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Essential Business Laws
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"Education is a liberating force, and ill

our age it is also a democratising force,
cutting across the barriers of caste and
class, smoothing out inequalities imposed
by birth and other circumstances."
- Indira Gandhi
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I
2:-
(p) Indira Gandhi
Q National Open University BLE-013
School of Law
Business Law as Applicable
~ to Co-operative-I
Block
1
ESSENTIAL BUSINESS LAWS
UNIT 1
Indian Contract Act, 1872 5
UNIT 2
The Transfer of Property Act, 1882 32
UNIT 3
The Sale of Goods Act, 1930 56
UNIT 4
Civil Procedure Code, 1908 73
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Expert Committee
Shri D. Bhattacharya Sri Yogesh Shanna
Senior General Manager, (HR) Deputy Director,
Indian Fanners Fertilizers National Federation of Co-operative
Co-operative Ltd. (IFFCO) Urban Bank and Credit Societies Ltd.
New Delhi-ll0017 New Delhi-I I 0028
Shri K.C. Mishra Dr. S.O. Junare

General Manager and Faculty Director,
College of Agriculture Banking National Institute of
(Reserve Bank ofIndia) Co-operative Management
Pune-411007 Gandhi Nagar, Gujarat
Dr. T. Paranjothi Prof. K. Elumalai

Secretary Director, School of Law
National Council for Co-operative Training JGNOU, New Delhi-l10068
New Delhi- 110016
Prof. Srikrishna Deva Rao
Sri. r.v Prabhu Professor, School of Law
Trustee Secretary IGNOU, New Delhi
National Institute for Rural Banking,
Bangalore-560070 Ms. Gunneet Kaur
Asst. Professor
Dr. N. Ranjana Devi School of Law, IGNOU
Joint Director
National Council for Co-operative Training Mr. Anand Gupta
New Delhi-l 10016 Asst. Professor
School of Law, IGNOU
Shri lH. Jadhav
Advocate and Ex. Faculty Ms. Mansi Shanna
Vaikunth Mehta National Institute of Asst. Professor
Co-operative Management, School of Law, IGNOU
Pune-411 007
Block Preparation Team

Programme Coordinator: Prof. K. Elumalai
Unit Writers Editor
Mr. lH. Jhadav Ms. Ananya R. Bibave
Print Production
Mr. Yashpal
Section Officer (Publication)
IGNOU, New Delhi
October, 20 I0
© Indira Gandhi Naitonal Open University, 2010
ISBN -978-81-266-4831- 3
All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any
other means, without permission in writingfrom the copyright holder.
Further information on the Indira Gandhi National Open University courses may be obtained
from the University's office at Maidan Garhi, New Delhi-IIO 068 or the official website of
IGNOU at www.ignou.ac.in
Printed and published on behalf of Indira Gandhi National Open University, New Delhi by
Director, SOL, IGNOU.
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BLE-013 BUSINESS LAW AS APPLICABLE
TO CO-OPERATIVE-I
We welcome you to start your journey by understanding business law as applicable

to Cooperatives.
This Course has been divided into 4 Blocks. Course has been designed to make
the learner understand the essential business laws in simplified manner. In this
course in Block 1 the learner gets acquainted with Indian Contract Act, 1972,
The Transfer of Property Act, 1882, The Sale of Goods Act, 1930, The Civil
procedure Code, 1908, in Block 2 - Income Tax Law, Other Tax-Laws i.e., VAT,
Service Tax, Stamp Act, Indian Penal Code, in Block 3 - Prevention of Food
AdulterationAct, 1954, Essential Commodities Act 1955, Consumer Protection
Act, 1986 and Weights & Measurement Act, 1976,in Block 4 - Limitation Act,
, . 1963, Information Technology Act, 2002, Right to Information Act, 2005.
We wish you get the best BLE-O 13 and in this Course we have tried to reduce the
complexity of law and make it simple so that the learners from non-law
background also benefit from it.
Best Regards & Happy Reading!
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BLOCK 1 ESSENTIAL BUSINESS LAWS
The emphasis ofBLE-O 13 is on the Business Laws as Applicable to Co-operatives.

The aim ofthis block is to create awareness about the basic laws. These laws are
not only important for learners who are associated with law in some way or the
other but also helpful for a common man for his all round development.
Block 1 has been divided into 4 Units.
Unit 1 - Indian Contract Act, 1872, the attempt would be to explain in brief
Indian Contract Act, 1872. Anyone who wants to know about business law should
know this act as this forms the basis of the Business law. This is a very interesting
subject &' easy to understand for a starter.
In Unit 2 we have discussed, The Transfer of Property Act, 1882. As in the first
unit of this Block we have briefly discussed Indian Contract Act, 1872. So once.
the learner is aware of the Indian Contract Act, 1872 the next step is to give a
brief understanding of the Transfer of Property Act, 1882 which talks about
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moveable and immovable property, sale, transfer, mortgage, lease gift, Actionable
claim, Interest etc. So the learner will be acquainted with these in this unit.
Unit 3 - In this unit, The Sale of Goods Act,' 1930 has been discussed. The
Learners are introduced to the general framework of Sale of Goods Act with a
understanding of the terms such as goods, sale, agreements to sell, warranty,
condition, caveat emptor, unpaid seller, rules relating to tittle and delivery of
goods etc.
Unit 4 - In this unit, Civil Procedure Code, 1908 has been discussed so that the
learner is aware of the salient features of CPC, 1908 and its application. This
unit covered important definitions, the Scheme of the Act etc.
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UNIT 1 INDIAN CONTRACT ACT, 1872
Structure
1.1 Introduction
1.2 Objectives
1.3 Brief History
1.4 Important Definitions
1.4.l Law
1.4.2 The Term 'Business Law' Explained
1.4.3 Proposal
·1.4.4 Agreement
1.4.5 Contract
1.5 Scheme of the Indian Contract Act, 1872
·. L6 Important Topics for Study

1.6.1 Lawful Proposal (Sec. 2(a))
1.6.2 Lawful Acceptance (Sec.7)
1.6.3 Capacity of Parties or Competency of Parties to make a Contract (Sec. 11)
1.6.4 Minor's Agreement (Compentency to Contract Sec.l l )
1.6.5 Lawful Consideration (Sec. 2(d))
1.6.6 Free Consent (Sec. 13)
1.6.7 Lawful Consideration and Lawful Objects
1.6.8 Kinds of Contracts
1.6.9 Void Agreement
1.6.10 Contingent Contracts
1.6.11 Quasi Contracts
1.6.12 Performance of Contract (Section 37)
1.6.13 Discharge of Contract
1.6.14 Remedies for Breach of Contract
1.6.15(a) Contract ofIndemnity
1.6.1S(b) Contract of Guarantee (Sec. 126)
1.6.15( c) Distinction between a Contract of Indemnity and a Contract of Guarantee
1.6. 16(a) Nature of Surety's Liability .
1.6. 16(b) Continuing Guarantee
1.6.17 When a Surety is Discharged?
1.6.18 Co-Sureties
1.6.l9 Contract of Bailment (Sec. 148 to 171)
1.6.20 Contract of Pledge or Pawn (Bailment of Pledge) Sec. 172 to 179
1.7 Process or Stages in Formation of a Contract
1.8 Essentials of a Valid Contract
1.9 Summary
1.10 Terminal Questions
1.11 Answers and Hints
1.12 References and Suggested Readings
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1.1 INTRODUCTION
"Law" is the term generally used in two context, sometimes it means "Act" and
sometimes it means a whole branch on the particular subject containing all aspects
of Law. For example: Hindu Law, Business Law, and Cooperative Law. Here,
the term covers the entire, ambit.
a) "Business Law" touches all kinds of Acts/rules etc relating to business

transactions in Industry, Trade, Commerce, Banking etc. "Business Law" is
one of the important branches and includes number of legislative pieces on
different matters like: Contract Act, Sale of Goods Act, Negotiable
Instruments Act etc.
b) Amongst all, the Indian Contract Act 1872 plays a vital role in the business
field. It deals with all general principles of a contract as well as it explains
main features of selected special contracts, such as, Indemnity and Guarantee,
Bailment, Agency.
c) The Law of Contract affects every person. We, in our daily life enter into
number of contracts in areas of various economic activities. For example:
when. we enter into a Public Bus, when we hire auto rickshaw, when we
. hand over clothes for stitching purpose to a Tailor, when we engage a painter
for painting of walls/doors or when a co-operative society sanctions a loan
to its member; all these are examples of contracts where by legal obligations
are created on the part of both the parties in accordance with the principles
laid down in the Indian Contract Act, 1872. Hence, the knowledge of
important provisions ofthis Act is very much essential for an employee/an
executive working in any business Institution. -
d) The cooperatives are business organisations. They deal with members,

depositors, creditors, suppliers, consumers and public at large and also deal
with other Business Institutions in their day to day working/business and,
therefore, the Indian Contract Act is of great importance for cooperatives
too.
1.2 OBJECTIVES
After going through this unit, you should be able to:
• to understand the meaning and definition of the term 'law' and 'business
law';
• describe the importance and main features ofthe Indian Contract Act 1872;
• state the essentials of a valid contract;
• explain some important concepts, such as:
Proposal and acceptance
Consideration; kinds of contract
Minor's agreement
Contingent contracts
Performance of contract
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Quasi contract Indian Contract Act, 1872
Remedies for breach of contract etc.

Discharge of contract
Indemnity and guarantee.
1.3 .BRIEF HISTORY

•
In early British Rule, there was no specific Act which would apply to all
geographical areas under control of the Government of India and hence, there
were problems for the mercantile community in particular. The, Government of
India therefore considered it most appropriate to have a specific Act relating to
contracts on the basis of the English Law of contract. Though The Indian Contract
Act, 1872 is not complete and exhaustive Act but it regulates the conduct of all
the related parties and provides for basic principles on almost all aspects of a
contract.
1.4 IMPORTANT DEFINITIONS

1.4.1 Law
Term Law Explained
a) As stated above, in narrow sense, the term 'Law' is used in place of 'Act".
The body of rules enacted by the Legislative Bodies and enforced by the
Government is known as 'Act'. But the term 'Law' usually used in wider
sense. It denotes all sort of rules in the specific area carrying specific
characteristics. The term 'law' in such wider context, includes Act or Acts,
Statutory rules, Statutory Notifications, case-laws, and even usages/customs
followed in the specific area.
For example: Co-operative Law;
Mercantile Law;
Business Law;
Hindu Law;
Muslim Law;
b) 'Salomond' one ofthe well known jurists, defines the term 'Law' as follows:
"The body of principles recognized and applied by the State in the
administration of justice"
This definition helps us to understand the wider scope of the Law. The main
object of law is to regulate human relations with other individuals and with the
State.
1.4.2 The Term 'Business Law' Explained

The business law as body of rules, concerns all kinds of transactions and activities
in the business world. The business Law is also known as 'Commercial Law'.
'Mercantile Law' or 'Legal Aspects of Business '. The Business Law is the branch
of general Law. It covers widely industry, trade, commerce, banking and all other
economic transactions. There is a long list of Acts/rules, which are included in
the Branch 'Business Law' . However, the study of few selected Acts/Rules in
Business Law is very much important for an executive/employee, as well as for
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Essential Business Laws a lay man. The Laws are traditionally divided into various branches or areas, but
they are inter related in many respects such as:
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• Constitutional Law;
• Civil Law;
• Criminal Law;
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• Business Law;
• Religious Law, example Hindu Law;
• Tax Law;
• Industrial and Labour Law;
• International Law;
1.4.3 Proposal
A Proposal means an offer. When one person signifies to another his willingness
to do or not do any thing, with a view to obtaining the assent of that other to such
act or abstinence, he is said to make a proposal. The person making the proposal
is called the' Promisor' and the person accepting the proposal is called 'Promisee'.
Example:"A" proposes to sell his house to "B" at certain price. This is the
proposal from A to B.
Self Assessment Question
1) Explain the terms proposal?
1.4.4 Agreement
Every promise and every set of promises, forming consideration for each other,
is an agreement.
Example: In the above, example, if 'B' gives his consent to 'A', thereby the
agreement is formed.
1.4.5 Contract
An agreement enforceable by law is a contract. Section 10 of the Act defines
further.
a) "All agreements are contracts ifthey are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object,
and are not hereby expressly declared to be void",
Further:
b) "N othing herein contained shall affect any law in force in India and not
hereby expressly repealed by which any contract is required to be made in
writing or in the presence of witnesses, or.any law relating to the registration
of documents". (section 10).
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This (b) part clarifies that legal formalities, if any, under any other law must be Indian Contract Act, 1872
complied with for conversion of an agreement into a contract.

