent protection encourages invention by reducing the risk of pirating or copying and
spread of knowledge for the benefit of mankind.
Types of Patents
Three kinds of patents are granted under different provisions of the Act. These are:
1. Ordinary Patent
Such a patent is normally obtained by filing application under section 6(1) of the Patent
Act 1970.
2. Patent of Addition
This is a patent for improvement in or modification of an invention for which a patent
application has already been made or it has been granted. Sections 54 to 56 of the Act
contain provisions regarding application, sealing of patent, renewed fees, terms of patent
and validity period of patent of addition.
3. Patent in respect of Convention
Such patents are granted to persons outside India who are based in a country which has
convention, treaty or arrangement with India for grant of patents on reciprocal basis to
Indian applicants under section 133. These convention countries are to be specified by
notification in the Official Gazette by the Central Government.
7. Distinguish between trade marks and patents.
8. Define copyrights. What are the uses and importance of copyrights?
9. What are the remedies available in case of infringement of copyright?
Artists, musicians and writers spend their whole life to create a masterpiece for the
society. In order to protect the hard work, genius, meditation and skill of the intellectual,
Copyright At has been framed. Copyright is about the right to copy. It is based on the
notion that people who create or produce creative work, have a right to decide how the
fruits of their talent, skill and labour should be reproduced. It thus provides the economic
foundation for sustaining and fostering creativity. Without this protection, nobody would
be encouraged to be creative. In India, the law on copyright protection is contained in the
Indian Copyright Act, 1957.
What can be copyrighted?
Literary work
Dramatic work
Musical work
Artistic work
Film
Record

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Business Law Q & A

The first important requirement for copyrighting is that the work must be original. The
question which is to be asked is: has there been a substantial investment of time, labour,
and capital?
It is important to note that copyright is not related to ideas, but to their expression.
Copyright is given over the material form of expression, ex: the novel.
The Act introduces the concepts of the author, employer, and commissioned work.
Section 17 recognises the author to be the owner of the work. An employer can have the
ownership on a work produced by an author, under a contract of service or apprentice.
Copyright protection is available only for a limited number of years. The duration of
protection is as follows:
1. In the case of literary, dramatic, musical or artistic work (other than a photograph)
when published during the lifetime of the author, copyright subsists first during the
lifetime of the author, In addition, it subsists for the next sixty years from the death of
the author. In the case of joint authors, the sixty years period is to be counted after the
death of the author who dies last.
2. In the case of literary, musical or artistic work (other than a photograph) which is
anonymous or pseudonymous, copyright is for sixty years from the date of
publication.
3. The copyright for a photograph and films is for a period of sixty years from the year
of its publication.
Registration of Copyrights
For registration, the office of the Registrar of Copyrights has been created. The register
of copyrights is maintained in the copyright office of the Department of Education.
When applying for registration, all details of the work, as contained in the Rules, are to
be mentioned. Published as well as unpublished work can be registered. A copy of the
work has also to be submitted. The person applying for registration has to give notice of
his application to those who may have interest in the work. The registrar receives
objections on the application. In addition, he examines the correctness of the information
given. Upon satisfaction, he registers the work and issues a certificate of registration.
Copyright Infringement
The Act provides for civil as well as criminal liability. A copyright owner can initiate a
civil suit against a person infringing a copyright, in a district court within whose
jurisdiction the copyright owner resides or carries on his business or where the cause of
action arose. The court can stop the infringer from continuing the infringement, and
award the gains made from the infringement, as well as damages.
An owner can also initiate a criminal prosecution for the violation of a copyright. Any
person who knowingly infringes the copyright in any work, is punishable with
imprisonment for a term not less than six months, but it may extend for up to three years.

