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The Indian Contract Act , 1872
1. What are the objects and scope of The Indian
Contract Act , 1872 .
The law of contract deals with the agreements which
can be enforced through courts of law. The law of
contract is the most important part of commercial law
because every commercial transactions starts from an
agreement between two or more persons.
The object of law of contract is to introduce
definiteness in commercial and other transactions.
How this is done can be illustrated by example. X
enters into a contract to deliver 10 tons of coal of Y
on a certain date. Since such a contract is enforceable
by the courts, Y can plan his activities on the basis of
getting the coal on the fixed date . If the contract is
broken, Y will get damages (compensation) from the
court and will not suffer any loss.
2. What is the application of the contract act.
This Act lays down certain general rules regarding
contracts. The Act is not exhaustive. There are other
acts relating to particular types of contract that is, the
negotiable instruments Act, etc.
3. What are the essentials of a valid contract.
1. Offer and acceptance.
There must be a lawful offer by one-party and a
lawful acceptance of the offer by the other party or
parties. The term lawful implies here that the offer
and acceptance must conform to the rules laid down
in the Indian Contract Act regarding offer and
acceptance.
2. Intention to create legal relationship .
There must be an intention, among the parties, that
the agreement shall result in or create legal relations
between parties. This relation is, commercial or
financial relation.
3. Lawful consideration.
An agreement is legally enforceable only when each
of the parties to it gives something and get
something. The something given or obtained is called
consideration.
4. Capacity of parties.
The parties to an agreement must be legally capable
of entering into an agreement. A party whose age is
below 18 years is incapable. A party who is not a
man of sound mind is incapable. A party who do not
understand the terms of the contract is incapable. A
party who is prohibited by law to enter into contract
is incapable.
5. Free Consent.
In order to be enforceable, an agreement must be
based on free consent of all the parties. The consent
will be free when it is not influenced by coercion,
undue influence, mistake, misrepresentation, fraud.
6. Legality of the object.
The object for which the agreement has been entered
into must not be illegal, or immoral or opposed to
public policy.
7. Certainty.
The agreement must not be vague. It must be possible
to ascertain the meaning of the agreement. Otherwise
it cannot be enforced.
8. Void agreement.
An agreement so made must not have been expressly
declared to be void. Void means which is illegal
unenforceable.
4. Give examples of void agreements.
The agreement in restraint to marriage, agreement in
restraint of trade, agreement in restraint of
proceedings(legal, administrative), agreements
having uncertain meaning.
5. Classification of contracts
On the basis of formation of the contract contracts
may be classified into
i. Express contract.-which is expressed in words
spoken or written.
ii. Implied contract. -- conditions of which to be
understood from the acts, the conduct of the parties
and the course of dealing between them.
iii. Quasi Contract. -there are certain dealings which
are not contracts strictly, though the parties act as if
there is a contract.
On the basis of time of performance.
i. Executed contract. -- the contract which already
been executed, as soon as the contract is formed.
ii . Executory contract. -In this contract obligations of
the parties are to be performed at a later time.
On the basis of parties of the contract.
i. Bilateral contract. -- at least two parties should be
in the contract.
ii. Unilateral contract. -- where one-party has to
fulfill his obligations whereas the other party has
already performed his obligations.
On basis of legality, enforceability, validity of the
contract.
i. Valid. -- an agreement which satisfy all the
essential elements of a contract as prescribed in the
Indian Contract Act.
ii. Void. -- an agreement not enforceable by law.
iii. Voidable. -- an agreement which is enforceable by
law at the option of one party.
iv. Illegal.-an illegal agreement is one which is
against the law of India.
v. unenforceable. -- an agreement which cannot be
enforced in a court of law.
5. Definitions of following terms.
Offer. -- a proposal.
As example we can say, When Mr. X signifies Mr.
Y's willingness to do or abstain from doing anything,
with a view to obtaining the assent of Mr Y to such
act or abstinence, Mr X is said to make a proposal.
Acceptance.
a person to whom a proposal has been made, signifies
his willingness to do something or abstain from doing
something and his willingness and such willingness
has been communicated to the person who made the

proposal, the proposal is said to be accepted. The
whole process is said to be acceptance.
Consideration.
Consideration is "something". Something is given to
the promisee of proposal, for doing something or for
abstain from doing something by the maker or
promisor of the proposal.
According to Indian Contract Act, 1872
consideration means "when, at the desire of the
promisor, the promisee or any other person has done
or abstained from doing, or does or abstains from
doing, promises to do or to abstain from doing,
something, such act or abstinence or promise is called
consideration."
6. Can a offer be expressed or implied.
Answer. Yes.
7. Should an offer be made to a definite person.
Answer. Yes.
8. Is a mere statement of intention a offer.
Answer. No.
9. Should an offer be communicated to the offeree.
Answer. Yes.
10. What are the circumstances in which conditional
offers are invited.
Answer. Lack of reasonable notice. Unreasonable
terms.
Breach of fundamental rights. Tortious action by the
offeror.
11. Who can accept ?
Answer. The person for whom the offer is intended.
We can say the person to whom the offer has been
made.
12. What are the rules of acceptance.
Answer. Acceptance must be an absolute and
unqualified. An acceptance with a variation is no
acceptance. Seeking classification of offer is nice is
no acceptance. Acceptance must be communicated to
usual methods of communication. The acceptance
must be made in the mode prescribed by the
promisor. The acceptance must be made while the
offer is in force. Acceptance must be made in
reasonable time.
13. Can offer and acceptance be made through
telephone.
Answer. Yes. But offer and acceptance must be
audible, heard and understood.
14. How offer can be revoked or when does an offer
lapses.
Answer. An offer comes to an end, and is no longer
open to acceptance under the following
circumstances.
By notice.
By lapse of time.
After expiry of reasonable time.
By failure of a condition precedent.
By death or insanity.
Counter offer.
By refusal.
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15. What are the types of consideration.
Answer.
Past consideration--when the consideration of one
party was given before the date of the promise.
present consideration -- consideration which moves
simultaneously with the promise is called present
consideration or executed consideration.
Future consideration. -- when the consideration is to
move at a future date, it is called future consideration.
16. What are the rules of consideration.
Answer.
Desire of the promisor is essential.
The consideration must be real.
Consideration need not be adequate.
Consideration must be legal, moral.
Consideration may be present past or future.
17. A promise without consideration is a gift.
Answer. This is a true statement.
18. Give few exceptions in which valid contract may
be made without consideration..
Answer.
i.Gift-in case of give no consideration is required.
ii. Natural love and affection -- where there is a
relation of love , affection, no consideration is
required to make a contract.
iii. Voluntary compensation -- a promise made
without any consideration is valid if, it is a promise to
compensate wholly or in part, person who has already
voluntarily done something for the promisor, or
something which the promisor was legally ,
compellable to do.
iv. Time barred debt -- a promise to pay, wholly or in
part a debt which is barred by the law of limitation
can be enforced in the promise is in writing and is
signed by the debtor or his authorised agent.
v. completed gift.-in case of completed gift no
consideration is required.
19.What do you understand by the term capacity of
the parties.
Answer. A person is capable of entering into contract
i. If he has attained 18 years of age.
ii. He is of sound mind.
iii. He is not disqualified to enter into contract.
20. Can a minor be agent.
Answer. Yes. A minor can draw, make, endorse and
deliver negotiable instruments so as to bind all parties
except himself. A minor cannot be adjudicated an
insolvent.
21. What do you mean by the term sound mind.
Answer. A person will be called of sound mind if he
is able to understand the terms and conditions and
capable of making a judgment as to the effect of the
contract upon him.
22. What is the definition of free consent.
Answer. The consent is said to be free when it is not
caused by coercion, undue influence, fraud,
misrepresentation and mistake.
23. What is coercion.