2) An agreement enforceable by law is a contract? Say: (True/ False)
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1.5 SCHEME OF THE INDIAN CONTRACT ACT,

1872
Importance and main features
This Act is one of the oldest Acts, enacted during the British Rule. This Act is
very important as it applies to each and every business relation or activity, intended
for creation oflegal relationship. The provisions therein are fundamental in nature
and in particular, the provisions contained in sections I to 75 explain general
principles applicable to all kinds of contracts including special types of contracts
such as Guarantee, Indemnity, Agency. The scheme or salient features of the Act
are stated below:
SI. Topic Imp.
No. Sections
1. Preliminary 1,2
2. Communication, Proposal, Acceptance, Revocation 3 to 9
of Proposal
3. Contracts, Voidable contracts and Void Agreements 10 to 23
4. Void Agreements 24 to 30
5. Contingent Contracts 31 to 36
6. Performance of Contracts/obligations 37 to 50
7. Performance of Reciprocal Promises 51 to 58
8. Appropriation of Payments 59 to 6]
9. Contracts which need not be performed 62 to 67
10. Quasi Contracts 68 to 72
11. Consequences of breach of contract 73 to 75
12. Indemnity & Guarantee 124 to 147
13. Bailment 148 to 171
14. Bailment of pledges 172 to 181
15. Agency 182t0238
Note: 1) The chapter on sale of goods and the chapter on partnership were subsequently
deleted from the Le.A. consequent upon new specific enactments on the said aspects
in 1930 and 1932 respectively.
2) All the above topics need not be studied in detail from the examination point and
view. The topics, need to be studied, have to be stated under 1.6.
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i',sSentIal nusmess Laws
1.6 IMPORTANT TOPICS FOR STUDY
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1.6.1 Lawful Proposal (Sec.2 (a))
Example: A proposes B that A is willing to sell his motorcycle for RsAO,OOOI-.
This is a proposal from A.
When one person signifiesjo another his willingness to do or not to do something;

he is said to make a proposaL Such proposal should, however, be lawful. In
English Law, proposal is termed as an 'offer'. Following ~re important features
of Lawful proposaL
1) Proposal must be specific and certain. It should not be vague or ambiguous.

2) It must be intended to create legal relationship;
3) It must be made to another person with a view to obtaining his assent;
4) It must be communicated;
5) It must be capable of being accepted.
1.6.2 Lawful Acceptance (Sec.7)

Example: In the above example ifB, taking into account the terms and conditions
of proposal of A, gives his consent; it is an acceptance to the proposal.
As the proposal must be lawful; similarly the acceptance of the proposal must
also be lawfuL The important features of a lawful acceptance have been described
below. These may be noted.
1) It must be absolute and unqualified, that means without any condition or

conditions;
2) It must be communicated to the proposer;
3) It must be given in the manner specified in the proposal or according to the

usual or reasonable manner;
4) It must be given within a reasonable time and before the proposal is

withdrawn. A person making the proposal is called the "promisor" and the
person" accepting the proposal called the "promisee" (Section 2(c) ) and
Sec.7. The promise may be expressed or implied (Sec.9)
1.63 Capacity of Parties or Competency of Parties to make a

Contract (Sec.lt)
A person becomes competent or capable to enter into a contract, when he fulfills
the following three conditions:
1) That he must be a major according to the Indian Majority Act. The Indian
Majority Act provides that in normal circumstances, one becomes major
w hen he comp letes 18 years of age and that, in certain specific circumstances,
one becomes a major when he completes 21 years of age. Therefore, a
contract by a minor is not a valid contract.
2) That a person should be of sound mind at the time of giving a proposal or a .

consent. A contract by a lunatic or an insane, therefore, is not a valid contract.
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3) That a person should not have been disqualified/barred to enter into a contract Indian Contract Act, 1872
under any other law.
Example: A contract by an insolvent person is not a valid contract, as under the

Insolvency Act, an insolvent is not competent to contract.
1.6.4 Minor's Agreement (Compentency to Contract Sec.11)

Law relating to an agreement by a minor is very important and peculiar. The
summary of the rules in relation to a contract in which one party is a 'minor' is
given below: .
1) A contract by a minor is void ab initio (Case law: Mohiribibi v. Dharamdas

Ghose).
Note: The Case is given below for study ofthe learners.
Full case name: Mohiribibi v. Dharmodas Ghose

Facts of the Case: (Indian Case)
In this case, a minor mortgaged his house in favour of a money-lender to secure
a loan of Rs.20,000; out of which the mortgagee (the money-lender) paid the
minor a sum of Rs.8,000. Subsequently the minor sued for setting aside the
mortgage, stating that he was underage when he executed the mortgage. Held,
the mortgage was void and, therefore, it wa~ cancelled. Further the money-lender's
request for repayment of the amount advanced to the minor as part of the
consideration for the mortgage was also not accepted.
Authority which decided the case: The Privy Council, V.K.

Year of decision: 1903
. Case Law: An agreement by a minor is void and inoperative ab initio (means
.-from very beginning). . .
Citation: (1903) 30Ca1.539.
2) . A contract by a minor, who fraudulently claims to be major, is also a void
contract.
3) A ratification ~ia contract by a minor, on his attaining the age of majority;
is also void.
4) An agreement in which a minor is beneficiary is a lawful agreement.
In other words, a minor is"not liable for obligations/responsibility of any
nature under a contract but if a minor is going to get some benefit from a
contract, it is binding upon other party.
5) However, for supply of necessaries to a minor, the minor's property is liable.
1.6.5 Lawful Consideration (Sec. 2(d)

"Consideration'" in simple language means something in return. This something
is commonly known as gain, right, benefit, interest or profit to one party and
loss, forbearance, responsibility to other party ..
Generally, 'consideration' consists in the form of cash, property (movable and

immovable), services and exchanges. In our day to day life, 'consideration' is
known as value or price from one angle. '
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Essential Business Laws In other words, consideration in a contract is the price for which the promise of
other is bought:
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Example: As per proposal of B, A agrees to purchase a house of B for Rs.5

lakhs. The house is the consideration for A and the money is the consideration
forB.
1.6.6 Free Consent-{Sec.Id)

'Consent' means when two persons agree upon same thing in same sense. (Sec.13).
But, for formation of a valid agreement i.e. a contract, mere consent is not
sufficient. A consent of each and every party to the agreement must be free. The
consent is said to be free:
When it is not caused

1) By coercion;
2) By undue influence;
3) By Fraud;
4) By misrepresentation; or
5) By mistake, (Section 14).
Each of the above terms, that is, 1) coercion 2) undue influence 3) fraud 4)
misrepresentation orl and 5) mistake is defined and well described with
illustrations in the Indian Contract Act. (Sections 15,16,17&18,20,21,22).
Here, we should only note that free consent is one of the essentials for conversion
of an agreement into a contract.

3) Define Free Consent.
1.6.7 Lawful Consideration and Lawful Objects

We have noted above in brief that consideration is some right, interest, profit or
benefit to one side while some responsibility, detriment or loss to the other side.
In other words, consideration in a contract is the price for which the promise of
other is bought. (purchased). Consideration may be in the form of cash, valuables,
services, movable property, future crop or product, claim, immovable property,
intellectual property, exchange etc.
Example:
i) A employs B as his servant on salary of Rs.l 0,000 p.m. The services of B
are the consideration for A and salary is the consideration for B.
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ii) A sells his motorcycle to B. Money is the consideration for A and the goods Indian Contract Act, 1872
in the form of motorcycle is consideration for B.
The important features relating to consideration may be summed up as follows

(Sec.2 (d».
1) It must move at the desire of the promisor.

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2) It may be responded/moved either from the promisee or any other person.
3) It is in the form of some act, abstinence or forbearance.
4) It may be past, present or future;
5) It may be adequate or may be inadequate. If it is inadequate owing to undue

influence, accordingly to one party, the said one party has an option to revoke
the agreement.
6) It must be real.
7) It must not be illegal, immoral or opposed to Public Policy.
Note: Generally it is presumed that the advertisements, tenders, catalogues and

such other publications are not proposals and that they are mere invitations to
make offers. But in a well known case ofCarlill v. Carbolic Smoke Ball Company,
the English Court, taking into account the facts and figures, has decided that all
essentials features of a valid contract are satisfied and therefore the Company
was bound to pay damages to the applicant Mrs.Carlill. The facts of the Case are
given below for study of the participants.
Full Case name: Carlill v. Carbolic Smoke Ball Company
Facts of the case: (English Case)
The Carbolic Smoke Ball Company made a product called the 'smoke ball'. It
claimed to be a cure for influenza. The smoke ball was a rubber ball with a tube
attached. It was filled with carbolic acid (phenol). The tube was then inserted
into the user's nose. It was squeezed at the bottom to release the vapours into the
nose of the user. This would cause the nose to run, and hopefully flush out the
cold. In fact the inflammation caused by the device would have probably increased
susceptibility to catching influenza.
The Company published advertisement in the Pall Mall Gazette on November

13, 1891, claiming that it would pay £ 100 to anyone who got sick with influenza
after using its product according to the instructions set out in the advertisement.
Advt.
"£100 reward will be paid by the Carbolic Smoke Ball Company to any person
who contracts the increasing epidemic influenza colds, or any disease caused by
taking cold, after having used the ball three times daily for two weeks, according
to the printed directions supplied with each ball. £1000 is deposited with the
Alliance Bank, Regent Street U.K. showing sincerity in the matter.
During the last epidemic of influenza many thousand carbolic smoke balls were
sold as preventives against this disease, and in no ascertained case was the disease
contracted by those using the carbolic smoke ball.
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, Essential Business Laws One carbolic smoke ball will last a family several months, making it the cheapest
remedy in the world at the price, 10s.post free. The ball can be refilled at a cost
of Ss. Address: "Carbolic Smoke Ball Company, 27, Princes Street, Hanover
Square, London".
Mrs. Louisa Elizabeth Carrill saw the advertisement, bought one of the balls and . .r
.used three times daily for two weeks. But she still got the flu. She claimed £ 100
from the Carbolic SmOKe Ball Company. They ignored two letters from her
husband, who had trained as a solicitor. On a third request for her reward, they
replied with an anonymous letter that if it is used properly the company had
complete confidence in the smoke ball's efficacy, but "to protect themselves
against all fraudulent claims" they would need her to come to their office to use
the ball each day and checked by the secretary. Mrs Carlill brought a claim to a
court. The barristers representing her argued that the advertisement and her
reliance on it was a contract between her and the company, and so they ought to
pay. ~he company argued it was not a contract."
Authority which decided the case: Lindley LJ; Bowen LJ and A.L.Smith LJ.
Year of decision: 7 December 1892
Case law: The Company was found to have beenbound by its advertisement,
because a contract was formed. The essential elements were all there, held the
court of appeal, including.
I) An offer and acceptance

2) Consideration
3) An intention to be legally bound.
Citation: {l893} 1 QB 256

Lawful consideration:
Example: In a sale of stolen vehicle, the consideration is illegal. As noted above,
consideration as well as object of a contract must be lawful.
An agreement without consideration is not lawful. However, there are three lawful
exceptions.
1.6.8 Kinds of Contracts

Contracts are classified on the basis of various criteria. But generally for our
. study, the contracts are classified on the· basis of their validity i.e. lawful
enforceability. They are of three kinds. Viz.:
1) . Valid Contract: means a contract which is enforceable by law {Section 2

(h)}
2) Void Contract: means a contract which is not enforceable by law (Section

2 (g».
3) Voidable Contract; means a contract which maybe treated as valid or void
by an aggrieved party at his option.
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--.---~~~~~--~~~~~~~~--
In other words, an agreement that is enforceable by law at the option of one or Indian Contract Act, 1872
more of the parties, but not at the option of the other or others is known as a
'voidable contract' (Section 2 (i)). ~t
Examples: ~
1) Aagrees to sell his own house situated at New Delhi to B for Rs.5 lakhs and
accordingly the agreement between A & B satisties all lawful conditions.
This is a valid contract.
2) A agrees to sell his own house to B for Rs.5 lakhs. But, A is a minor and an
agreement by a minor is treated as void contract. This is an example of void
contract.
3) A is a patient of B, who is a Doctor. B has exercised undue influence on A,

the patient, for agreeing to sell his house to B. Now it is for A to execute the
• I agreement or not. This is an example of voidable contract.
, . Self Assessment Question
4) What are the kinds of Contract?
••••••••••••••••••••••••••••••.••••••••••••••.•••...••••..•....•.•...•••....•...• "....••.•...•• 'r•.•.•.........
..
............................. \ .
1.6.9 Void Agreement

For conversion of an agreement intoa contract, the agreement should not fall
under the category of void agreements, as specified in theIndian Contract Act
1872. An agreement which is not enforceable by law is a void agreement. Let us
s~e in brief, the nature of void agreements.
1) If considerations and objects are unlawful. in part, the agreement is void

(Sec.24)
2) An agreement without consideration is void, unless it falls under the lawful
exceptions. (Sec.25)
3)· An agreement in restraint of marriage is void; (Sec.26)
4) An agreement in restraint of trade is void, subject to certain exceptions
(Sec.27)
5) An agreementin restraint.of legal proceedings is void except an arbitration
agreement (Sec.28)
6) An agreement is void if it's meaning is not certain or capable to mean
certainty (Sec.29)
7)· An agreement by way of wager is void except agreement in favour of certain
prizes for horse racing (Sec.30)
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Essential Business Laws 8) An agreement by a minor or incompetent person is void (Sec.l1)
9) An agreement in which both the parties are under mutual mistake is void
(Sec.20)
10) An agreement to do some impossible act or event is void;
11) Consequent upon revocation of voidable contract;
12) Contingent contract when becomes impossible (Sec.32)
13) Contract becomes void by illegality (Sec.56 (2))
1.6.10 Contingent Contracts

The Indian Contract Act defines a Contingent Contract as follows:
"A contingent Contract" is a contract to do or not do something, if some event,

collateral to such contract, does or does not happen".
Illustration
'A' contracts to pay 'B' Rs.lO,OOO if B's house is burnt. This is a contingent
contract.
The essential features of a contingent contract could be described as follows:
1) The performance of a contingent contract depends upon some future

uncertain event.
2) Such event, happening or not happening in future is collateral to the contract.
3) The contingent event is not merely a will of the promisor. It is an act, may
be dependent upon various aspects.
In other words, the contingent contract is only binding upon happening or not
happening an event, specified. The liability can arise on a promisee subject to
condition expressed.
The following are the kinds of contingent contracts.

