Code

Questions
Write a short note
on sources of
Indian Business
Law.

Write a short note

on free consent.

Explain the rights

of surety.

FS15 MB0051

Answers
The sources of Indian business law are:
Statutes such as the Indian Contract Act, 1872, the Sale of Goods Act, 1930, the
Partnership Act, 1932, the Negotiable Instruments Act, 1881, and the Insurance Act,
1938.
Common law In the absence of a legal provision on a subject, the Indian courts
apply the English common law. Even in interpreting Indian laws, the Indian courts
refer to English decisions.
Custom and usages: Indian business customs and trade usages, unless excluded
by a statute, are allowed to govern business transactions. The Negotiable
Instruments Act, 1881, has not excluded the trade usage of hundis as negotiable
instruments.
Precedents: The main contribution of courts towards law-making is in the form of
decisions in law suits. The cases decided by the Supreme Court and other courts
have served as precedents to be followed by lower courts.
Justice, equity and good conscience: The equitable principles of law developed by
the English equity courts are the guiding force behind most Indian statutes on
business laws. Moreover, Indian courts make use of these principles of equity in
interpreting the Indian law as and when necessary.
2 Marks each
For a contract to be valid, it is necessary that the parties provide free consent to its
terms. If there is no free consent, the contract is voidable at the option of the party
whose consent was not free. Consent is said to be free when it is not caused by
Coercion: (Sections 15 and 72): Coercion refers to any of the following

Committing or threatening to commit any act forbidden by the Indian Penal

Code

Unlawful detaining or threatening to detain any property, with the intention of

forcing a person to enter into an agreement.
Undue influence: (Section 16): When a special relationship exists between two
parties in such a way that one person has the ability to influence the other by
persuasion and is able to dominate his/her will so as to get undue advantage, then
he/she is said to have exercised undue influence. Normally, undue influence is
exercised when a person has authority over another, is in a fiduciary relationship or
is a caregiver for a person who is physically or mentally disabled. Undue influence is
also called moral coercion.
Fraud: (Sections 17 and 19): Fraud is an intentional misrepresentation to deceive a
person and make him/her enter into a contract. It could be

A false suggestion made as a fact by one who does not believe it to be true

Concealment of a fact by one having knowledge of that fact

Promise made without any intention of keeping it

Any other act to deceive

Any act or omission specifically declared to be fraudulent by law

As there is active concealment of facts, the contract is voidable even though the
aggrieved party has the means to discover the truth with ordinary diligence.
Misrepresentation: (Sections 18-19): Misrepresentation is also known as simple
misrepresentation while fraud is known as fraudulent misrepresentation. Like fraud,
misrepresentation is an incorrect or false statement; however, the falsity or
inaccuracy is not due to any desire to deceive or defraud the other party. Such a
statement is made innocently. The party making the statement believes it to be true.
It can be avoided by the party subject to such misrepresentation.
Mistake: (Sections 20-21): Mistake may be defined as an erroneous belief on the
part of the parties to the contract concerning something pertaining to the contract. A
mistake of fact is excused but a mistake of law is inexcusable.
(5 points 2 Marks each)
Rights of surety may be classified under three heads. They are
a. Rights against the creditor: In case of fidelity guarantee, the surety can direct a
creditor to dismiss the employee whose honesty he/she has guaranteed, in the
event of proven dishonesty of the employee. The creditors failure to do so will
exonerate the surety from his/her liability.
(2 marks)
b. Rights against the principal debtor: They are

Right of subrogation: Section 140 provides that where a surety has paid the

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Explain
the
features and kinds
of Bailment.

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guaranteed debt on the due date or has performed the guaranteed duty on the
default of the principal debtor, he/she is invested with all rights that the creditor
has against the debtor. In other words, the surety is subrogated to all rights
that the creditor had against the principal debtor. Hence, if the creditor loses or
without the consent of the surety parts with any securities (whether known to
the surety or not), the surety is discharged to the extent of the value of such
securities (Section 141). Further, the creditor must hand over to the surety the
securities in the same condition as they formerly stood in his/her hands.

Right to be indemnified: The surety has a right to recover from the principal
debtor the amount that he/she has rightfully paid under the contract of
guarantee.
(4 marks)
c. Rights against co-sureties: They are

Right of contribution: Where a debt has been guaranteed by more than one
person, they are called co-sureties. Section 146 provides for a right of
contribution between them. When a surety has paid more than his/her share or
a decree has been passed against the surety for more than his/her share,
he/she has a right of contribution from the other sureties who are equally
bound to pay with him/her.

Where the co-sureties have guaranteed different sums, they are bound under
Section 147 to contribute equally, subject to the limit fixed by their guarantee
and not proportionately to the liability undertaken.
(4 marks)
The word bailment is derived from the French word Bailer, which means to deliver. In
law, bailment is a voluntary change of possession from one person to another. It is
defined as the delivery of goods from one person to another for some purpose upon a
contract. Upon the attainment of the purpose, the goods are returned or disposed off,
according to the directions of the person delivering them.
According to Section 148 of the Contracts Act, the person delivering the goods is called
the bailor and the person to whom the goods are delivered is called the bailee.
Delivery of the possession is not necessary where one person, already in possession of
goods, contracts to hold them as the bailee.
(1 mark)
Features/Characteristics are

Delivery of goods: The essence of bailment is delivery of goods by one person to

another for some temporary purpose. Delivery of goods may, however, be actual or
constructive. Actual delivery may be made by handing over goods to the bailee.
Constructive delivery may be made by doing something that has the effect of
putting goods in the possession of the intended bailee or any person authorised to
hold them on his/her behalf (Section 149). Let us study a case given in this regard.