Answer. Coercion means i. Commenting or
threatening to commit an act forbidden by Indian
Penal Code,ii. The unlawful detaining or threatening
to detain any party.
24. What is undue influence.
Answer. A contract is said to be induced by undue
influence where ( i). One of the parties is in a
position to dominate the will of the other,(ii). He uses
the position to obtain an unfair advantage over the
other.
25. What is misrepresentation.
Answer. The positive assertion, in a manner not
warranted by the information on the person making
it, of that which is not true, though he believes it to
be true.
26. What is fraud.
Answer. The term fraud includes all acts committed
by a person with a view to deceive another person.
To deceive means to induce a man to believe that a
thing is true but in reality which is false.
Fraud means and includes.
False statement.
Active concealment.
Intentional nonperformance.
Deception.
Fraudulent act or ommission.
27. Can silence be fraudulent.
Answer. Mere silence as to the fact is likely to affect
the willingness of a person to enter into contract is
not fraud, unless the circumstances of the case are
such that, regard being had to them, it is the duty of
the person keeping silence to speak, or unless his
silence is equivalent to speech.
From the above the following rules can be made.
The general rule is that mere silence is not
fraud.Silence is fraudulent, if the circumstances of
the case are such that, regard being had to them, it is
the duty of the person keeping silence to speak. The
duty to speak that is disclose all acts, exists where
there is a fiduciary relationship between the parties.
Fiduciary means relation between father and son or
relation between Guardian and ward.
Silence is fraudulent where the circumstances are
such that silence is in itself equivalent to speech.
28. Distinction between fraud and misrepresentation.
1. In misrepresentation there is no intention to
deceive. Fraud implies an intention to deceive.
2. The difference between misrepresentation and
fraud depends on the belief of the person making the
statement. If the statement is honest, even though it
was wrong, there is only misrepresentation. If the
statement is dishonest it is a case of fraud.
3. In case of fraud the party aggrieved can rescind the
contract. He can also sue for damages. In case of
misrepresentation the only remedy is recession. There
can be no suit for damages.
4. In case of misrepresentation in the circumstances
are such that the aggrieved party might have
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discovered the truth with ordinary diligence, the
contract cannot be avoided. The same is the case
where there is a fraudulent silence. But in other cases
of fraud and this is no defence. Even if there were
independent sources of discovering truth which are
not availed of, the aggrieved party can rescind the
contract and May file a suit for damages.
29. Define mistake.
Mistake may be defined as an erroneous belief
concerning something. Consent cannot be said to be
free when an agreement is entered into under
mistake. An agreement is valid as a contract only
when the parties agree upon the same thing in the
same sense.
Mistakes are of two types.
Mistake of law and mistake of fact.
30. Give some examples of agreements against public
policy.
Answer. Trading with the enemy, agreements
interfering with the course of justice,
maintenance(when one person helps another by
money in litigation in which he is not himself
interested), agreement creating an interest opposed to
duty, agreements restraining personal freedom,
agreements interfering with parental duties,
agreements interfering with marital duties, marriage
brokerage agreements.
31. When an agreement becomes void.
Answer.
i. Lack of capacity of parties.
ii. Mutual mistakes of fact.
iii. Unlawful consideration or object of the
agreement.
iv. Consideration or object partly unlawful.
v. Agreements without consideration.
vi. Agreements in restraint of trade.
vii. Agreements in restraint of legal proceedings.
viii. Uncertain agreements.
ix. Agreements by way of wager.
x. Impossible acts.
xi. Agreement contingent on impossible event.
xii. Reciprocal promises where there are void
promises.
32. Is negative stipulation in service contracts valid.
Answer. Yes. As example we can say any company
may ask its employee not to do certain things, in
course of his job. Instructing not to do is the negative
stipulation here.
33. What are the methods of termination or discharge
of a contract.
Answer.
i. By performance of the promise or tender.
ii. By mutual consent cancelling the agreement or
substituting a new agreement in place of the old.
iii. The subsequent impossibility of performance.
iv. By operation of law that is death, insolvency,
merger.
v. By lapse time.

vi.By material alteration without the consent of the
other parties.
vii. By breach made by one-party.
37. What is contract of indemnity.
Answer. Section 124 of Indian Contract Act defines a
contract of indemnity as a contract by which one-
party promises to save the other party from loss
caused to him by the conduct of the promisor
himself, or by the conduct of any other person.
38. What are the characteristics of contract of
indemnity.
Answer.1. A contract of guarantee must satisfy all the
essential elements of the contract.
2. The contract may be expressed or implied. Express
contract is by word or by writing. An implied
contract of indemnity comes from the circumstances
of the case of the relationship between the parties.
39. What are the rights of indemnity holders.
Answer. a. All damages which he may be compelled
to in any suit in respect of any matter to which the
promise to indemnify applies.
b. All cost which may be compelled to pay in such
suits.
c. All sums which may have paid up on compromise
of such suits.
40. By whom a contract to be performed.
Answer.
1. Personal performance: -- in case involving
personal skills, taste or credit, the promisor must
himself perform the contract.
2. Performance by representatives: -- in all other
cases the promisor or his representatives may employ
a competent person to perform it.
3. Effect of performance from a third person: -- when
a promise accepts performance of the promise from a
third person, he cannot afterwards enforce it against
the promisor.
4. Death of promisor: -- contracts involving personal
skills come to an end when the promisor dies. His
legal representatives are not bound to perform such
contracts.
41. Who can demand performance.
Answer. The promisee can demand performance of
the promise. Under certain cases the stranger to the
contract can enforce the contract. The legal
representatives can enforce performance of the
contract upon the other party or parties and their legal
representatives.
42. What is reciprocal promises.
Answer. A contract consist of reciprocal promises
when one-party makes a promise made by the other
party. Such a contract is an exchange of promises.
43. Contracts we need not to be performed.
Answer. a. If by mutual agreement there is novation,
alteration, rescission, the original contract may not to
be performed.
b. The same rule applies in case of remission.
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c. When a voidable contract is rescinded, the other
party need not to perform his performance.
44. What is the general rule of time and place of
performance of contract.
Answer. The time and place of performance of the
contract are the matters to be determined by the
agreement between the parties to the contract.
a. Time for performance without application.: --
whereby the contract of promisor is to perform his
promise without application by the promisee, and no
time for performance is specified, the engagement
must be performed within a reasonable time.
b. Time and place, where time is specified: -- when a
promises to be performed on certain day, and the
promisor has undertaken to perform it without
application by the promisee, the promisor may
perform it at any time during the usual hours of
business on such day and at the place at which the
promise ought to be performed.
45. What is doctrine of frustration.
Answer. When the common object of a contract can
no longer be carried out, the court may declare the
contract to be at an end. This is known as the doctrine
of frustration.
46. What are the remedies for breach of contract.
Answer.A. Recession of contract.: -- the aggrieved
party is freed from all obligation under the contract.
B. Suit for damages: -- the aggrieved party is entitled
to receive compensation for any loss or damage
caused to him by the breach of contract and can file a
suit for getting a decree for damages.
C. Suit upon quantum meruit: -- when a contract has
been partly performed the aggrieved party can, under
certain circumstances file a suit for the price of the
services performed before breach of contract.
D. Specific performance of the contract: -- in certain
special cases the court can direct party to perform the
contract according to the agreed terms.
E. Injunction: -- under certain circumstances the
court can issue an order up on a party whereby he is
prohibited from doing something which amounts to a
breach of contract.
47. What are types of damages.
Answer. Compensatory damageS, special damages,
nominal damages or contemptuous damages,
exemplary or punitive or vindictive damages.
48. What is QUANTUM MERUIT.
Answer. It means as much is merited. A person can
under certain circumstances claim payment for work
done or goods supplied.
NEGOTIABLE INSTRUMENTS
88. What is negotiable instruments.
Answer. Negotiable means which is transferable by
delivery and instrument means a written document by
which a right is created in favour of some person.
89. What is promissory note.