1) A contract when made binding upon happening an event
If such event becomes impossible; such contract becomes void.
Illustration
a) A makes a contract with B to buy B's horse, if A survives C. This contract
cannot be enforced unless or until 'C' dies in A's lifetime.
b) A contracts to pay B a sum of money when B marries C. C dies without
being married to B. The contract becomes void.
In other words, the performance of contract contingent on event happening is

enforceable only when the particular specified event happens. (Section 32)
2) A contract when made binding upon not happening an event

Enforcement of a contract contingent on an event not happening depends when
such uncertain future event does not happen. In other words, such event becomes
impossible.
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Illustration Indian Contract Act, 1872
A agrees to B a sum of money if a certain ship does not return. The ship is sunk.
The contract can be enforced when the ship sinks. (Section 33).
3) When an event is deemed to be impossible

The event so specified shall be considered tq become impossible when the
concerned person does any thing which renders it impossible to perform the
contract.
Illustration
A agrees to pay B a sum of money, if B marries C. However, C has already
married D. The marriage ofB to C must now be considered impossible, although
it is possible that D may die, and that C may after wards marry B.
In short such contract is not enforceable as the happening event is considered as

impossible (Section 34).
4) When contract becomes void, which is contingent on happening of a

specified event within fixed time.
If a time is fixed for happening a specified event, and that such event does not
happen within the fixed time, OR
That such event becomes impossible to happen even before the time fixed, the
contract becomes void.
Similar is the effect, when the contract is contingent on not happening.
Illustration
i) A promises to pay B a sum of money if a certain ship returns within a year.
The contract is enforceable if the ship returns within a year, and becomes
void if the ship does not return within the year.
ii) A promises to pay B a sum of money, if a certain ship does not return within
a year. The contract is enforceable if the ship does not return within the year
OR is burnt within a year. (Section 35).
5) Contingent Agreement on impossible event, void:

An agreement to do or not do if an impossible event happens, is void; whether
the impossibility ofthe event is known or not known to the parties at the time of
agreement.
Illustration
i) A agrees to pay B 1000 rupees if two straight lines should enclose a space.
This agreement is void.
ii) A agrees to pay B 1000 rupees ifB will marry A's daughter C. C was dead
at the time of agreement. This agreement is void. (Section 36).
Contingent contracts vis it vis wagering contracts

1) There is a lot of difference between contingent contracts and wagering
agreements.
17
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Essential Business Laws 2) A wagering agreement is void while contingent contract is valid.
3) A wagering agreement is generally in the nature of reciprocal promises but

a contingent contract may not be in the nature of reciprocal promises.

5) Define Contingent ,Contracts.
1.6.11 Quasi Contracts

.
, Meaning
Certain relations between the parties resemble those created by a contract. Law
requires a person who receives the benefit to payor compensate the person giving
the benefit, even though the person receives the benefit without any specific
contract.
This kind of relation is a contract created by law and such a contract is called a
"Quasi Contract".
Quasi means like, almost like, equal, almost equal.
Quasi Contracts are implied contracts also. Law presumes the obligations like
the contracts and therefore the aggrieved party is placed in the same position as
if the actual contract exists.
In English Law, they are called construction contracts.
TYPES OF QUASI CONTRACTS

1) Claim for supply of necessaries to person incapable of contracting
(Sec.68)
Illustration
a) A supplies B , a lunatic, with necessaries suitable to his condition in life. A
is entitled to be reimbursed from B's property.
b) A supplies the wife and children ofB, a lunatic, with necessaries suitable to
their condition in life. A is entitled to be reimbursed from B's property.
2) Reimbursement of money paid in which the person is interested (Sec.69)

Illustration
B holds land in Bengal on a lease granted by A, the Zamindar. The revenue
payable by A to the Government being in arrears, his land is advertised for sale
by the Government. Under the revenue law, the consequence of such sale will be
the annulment ofB's lease. B, to prevent the sale and consequent annulment of
his own lease, pays to the Government the sum due from A. A is bound to make
good to B the amount so paid.
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3) Obligation of person to pay for enjoying benefit of non-gratuitous act Indian Contract Act, 1872
(Sec.70)
Illustration
a) A, a tradesman, leaves goods at B's house by mistake. B treats the goods as
his 'own. He is bound to pay A for them.
b) A saves B's property from fire. A is not entitled for compensation from B, if
the circumstances show that he intended to act gratuitously.
4) Responsibility of finder of goods (Sec.71)

A person who finds goods belonging to another, and takes them into his custody,
is subject to the same responsibility as a bailee.
5) Liability of a person to whom money is paid or thing delivered by

mistake or under coercion (Sec.72)
Illustration
a) A and B jointly owe 100 rupees to C. A alone pays the amount to C, and B
not knowing this fact, pays 100 rupees over again to C. C is bound to repay
the amount to B.
b) A railway company refuses to deliver up certain goods to the consignee,

except upon the payment of an illegal charge for carriage. The consignee
pays the sum charged in order to obtain the goods. He is entitled to recover
so much of the charge as was illegally excessive.
Distinction
Contract and Quasi Contract
Contract Quasi Contract
1. It results from the will of parties 1. It is an obligation resembling
that created by a contract.
2. Agreement plus essential elements 2. No agreement at all. Essentials
are absent.
3. It is a full tledged contract 3. It is not. It is implied Contract.
1.6.12 Performance of Contract (Section 37)

Performance of a contract takes place when the parties to the contract fulfill
their obligations arising under the contract within the time and in the manner
prescribed. Sec.37 (para 1) lays down that the parties to a contract must either
perform or offer to perform their respective promises, unless such performance
is dispensed with or excused.
Offer to Perform: 'Tender'

Sometimes it so happens that the promisor offers to perform his obligation under
the contract at the proper time and place but the promisee does not accept the
performance. This is known as "attempted performance" or "tender". Sec.38
sums up the position in this regard thus: Where a promisor has made an offer of
performance to the promisee, and the offer has not been accepted, the promisor
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Essential Business Laws is not responsible for non performance, nor does he thereby lose his right under
the contract. Thus, a tender of performance is equivalent to actual performance.
It excuses the promisor from future performance and entitles him to sue the
promisee for the breach of contract.
Requisites of a valid tender (Sec.38):

1) It must be unconditional. It becomes conditional when it is not in accordance
-e
with the terms of the contract.
2) It must be ofthe whole quantity contracted for or ofthe whole obligation. A

tender of an installment when the contract stipulates payment in full is not
a valid tender.
If, however, the deviation fromthe term of the contract is very negligible,
the Court may take a practical view of the matter by holding that the contract
has been correctly performed,
3) It must be by a person who is in a position, and is willing to perform the

promise.
4) It must be made at the proper time and place. A tender of goods after the
business hours or of goods or money before the due date is not a valid
tender.
5) It must be made to a proper person.
6) It may be made to any of the joint promisees.
7) In case of delivery of goods, sufficient time for inspection of goods must be

grven.
8) In case of payment, it must be in legal tender money etc.
1.6.13 Discharge of Contract

Modes of discharge of contract and discharge of contract by Performance (Sec.37).
Discharge of contract means termination ofthe contractual relationship between

the parties. A contract is said to be discharged when it ceases to operate, i.e.
when the rights and obligations created by it come to an end. In some cases,
other rights and obligations may arise as a result of discharge of contract, but
they are altogether independent of the original contract.
A contract may be discharged:
1) By performance
2) By agreement or consent
3) By impossibility
4) By lapse of time
5) By operation of Law
6) By breach of Contract.
Example: Discharge by Performance:

Performance means the doing of a thing which is required in a contract. Discharge
20 by performance takes place when the parties to the contract fulfill their obligations
/
arising under the contract within the time and in the manner prescribed. In such Indian Contract Act, 1872
a case, the parties are discharged and the contract comes to an end. But if only
one party performs the promise, he alone is discharged: Such a party gets a right
of action against the other party who is guilty of breach.
Performance of a contract is the most usual mode of its discharge. It may be (1)
actual performance or (2) attempted performance.
1) Actual Performance: When both the parties perform their promises, the
contract is discharged. Performance should be complete; precise and
according to the terms of the agreement. Most ofthe contracts are discharged
by performance in this manner.
2) Attempted Performance or tender: Tender is not actual performance but

is only an offer to perform the obligation under the contract. Where the
promisor offers to perform his obligation, but the promisee refuses to accept
.. the performance, 'tender' is equivalent to actual performance except in case
of tender of money. The effect of a valid tender is that the contract is deemed
to have been performed by the tenderer. The tenderer is discharged from the
responsibility for non performance of the contract without in any way
prejudicing his rights which accrue to him against the promise.
Note: Other modes of discharge need no explanation.
1.6.14 Remedies for Breach of Contract

Principle: "Where there is right, there is a remedy":
A contract gives rise to correlative rights and obligations. A right accruing to a
party under a contract would be of no value if there were no remedy to enforce
that right in a Court of Law in the event of its infringement or breach of contract.
A remedy is the means given by law for the enforcement ofa right.
When a contract is broken, the injured party has one or more of the following
remedies:
1) Rescission of the contract;

2) Suit for damages;
3) Suit upon quantum merit;
4) Suit for specific performance of the contract; and for
5) Suit for injunction;
1) Rescission
When a contract is broken by one party, the other party may _sueto treat the
contract as rescinded and refuse further performance. In such a case, he is absolved
of all his obligations under the contract.
Example: A promises B to supply 10 bags of cement on a certain day. B agrees

to pay the price after the receipt of the goods. A does not supply the goods. B is
discharged from liability to pay the price.
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Essential Business Laws The Court may, however, refuse to rescind the contract -
a) Where the plaintiff has expressly or impliedly ratified the contract; or
b) Where, owing to the change of circumstances (not being due to any act of
..
positions; or '
.
the defendant himself), the parties cannot be restored to their original
c) Where third parties have, during the subsistence of the contract, acquired
rights in good faith and for value; or
d) Where only a part of the contract is sought to be rescinded and such part is
not severable from the rest of the contract (Sec.27 of the Specific Relief Act
1963).
When a party treats the contract as rescinded, he makes himself liable to restore
any benefits he has received under the contract to the party from whom such
benefits were received. But if a person rightfully rescinds a contract he is entitled
to compensation for any damage which he has sustained through non-fulfillment
of the contract by the other party.
Note: All other remedies for breach of contract need no explanation.
1.6.15 (a) Contract of Indemnity

Meaning: Indemnity means a promise to save from loss.
Definition (Sec. 124): A contract by which one party promises to save the other
from loss caused to him by the conduct of the promisor himself, or by the conduct
of any other person, is called a 'contract of indemnity'.
Illustrations
i) A contracts to indemnify B against the consequences of any proceedings
which C may take against B in respect of a certain sum ofRs.200. This is a
contract of indemnity.
ii) A contracts with the Govt. to return to India from abroad after completing
his studies and serve the Govt. for a fixed period. He fails to return to India.
This is a contract of indemnity and he is bound to reimburse the Govt. (M.
Sham Singh v. State of Mysore AIR 1972 SC2420)
Indemnity} A person whose loss is to be made good is a promisee, who is

Holder: } known as an Indemnity Holder.
,
Essentials of a valid contract of Indemnity
1) Law of indemnity depends on happening /causing of a loss.
2) Contract is considered as a general class of contingent contract.
3) It must contain all essentials of a valid contract.
4) The promisee i.e. Indemnity holder must have suffered a loss. (either from
an act of promisor or from an act of any other person).
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Rights of Indemnity Holder (Sec.125): Indian Contract Act, tR72
1) Damages all damages that the Indemnity Holder is compelled

to pay.
2) Costs all costs that the Indemnity Holder is compelled to

pay. Costs must be such as would have been incurred
•
by a prudent man.
3) All Sums all sums that, the Indemnity Holder required to pay
in a compromise of any suit.
4) Suit for specific Besides the above, the Indemnity Holder can sue for
performance specific performance, if he incurs absolute liability.
Period of limitation: Three years
1.6.15 (b) Contract of Guarantee (Sec.126)

