BUSINESS LAW ASSIGNMENT NOV2016

Answer 1

In order to understand the examples of contract of indemnity and contract of guarantee, it is

important to understand what it means. A Contract in which one party promises to save another
party for loss caused to him by the conduct of promisor himself or by the conduct of any other
person is called contract of indemnity. A contract in which one party promises to perform the
promise or to discharge the liability incurred by the third party in case of his default is called as
contract of guarantee.

Lets now consider the example of contract of indemnity.

Aditya Birla, a trouser exporter wish to ship the goods from India to UK against Marks and
Spencer order through nominated freight forwarder Expo freight India pvt ltd. The goods are to
be shipped in the closed container which gets sealed at factory premises after loading the goods
into container. The goods are to be shipped on hanger and it is hung to the ropes present inside
container. Aditya Birla loads the goods, seal the container at factory located in Bangalore and
sends the consignment through road transport to Chennai to freight forwarder from where it will
get shipped to UK through ship. Upon receipt of the container, Expo freight scans the container
and observes that goods are fallen inside the container. He notifies Aditya Birla about it. Aditya
Birla request him to unseal the container, reload the goods properly and ship the container. Expo
freight asks Aditya Birla to send the indemnity bond duly signed. Aditya Birla sends the
indemnity bond to expo freight (in trust of the long business relationship) and then expo freight
reload the goods and ship the container.

Here expo freight is free from any liabilities which may arise after receipt of the shipment at
destination. Eg. Less number of garments, quality of the garments, any claims arising out of this.
Or any security concerns against the goods present in the container. Here Expo freight is
Indemnity and Aditya Birla is Indemnifier.

Lets consider the example of contract of Guarantee.

Benetton India is a Shirt brand who buys shirt in huge quantity from Laguna clothing. Laguna
clothing is shirt Manufacturer. The fabric supplier to Laguna clothing is Arvind mills ltd.
Benetton holds business relationship with Arvind mills as well as Laguna clothing. All fabric
developments are done by Arvind mills. Fabric designs are selected by Benetton India and
Benetton India place the shirts order to Laguna clothing. The selected fabric design is to be
bought from Arvind mills against that order. Laguna clothing has contract with Arvind mills to
make the payment within 30days of fabric receipt. Benetton India signs contract of guarantee
with Arvind mills ltd that if the fabric payment of the fabrics purchased by Laguna clothing
against Benetton orders will be paid by Benetton India in case Laguna clothing is not able to pay
it within agreed payment terms of 30days.

Here, Arvind Mills is covered for the possible loss in case Laguna clothing fails to make
payment within agreed payment term of 30 days. Here Benetton India is Surety, Laguna
clothing is Principal debtor and Arvind mills is Creditor.
Difference between contract of indemnity and contract of Guarantee with respect to above
examples given.
SRNR INDEMNITY
1 There are two parties involved.
2 The liability of indemnifier is primary
3 The liability of indemnifier arises only
on the happening of contingency.
4 The indemnifier cant sue the third party
for loss in his own name.
5 Indemnity is for reimbursement of loss.
6 The contract is express and specific
7 The promisor cannot file suit against the
third person until and unless the
promisor subrogates his rights for filing
of suit.
8 An indemnity is for reimbursement of a
loss.
9 In case of indemnity contract,
indemnifies has the interest in earning
commission and premium.
GUARANTEE
There are three parties involved.
The liability of surety is secondary and
arises only if the principal debtor fails to
perform his obligations.
There is a existing legal debt, the
performance of which is guaranteed by the
surety.
Surety after discharging the debt can sue
the principal debtor.
The contract of guarantee is for surety of
debt.
Contract between principal debtor and
creditor is specific and the contract
between principal debtor and surety is
implied.
The surety does not require any
subrogation for filing the suit.
A guarantee is for security of the creditor.
In case of guarantor he has no any other
interest except guarantee.
Answer 2)