Answer. A promissory note is an instrument in
writing containing an unconditional undertaking
signed by the maker, to pay a certain sum of money
only to or to order of certain person, or to the bearer
of the instrument.
90. What essential elements must be associated with
promissory note.
Answer.
1.The instrument must be in writing.
2.The instrument must be signed by the maker of it.
3.The instrument must contain a promise to pay.
4. The promise to pay must be unconditional.
5. The maker of the instrument must be certain and
definite.
6. A promissory note must be stamped according to
the Indian stamp Act.
7. The sum of money to be paid must be certain.
8. The payment must be in the legal tender money of
India. A promise to a certain quantity of goods or a
certain amount of foreign money is not a promissory
note.
9. The money must be payable to a definite person or
according to his order.
10. The promissory note may be payable on demand
or after the certain definite period of time.
91. What is bill of exchange.
A bill of exchange is an instrument in writing
containing an unconditional order, signed by the
maker, directing a certain person to pay a certain sum
of money only to or to the order of certain person or
to the bearer of the instrument.
92. What are the essential elements of a bill of
exchange.
Answer.
1. The instrument must be in writing.
2. The instrument must be signed by the drawer.
3. The instrument must contain an order to pay.
4. The drawer drawee, and the payee must be certain
and
definite individuals.
5. The amount of money to be paid must be certain.
6. The payment must be in the legal tender money of
India.
7. A bill of exchange must be properly stumped.
93. What is the difference between promissory note
and a bill of exchange.
Answer.
1. Number of parties: -- in the promissory note there
are two parties -- the maker and the payee. In a bill of
exchange there are three parties -- the drawer, the
Drawee and the payee.
2. Promise and order: -- in the promissory note there
is a promise to pay. In a bill of exchange there is an
order to pay.
3. Acceptance: -- a promissory note is signed by the
person liable to pay; therefore no acceptance is
necessary. A bill of exchange except in certain cases,
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requires to be accepted by the Drawee before it is
binding upon him.
4. Liability.: -- the maker of a promissory note is
primarily liable on the instrument. The drawer of a
bill of exchange is liable only when the Drawee does
not accept the instrument or pay the money due.
5. Relationship: -- in a promissory note the maker
stands in an immediate relationship to the payee. In a
bill of exchange a drawer stands in immediate
relationship with the acceptor and not to payee.
6. Notice: -- in case of non-payment or non
acceptance of a bill , notice must be given to all
persons liable to pay. This is called the notice of
dishonour. In the case of a promissory note, notice of
the dishonour to the maker is not necessary.
94. What is cheque.
Answer. A cheque is a bill of exchange drawn upon,
a specified banker and payable on demand.
95. What are the essential features of cheque.
Answer.
1. A cheque must fulfil all essential requirements of a
bill of exchange.
2. A cheque may be payable to bearer or to order but
in either case it must be payable on demand.
3. The banker named must pay it when it is presented
for payment to him at his office during the usual
office hours, provided that cheque is validly drawn
and the drawer has sufficient funds to his credit.
4. Bill and notes may be written entirely by hand.
There is no legal bar to cheques being hand writen.
Usually however, banks provide their customers with
printed cheque forms which are filled up and signed
by the drawer.
5. The signature must tally with the specimen
signature of the drawer kept in the bank.
6. A cheque must be dated. A banker is entitled to
refuse to pay a cheque which is not dated. A cheque
becomes due for payment on the date specified on it.
7. A cheque drawn with a future date is valid but it is
payable on and after the date specified. Such cheques
are called post dated cheques.
8. A cheque may be presented for payment after the
due date but if there is too much delay the bank is
entitled to consider the circumstances suspicious and
refuse to honour the cheque.
96. What are the types of cheques.
Answer. There are two types of cheques. Open
cheques and crossed cheques. An open cheque is one
which is payable in cash across the counter of the
bank. A crossed cheque is one which has two short
parallel lines marked across its face. A cheque
marked in this fashion can be paid only to another
banker. Naturally it will not be paid across the
counter. The system of crossing cheque arose by
mercantile usage and was later on sanctioned by law.
The advantage of crossing is that it reduces the
danger of unauthorised person getting possession of a
cheque and cashing it.