Meaning A contract of guarantee is a contract to perform the
promise or to discharge the liability of a third person
in case of his default.
A contract of guarantee is also known as a contract

of sTlretyship.
Definition: Surety The person who gives the guarantees is called the
(sec.126) "surety" .
The person in respect of whose default the guarantee

is given is called the "principal debtor", and
The person to whom the guarantee is given is called

the "creditor".
A guarantee may be either oral or written.
Consideration for Guarantee (Sec.127)

Any thing done, or any promise made, for the benefit of the Principal Debtor,
may be a sufficient consideration to the Surety for giving the guarantee.
Illustrations
a) A sells goods to B on credit provided C guarantees the payment. C gives the
guarantee. This is a contract of guarantee and consideration is sufficient for C.
b) A sells and delivers goods to B. C afterwards request A to forbear to sue B

for the debt for a year, and promises that, ifhe does so, C will pay for them
in default of payment by B. A agrees to forbear as requested. This is a
sufficient consideration for C's promise.
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Essential Business Laws 1.6.15 (c) Distinction between A Contract of Indemnity and A
Contract of Guarantee
Indemnity Guarantee
l. There are two parties. l. There are three parties
2. The liability of Indemnifier 2. The liability of the surety is
IS pnmary. secondary. The liability of the
Principal Debtor is primary.
3. The liability arises only on the 3. There is an existing debt or
happening of a contingency. duty, the performance of which
is guaranteed by the surety.
4. There is only one contract between 4. It implies three contracts
the Indemnifier & the indemnified. between:
1) Creditor and Principal
Debtor;
2) Surety and Creditor; and
3) Surety and Principal Debtor.
5. Object is to reimburse the loss 5. Object is to get a third person
if caused. It provides security. as a surety.
6. Indemnifier cannot sue a third 6. Surety can sue the Principal
person for the loss suffered. debtor in the event the surety
is required to discharge
liability to the creditor.

6) Differentiate between a Contract ofIndemnity and a Contract of Guarantee.
1.6.16(a) Nature of Surety's Liability

The liability ofthe surety is co-extensive with that of the Principal Debtor, unless
it is otherwise provided by the Contract. (Sec.128).
It means the Liability of surety is equal to the Principal Debtor in the event there
is a default and in the event the notice of default is given to the surety.
Illustration
A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill
is dishonored by C. A is liable not only for the amount of the bill but also for any
interest and charges which may have become due to it.
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Surety's Liability Indian Contract Act, 1872
Case Laws:
1) The Supreme Court has held that the Liability of the Principal Debtor and
the liability of the surety, which is co-extensive with that of the former, are
really separate liabilities. The liability ofthe surety is immediate. {The Bank
ofBihar v. Dr. Damodar Prasad & Others AIR 1969 SC 297}
2) A surety or a guarantor can be sued without even suing the Principal Debtor.
So also a decree holder cannot be forced to first exhaust remedy by way of
execution of mortgage decree alone and then to proceed against guarantor.
{State Bank of India v. Index port Regd. AIR-1992 SC 1740.}
1.6.16 (b) Continuing Guarantee

A guarantee may cover a single or specific transaction
OR
A guarantee may cover a series of transactions.
·. A guarantee which extends to a series of transactions is called a continuing
guarantee (Section 129).
Illustration
A, in consideration that B will employ C in collecting the rents ofB's zamindari,
promises B to be responsible to the amount of Rs.5000/- for due collection and
payment by C of those rents.
This is a continuing guarantee. Herein the series of transactions implies series of

separate and distinct future transactions.
Revocation of a continuing guarantee

The continuing guarantee can be revoked (means cancelled) in the following
circumstances.
1) By Notice (Sec. 130) (as to the future transactions)
2) By Death of a Surety; (Sec.131) (as regards the future transactions)
3) By Discharge of a Surety (Sec. 133)
1.6.17 When a Surety is Discharged?

Under the following circumstances, a surety is discharged under the Contract
Act.
1) By variance in the terms of a contract Sec.133

2) By release or discharge of the Principal Debtor Sect. 134
3) By creditor compounding with the Principal Debtor and Sec.l35
gives time, or agrees not to sue Principal Debtor
4) By creditor's act or omission impairing surety's Sec.139
eventual remedy
5) By creditor loosing security against the Principal Debtor Sec.141
6) Guarantee obtained by mis representation, invalid Sec.142
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Essential Business Laws 7) Guarantee obtained by concealment, invalid Sec.143
8) Guarantee on contract that creditor shall not act on it Sec.144
until co-surety joins
When surety is not discharged?
1) When the creditor agrees with third person to give Sec.136
time to the Principal Debtor,
2) Creditor's forbearance to sue the Principal Debtor Sec. 137
3) Release of one Co-surety Sec. 138
Note: lfthe guarantee lacks one or more of the essential elements of an
ordinary contract, the guarantee is invalid.
Rights of a Surety:
Following are the rights of a surety in normal cases:
1) Right on payment or performance by the surety (Surety Sec.140
steps in the shoes of a creditor) (Surety is invested with
.
,
or subrogated with all the rights which the creditor had
against the Principal Debtor)
2) Rights to benefit of creditors securities Sec.141
3) Right to indemnity (implied promise by thePrincipal Sec.145
Debtor)
4) Right to be contributed equally in case where two or Sec.146
more persons are eo-sureties.
1.6.18 Co-Sureties
Where two or more persons are eo-sureties for the same debt or duty, either
jointly or severally
And
Whether under the same or different contracts
And
••
Whether with or without knowledge of each other,
The eo-sureties are liable, as between themselves, to pay each an equal share of ..
the whole debt or of that part of it which remains unpaid by the Principal Debtor,
unless the contract is contrary. Sec. 146
Illustration
A, Band C are sureties for the sum ofRs.3000 lent to E. E makes default. There
is no specific term indicating 'share of liability of sureties. Therefore A,B and C
are liable as between themselves, to pay Rs.l 000 each.
1.6.19 Contract of Bailment (Sec.148 to 171)

A Contract of bailment is a special contract in which goods are delivered by one
person to another for some purpose. The goods in such contract are to be returned
when the purpose is over or are to be disposed off in accordance with the directions
of the person delivering them.
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A person delivering the goods is called the 'bailor' and the person to whom the Indian Contract Act, 1872
goods are delivered is called the 'bailee'.
Examples
1) "A" lends his book to "B" for reading
2) "A" delivers his watch to "B" for repairs

,
3) "A" gives "B" his gold ring as security for the loan obtained by "A".
4) A hires a motorcycle of B, on payment of certain hiring charges. This is a

contract of bailment.
5) A hires a motorcycle of B on payment of certain hiring charges. The

motorcycle is damaged by A.
A is responsible for damages.
6) A hires a safe deposit locker in one "B" bank on payment of charges. This is
a contract of bailment.
'.
The essential elements in a contact of a bailment are:
1) The goods are movable.
2) They are delivered by one person to another.
3) They are delivered for some specific purpose.
4) There is a condition that, when the purpose is over, the goods are to be
returned to the person concerned or to be disposed off in accordance with
the instructions of the said person.
A contract of Bailment may be divided into two groups:
a) Gratuitous bailment - i.e. without any conditions
b) Bailment for reward - i.e. with some conditions.
1.6.20 Contract of Pledge or Pawn (Bailment of Pledge) Sec.172

to 179
The bailment of goods as security for payment of a debt or performance of promise
involving individual liability is called a pledge. In such type of a contract of
bailment, the bailor is known as pledger or pawner and the bailee as the pledgee
or the pawnee.
Example
'A' deposits his some ornaments with 'B' Bank as security of the loan of
Rs.20,OOOI-, borrowed by A. This is the bailment of pledge.
There are rights and liabilities of the bailor as well as there are rights and liabilities
ofthe bailee, as provided in the Indian Contract Act, 1872.
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1.7 PROCESS OR STAGES IN FORMATION OF A
CONTRACT
1) Firstly, there should be a proposal from one party to ano!her;
2) Secondly, there should be acceptance of the proposal from the concerned

another party. Then, iJ:become a promise. To accept the proposal or not to
accept the proposal is a sole discretion of the other party.
In other words:
(A) Proposal + Acceptance = Promise
3) Thirdly, each and every set of promises must have consideration for
conversion of the concerned transaction into an agreement.
In other words:
(B) Promise + Consideration = Agreement
4) Fourthly, it may be noted that each and every agreement may not be
enforceable by Law. Unless and until, the agreement under scrutiny possesses
the essential elements, the agreement would not be term as a contract.
In other worlds:
(C) Agreement + Lawful Essentials = Contract = Valid Agreement
Note: The stages/processes in formation of a contract and the essentials of a

valid contract (based on the above definition ofthe term 'contract') are explained
in para No. 1.7 and 1.8 which are very important for the study.
1.8 ESSENTIALS OF A VALID CONTRACT

We have seen above that an agreement enforceable by law is a contract. In other
words in an agreement certain essentials must be present. These essentials are
also termed as elements or essences, which are necessary for enforceability of an
agreement. Briefly, thus Contract = Agreement + Essential Elements = Valid
"
Agreement.
Now, let us see which are these essentials required for conversion of an agreement
into an contract?
Considering the definition of the term 'contract' and related aspects, we can
mention minimum following Seven essentials necessary for formation of a
contract. Some authors add few more essentials to the list, which may not be
necessary.
1) There should be a lawful proposal and lawful acceptance of the proposal.
2) There should be minimum two parties and whatsoever the number of parties
to the agreement on both sides might be, each and every party thereof must
be competent to enter into a contract.
3) The consent of each and every party to the agreement must be free.
28
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4) Barring lawful exceptions, consideration is necessary for formation of an Indian Contract Act, 1872
agreement itself. It is further clarified that consideration as well as object of

an agreement must be lawful for conversion of an agreement into a contract.
5) The Indian Contract Act expressly declares certain types of contracts/

agreements as 'Void'. The agreement or contract which is not enforceable
by law is known as a Void agreement or er Void contract. A contract may be
void from the very beginning i.e. ab initio or may become void later on
owing to certain developments.
6) Legal Relationship: An agreement must have been entered into for creation
of legal relationship between the concerned two sides. Promises or
agreements which do not give rise to legal obligations are not valid
agreements.
7) Legal Formalities: There may be some legal formalities which are required
to be complied with in accordance with provisions of any other law for
securing legality.
For example:
a) certain types of agreements need witnesses;
b) certain types of agreements need payment of stamp duty;
c) certain types of agreements need registration of documents
d) certain types of agreements need prior approval of the competent
authorities.
In other words, when any such legal formalities are prescribed/provided under
any other Act; their compliance is necessary for conversion of an agreement into
a contract.
1.9 SUMMARY
• Term 'Law' is generally used in wider sense. It indicates the specific branch
on the particular subject, such as, Hindu Law, Business Law. The Business
Law touches all kinds of Acts/Rules etc. relating to business transitions in
the economy.
Amongst all, the Indian Contract Act 1872 is very important. It deals with
all vital principles of a contract. The Law of contract affects every person,
every organization and also every co-operative institution.
• The Indian Contract Act defines and for explains all important terms/
keywords, such as, proposal, acceptance, free consent, capacities of parties,
.void agreements, breach of contract and remedies therefor, etc.
The Indian Contract Act also discusses the features of certain special types
of contracts, like Indemnity, Guarantee, Bailment, Agency.
• The most important topic to be understood is "what are the stages in formation
of a valid contract and what are the essentials of a valid contract. The features
of an agreement by a minor are also described in the Act. The main feature is
an agreement by a minor is void ab initio.
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I
Essential Business Laws • The contracts, on the criteria of legal validity, are divided into 3 classes viz
1) Valid Contract 2) Void Contract and 3) Voidable Contract.
• The Proposal as well as the acceptance of the proposal mu~t be lawful. Further,
mere consent of a person in formation of a contract is not adequate. A consent
of each and every party to the contract must be a free consent. Under what
circumstance a consent becomes unfree is beautifully described in the Act.
• The law of consideration is also important. It explains particularly
1) What is meant by consideration?