Corporate social responsibility act 2013 section 135 describes the obligation of companies
towards CSR activities in India which has come into force from 1st April 2014. The provision
states that It is mandatory for the companies whose net worth of Rs 500 crore or a turnover of Rs
1,000 crore or net profit of Rs 5 crore, needs to spend at least 2% of its average net profit (PBT)
for the immediately preceding three financial years on corporate social responsibility activities.
The CSR activities which can be undertaken are mentioned in schedule VII which are listed here
below;

Eradicating extreme hunger and poverty;

Promotion of education;
Promoting gender equality and empowering women;
Reducing child mortality and improving maternal health;
Combating human immunodeficiency virus, acquired immune deficiency syndrome,
malaria and other diseases;
Ensuring environmental sustainability;
Employment enhancing vocational skills;
Social business projects;
Contribution to the Prime Minister's National Relief Fund or any other fund set up by the
Central Government or the State Governments for socio-economic development and
relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other
backward classes, minorities and women; and
Such other matters as may be prescribed.

As provided under Section 135(1) itself, the companies shall be required to Constitute
Corporate Social Responsibility Committee of the Board "hereinafter CSR Committee". The
CSR Committee shall be comprised of 3 or more directors, out of which at least one director
shall be an independent director.
2. The Board's report shall disclose the compositions of the CSR Committee
The companies needs to report their CSR activities in their annual report.

Let us understand the CSR with the help of an example of Aditya Birla group.
Aditya Birla is $41 billion USD business conglomerate having its presence in wide variety of
business across 35 countries. It has more than 1.3lac workforce. Ms. Rajshree Birla heads the
CSR wing of Aditya Birla group which itself indicate that group is genuinely interested in the
CSR. The focus area of CSR activities of Aditya Birla group are listed below;
Education
Health care and family welfare
Sustainable livelihood encompassing agricultural and water shed development, and
women empowerment process.
Infrastructure support.
Espousing social causes.
Belo image give us fair idea what Aditya Birla group does in CSR activities;
To mention few, below are few achievements of Aditya Birla group in the field of CSR.
Through CSR, Balwadis (pre-school) facilities are provided at Nagda, Madhya Pradesh.
Every year around 18000 children get pre-education from these Balwadis.
Over 29000 people are reached out to through adult literacy and bridge program.
Periodically Birla group conducts medical camp at nearby villages wherein Birla
manufacturing plants are located. Each year 2800 medical camps treat over 5lakh
patients for various ailments. Over 6000 people are operated for cataract.
Each year, more than 30 lakh children are immunized against polio.
Apart from this, It also conducts animal husbandry camp wherein more than 70000
animals are immunized.
More than 25000 people have been given training in income generation activities.
The group is espousing dowryless marriages in the villages. Over 3000 couples are united
in widow remarriage and dowryless marriage programmes, so far.
Aditya Birla memorial hospital

Thus to summarize, Aditya Birla group firmly believes that business is not an end in itself and
that business exists to serve larger interest of the society.

Let us take an another example of CSR activities by TATA STEEL;

Tata Steels CSR focus is based on four thrust areas Education, Health, Livelihoods and Rural
and Urban infrastructure. Besides, it also undertake Interventions in the areas of sports, disaster
relief, environment and ethnicity etc, all aimed at improving the quality of life of the
communities.
The CSR Committee of the Board is responsible for governing and reviewing the CSR programs
of the Company from time to time. An Apex CSR Steering Committee chaired by the Managing
Director and comprising the senior management team of Tata Steel does a quarterly review of
the activities and monitors achievements against targets set at the beginning of the year.
Below image helps us understand how CSR functions in Tata steel.

Major key indicators of Tata steel CSR initiatives are shown in below image.
There is huge amount of work done in terms of agricultural development, education and health.