97. What is the distinction between bill of exchange
and cheque.
Answer.
1. A bill of exchange can be drawn upon any person.
A cheque can be drawn only upon a bank.
2. Except under certain specified circumstances, a bill
of exchange requires acceptance. A cheque does not
require any acceptance.
3. A cheque is always payable on demand. Acceptor
of bill of exchange is allowed a grace period of three
days, after the maturity of the bill, to make the
payment.
4. The drawer of a bill is discharged from liability if
the bill is not presented to the acceptor for payment at
the due time. But the drawer of a cheque is
discharged from his liability only if he suffers
damage owing to delay in presenting the cheque for
payment.
5. If a bank fails to pay a cheque it is not necessary to
give notice of dishonour to the drawer to make him
liable to compensate the payee. In the case of bill of
exchange, it is necessary to give notice of dishonour,
except in certain special cases.
6. A cheque may be crossed, there is no provision for
crossing a bill.
7. The payment or a cheque may be countermanded
by the drawer. The payment of bill cannot be
countermanded.
8. A cheque does not require any stamp. A bill of
exchange must be stamped.
98.Who is holder.
Answer. The holder of a negotiable instrument means
any person entitled in his own name to the possession
thereof and to receive or recover the amount due
there on from the parties thereto.
99. Who is the holder in due course.
Answer. The holder in due course is a particular kind
of holder. The holder of a negotiable instrument is
called the holder in due course if he satisfies the
following conditions.
Condition 1. He obtained the instrument for the
valueable consideration.
Condition 2. He became holder of the instrument
before its maturity, before the amount mentioned in it
became payable.
Condition 3. He had no cause to believe that any
defect existed in the title of the person from whom he
derived his title.
100. What are the essential features of negotiable
instrument.
Answer.
1. Writing and signature.
2. Money.
3. Negotiability.
4. Title.
5. Notice.
6. Presumptions.
7. Special procedure.
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8. Popularity.
9. Evidence.
Writing and signature.
Negotiable instrument must be written and signed by
the parties.
Money.
Negotiable instrument are payable by legal tender
money of India.
Negotiability.
Negotiable instrument can be transferred from one
person to another by a simple process. In the case of
bearer instruments, delivery to the transferee is
sufficient.
Title.
The transferee of a negotiable instrument, when he
fulfilled certain conditions is called the holder in due
course.
Notice.
It is not necessary to give notice of transfer of a
negotiable instrument to the party liable to pay.
Presumptions.
Certain presumptions apply to all negotiable
instruments. It is presumed that there is
consideration. It is not necessary to write in
promissory note the words "for value received"or
similar expression because the payment of
consideration is presumed.
Special procedure.
The special procedure is provided for suit on
promissory notes and bills of exchange. A decree can
be obtained much more quickly than it can be in
ordinary suits.
Popularity.
Negotiable instruments are popular in commercial
transactions because of their easy negotiabability and
quick remedies.
Evidence.
A document which fails to qualify as a negotiable
instrument may neverthless be used as evidence of
the fact of indebtedness.
101. What is bankers draft.
Answer. A bill of exchange is sometimes called a
draft. A bill of exchange drawn by a bank is called a
bankers draft.
102. What are the characteristics of bank drafts.
Answer. It is drawn by a banker upon its branch or
upon another bank. It is payable on demand. It cannot
be payable to bearer. It cannot be stopped or counter
amended, except by order of the court.
103. What are the different types of bills and notes.
Answer.
Joint notes and bills.
A promissory note or a bill of exchange may be
signed by two or more persons jointly. In such cases
their liabilities are joint and several.
Undated notes and bills.
A negotiable instrument without a date is not
necessarily invalid. If the legal requirements for the

validity of instrument are fulfilled, the instrument is
valid and the date of execution can be proved by oral
or other evidence.
Bearer instruments and order instruments.
A negotiable instrument may be payable to bearer or
to the order of a person. The instrument is payable to
bearer
i. When it is expressed to be so payable.
ii. When the last indorsement on the instrument is an
indorsement in blank.
Notes and bills payable to the bearer on demand.
It is provided by section 31 of the Reserve Bank of
India Act that a promissory note or bill of exchange
payable to the bearer on demand can be issued only
by the reserve bank of India or by the central
government. The reason is that a bill or note payable
to the bearer on demand may circulate from hand to
hand and be used as money.
104. What is negotiation.
Answer. Negotiation of instrument is the process by
which the ownership of the instrument is transferred
from one person to another.
105. What is indorsement.
Answer. Endorsement or indorsement means
signature of the holder made with the object of
transferring the document. The person who makes the
endorsement is called the indorser.
106. What is payment in due course.
Answer. Payment in due course means payment in
accordance with the apparent tenor of the instrument
in good faith and without negligence to any person in
possession thereof under circumstances which do not
afford a reasonable grounds for believing that he is
not entitled to receive payment of the amount therein
mentioned.
107. What are the ways in which negotiable
instrument may be dishonoured.
Answer. By non acceptance, by non-payment.
108. Who can be parties to a negotiable instrument.
Answer. The capacity to make , to draw, accepts,
negotiate and indorse a negotiable instrument
depends on the capacity to enter into contracts.
Minor.
A minor may draw, indorse, deliver and negotiate a
negotiable instrument so as to bind all parties except
himself.
Lunatic, idiot and drunken persons.
The legal position is the same as in the case of
minors.
Insolvent.
After the order of adjudication is passed, the
properties of the insolvent vest in the official
assignee or the official receiver.
Corporation.
A Corporation can incur liabilities under a negotiable
instrument if it is so empowered by its memo and
articles.
THE COMPANIES ACT 1956
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Question No 1.
Formation of a company.
Under section 12 of the Indian Companies Act, 1956
any seven or more persons and( in case of private
company, any two or more but not more than 50
persons) may form a public company with or without
limited liability for a lawful purpose by subscribing
their names to a memorandum of association and
otherwise complying with the requirements of the act
in respect of registration. The act is not concerned
with the purpose, whatsoever it must be lawful. The
shares may be of the smallest nominal amount and
the members need not hold more than one share. It
matters not, if the shareholders of subscribers
connected, related or have some interest in each
other. There is no mention in the act, as to the
independence of subscribers.
What is lawful purpose.
As mentioned above the purpose for which a
company is to be incorporated must be of lawful. It
means that the purpose must not be unlawful or
against the general law of the state.
A lawful purpose's example are to run a gambling
den, or a lottery and so on.
Question No 2.
Essential conditions which are to be complied with
before incorporation of a company.
The parties who have subscribed to memorandum
must file with registers of companies the following
documents before allotment of share and issuing of
prospectus.
Members are deemed to be aware of the contents of
memorandum and articles of association.
The article of association in case of an unlimited
company limited by guarantee and private companies
except in case where a company adopts Table A of
schedule one as its article of association.
A declaration by an advocate or Attorney, pleader
entitled to practise before the High Court or a person
named in the article as a director, or chartered
accountant practising in India who is engaged in the
formation of the company to the affect that all
requirements of the act have been complied with.
On submission of the above documents and payment
of requsite fees, the registrar of the companies issue a
certificate known as certificate of incorporation and
enters the name of the company in the register of
companies. The certificate is the conclusive evidence
that all requirements of law have been duly complied
with.
Question No 3.
What is memorandum of association. What is the
importance. What are the contents.
Section 2, The Companies Act 1956, states that
memorandum means memorandum of association of
a company as originally framed or as altered from
time to time in pursuance of any previous companies
law or of this act. The memorandum of association of