2) What is the effect of unlawful consideration or unlawful objects of a
contract?
• Some contracts are not required to be executed immediately. Their execution

depend upon some event in future to be happened or not to be happened.
Such contracts are known as contingent contracts. They are of different kinds.
• Under certain circumstances there is no express contract formed between

the parties. But the law presumes that relations between them are equal to a
contract. Such contracts are known as 'Quasi Contracts'. A contract results
from a will of parties. But a Quasi contract is an obligation resembling that
created by a contract.
• In the event, a contract is broken or it is anticipated to have broken by one

party, the another party gets some rights. Principle behind this is 'where
there is right, there is a remedy'. The remedies include.
1) Rescission of a contract.
2) Suit for damages.
3) Suit upon Quantum merit.
4) Suit for specific performance.
5) Suit for injunction.
'~
• A contract is termed as discharged or terminated under the following
circumstances.
.,
1) By performance
2) By consent
3) By impossibility
4) By lapse of time
5) By operation of law
6) By Breach of contract
• A contract by one party meant for a promise to save the another party from
loss, actual or future, is known as a Contract of Indemnity.
• A contract by one party to perform the promise of a third person or to discharge

the liability of such third person in the event of his default, is known as a
Contract of Guarantee or a Contract of Suretyship.
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• The liability of surety in the case of a contract of guarantee is co-extensive Indian Contract Act, 1872
with i.e. equal to the Principal Debtor. In certain circumstances, a surety is
treated as discharged from the Liability under the contract. For example, if'
any changes in the agreement are made withoutthe consent of the surety, the
surety can claim a discharge from his liability.
1.10 TERMINAL QUESTIONS

1) Explain Section 10 of the Indian Contract Act.
2) Who can enter into a contract?
3) Do you agree with the statement that a contract by a minor is void ab-
initio? Support your answer in the light ofMohiribibi v. Dharamdas Ghose
case.
4) Explain the term lawful consideration giving special emphasis to Carlill v.
Carbolic Smoke Ball company case.
5) Differentiate between Contingent Contract and Wagering Contract.
6) Enumerate the remedies available in case on Breach of Contract.
7) What are the essentials of a Valid Contract.
1.11 ANSWERS AND HINTS

Self Assessment Questions
1) Refer to Sub-section 1.4.3
2) True
6) Refer to Sub-section 1.6.15( c)
Terminal Questions
7) Refer to Section 1.8.
1.12 REFERENCES AND SUGGESTED READINGS
1) Bare Act: Indian Contract Act 1872 (Eastern Book Agency, Lucknow, or
Professionals'series).
2) The relevant chapter on LCA. from the Book "Elements of Mercantile Law"
written by N.D.Kapoor.
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UNIT 2 THE TRANSFER OF PROPERTY ACT,
1882
Structure
2.1 Introduction
2.2 Objectives
2.3 History in Brief
2.4.1 Preamble of the Act
2.4.2 Transfer of Property
2.4.3 What may be Transferred?
2.4.4 Immovable Property
2.4.5 Actionable Claim
2.4.6 Mortgage
2.5 Scheme of the Transfer of Property Act, 1882

2.6 Important Provisions for Study
2.6.1 Definitions ofImportant Terms/Conepts
2.6.2 Transfer of Property: Scope and Modes of Transfer
2.6.3 Mortgages and Kinds of Mortgages (Sec. 58 to 99)
2.6.4 Relating to Mortgages
2.6.5 Sale of Immovable Property (Sec. 54 to 56)
2.6.6 Lease of Immovable Property (Sec. 105 to 117)
2.6.7 Exchanges (Sec. 118 to 121)
2.6.8 Gift (Sec. 122 to 129)
2.6.9 Other General Concepts/Terms Explained
2.7 Summary
2.1 INTRODUCTION o·
The Transfer of Property Act, 1882 came into force with effect from 1.7.1882. It
extends to the whole ofIndia except certain territories. The Act has been amended
from time to time and lastly in 2002. The need to define and amend certain parts
ofthe Law relatingto the Transfer of Property by act of parties was urgently felt.
Hence, this Act was brought in by the Govt. ofIndia. This is very important Act.
It is also one of the oldest Acts. This Act covers almost all aspects relating to
transfer of property and in particular immovable property. The provisions relating
to transfer of property, which include sale, mortgage, lease, gift, exchanges and
actionable claims, are given in this Act, with necessary details. All important
terms/keywords are well defined and described therein. Depending upon the
nature of transfer, the rights and liabilities of a transferor and a transferee are
spelt out under each head of the transfer (chapter wise).
32
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The important topic therein relates to the' Mortgages'. The purpose of mortgage, The Transfer of Property
Act, 1882
meaning of keywords used, different kinds of mortgages, rules in respect of
mortgages etc. are appropriately and explicitly discussed in the Act.
Intellectual Property
Till recently, the properties were broadly divided into two kinds viz. 1) Movable
Property including cash, valuables, securities etc., and-Zl.Immovable Property.
The term 'property' works on the principle of exclusion. It allows the owner
enjoyment without interference.
Now, the intellectual property is also recognized as property of third kind. The
transfer of intellectual property in its strict sense is not governed under the Transfer
of Property Act, 1882. The Intellectual Property is not in tangible form. It is
. , created or produced through the use of
i) intellect;
ii) human skill;
, . iii) labour; and
iv) person's own effects and endevour; etc.
There are separate statutes (Acts) to deal with the matters relating to this kind of
property. For example:
1) Trade Marks Act, 1999

2) The Patents Act, 1970
3) Indian Copy Right Act, 1957
4) Designs Act, 2000
5) The Biological Diversity Act, 2002; etc.
Here we have to note only the point that there is a third kind of property i.e.
Intellectual Property, that the 'transfer' ofthis kind of property is not governed
under the Transfer ofProperty Act, 1882 at present and that there are other statutes
regulating the aspects relating to this property.
2.2 OBJECTIVES
• describe the general framework ofthe Transfer of Property Act, 1882. (i.e.
the salient features of the Act);
• know important concepts/definitions; and
• explain the kinds of mortgages and rights and Liabilities of mortgagor and
mortgagee.
2.3 HISTORY IN BRIEF

There was no uniform, standard and specific Act relating to transfer of properties
in British India prior to ] 881. The then Govt. of India, therefore, considered it
appropriate and desirable to define and amend certain parts of the law relating to
33
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Essential Business Laws the transfer of property in 1881-82 and accordingly the Transfer of Property Act
1882 came into existence with effect from 1-7-1881.
This Act has been extended from time to time to uncovered stateslU.Ts and the
earlier old statutes, ResolutionslRegulations on certain aspects have been repealed.
This Act applies only to transfer of property by act of parties. A transfer by

operation of Law is not gpvemed by or under this Act.
The most important chapter for our study is on mortgages, kinds of mortgages,
and rights and liabilities of mortgagor and mortgagee, and on other related aspects.

2.4.1 Preamble of the Act
The Transfer of Property Act deals with transfer of property whether, movable or
immovable, only by act of parties. In other words, transfer affected by operation
of Law are not dealt with under The T.P.Act, 1882. The preamble of the Act
clearly indicates the scope in this regard in the following words.
"Whereas it is expedient to define and amend certain parts of the law, relating to
the transfer of property by act of parties, it is hereby enacted as follows".
2.4.2 Transfer of Property

"Transfer of property" means an act by which a living person conveys property,
in present or in future, to one or more other living persons.
A living person includes a company, body of individuals, whether incorporated

or not'.
2.4.3 What may be Transferred?

Property of any kind is transferable, subject to lawful exceptions. However, the
following kind of property is not transferable:
a) The chance of an heir-apparent succeeding to an estate, the chance of a

relation obtaining a legacy on the death of a kinsman, or any other mere
possibility of a like nature, cannot be transferred;
~I
b) A mere right to re-entry for breach of a condition subsequent cannot be
transferred to anyone except the owner of the property affected thereby;
c) An easement cannot be transferred apart from the dominant heritage;
d) All interest in property restricted in its enjoyment to the owner personally

cannot be transferred by him;
e) A right to future maintenance, in whatsoever manner arising secured or

determined cannot be transferred;
f) A mere right to sue cannot be transferred;
g) A public office cannot be transferred, nor can the salary of a public officer
whether before or after it has become payable;
34
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--
h) Stipends allowed to military (naval), (air-force) and civil pensioner of the The Transfer of Property
Act, 1882
(Government) and political pensions cannot be transferred;
i) No transfer can be made (1) in so far as it is opposed to the nature of the

interest affected thereby, or (2) for an unlawful object or consideration within
the meaning of section 23 of the Indian Contract Act 1872 (9 of 1872) or (3)
to a person legally disqualified to be transferee;
•
j) Nothing in this section shall be deemed to authorize a tenant having an
untransformed right of occupancy, the farmer of an estate in respect of which
default has been made in paying revenue, or the lessee of an estate, under
the management of a Court of Wards, to assign his interest as such tenant,
farmer or lessee.

1) What may be transferred under the Transfer to Property Act, 1882?
Comments
It is open to the donor to transfer by gift a title and ownership in the property and
at the same time reserve its possession and enjoyment to herself during her'
lifetime. There is no prohibition in law that ownership in a property cannot be
gifted without possession and right enjoyment. (K.Balakrishnan v. K. Kamalam
(2004) l.S.C.C.S81).
2.4.4 Immovable Property

It does not include movable property, standing timber, growing crops, or grass.
The property whi('h is not movable is generally known as immovable property.
2.4.5 Actionable Claim

Means a claim to any debt or claim to any beneficial interest, (like LIC Policy)
whether such debt or beneficial interest be existent, accruing, conditional or
contingent.
However, the negotiable instruments or tnercantile documents are not 'actionable'

claims as clarified in sec.137 ofthe T.& P. Act.
2.4.6 Mortgage
A mortgage is the transfer of an interest in specific immovable 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.
35
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Essential Business Laws In each and every mortgage, a question of physical transfer of property may not
arise. This question of physical transfer of property depends upon a kind of
mortgage. For example, in a simple kind of mortgage, only interest in the specific
immovable property is transferred and the physical possession ofthe property is
not transferred/given by a mortgagor to a mortgagee.
Thus, a mortgage contemplates a transfer of interest in the specific immovable

property. •
The transferor is called a mortgagor and the transferee is called a mortgagee.

(who is mostly a creditor or a banker.)
The Principal amount with interest is known as the 'mortgage-money' and the
instrument (document) by which the transfer is effected is known as 'mortgage-
deed'.
Note: The rest of the terms are defined/explained under para no.2.6 below.
2.5 SCHEME OF THE TRANSFER OF PROPERTY

ACT, 1882
The scheme as laid down under the Act reads chapter wise as under:
• Preliminary Sections
Important Definitions 1 to 4
• Transfer of Property by act of Parties 5 to 53A

(transfer of property - defmed)
• Sale of immovable property 54 to 57
• Mortgages of immovable property and charges

plus
Rights and liabilities of Mortgagor and mortgagee]
Concepts : Foreclosure 58 to 104 '~
: Redemption
: Attachment
~
!
: Notice/Tender
• Leases of immovable property. 105 to117
• Exchanges 118 to 121
• Gifts 122 to 129
• Transfer of Actionable Claims 130 to 137
2.6 IMPORTANT PROVISIONS FOR STUDY

• Definitions of important terms/concepts.
• Transfer of Property/scope.
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• Mortgages (sec.58 to 98) The Transfer of Property
Act, 1882
i) mortgagor
ii) mortgagee
iii) mortgage-money
iv) mortgage-deed
• Kinds of mortgages
• Rights of Liabilities of mortgagor and mortgagee.
• Doctrine of Foreclosure
• Sale of mortgaged property without intervention of the court.
• Other important general provisions:
Relating to mortgages
• Registration of a mortgage deed (sec. 59)
.
,
• Priority (sec.78)
• Marshalling by subsequent purchase (sec.56)
• Deposit in court (sec.83)
• Cessation of interest (sec.84)
• Redemption (sec.9I)
(Doctrine of Redemption)
Relating to other matters:
• Vested interest (sec. 19)
• Contingent interest (sec.2I)
• Conditional Transfer (sec.25)
• Fraudulent Transfer (sec.53)
• Part Performance (sec.53A)
SALE
Provisions relating to sale of immovable property (sec.54 to 56):
LEASE
Provisions relating to Leases (sec. 105 to 117)
EXCHANGES
Provisions relating to Exchanges. (sec.II8 to 121)
GIFTS
Provisions relating to Gifts (sec. 122 to 129)
Other general concepts/terms: explained
1) Lien
2) Pledge
3) Hypothecation (sec. 130 to 137)
Comments on above
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I
Essential Business Laws 2.6.1 Definitions of Important Terms/Concepts
The important terms/concepts for study have been briefly explained under para
no.2.4 which may be referred to.
2.6.2 Transfer of Property: Scope and Modes of Transfer

a) The meaning of the term 'transfer of property' is given in above para No.2.4.2
and 'what may be transferred' is described in para no.2.4.3. In addition to
those, the following particulars may be noted.
b) So far as the' goods' is concerned, the Sale of Goods Act describes what is
meant by sale. This Sale of Goods Act does not cover the entire aspects of
transfer of all kinds of goods, other valuables and cash. For example, if 'X'
a person proposes to transfer his old ornaments to 'Y' during his life time,
this type of transaction is not covered under the Sale of Goods Act, which
exclusively deals with sale of goods only. The term' goods' is defined under
that Act.
c) A transfer of property, movable or immovable, both is dealt with in the

Transfer of Property Act 1882 under Chapter II (A) containing sections 5 to
37.
While a transfer of property of immovable nature only is dealt with under

chapter II (B) containing sections 38 to 54.
d) By and large a question of transfer of immovable property arises in the

following transactions/deals.
1) By sale of immovable property;
2) By mortgage of immovable property;
3) By way oflease;
4) By way of exchange;
5) By way of gift; and
6) By way of transfer of actionable claims;
e) It is pertinent to note that the Transfer of Property Act applies to 'transfers'

and the family settlements (like division of property) are not covered by the
expression 'transfer'.
f) The Transfer of Property Act beautifully defines all the above terms/key
words and explains the related aspects thereof.
g) Thus, the scope of the Transfer of Property Act 1882 is very wide and
extensive. The Act is one of the important and essential business laws.
2.6.3 Mortgages and Kinds of Mortgages (Sec. 58 to 99)

The term 'mortgage' is defined/explained in para no.2.4.6 above. An example is
given below:
Example: A borrows a loan ofRs.l 0,00,000 from 'B' Bank. A executes a simple
mortgage deed in favour of the Bank and thereby, A transfers his interest in the
flat (constructed or to be constructed) for the purpose of security towards the
repayment of principal loan amount and towards the payment of interest thereon.
38
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...
This is the case of mortgage within the meaning of the Transfer of Property Act The Transfer of Property
Act, 1882
1882. In this transaction, 'A' does not handover the physical possession of the
flat. That is to say the possession of the immovable property remains with' A'
i.e. the borrower, which is also called a 'mortgagor'.
This type of mortgage is known as 'simple mortgage'.