Bailment is based on a contract: In bailment, the delivery of goods is based on a

contract that when the purpose is accomplished, the goods shall be returned to the
bailor. For example, where a watch is delivered to a watch repairer for repair, it is
agreed that it will be returned, after repair, on the receipt of the agreed charges.

Return of goods in specie: Goods are delivered for some purpose and it is agreed
that the specific goods shall be returned. Return of specific goods (in specie) is an
essential characteristic of bailment. Thus, where an equivalent and not the same is
agreed to be returned, there is no bailment.

Ownership of goods: In a bailment, it is only the possession of goods that is

transferred and not the ownership thereof. Therefore, the person delivering the
goods need not be the owner; his business is to transfer possession and not
ownership.
(6 marks)
Kinds are

Deposit: Delivery of goods by one person to another for the use of the former, i.e.,
the bailor

Commodatum: Goods lent to a friend gratis to be used by him

Hire. Goods lent to the bailee for hire, i.e., in return for payment of money

Pawn or pledge: Deposit of goods with another by way of security for money
borrowed

Delivery of goods for being transported, or something to be done about them, by

the bailee for reward

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Describe the kinds

of Agents.

Describe the types

of
companies
meeting.

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Delivery of goods as in (v) above, but without reward.

(3 marks)
Agents may be classified from different points of view. One broad classification of agents
is
a. Mercantile or commercial agents: A mercantile or commercial agent may act as

Broker: A broker is a mercantile agent engaged to buy and/or sell property or

to make bargains and contracts between the engager and third party for a
commission (called brokerage). A broker has no possession of goods or
property. He is merely a connecting link between the engager and a third
party. The usual method of dealing by a broker is to make entries of the terms
of contract in a book, called the memorandum book, and to sign them. He/she
then sends the particulars of the same to both parties. The document sent to
the seller is called the sold note and the one sent buyer is called the bought
note.

Factor: A factor is a mercantile agent who is entrusted with the possession of

goods with an authority to sell the same. He/she can even sell the goods on
credit and in his/her own name. A factor is also authorised to raise money on
their security and has a general lien on the goods in his possession. A factor,
however, cannot barter the goods, unless expressly authorised to do. Also,
he/she cannot delegate authority.

Commission agent: A commission agent is an agent employed to buy or sell

goods or transact business. The remuneration that he/she gets for this
purpose is called commission. A commission agent is not liable in case the
third party fails to carry out the agreed obligation and may have possession of
goods or not. His/her lien in case of goods in his/her possession is a particular
lien.

Del credere agent: A del credere agent is one who, in consideration of an extra
remuneration, called a del credere commission, guarantees the performance
of the contract by the other party.
b. Non-mercantile or non-commercial agents: Some agents in this category are wife,
estate agent, counsels (advocates) and attorneys. The following principles provide
guidelines as regards wife as an agent of her husband.
(8 marks)
Another classification of agents is General and Special. A special agent is a person
appointed to do some particular act or enter into some particular contract. A special
agent, therefore, has only a limited authority to do the specified act. If he does anything
beyond the specified act, he runs the risk of being personally liable since the principal
may not ratify the same.
(2 marks)
The types of meeting are
a. Annual general meeting (AGM) (Sections 166-168): As the name signifies, this is an
annual meeting of a company. The provisions relating to this meeting are:

Every company, whether public or private, having a share capital or not, limited
or unlimited must hold this meeting.

The meeting must be held in each calendar year and not more than 15 months
shall elapse between two meetings. However, the first AGM may be held
within 18 months from the date of its incorporation and if such general meeting
is held within that period, it need not hold any such meeting in the year of its
incorporation or in the following year. The maximum gap between two such
meetings may be extended by three months by taking permission of the
Registrar, who may so allow for any special reason.

The meeting must be held

On a day that is not a public holiday

During business hours

At the registered office of the company or at some other place within the
city, town or village in which the registered office is situated. (Section 166
(2)).
(5 marks)
b. Extraordinary Meeting (EGM) Section 169: Clause 47 of Table A (Schedule I)
provides that all general meetings other than AGMs shall be called the EGMs. The
legal provisions as regards such meetings are:

EGM is convened for transacting some special or urgent business that may

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arise in between two AGMs, for instance, change in the objects or shift of
registered office or alteration of capital. All business transacted at such
meetings is called special business. Therefore, every item on the agenda must
be accompanied by an Explanatory Statement.

An EGM may be called by:

Directors of their own accord

Directors on requisition

Requisitionists themselves

The Tribunal. The Board of Directors may call a general meeting of the
members at any time by giving not less than 21 days notice. A shorter
notice may, however, be held valid if consent is accorded thereto by
members of the company holding 95 percent or more of the voting rights
(Section 171).
(4 marks)
c. A company has two classes of shares equity shares and preference shares. The
class meetings are held for these different classes of shareholders, as and when
their rights are affected.
(1 mark)

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