a company is its charter and defines the limitations of
the powers of the company, established under the act.
Memorandum contains the fundamental conditions of
which alone the company is allowed to be
incorporated.
Importance of memorandum of association.
Every company incorporated under this act generally
has two documents concerning it, the memorandum
of association and the article of association. The
memorandum of association is a document which sets
out the constitution of a company. It is the foundation
on which the whole structure of the company is built
up.It informs members, creditors and all other
persons dealing with the company as to its name,
purpose, its capital, its form (public or private) is
liability and its nationality. The memorandum
regulates the companies external affairs to show a
prima facie picture of the affairs of the company.
The contents.
The name -- The first clause of the memorandum is
required to state the name of the proposed company.
Registered office-- The second clause of the
memorandum must specify the state in which the
registered office of the company is to be situated. The
exact location of the registered office must be
intimated to the register within 30 days of
incorporation or commencement of business
whichever is less.
Objects--
In the third clause the memorandum must state the
objects of the company, and except in case of trading
corporations, the state or states whose territories the
objects extentend.
Limited liability clause--. The memorandum of a
company limited by shares or the guarantee shall also
state that the liability of its members is limited.
Guarantee on being wound up-- The memorandum of
a company limited by guarantee shall also state that
each members undertakes to contribute to assets of
the company in the event of its being wound up while
he is a member or within one year after he ceases to
be a member.
Capital clause-- In case the company is limited by
shares
it shall state the amount of share capital with which
the company is to be registered and the division
thereof into shares of a fixed amount.The number of
shares taken by each subscribers mentioned opposite
to his name.
Question No.4
Alteration of contents of the memorandum.
The memorandum of company being its statutory
deed of partnership and fundamental charter,
company can neither depart from powers given to it
by the memorandum, Nor it can alter the conditions
of memorandum except in the cases, and in the nodes
and to the extent for which expressed provision is
made in this act. The clause of the memorandum
8
other than fundamental conditions of the
memorandum can be altered by the company without
it being necessary for the company to adopt the
special procedure, as provided by the act.
Cases in which alteration of memorandum is allowed.
The following are the matters which can be altered in
the memorandum of association by special resolution
as provided in the Indian companies act 1956.
Change of name. -- A company may change its name
by passing a special resolution to the affect and with
the prior approval of central government. However
no such approval is essential in those cases where the
word private is required to be declared or added in
respect of conversion of a public company to private
company or vice versa.
Change of registered office. -- A company may by
passing a special resolution, and obtaining
confirmation of the central government change the
place of its registered office from one state to
another.
Change of objects. -- The objects of a company can
be altered by special resolution but only to the extent
allowed by section 17 of the companies act 1956. The
act permits the company to make the alteration in the
objects in order to enable the company to
i. Carryon its business for economically and more
efficiently.
ii. Attain its main purpose by new or improved
means.
iii. Enlarge or change the local area of its operation.
iv. Carryon some business which under existing
circumstances may conveniently or
disadvantageously be combined with the business of
the company.
v. Restrict or abandon any of the objects specified in
the memorandum.
vi. Amalgamate with any of the company or body of
persons.
Alteration of the capital clause. -- alteration of
memorandum of association if the articles so
authorise can be made
i. With regard to increase of share capital by special
resolution.
ii. With regard to reduction of share capital by special
resolution followed by courts permission.
Question No 5.
What is article of association. What is its nature.
Article means the articles of association of the
company as originally framed or as altered from time
to time in pursuance of any previous companies laws
or of this including, so for as they apply to the
company, the regulations, contained as the case may
be.
The articles are the internal regulations of the
company, and play a part subsidiary to memorandum,
and shall not be inconsistent with or override or
control the memorandum. It is not necessary for a
company to have a separate set articles of its own.

The articles of association of the company are the
rules and regulations of a company framed for the
purpose of managing its affairs. They are the internal
regulations of the company. The generally provides
for all matters of its internal administration that is the
amount of capital to be issued, the classes, into which
it is divided, the rights of each of the respective
classes, rules as to making of calls, the company's
lien, forfeiture of shares, transfer of shares, holding
of meeting, quoram, voting at meetings, the
appointment of directors etc.
Article shall also
a. Be printed.
b. Be divided into paragraphs and number
consecutively.
c. Be signed by each subscriber of the memorandum
of association in the presence of at least one witness
who shall attest the signature and shall likewise and
his address, description and occupation.
The companies which must have articles of
association are
i. Companies with unlimited liability.
ii. Companies limited by guarantee.
iii. Private companies limited by shares.
For other kinds of companies articles are not
compulsory.
Question No 6.
What is the difference between memorandum of
association an article of association.
Memorandum of association forms the charter of the
company and is the statutory deed of partnership
whereas the articles of association of the company
are the rules and regulations formed for the purpose
of managing its indoor affairs.
Both the memorandum and the articles are essential
documents for the formation of a company. But
memorandum of association differs from that of
article of association in following manners.
Memorandum of association of the company are the
charter of the company whereas the articles of
association are the rules and regulations of the
company.
Memorandum defines and formulates the
fundamental conditions of the companies
incorporation whereas, articles lay down the various
modes and methods to fulfil the conditions for
company.
The memorandum contains the fundamental
condition of which alone the company is
incorporated. The articles of company are
subordinate to and controlled by the memorandum of
association which is dominant instrument.
Question No 7.
How can the articles of association be altered. What
are the limitations in this regard.
According to section 31 of the act the company may
alter its articles by passing special resolution subject
to the following restrictions.
9
The alteration must not contravene the provisions of
the memorandum that is the alteration must not go
beyond the area specified by the memorandum of
association. In case there is any conflict between
memorandum and the articles, memorandum shall
prevail.
No member can be compelled to take or subscribe for
more shares, or in any way to increase his liability to
contribute to the share capital or pay money to the
company. A member can consent in writing to be
bound by such alteration either before or after it is
made.
The alteration must be bona fide for the benefit of the
company as a whole the alteration will not be bad
merely because it inflicts hardship on an individual
shareholder.
A company cannot justify a breach of contract by
altering its articles.
The company may not deprive itself of the right to
alter its articles of the powers of the company to alter
its articles is statutory and absolute.
An alteration otherwise valid will not be invalid
merely because it has a retrospective effect.
Question No 8.
Doctrine of indoor management.
This doctrine means that outsiders dealing with the
company are entitled to assume that everything has
been done so for as its internal proceedings are
concerned. This doctrine is also known as the
doctrine of freedom of internal management of the
doctrine of indoor management.
Question No 9.
Define prospectus and state the statutory
requirements as to its issue.
A prospectus is defined as any document described or
issued as prospectus and includes any notice, circular,
advertisement or other document inviting deposits
from the public or inviting offers from the public for
subscription properties of any shares in or debentures
of a body corporate. A prospectus is the best way of
directly appealing to the public to subscribe for
shares or debentures or make deposits in a new
venture. Information is given in it about the
circumstances in which the company is formed and
the chances, it has of success in the venture, it
undertakes to carryon. Whenever the document
invites the public to subscribe for shares, it is
regarded as prospectus though the invitation might be
to a limited group only. The document must be an
offer to the public a section of the public, however
small, comes within the act but it will not be so if it is
the domestic concern of the persons making and
receiving it.
The contents of a prospectus
i. The main objects of the company, particulars of the
signatories to the memorandum and the number of
shares subscribe by them.
ii. Qualification of shares of directors.