Kinds of mortgages:
Depending upon the nature of a mortgage; the Act envisages six kinds of
mortgages as follows:
1) Simple Mortgage;
2) Mortgage by conditional sale;
3) Usufructuary mortgage;
4) English Mortgage;
·. 5) Mortgage by deposit of Title-Deeds;

(This is also known as Equitable Mortgage); and
6) Anomalous Mortgage;
Let us see briefly, important features of each of the above kinds of mortgages.
1) Simple Mortgage
In the case of a simple mortgage, the mortgagor executes the mortgage deed
by a registered instrument and binds himself personally to pay the debt and
agrees, expressly or impliedly that in the event of his failure to pay according
to the terms, the mortgagee shall have a right to realize the mortgagee money
by sale of the hypothica. In this mortgage, the mortgagor does not deliver
possession of the property to the mortgagee, but the only transfers, by the
instrument, the right to have the property sold in the event of default of
payment within the stipulated time. There is a personal undertaking by the
mortgagor to pay the debt, and therefore, the mortgagee gets two kinds of
remedies in case of default of payment. He may bring the property to sale
and reimburse himself and if the sale-proceeds are not sufficient, to obtain
a personal decree for the balance. In the alternative, he may obtain a simple
money-decree on the basis of the personal undertaking of the mortgagor
without bringing the property to sale.

2) What do you understand by simple mortgage?
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Essential Business Laws 2) Mortgage by Conditional Sale
The mortgagor ostensibly sells the mortgaged property:-
1) On condition that on default of payment of debt on a certain debt, the
sale shall become absolute, or
2) On condition that on such payment being made, the sale shall become
void, and the buyer shall transfer the property to the seller; provided
that no such transaction shall be deemed to be a mortgage unless the
condition is embodied in the mortgage-deed itself. The essential
characteristics of this form of mortgage are:-
i) That it bears the appearance of a sale, but in reality, it is a mortgage;
ii) That there is the relationship of the debtor and the creditor between
the parties;
iii) That it is non-possessory, i.e. the possession remains with the
mortgagor;
iv) That there is no personal undertaking to pay;
The remedy of the mortgagee is to apply for a decree for fore-closure
and not for a decree for sale.
3) Usufructuary Mortgage
The characteristic of an usufructuary mortgage are as follows;
i) The mortgagor delivers possession of the property to the mortgagee;
ii) The mortgagee takes rents and the profit of the property and appropriates
the same in lien of principal and interest due;
iii) When the full amount due has been recovered in the manner aforesaid,
the mortgagee gives up possession of the property to the mortgagor;
iv) The mortgagee cannot sue for the mortgage money or for the sale or
the property, his only remedy is to continue in possession till he realizes
his dues from out of the usufruct of the property;
v) To maintain, preserve and effect necessary repairs ofthe property and

meet the said expenses from out of the income of such property;
vi) The mortgagee, in the absence of a contract to the contrary, during the
period of his possession has to pay the rents and taxes in respect of the
property and the same has to be paid out of the income he realizes from
the property vide item above;
vii) The mortgagee has a liability to render accounts of the income and the
expenditures of the property during the period of his possession;
viii) The mortgagee is entitled to the benefits arising out of improvement of

the hypothica and he is also entitled to the benefits arising out of renewal
of lease of the hypothica;
ix) He has also a right to lease out the property;
40
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4) English Mortgage The Transfer of Property
Act, 1882
The characteristic of an English mortgage are as follows:
i) The mortgagor sells the property absolutely to the mortgagee;
ii) It is followed by delivery of possession to the mortgagee;
iii) The mortgagee agrees to reconvey thehypothica ifthe mortgage money
is paid by a certain date;
iv) There is a personal covenant by the mortgagor to pay the debt;
v) The mortgagee can sell the property without the intervention of the
Court where neither the mortgagor nor the mortgagee is a Hindu,
Mohamadden, Buddhist, or a member of a particular trine or class
notified in this behalf by the State Government, i.e. the mortgagee
happens to be a European or Jew or a Parsi;
vi) The remedy of the mortgagee in case of default of payment is to bring
the property to sell and to obtain a personal decree if the sale amount
falls short of the dues.
5) Mortgage by Deposit of Title-Deeds

The characteristics of such mortgage are:
i) It can only be effected in Commercial Towns ofKolkata, Chennai and
Mumbai and to such Towns which the State Government concerned
may notify;
ii) It is effected by deposit of material title-deeds with the mortgagee;
iii) No delivery of possession is effected;
iv) No registration is required, but the deposit must be made with an
intention of creating a security;
v) The transaction may be recorded in a letter or a memorandum, but if a
Promissory Note containing the terms on which the deposits is made is
executed, it requires registration in order to effect the property.
vi) The interest transferred is the right of sale which can be exercised if an
express power of sale is conferred upon the mortgagee.
6) Anomalous Mortgage
It is a transaction which, in fact, does not specifically fall in any of the
classes of mortgagee stated above. But, it is a combination of two or more
kinds of mortgages. The rights and liabilities are determined and worked
out according to the terms of the mortgage.
Example: A mortgage deed executed between the borrower and the State
Agri. and Rural Development Bank ( Land Development Bank).
B) Rights and Liabilities of Mortgagor

It may be stated in the beginning that, by and large, the rights of mortgagor are
the liabilities of the mortgagee and that the liabilities of the Mortgagor are the
rights of a mortgagee.
It is a fundamental principle that mortgage remains as a mortgage. Let us see

briefly the important rights of a mortgagor and mortgagee.
41
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Essential Business Laws Rights of the Mortgagee
As provided in several sections of the Act, the rights of a mortgagee are:
1) Right to foreclosure or sale (sec.67)

2) Right to sue for mortgage - money (sec.68)
•
3) Right to exercise power of sale, if any (sec.69)
4) Right to have a receiver appointed (sec.69-A)
5) Right to accession to mortgaged property (sec.70)
6) Right to the benefit of the renewed lease (sec.71)
7) Right to spend money in certain cases (sec.72)
8) Right to proceeds of revenue sale or compensation (sec.73)
on acquisition of the mortgaged property.
.. Rights of the Mortgagor
The rights of the mortgagor are as follows:
1) Right to redeem, (sec.60)
2) Right to require the mortgagee to transfer the property (sec.60-A)
to a third person on redemption
3) Right of inspection on production of documents. (sec.60-B)
4) Right ofusufructuary mortgage or to recover possession. (sec.62)
5) Right to redeem separately or simultaneously (sec.61)
6) Right to accession (sec.63)
7) Right to improvements to mortgaged prope;rty (sec.63)
8) Right to the benefits of renewal of mortgage leased (sec.64)
9) Right to make leases. (sec.64-A)
Liabilities of Mortgagee in Possession (Sec.76)
The liabilities of the mortgagee in possession are as under:
1) To manage the property

2) To collect the rents and profits thereof.
3) To pay Government revenue and all other charges of a public nature in the
absence of a contract to the contrary during continuance of possession.
4) To make necessary repairs to the property
5) He must not commit any act which is destructive to the property
6) To keep clear, full and accurate accounts of all sums received and spent by
him as mortgagee.
Liabilities of the Mortgagor
The liabilities of the mortgagor are as under
1) To pay for acquired accession which are separable and (sec.63)
which he-wants to make.
42
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2) To pay costs of improvements that were necessary to (sec.63-A) The Transfer of Property
Act. ISS2
preserve the property.
3) Implied contracts by mortgagor which he is deemed to (sec.63)

undertake and which run with the land.
4) Not to commit acts of waste. (sec.66)
Source: Allied Laws for Co-operatives by Paddhi
2.6.3.1 Doctrine of Foreclosure: (Sec. 67)

The mortgagor has a fundamental right to redeem the mortgage. This principle is
known as 'mortgage is always a mortgage'. This is one of the important rights of
the mortgagor.
Similarly, under certain circumstances, the mortgagee has been given an important
right to foreclosure or sale of the mortgaged property, means, the mortgagee
debars the mortgagor from his aforesaid right of redemption of the property.
.. This is in a way exactly against the right of mortgagor to redeem the mortgaged
property.
However, in order to exercise this right by the mortgagee, the following

circumstances need to be fulfilled:
1) That there should not be any contract between the mortgagor and the
mortgagee contrary to the above said right; and
2) That the mortgage money has become due, and
3) That the decree has not been made in favour of the mortgagor for the
redemption of the mortgaged property.
OR
4) The mortgage money has ll?t been paid or deposited in the court by the
mortgagor.
:THEN:
"The mortgagee has right to obtain from the Court a decree that the mortgagor
shall be absolutely debarred of his right to redeem the mortgaged property";
OR
"The mortgagee has a right to obtain from the Court a decree that the mortgaged
property be sold".
This kind of suit by a mortgagee in a court of law is called a suit for foreclosure,
and the principle as "Doctrine of Foreclosure".
Of course, there are lawful exceptions for application of this Doctrine, as

enumerated in the Transfer of Property Act, 1882 vide para 2 ofthe section 67.
43
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3) 'Mortgage is always a mortgage'. Do you agree with this statement?
Explain.
'.
..............................................................................................................
7-/
2.6.3.2 Sale of the Mortgaged Property without Intervention of a

Court (Sec.69)
Generally, for recovery of dues by way of selling the mortgaged property, it
needs a court-order. It means a suit is required to be filed by a mortgagee i.e.
creditor in a court of law after the dues have become payable. This is a due
process of law and is known as a sale with intervention of a Court.
But, in certain special circumstances, the mortgagee or his agent has an authority
to put on the mortgaged property for sale, without intervention of a court. This is
one of the important rights of the mortgagee, if the following conditions are
satisfied:
1) that the mortgage is an English Mortgage and both the parties are neither
Hindu, Muslim, Buddhist or any of the specified community.
2) that there is an express power/right conferred upon the mortgagee under the
mortgage deed; and the mortgagee is the Government;
3) that the mortgage-property is situated within the towns of (1) Calcutta (2) .
(Madras) Chennai (3) Mumbai (Bombay) or any other town as may be
notified by the State Government;
4) that a Notice in writing is given to the mortgagor;
5) that a due process of law in execution is followed.
This provision in the Transfer of Property Act is termed as "power of sale when
/'
valid" vide section 69 of the Act.
Mortgage and Charge

In a mortgage, a charge is automatically created on the mortgaged property. But
the term 'charge' is slightly different and wide.
Whereas a charge only gives a right to payment out of a particular fund or

particular property without transferring that fund or property, a mortgage is in
essence a transfer of an interest in specific immovable property. A charge is
created on movable or immovable property by act of parties or by operation of
law, but the mortgage is created by act of parties in respect of immovable property
only.
44
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2.6.4 Relating to Mortgages The Transfer of Property
Act, 1882
2.6.4.1 Registration of a mortgage-deed (Se£.59)
The Transfer of Property Act provides that when the principal amount of money .
(i.e. loan-amount) is Rupees one hundred or more the mortgage must be effected
by a registered instrument as per the provisions of the Indian Registration Act
1908 and must be attested by at least two witnesses.
However, in case of mortgage by way of deposit of titles, it need not be registered.

But in different states in India, separate notifications are required to be issued by
the concerned state Governments with regard to non-registration of mortgage by
deposit of title deeds.
2.6.4.2 Priority (Sec.78)

If there is a fraud, misrepresentation or gross neglect on the part of prior mortgagee,
the subsequent mortgagee will get priority and that the prior mortgage shall be
treated as postponed to the subsequent mortgagee.
2.6.4.3 Marshalling by Subsequent Purchaser (Sec.56)
The principle of Marshalling applies in the following circumstances:
1) The owner of two or more properties mortgages them to (i.e. creditor) one
person;(i.e. creditor);
2) The owner subsequently sells one or more of the properties to another person;
3) The buyer, in the absence of a contract to the contrary, is entitled to have the
mortgaged debt satisfied out of the property or proportion that have not
been sold to him;
4) However, the rights of the mortgagee or person claiming under him or of

any other person (having interest) will not be adversely affected.
This is known as "Marshalling by subsequent Purchaser".