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In addition, there will be a fine of not less than fifty thousand rupees, which may extend
up to two lakh rupees.
Competition Act
1. What is the function of Competition Commission of India?
The Central Government has appointed the Competition Commission of India (CCI). It is
the duty of the CCI to carry out the following:
Anti-competitive Agreements
Sec. 3 provides for prohibition of entering into anti-competitive agreements. It shall not
be lawful for any enterprise or association of enterprises or person or association of
persons to enter into an agreement in respect of production, supply, storage, distribution,
acquisition or control of goods or provision of service which causes or is likely to cause
an appreciable adverse effect on competition within India. All such agreements entered
into in contravention of this prohibition shall be void.
Abuse of Dominant Position
Sec. 4 prohibits abuse of dominant position by any enterprise. Such abuse of dominant
position, inter alia, includes imposition, either directly or indirectly, of unfair or
discriminatory purchase or selling prices or conditions, including predatory prices of
goods or services, including production or restricting of goods and provision of service,
indulging in practices resulting in denial of market access making the conclusion of
contracts subject to acceptance by other parties of supplementary obligations and using
dominant position in one market to enter into or protect other market.
Regulation of Combination
Sec. 5 deals with combination of enterprises and persons; acquisition of one or more
enterprises by one or more persons or acquiring of control or merger or amalgamation of
enterprises under certain circumstances specified shall be construed as combination. Sec.
6 further provides that no person or enterprise shall enter into a combination which is
likely to cause or causes an appreciable adverse effect on competition within the relevant
market in India. It further provides exemption from the provisions of Sec. 5 to certain
institutions.
Cyber Law
1. Write notes on Cyber Offences. (3)
Cyber crime is a generic term that refers to all criminal activities done using the medium
of computers, the Internet, cyber space and the worldwide web. There isnt really a fixed
definition for cyber crime. The Indian Law has not given any definition to the term cyber
crime. In fact, the Indian Penal Code does not use the term cyber crime at any point
even after its amendment by the Information Technology (amendment) Act 2008, the
Indian Cyber law. But Cyber Security is defined under Section (2) (b) means protecting

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information, equipment, devices computer, computer resource, communication device
and information stored therein from unauthorized access, use, disclosure, disruption,
modification or destruction.
Hacking
Hacking is not defined in the amended IT Act, 2000. Hacking means unauthorized
attempts to bypass the security mechanisms of an information system or network. Also, in
simple words Hacking is the unauthorized access to a computer system, programs, data
and network resources.
Data Theft
Data Theft is a growing problem, primarily perpetrated by office workers with access to
technology such as desktop computers and handheld devices, capable of storing digital
information such as flash drives, iPods and even digital cameras. The damage caused by
data theft can be considerable with todays ability to transmit very large files via e-mail,
web pages, USB devices, DVD storage and other hand-held devices.
Spreading Virus or Worms
In most cases, viruses can do any amount of damage, the creator intends them to do. They
can send your data to a third party and then delete your data from your computer. They
can also ruin/mess up your system and render it unusable without a re-installation of the
operating system. Most have not done this much damage in the past, but could easily do
this in the future. Usually the virus will install files on your system and then will change
your system so that virus program is run every time you start your system. It will then
attempt to replicate itself by sending itself to other potential victims.
Identity Theft
Identity theft is a form of fraud or cheating of another persons identity in which someone
pretends to be someone else by assuming that persons identity, typically in order to
access resources or obtain credit and other benefits in that persons name.
Information Technology (Amendment) Act, 2008, crime of identity theft under
Section 66-C, whoever, fraudulently or dishonestly make use of the electronic signature,
password or any other unique identification feature of any other person known as identity
theft.
E-Mail Spoofing
E-mail spoofing is e-mail activity in which the sender addresses and other parts of the email header are altered to appear as though the e-mail originated from a different source.
E-mail spoofing is sending an e-mail to another person in such a way that it appears that
the e-mail was sent by someone else. A spoof email is one that appears to originate from
one source but actually has been sent from another source. Spoofing is the act of
electronically disguising one computer as another for gaining as the password system.
2. Write short note on digital signature.

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Business Law Q & A

A digital signature is an electronic form of a signature that can be used to authenticate
the identity of the sender of a message or the signer of a document, and also ensure that
the original content of the message or document that has been sent is unchanged. Digital
signatures are easily transportable and cannot be imitated by someone else. The ability to
ensure that the original signed message arrived means that the sender cannot easily
disclaim it later.

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