iii. Names, description and address of the directors,
managers, managing directors.
iv. If shares are offered to the public, the minimum
subscription and working capital.
v. The time of the opening of the subscription list.
vi. The amount payable on application and allotment
on each share.
Question No 10.
Define and distinguish between share and stock.
Share means the interest of a shareholder in the
company, measured by sum of money, for the
purpose of liability in the first place and of interest in
the second, but also consisting of a series of mutual
covenants entered into by all the shareholders. A
share is not a sum of money but is an interest
measured in sum of money and made up of various
rights contained in the contract. Under the companies
act, a share or other interest of any member in a
company is movable property, transferable in the
manner provided by the article of the company. Its
share must be distinguished by its appropriate
number. A company may issue shares of different
classes with special rights or restrictions.
Stock. -Stock is the fully paid-up shares, consolidated
and divided for the purpose of convenient holding
into different parts. The advantage to the company in
doing so is that it will then be no longer necessary for
each share so converted to have a separate number.
Question No 11.
What are the different kinds of shares in which the
share capital of the company may be divided.
In ordinary commercial practice of companies in
India and elsewhere various classes of shares are as
follows.
Preference share.
Preference share are those which are entitled to a
fixed rate of dividend before anything is paid to the
ordinary shareholders. A preference share in other
words, carries a preferential right in respect of
dividends which the either be free of or be subject to
income tax, and also carries preferential right in
respect of repayment of capital. They are not entitled
to more than the fixed rate of dividend. The
preference share may be cumulative or
noncumulative. In the first case, if the profits are not
sufficient to pay the fixed a dividend any year, the
deficit must be paid up out of the profits next year.
Whereas in the second case that is in noncumulative
shares the dividend is not transferred to the next year
if the profits are not sufficient to pay it in a particular
year.
Section 86 of the companies act gives a limited
power to of redeemable preference share. Under the
section, a company can issue preference shares which
are redeemable or liable to be redeemed at the option
of the company under the condition mentioned there
in. The import conditions are
a. The issue must be authorised by the article.
10
b. The shares must be fully paid-up.
c. Such shares must be redeemed only.
Ordinary shares. --
ordinary shares get dividend after the fixed dividend
on preference shares has been paid. The advantage of
these shares is that there is no fixed limit of dividend
and hence they may get larger dividends.
Deferred shares or founders share.
Share are usually issued to promoters, underwriters
or others who have helped in the formation of the
company. Founder shares are usually entitled to
dividend only after certain percentage is paid to the
ordinary shareholders that is half the remaining
profits, after 10 percent dividend is paid on the
ordinary shares. The number of such shares must be
mentioned in the prospectus for in the statement in
lieu of prospectus, and particulars of the contract
must be filed with the Registrar.
Question No 12.
What restrictions are imposed by the companies act
1956, upon the allotment of shares to buy a public
company. What are the applicants right is an
allotment is irregular.
An allotment of shares is a contract and contemplates
three essential conditions.
a. An offer.
b. Its acceptance.
c. The communication for acceptance.
An application to a company for share constitutes an
offer which can be withdrawn at any time before the
acceptance is communicated. The directors decision
to allot the share is the acceptance of offer, and when
the acceptance is communicated to the person who
applies for shares, a complete and binding contract is
arrived at. The company may thereafter issue a notice
of allotment.
Thus an effective allotment has to comply with the
requirements of law of contract relating to acceptance
of an offer.
a. allotment by proper authority.
b. Within reasonable time.
c. Must be communicated.
d. Absolute and unconditional.
Restrictions on allotment.
Section 69 provides that no allotment of share may be
made by the public company unless the minimum
subscription has been subscribed. This is the
minimum amount which is mentioned in the
memorandum and in the opinion of the Board of
Directors, must be raised by the issue of shares to
provide for the matter specified in clause 5 of the
scheduled ii, namely
i.The purchase price of any property, which is to be
defrayed import or in part out of the proceeds of the
issue.
ii.A preliminary expenses payable to any person for
agreeing to subscribe for, or agreeing to procure or
procuring subscription.

iii.That the payment of any money borrowed in
respect of any of the above matters.
iv. Working capital.
v. any other expenditure.
The act also provides that the amount payable on
application of each share must not be less than 5% of
the nominal amount of the share.
Question No 13.
What are the fundamental restrictions on share issue.
How far it is legal or possible-
a. For a company to purchase its own shares.
b. For a company to be tested in a third party on trust
for the company.
According to section 77 no company limited by
shares, can buy its own shares unless the consequent
reduction of capital is effected and sanctioned in
pursuance of the provisions of companies act. Nor
company can give whether directly or indirectly any
financial assistance to any person for the purpose of
purchasing any shares in a company. No public or
private company which is subsidiary of the public
company may finance the purchase or subscription by
any person of shares in itself or its holding company.
The new section 77A added by the Company's
Amendment Act , 2000 now empowers a company to
purchase its own shares or other specified securities
out of its free resource on the securities premium
account, or the proceeds of any shares or other
specified securities.
Question No 14.
What is share certificate.
A company must issue a certificate of shares under its
Common seal in specifying the shares held by every
member. The certificate of share is a prima facie
evidence of the title of the member to such shares. A
company is usually estopped from denying the truth
of any statement contained in a share certificate
issued to an innocent third party who has acted on
such statements.
Question No 15.
What is share warrant.
A share warrant is a document issued by a company,
under its seal, with respect to fully paid shares,
stating that the bearer of the warrant is entitled to the
shares therein specified. It may have attched coupons
for the payment of dividends. A company limited by
a share may, if so authorised by its articles, issue
under its common seal, share warrants provided that
previous approval of the central government has been
obtained. A share converted into share warrant
becomes easy to transfer.
Question No 16.
Define following terms.
Authorised capital. -- it means the nominal value of
shares which a company is authorised to issue by its
memorandum. This kind of capital must be stated in
the memorandum and also each year in annual return.
11
Issued capital. -- the whole or any part of the
authorised capital may be issued. It will be the issued
capital of the company.
Subscribed capital. -- that part of issued capital which
has been allotted is the subscribed capital of the
company.
Paid-up capital. The total actual amount received by
the company by the subscription is the paid-up
capital of the company.
Reserve capital. -- Reserve capital of the company is
the capital which by resolution of the company has
been declared that a portion of whole of its uncalled
capital shall not be called except in the event of the
companies winding up.
Question No 17
What are the kind of share capital.
Capital must be decided into shares of a fixed
amount. The companies act permits only two kinds of
shares to be issued.
1. Equity shares capital that is ordinary shares.
2. Preference shares, which constitute the preference
share capital.
Question No 18.
What is meant by borrowing powers.
Borrowing powers. -- most companies find it
necessary to borrow from time to time for the
purpose of financing the business of the company.
For that purpose, the company must provide for a
power to borrow in the object clause of the
memorandum of association. In case of trading or
banking company, it is not necessary that the
memorandum should expressly authorise it to
borrow. A power to borrow is implied in case of all
trading or commercial or banking companies. In case
of nontrading company, however such powers must
be expressly conferred by the memorandum. If there
is no power to borrow conferred by the
memorandum, the company may acquire the same
under section 17 of the act. If a company has
borrowing powers, it has also impliedly the power to
charge its property as security for payment of the
loan. Borrowing without espresso implied authority is
illegal
• New Concepts Introduced by the new Act
• One Person Companies (opc)
• Women Directors
• Corporate Social Responsibility.
• Registered Valuers
• Rotation of Auditors
• Class Action
• Dormant Company
• Fast Track Mergers
• Serious Fraud Investigation Office
• One Person Company is a company with
only one person as a member. That one