4) Explain the term 'Marshalling by subsequent purchaser'.
2.6.4.4 Deposit in Court (Sec.83)

The mortgagor is entitled to deposit the due amount on mortgage-deed in the
Court of Law, even before a suit and the mortgagee may claim such deposited
money from the Court.
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Essential Business Laws 2.6.4.5 Cessation of Interest (Sec.84)
In the event, the mortgagor has deposited the due-amount in the court of Law,
interest thereon will cease to be counted from that date.
2.6.4.6 Redemption (Sec.91)

•
A Mortgage is always a Mortgage. In other words, a mortgagor and any other
person interested in the property has a fundamental right to redeem the mortgaged
property by due payment to the mortgagee. In the event, the mortgage-property
is not released by the mortgagee, mortgagor or any ofthe following persons may
institute a suit for redemption of the mortgaged property.
a) any person who has any interest or charge upon the property;
b) any surety for the repayment of debt;
c) any creditor of the mortgagor who has obtained the decree.
.. This principle is known as a Doctrine of Redemption .
2.6.4.7 Vested Interest (Sec.19)

The term 'vested interest' under the Transfer of Property Act is used in a specific
sense and in a positive manner.
In certain cases and under certain circumstance, the property is transferred in

favour of a person:
i) without specifying the time when it is to take effect;

OR
ii) in terms specifying that it is to take effect forthwith;

OR
iii) on the happening of an event (which must happen);
In above cases, the interest vested in a person in whose favour the transfer is
made called a 'vested interest'.
It is to be noted that a vested interest is not defeated by the death of the person in
whose favour transfer is made i.e. transferee, before he obtains possession.
2.6.4.8 Contingent Interest (Sec.21)

The term 'contingent interest' under the Transfer of Property Act is also used in
a specific sense.,
In certain cases and under certain circumstances, the property is transferred in

favour of a person:
1) on a condition that the transfer would take effect only on happening of a
specified uncertain event;
OR
2) on a condition that the transfer would take effect only on not happening of
a specified uncertain event.
In above case, interest vested in a person in whose favour the transfer is made is
called a "contingent interest".
46
/
/
In a contingent contract a duty or obligation on the concerned party depends The Transfer of Property
Act, 1882
upon happening or not happening a certain event. Likewise, in case of a contingent
interest, (where the transfer of property is already taken place), the effect defends
upon one of the above 1 or 2 contingencies.
2.6.4.9 Conditional Transfer (Sec.25)

The term 'conditional transfer' under the Transfer of Property Act is used also in
specific sense.
In certain cases, the transfer of property is done on some specific condition. If

such condition laid down in the deed is otherwise feasible, proper, legal and just,
the transfer becomes valid.
But when the condition fails on any of the following grounds; the transfer becomes
invalid.
i) ifthe fulfillment of a condition is impossible; or

ii) if the fulfillment ofa condition is forbidden by law; or
iii) if the condition is of such nature that, if permitted, it would defeat the
provisions of any law; or
iv) if it is fraudulent; or
v) if it involves or implies injury to the person or property of another; or
vi) if the court regards the condition as immoral or opposed to public policy,
then the transfer becomes ineffective or invalid.
The following illustrations will prove the above concept.
Illustrations
a) A lets a farm to B on condition that he shall walk a hundred miles in an
hour. The lease is void.
b) A gives Rs.500 to B on condition that he shall marry A's daughter C. At the

date of the transfer, C was dead. The transfer is void.
c) A transfer Rs.500 to B on condition that she shall murder C. the transfer is

void.
d) A transfer Rs.500 to his niece C, if she will desert her husband. The transfer
is void.
2.6.4.10 Fraudulent Transfer (Sec.53)

A transfer of property of immovable nature will be voidable at the option of any
creditor, if such transfer is made with intent to defeat or delay the creditor, by the
transferor.
However, if the transfer of immovable property is made in good faith and for
consideration, the right of a transferee will not be affected adversely.
Further, every transfer of immovable property made without consideration with

intent to defraud a subsequent transferee is voidable at the option of such
transferee.
47
/ I
.r\.l1l1V;:'l Ci o n u i icu \"Ci;:,\"\"VUlU U\" V.l Ci UCill;:,t\,,1 Vt I11VVCiUl\" VI 1111111VVCiUl\" }'lV}'\"lty,
whereon there is a charge of any creditor. Such transfer is deemed to have been
made with intent to defraud a creditor.
Example
A co-operative bank has given a loan ofRs.1 ,00,0001- to A on security of a vehicle
on which a charge is created. B subsequently transfer the vehicle in favour of C.
This transfer by B to C is void in accordance with provisions of Co-operative

Societies Act read with provisions of Transfer of Property Act.
2.6.4.11 Part Performance (Sec.53A)

The provisions relating to Part Performance are added in 1929 by inserting section
53A. The requirements in this respect are summarized below:
1) There should be a contract for the transfer of immovable property;
2) Such contract should be in writing and signed by the other party;
3) The terms of such contract should be ascertainable with reasonable certainty;
4) The transferee, in part performance of the contract should have
a) either taken possession
OR
b) should have continued in possession in part performance of the contract.
OR
c) should have done some act in furtherance ofthe contract. (for example
development of property)
5) The transferee has performed or is willing to perform his part of the contract;
6) Then, the transferor or any person claiming under him is barred from
enforcing against the transferee any right in respect of the said property. For
example, transferor cannot rescind the contract and claim re-possession of
the transferred property. He may at the most claim damages.
The provisions of this Section seek to protect the possession of the transferee
even where the transferee's right to obtain specific performance ofthe agreement
has been barred by time.
This doctrine of part performance is intended to be used as a shield, not a sword.

(AIR 1995 Ker 249 DB.)
2.6.5 Sale of Immovable Property (Sec.54 to 56)

'Sale" is a transfer of ownership in exchange for a price paid or promised OR
part paid and part promised.
When the value of tangible immovable property is one hundred rupees or more,
the transfer by way of sale is to be made only by registered instrument as per the
provisions of the Indian Registration Act, 1908.
l8
\
/
The delivery of tangible immovable property takes place when the seller places The Transfer of Property
Act, 1882
the buyer, or such person as he directs, in possession of the property.
A contract of sale and a contract for sale are two different concepts. In a latter
case i.e. a contract for sale, the sale of such property will take place (in future) on
terms settled between the parties. This contract for sale does not create any interest
in or charge on such property. It is like an concept of' agreement of sell' under
the Sale of Goods Act, 1930.
The Transfer of Property Act enlists suitable rights and liabilities of buyer and .
seller, mutual and in absence of specific terms in the contract.
2.6.6 Lease of Immovable Property (Sec.l05 tol17)

1) 'Lease' term explained
Elements
i) A lease of immovable property is a transfer of right to enjoy such
property;
ii) Such lease is made for a certain time, expressed or implied OR in

perpetuity (on continuing basis);
iii) Such lease is made in consideration of a price paid or promised;
iv) The consideration may be in the form of money, a share of crop, service,
or any other thing of value;
v) The consideration may be rendered/payable periodically or on specified

occasion to the Transferor by the Transferee;
vi) The transferee accepts the transfer on above terms in general;
vii) The transferor is called 'Lessor' , the transferee is called 'Lessee'. The
price is called the 'Premium' and the money, share, service or other
thing of value (so rendered/ to be rendered) is called the' Rent' .
2) Other important provisions relating to 'Leases' are summarized below:

1) A lease of immovable property for agricultural or manufacturing purpose
is deemed to be a lease from year to year; (i.e. on yearly basis)
Such lease is terminable by lessor or by lessee by giving six months notice.
This provision is in the absence of a specific contract or local law or usage
to the contrary.
2) A lease of immovable property for any other purpose is deemed to a
lease from month to month and IS terminable by lessor or by lessee by
giving 15 days notice. Of course, this provision is in the absence of a
specific contract, or local Law or Usage to the contrary.
3) The period of notice is to be commenced from the aate ofa notice.
4) A lease of immovable property from year to year is required to be
registered under the Registration Act 1908;
5) Similarly, a lease of immovable property for a term exceeding one year
or reserving a yearly rent is required to be registered under the
Registration Act 1908.
49
1
Essential Business Laws 6) The State Governments are empowered to determine the modes ofleases
\\ hich mayor may not require registration or otherwise.
7) In absence of a specific contract or local usage to the contrary, the rights
and liabilities in general, of the lessor and of the lessee are given in the
Act (Sec.1 08).
8) There are alsp provisions in the Act relating to a) determination oflease
b) forfeiture c) relief against forfeiture d) effect of surrender etc.
2.6.7 Exchanges (Sec.118 to 121)

The important provisions relating to exchanges are given below:
1) In exchange, two persons mutually transfer the ownership of one thing for
the ownership of another thing.
2) In such case, both the things are not money. The transaction is called an
"exchange".
3) The transfer of property in such case is like the transfer of property by Sale.
4) In the event, one party is deprived of thing, received in exchange, owing to .
defect in the title, the aggrieved party is entitled to claim the thing, given in
exchange, and lor to claim incurred thereby;
5) Subject to a specific contract both, the parties in exchanges, have similar
rights and liabilities like a seller and a buyer and vice versa.
2.6.8 Gift (Sec.122 to 129)

'Gift' is the transfer of certain existing movable or immovable 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.
Thus, the main features or elements of 'Gift' could be summarized as follows:

i) Gift is a transfer of property;
ii) It may be of movable or may be of immovable property;
iii) Tt must be existing property;
iv) . It must be made voluntarily;
v) It is made without consideration; (in this regard, one has to refer to the
provisions of the Indian Contract Act, 1872 wherein it is provided, as one
of the exceptions, that a contract without consideration could be a valid
contract, if it is made between the close-relations out oflove and affection,
duly written and registered; impliedly the case of a gift is covered there
under.) .
vi) It is duly accepted by the beneficiary or by a person on behalf on the
beneficiary.
vii) A person making a transfer of property by way of gift is known as donor
and another person in whose favour the transfer of property by way of gift is
made is known as an donee.
viii) The proposed donee must give his acceptance during the life time of the
donor and while he is still capable of giving.
Otherwise, if the donee dies before acceptance, the gift is VOID.
50
/
Related Important Provision in the matter of Gift The Transfer of Property
Act, 1882
l) The transfer of immovable property by way of Gift must be effected by a
registered instrument (Gift-Deed) signed by or on behalf of the Donor. This
deed must be attested by at least two witnesses. (sec. 123)
2) The transfer of movable property by way of Gift may be effected either by a

registered instrument (duly signed by donor'or his Power of Attorney and
duly witnessed by at least two persons)
OR
By delivery of such movable property. Such delivery may be made in the
same way as Goods Sold. (sec. 123).
3) A gift comprising of existing property is valid. But a gift comprising of
future property is void. When a gift comprises of both, existing and future
property, the gift is void as to the latter. (sec. 124).
4) Except lawful exceptions, the gift cannot be revoked (sec.126).
Illustrations
a) A gives a field to B, reserving to himself with B's assent, the right to
take back the field in case B and his descendants die before A. B dies
without descendants in A's lifetime. A may take back the field.
b) A gives a lakh of rupees to B, reserving to himself: with B's assent, the
right to take back at pleasure Rs.l 0,000/- out Of lakh. The gift holds
goods as to Rs.90,000/- but is void as to Rs.l 0,000/- which continue to
belong to A.
5) Where a gift consists of the donors' whole property, the donee is personally
liable for all the debts due by and liabilities of the donor at the time of the
gift to the extent of the property comprised therein. (sec.128).
2.6.9 Other General Concepts/Terms Explained