It is worth noticing that TATA STEEL is amongst top 10 best CSR initiative companies in India.
There is so much to write on the TATA steel CSR initiatives but I will mention here few things
which I value the most;

Healthcare project MANSI (Maternal and newborn survival initiative): This project is started in
year 2009 and covered 167 villages in Jharkhand so far. Main aim of MANSI is Reduce the
mortality of children and infants. Promote home-based maternal newborn andchild care through
Sahiyas (village level volunteers). The impact of this project is reduction in neonatal mortality
rate by 46%.
Tata Steel has built primary schools, primary health centres, residential schools etc. Truly, Tata
steel has set an example in CSR activities without taking much pride about it!

Answer3 a)
Rita is consumer as per consumer protection act 1986 Section 2(d) of the Consumer Protection
Act which says that consumer means any person whobuys 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 other than the person who buys such
goods for consideration paid or promised or partly paid or partly promised, or under any system
of deferred payment when such use is made with the approv-al of such person, but does not
include a person who obtains such goods for resale or for any commercial purpose. Also, a
person to be considered as consumer should satisfy below conditions;
Any Person who use the goods with the approval of the buyer is a consumer - When a
person buys goods, they may be used by his family members, relatives and friends. Any
person who is making actual use of the goods may come across the defects in goods.
Thus the law construe users of the goods as consumers although they may not be buyers
at the same time. The words ....with the approval of the buyer in the definition denotes
that the user of the goods should be a rightful user.
Any person who obtains the goods for Resale is NOT a consumer Rita did not obtain
the goods for Resale but for use for her own hence she is a consumer as per law.
The act is applicable throughout India except Jammu and Kashmir --- Rita stays in Patna
and hence she is consumer by Law.

Sections 2(b) & 12 - At the outset it is clear that a person who can be termed as a consumer
under the Act can make a complaint. Thus Rita can file the complaint against the watch
company.

According to consumer protection act, consumer can file a complaint against the seller if the
goods sold suffer from one or more defects. The consumer complaint can be filed under section
Section 2(1)(c) as per consumer protection act due to following reasons;
1. Neha is consumer as per law,
2. Watch is goods as per law,
3. Neha observed manufacturing defect in watch upon opening the parcel.
4. The time period is well within 2 years of goods purchase.
The seller may choose to replace, correct or reimburse the compensation to customer as a
resolution to the complaint.
Answer 3b)

b) Explain the doctrine and its specific exception defined in Contract Act, 1872 which exponents that
Rita is entitled to sue the Watch Company.

In above example, there is an implied contract between Neha and the Seller of the watch. This is
a valid contract. The doctrine of privity says that contract cannot create any legal obligation or
right in the hands of person or parties other than parties involved in it. The rules and terms and
conditions of the contract are applicable only to the parties who have entered the contract. Only
the parties who are there in the contract can sue or can be sued by the party in the agreement.
Thus, as per privity of contract, Neha can have legal obligation or rights over the watch seller
and vice versa.

But, there are certain exceptions to the privity of contract. One of the exceptions is The
beneficiary of a contract can enforce the contract on the behalf of parties who had contracted, for
the benefit of such beneficiary or third party

Thus, as per exceptions to the privity of contract, Rita is a beneficiary of the contract and she can
sue the watch company on behalf of parties in agreement, ie Neha.

Many well-known companies which understand the importance of the customer satisfaction, give
the clauses while selling the goods that the customer can get free replacement of the goods OR
return of the money in case the goods fails to attend requirement of buyer within specified
period. The requirement may be in terms of quality, color, defects, service etc.

In case, seller fails to perform his promise then the buyer (as per privity of contract) OR the
beneficiary (as per exception to the privity of contract) can sue the seller. Thanks to Indian
contract act 1872.

Resources:
https://www.mca.gov.in/Ministry/pdf/FAQ_CSR.pdf
http://finance.bih.nic.in/Documents/CSR-Policy.pdf
Aditya Birla CSR report.
Tata steel CSR policy and report.
http://ncdrc.nic.in/bare_acts/1_1_2.html
https://en.wikipedia.org/wiki/Indian_Contract_Act,_1872