person will be the shareholder of the
company. It avails all the benefits of a private
limited company such as separate legal
entity, protecting personal assets from
business liability, and perpetual succession.
One Person Company (OPC) is a Company
registered with ONLY ONE PERSON as its
shareholder. An OPC is classified as a
private company under Companies Act.
• Private limited company
A type of company that offers limited
liability, or legal protection for its
shareholders but that places certain
restrictions on its ownership. These
restrictions are defined in the company's
bylaws or regulations and are meant to
prevent any hostile takeover attempt.
• Woman Director: Every Listed Company
/Public Company with paid up capital of Rs
100 Crores or more / Public Company with
turnover of Rs 300 Crores or more shall have
at least one Woman Director.
• Paid Up Capital
• Paid-up capital is the amount of a company's
capital that has been funded by shareholders.
Paid-up capital can be less than a company's
total capital because a company may not
issue all of the shares that it has been
authorized to sell. Paid-up capital can also
reflect how a company depends on equity
financing.
• Director
• Means director appointed by board of
directors.
• In every Public Company should have
Minimum 3 Directors.In Private company 2
Directors and 1 Director in one person
company.
Corporate Social Responsibility Clause
(135)Every company having net worth of
rupees 500 crore or more, or turnover of
rupees 1000 crore or more or a net profit of
rupees 5 crore or more during any financial
year shall constitute a Corporate Social
Responsibility Committee of the Board
consisting of three or more directors, out of
which at least one director shall be an
independent director.
• Net worth : It means
• Total assets – Total liabilities.
• It is used to evaluate the value of the
company.
12
• Net Profit
• Net Profit=Gross Profit-Overhead costs-
Interests.
Registered Valuers-Valuation by registered
valuers. Clause (247) (1) Where a valuation is
required to be made in respect of any property,
stocks, shares, debentures, securities or goodwill
or any other assets (herein referred to as the
assets) or net worth of a company or its liabilities
under the provision of this Act, it shall be valued
by a person having such qualifications and
experience and registered as a valuer in such
manner, on such terms and conditions as may be
prescribed and appointed by the audit committee
or in its absence by the Board of Directors of that
company.
• Class action suits (clause 245) It is provided
that specified number of member(s),
depositor(s) or any class of them, may, if
they are of the opinion that the management
or control of the affairs of the company are
being conducted in a manner prejudicial to
the interests of the company or its members
or depositors, file an application before the
Tribunal on behalf of the members or
depositors. Where the members or depositors
seek any damages or compensation or
demand any other suitable action from or
against an audit firm, the liability shall be of
the firm as well as of each partner who was
involved in making any improper or
misleading statement of particulars in the
audit report or who acted in a fraudulent,
unlawful or wrongful manner. The order
passed by the Tribunal shall be binding on
the company.
• Dormant Company - Where a company is
formed and registered under this Act for a
future project or to hold an asset or
intellectual property and has no significant
accounting transaction, such a company or an
inactive company may make an application
to the Registrar for obtaining the status of a
dormant company.
•
• Serious Fraud Investigation Office (clause
211) Statutory status to SFIO has been
proposed. Investigation report of SFIO filed
with the Court for framing of charges shall
be treated as a report filed by a Police
Officer. SFIO shall have power to arrest in
respect of certain offences of the Bill which
attract the punishment for fraud. Those
offences shall be cognizable and the person
accused of any such offence shall be released
 13

on bail subject to certain conditions provided • (iii) himself and one or more other living
in the relevant clause of the Bill. persons.

• Fast Track Merger: The Companies Act,

2013 has separate provisions of fast track • Persons who are competent to transfer (S.
merger under Section 233 of Companies Act, 7)
2013. These provisions are notwithstanding • Every person who is
with the normal provisions of merger under • (a) competent to contract (under S. 11 of the
Section 230 and 232 of this Act. Under fast Indian Contract Act)
track merger processes Central Government • and
has the power to sanction all such scheme • (b) entitled to transferable property -
and there will be no requirement to approach • or
National Company Law Tribunal (powers • (b) authorised to dispose of transferable
presently exercised by the High Court). property which is not his own,—is competent
to transfer such property.
TRANSFER OF PROPERTY ACT

• "Transfer of property' :Transfer of

property means any act by which a living • Operation (effect) of transfer (S. 8)
person conveys property, in present or in • Unless a different intention is expressed or
future, to implied, a transfer passes to the transferee
• (I) one or more other living persons; or • all the interest which the transteror is capable
• (ii) himself; or of passing in the property and its legal
• incidents. Thus
•

Operation (effect) of transfer (S. 8)

• Condition restraining alienation (S. 10):If property is transferred subject to a condition which absolutely
restrains the transferee from parting with (or disposing of) his interest in the property, such condition is
void, unless-
• (i) such a condition is in a lease, and the condition is for the benefit of a lessor; or
(ii) such a condition is in a transfer to a woman (not being a Hindu, Muhammedan or Buddhist), and provides
that during her marriage, she would not have the power to transfer or charge the property (or her beneficial
interest in it).

• Restriction on free enjoyment of property (S. 11):In the case of an absolute transfer, if it is directed that
the transferee is to apply or enjoy
 14

• the property in a particular manner, the direction is invalid, unless such direction is made in respect of one
immovable property for the beneficial enjoyment of another immovable property.

• Transfer for benefit of unborn persons (Ss. 13 & 14)

• 1. If a transfer of property creates an interest in favour of a person who is not in existence on the date of
transfer (subject to a prior interest), the unborn persons interest will not take effect unless it extends to the
whole of the transferor's interest in the property.
• 2. Under the rule against perpetuity, a transfer cannot create an interest which is to take effect after
• (I) the life-time of one or more persons living at the date of the transfer and
• (ii) the minority of some person who must be in existence at the expiry of that period, and to whom the
interest is -to belong if he attains majority.

Lease defined.—A lease of immoveable “Mortgage”, “mortgagor”, “mortgagee”,

property is a transfer of a right to enjoy such
property, made for a certain time, express or
implied, or in perpetuity, in consideration of a
price paid or promised, or of money, a share of
crops, service or any other thing of value, to be
rendered periodically or on specified occasions to
the transferor by the transferee, who accepts the
transfer on such terms. Lessor, lessee, premium
and rent defined.—The transferor is called the
lessor, the transferee is called the lessee, the price
is called the premium, and the money, share,
service or other thing to be so rendered is called
the rent.
“mortgage-money” and “mortgage-deed”
defined.—
(a) A mortgage is the transfer of an interest in
specific immoveable property for the purpose of
securing the payment of money advanced or to be
advanced by way of loan, an existing or future debt,
or the performance of an engagement which may
give rise to a pecuniary liability. The transferor is
called a mortgagor, the transferee a mortgagee; the
principal money and interest of which payment is
secured for the time being are called the mortgage-
money, and the instrument (if any) by which the
transfer is effected is called a mortgage-deed.
(b) Simple mortgage.—Where, without delivering
possession of the mortgaged property, the mortgagor
binds himself personally to pay the mortgage-money,
and agrees, expressly or impliedly, that, in the event
of his failing to pay according to his contract, the

mortgagee shall have a right to cause the mortgaged
property to be sold and the proceeds of sale to be
applied, so far as may be necessary, in payment of
the mortgage-money, the transaction is called a
simple mortgage and the mortgagee a simple
mortgagee.
(c) Mortgage by conditional sale.—Where, the
mortgagor ostensibly sells the mortgaged property—
on condition that on default of payment of the
mortgage-money on a certain date the sale shall
become absolute, or on condition that on such
payment being made the sale shall become void, or
on condition that on such payment being made the
buyer shall transfer the property to the seller, the
transaction is called mortgage by conditional sale and
the mortgagee a mortgagee by conditional sale:
1[Provided that no such transaction shall be deemed
to be a mortgage, unless the condition is embodied in
the document which effects or purports to effect the
sale.]
(d) Usufructuary mortgage.—Where the mortgagor
delivers possession 1[or expressly or by implication
binds himself to deliver possession] of the mortgaged
property to the mortgagee, and authorises him to
retain such possession until payment of the
mortgage-money, and to receive the rents and profits
accruing from the property 2[or any part of such rents
and profits and to appropriate the same] in lieu of
interest, or in payment of the mortgage-money, or
partly in lieu of interest 3[or] partly in payment of the
mortgage-money, the transaction is called an
usufructuary mortgage and the mortgagee an
usufructuary mortgagee.
(e) English mortgage.—Where the mortgagor binds
himself to repay the mortgage-money on a certain
date, and transfers the mortgaged property absolutely
to the mortgagee, but subject to a proviso that he will
re-transfer it to the mortgagor upon payment of the
mortgage-money as agreed, the transaction is called
an English mortgage. 4[(f) Mortgage by deposit of
title-deeds.—Where a person in any of the following
towns, namely, the towns of Calcutta, Madras, 5[and
Bombay], 6[* * *] and in any other town7 which the
8[State Government concerned] may, by notification
in the Official Gazette, specify in this behalf, delivers
to a creditor or his agent documents of title to
immoveable property, with intent to create a security
thereon, the transaction is called a mortgage by
deposit of title-deeds.
(g) Anomalous mortgage.—A mortgage which is not
a simple mortgage, a mortgage by conditional sale,
an usufructuary mortgage, an English mortgage or a
mortgage by deposit of title-deeds within the
meaning of this section is called an anomalous
mortgage.]
15
Transfer of actionable claim
(1) The transfer of an actionable claim whether with
or without consideration shall be effected only by the
execution of an instrument in writing signed by the
transferor or his duly authorized agent, shall be
complete and effectual upon the execution of such
instruments, and thereupon all the rights and
remedies of the transferor, whether by way of
damages or otherwise, shall vest in the transferee,
whether such notice of the transfer as is hereinafter
provided be given or not:
PROVIDED that every dealing with the debtor other
actionable claim by the debtor or other person from
or against whom the transferor would, but for such
instrument of transfer as aforesaid, have been entitled
to recover or enforce such debt or other actionable
claim, shall (save where the debtor or other person is
a party to the transfer or has received express notice
thereof as hereinafter provided) be valid as against
such transfer.
(2) The transferee of an actionable claim may, upon
the execution of such instrument of transfer as
aforesaid, sue or institute proceedings for the same in
his own name without obtaining the transferor's
consent to such suit or proceeding and without
making him a party thereto.
Exception : Nothing in this section applies to the
transfer of a marine or fire policy of insurance or
affects the provisions of section 38 of the Insurance
Act, 1938 (4 of 1938).
Illustrations
(i) A owes money to B, who transfers the debt to C. B
then demands the debt from A, who, not having
received notice of the transfer, as prescribed in
section 131, pays B. The payment is valid, and C
cannot sue A for the debt.
(ii) A effects a policy on his own life with an
insurance company and assigns it to a bank for
securing the payment of an existing or future debt. If
A dies, the bank is entitled to receive the amount of
the policy and to sue on it without the concurrence of
A's executor, subject to the proviso in sub-section (1)
of section 130 and to provisions of section 132.
“Exchange” defined.—When two persons mutually
transfer the ownership of one thing for the ownership
of another, neither thing or both things being money
only, the transaction is called an ―exchange‖. A
transfer of property in completion of an exchange can
 16

be made only in manner provided for the transfer of

such property by sale.

“Sale” defined.—„„Sale” is a transfer of ownership

in exchange for a price paid or promised or part-paid
and part-promised. Sale how made.—3Such transfer,
in the case of tangible immoveable property of the
value of one hundred rupees and upwards, or in the
case of a reversion or other intangible thing, can be
made only by a registered instrument. 1In the case of
tangible immoveable property of a value less than
one hundred rupees, such transfer may be made either
by a registered instrument or by delivery of the
property. Delivery of tangible immoveable property
takes place when the seller places the buyer, or such
person as he directs, in possession of the property.
Contract for sale.—A contract for the sale of
immoveable property is a contract that a sale of such
property shall take place on terms settled between the
parties. It does not, of itself, create any interest in or
charge on such property.

“Gift” is the transfer of certain existing moveable

or immoveable property made voluntarily and
without consideration, by one person, called the
donor, to another, called the donee, and accepted by
or on behalf of the donee.

Acceptance when to be made.—Such acceptance

must be made during the lifetime of the donor and
while he is still capable of giving.
If the donee dies before acceptance, the gift is void.

COMMENTS

Validity of gift
Gift deed executed by defendant in favour of plaintiff
with respect of property of her deceased husband.
Defendant was not legally wedded wife of deceased.
She being concubine was not entitled to inherit
property. Gift deed executed by her is not valid.