LIEN:
'Lien' is the word used in commercial world very often.
The term 'lien' is used in administrative or personnel matters also. When the
term is used in the context of Personnel Matters it carries a different meaning.
For example, If I say I have a lien on the post of Inspector of Income Tax, it
means I am holding a permanent post in the cadre of Inspectors and that I have a
right to come back to the permanent post ofInspector, irrespective of my existing
post/designation/ place.
In the commercial world i.e. in business transactions, 'Lien' means a right to

hold the possession of movable property until the pecuniary liability is discharged.
For example, If I have handed over some clothes to a Tailor for stitching of a
suit/safari, the Tailor, though he is not owner of the material, has a right to retain
or to hold the possession of the materi.al with himselftill I make a payment due
thereof i.e. I must pay the stitching charges.
In this case, the right of a Tailor to hold the possession is called a Lien. Thus,
'Lien' in its primary or legal sense is a right in one person to retain that which is
right fully and continuously in his pos session belonging to another person unitll
51
/
Essential Business Laws the present and the occurred claims of the person (in possession of movables)
are satisfied.
There are two types of Liens. One' general lien ' and another 'particular lien'.
The Banks exercise a general lien on any movable valuables including bank-
deposits in the hands of a bank. Lien carries a charge on the movable property,
concerned.
2.6.9.1 Pledge
'Pledge' is the term used in the Indian Contract Act, 1872. In a simple language
when any movable articles or valuable documents are physically handed over to
a banker towards the security for repayment of Debt and for payment of interest,
the transaction is called a Pledge. For example: I borrowed a loan ofRs.50,OOOI
- from a Bank and towards its security, I handed over gold ornaments worth Rs.l
lakh to a Bank. This is a pledge. I am a pawn or and the bank is a pawnee. The
contract of pledge creates a change on the property pledged. 1
\
When an interest in the immovable property is transferred to a Bank towards
the security for repayment of loan and payment of interest, the transaction is
called a mortgage. In a mortgage also there is a charge on the mortgaged Property.
It is immaterial as to whether the mortgaged property is physically given in
possession to a mortgagee by a mortgagor or not. But in a 'Pledge", the movable
are necessarily given in physical possession of the creditor.
The term 'Pledge' is defined and explained in the Indian Contract Act, 1872
while the term 'mortgage' is defined and explained in the Transfer of Property
Act, 1882. In brief, the bailment of goods as security for the payment of a debt or
performance of a promise is called 'Pledge'.
2.6.9.3 Hypothecation
The term 'Hypothecation' is very often used in commercial world and particularly
in the Banking Field.
In a pledge, the movable are physically handed over to the creditor towards the
security of loan but in 'Hypothecation', the floating charge is created on the
concerned movables but the physical possession of the concerned movables
remains with the borrower. '
For example: I desire to purchase a vehicle, for which I have applied for a loan
of Rs.5 lakhs to a Banker. Towards the security for repayment ofloan and for
payment of interest, I executed an agree ment under which a charge is created
upon the vehicle and the vehicle is purchased. In this transaction, the physical
possession ofthe vehicle would remain wi th me. But the Banker carries a floating
charge on the vehicle, wherever it may be. So long there is a charge, I do not
possess a clear title i.e. ownership. This type of transaction is known as
'Hypothecation'. In other words, the act 0 f pledging a thing as security for a debt
or demand without parting with the possession is Hypothecation. (Wharton's
Law Dictionary).
52
/
In conclusion, we may draw the following chart: The Transfer of Property
Act, 1882
1. Pledge Movable articles only Physical Possession with the
Banker
2. Hypothecation Movable articles only Physical Possession with the
Borrower
3. Mortgage Immovable Property Physical Possession may be

Only with borrower or banker,
depending upon the kind of
mortgage.
2.7 SUMMARY
• There was no Act in British India relating to transfer of property before 1881.
Hence the Transfer of Property Act 1882 was passed by the Govt. ofIndia
and came in force with effect from 1-7-1882. This Act is very important. It
deals with all kinds of transfer of immovable property, in particular by way
.. of sale, mortgage, gift, lease, exchanges etc. The most important chapter for
our study is on the "Mortgages".
• This Act applied for transfer of properties by act of parties. The transfers,
done or affected by operation of Law, are not covered under this Act. The
Transfer means an act of living person who conveys property to one or
more living persons. A living person includes company, body ofindividuals,
whether incorporated or not. The family settlement are not 'transfers' and
therefore not governed under the Act.
• Immovable property means a property which is not movable. However, it

does not include standing timber, growing crop or grass.
• A mortgage is the transfer of an interest in a specific immovable property

for the purpose of securing the payment of money, advanced or to be
advanced, OR for the purpose of securing performance of an engagement.
In a mortgage, only interest in immovable property is transferred. The
physical possession ofthe property may not be required to be transferred in
each case. The question of physical transfer of property to a creditor depends
upon the kind of mortgage. There are six kinds of mortgages. Each has it's
own distinctive features.
• Depending upon the kind of mortgage, the rights and liabilities of the
mortgagor and the mortgagee are described under the Act. Every mortgage
having the principal amount of money of Rs.1 00 or more is required to be
registered under the Law of Registration, except the mortgage by deposit of
title-deeds. If there is a fraud, misrepresentation or gross neglect in the earlier
mortgage, the subsequent mortgagee gets priority. In the event of default,
the mortgagor has a freedom to deposit the defaulted money in the court of
law. Obviously, from the date of such deposit, the interest ceases on the
quantum of deposit. A mortgage is always a mortgage. In the sense that the
mortgagor has a fundamental right to discharge the financial liability
(Principal + interest + cost) and to claim redemption of the mortgaged
property. The mortgagor can file a suit in the court of Law for the purpose,
if so required. (of course, subject to certain exceptions).
53
/ I
---------
Essential Business Laws The rights and liabilities of the mortgagor and mortgagee are described in
the Act.
• A person in whose favour a transfer is made carries a specific interest, pending

giving effect to such transfer. Such interest is called a 'vested interest'. A
person in whose favour a transfer is made but on certain condition (that the
transfer would be effective on happening or not happening certain event in
future), then such kind of interest of the transferee is called 'contingent
interest'. Similarly, when a transfer is done on a specific certain condition
I
(that the transfer would be effective only on fulfillment of the particular

conditions, then such kind oftransfer is called a 'conditional transfer'.
• A transfer of immovable property made with intent to defraud or delay/

defeat the creditors is a 'fraudulent transfer' and is treated as voidable at the
option of creditors.
• In a transfer of immovable property, when the possession is taken by or

continued with the transferee or when some act in furtherance of the contract
is done by the transferee, the doctrine of part performance applies and the
.
,
transferor is barred from enforcing against the transferee any right in respect
of the said property.
• When an ownership in the immovable property is transferred for a price, it

is a sale. In a contract of sale, the ownership is transferred in favour of
transferee while in a contract for sale, the ownership is not transferred.
• When an immovable property is transferred for enjoyment to another person

for certain period, on yearly basis or on monthly basis, the contract is called
a 'Lease'. The price is called the Premium and the money, share, service
and for other thing of value is called the rent. The rights and liabilities ofthe
lessor and the lessee are described in the Act.
• Mutual Exchanges of Properties between the parties are also deemed as

transfers and they have the features or elements like a sale of property.
• Similarly, a gift is also a transfer. It is the transfer without consideration

only, which falls under the exception-rule, as provided in the Indian Contract
Act, 1872.
• Other relevant terms used in the Transfer of Property Act and also in other
Acts, such as, charge, lien, pledge, hypothecation, actionable claim etc. are
explained in the notes.

1) State the salient features of the Transfer of Property Act, 1882.
2) Explain the different modes by which immovable property or interest in the

property could be transferred.
3) Describe the difference between a mortgage and a pledge
4) State the features of various kinds of mortgages and briefly mention the
rights and liabilities of the mortgagor.
54
/
The Transfer (If Property
2.9 ANSWERS AND HINTS Act, 1882

3) Refer to Sub-section 2.6.3.1
4) Refer to Sub-section 2.6.4.3
Terminal Questions
1) Refer to Section 2.4 and 2.5
2) Refer to Sub-section 2 6.2
3) Refer to Sub-section 2.6.3 and 2.6.9.1

1) Bare Act: Transfer of Property Act 1882 (Professionals 'series or Universal
series).
2) Commentary Book: Transfer of Property Act 1882; by V.S.Sohoni (Premier

Publishing Company, Allahabad).
(Only selected Topics for study to be referred to)
55
/ ,
UNIT 3 THE SALE OF GOODS ACT, 1930
Structure
3.1 Introduction
3.2 Objectives
3.4.1 The Term "Goods" Explained [Section 2(7)]
3.4.2 Concept "Ownership in Goods" Explained [Section 2(4) and s(11)]
3.4.3 Concepts: 'Sale' and 'Agreement to Sell' Explained (Section 4 and 26)
3.5 Scheme of the Act

3.6 Important Topics for Study
3.6.1 A Contract of Sale
3.6.2 Agreement to Sell
3.6.3 Essentials of a Valid Sale
3.6.4 Distinction between 'Sale' and 'Agreement to Sell'
3.6.5 Conditions and Warranties (Sec. 11-17)
3.6.6 Implied Conditions in a Sale/Agreement to Sell
3.6.7 Implied Warranties
3.6.8 Quality of Goods (Doctrine of Caveat Emptor)
3.6.9 Transfer of Title i.e. Property in Goods
3.6.10 Remedies for Breach of the Contract of Sale
3.6.11 Performance of the Contract
3.6.12 Unpaid Seller
3.6.13 Rules Relating to the Auction-Sale
3.7 Selected Case-laws/Comments

3.8 Summary
3.1 INTRODUCTION
The general principles in formation and execution of various contracts are
embodied in the Indian Contract Act, 1872. Considering certain special features
of a contract of sale of goods, an independent Act, known as "Indian Sale of
\
Goods Act", was passed in 1930. Subsequently, the word 'Indian' has been deleted
from the title of the Act in 1963. It extends to the whole of India except J&K
State.
This is very important Act and deals with almost all aspects concerning the
contract relating to sale of goods. The term 'goods' is well defined.
It is pertinent to note that sale transactions in respect of all movable goods,
except actionable claims and money, are covered in the Act. The most important
aspects in the contract of sale of goods, such as, ownership/title, quality of goods,
rules relating to transfer of goods, conditions and warranties are precisely
explained in the Act, with appropriate illustrations.
56
/
The Sale of Goods Act, 1930
3.2 OBJECTIVES
• know the general framework of the Sale of Goods Act, 1930;
• understand the definition of 'Goods' and tiifference between 'sale' and

'agreement to sell';
• clearly explain the difference between concepts of 'warranty' and 'condition';
• understand the principle of 'Caveat Emptor';
• know the important rules relating to better title and delivery of goods; and
• explain the rights of unpaid seller.

Considering some special features, over and above the general principles, in
respect of contracts relating to sale of goods, a special chapter No.VII (Sections
76 tol23) was provided in the Indian Contract Act of 1872. Later on, in England,
a special Act known as "English Sale of Goods Act 1893" was passed on the
basis of case-laws in relation to the sales of goods. Thereon, in India also the
Indian Sale of Goods Act, 1930 was enacted and as a result, the chapter no VII in
the LC.A. 1872 wa deleted. Subsequently, the word 'Indian' has been deleted
from the title of the Act.
The Sale of Goods Act, 1930 specifically deal with matters concerning ownership,
quality and transfer of goods. The term 'goods' as well as the term 'sale' is
defined in the Act.
The Sale of Goods Act is applicable throughout India. The general principles of
a contract, embodied in the Indian Contract Act, 1872 are fully applicable to a
contract relating to sale of goods. In other words, the law in respect of sale of
goods is a branch of Contact Law. It may be stated that the Act of 1930 is largely
based upon the English Act of 1893.
Broadly, all commercial transactions of movables, other than actionable claims

and money, are covered under the ambit of this Act of 1930.

3.4.1 The Term "Goods" Explained [Section 2(7)]
"Goods" means every kind of movable property other than actionable claims
and money; and includes;
1) Stock and shares;

2) Growing crops;
3) Grass; and
4) Things attached to or forming part of the land, which are agreed to be severed
before sale or under the contract of sale.
57
/ I
Essential Business Laws Example: Pumping set or Boring well machine.
It may be noted that contracts of immovable property are governed under a
separate Act, known as "Transfer of Property Act, 1882.:'
"Goods", described above, are divided into following two types:

a) Existing Goods; and
b) Future Goods (i.e. yet to be manufactured, produced or grown up)
c) Existing goods are further classified into two categories:
1) Specific goods, and
2) Un-ascertained or generic goods.
Example of future goods:
A agrees to sell B a sofa-set which A would manufacture next month. This is an
example of sale of future goods.
3.4.2 Concept "Ownership in Goods" Explained [Section 2(4)

and 2(11)]
The two concepts viz; "goods" and "ownership in goods" are different. "Goods"
are movable articles, generally visible by eyes and are in physical forms. But
ownership in particular movable article is not visible by eyes and it is not seen in
physical form. Thus, a motorcycle and ownership in motorcycle are two distinct
concepts. Thus, whosoever now is in physical possession of the motorcycle may
not be an owner of that motorcycle.
The ownership in goods is also termed as "property in goods" or "title to goods"

or "general property in goods". The ownership in goods is broadly observed /
verified from the concerned documents. Documents of title to goods include
cash-memos, credit memos, invoices, a bill oflading, dock-warrant, warehouse-
man's certificate, railway-receipts, warrant/order of the delivery of goods and
such other documents in usage. A document is a prima-facie proof of ownership
in goods.
When the 'ownership' is absolute means without any kind of charge on the
property, it is said that the owner possesses "a marketable title" or a 'title without
any encumbrances and that the owner is legally competent to transfer the property
in goods to any person under the contract of sale.
A special interest in property is termed as special property.
Illustration
X has pledged his gold to Y, a banker. Here X has a general property in goods
while Y, a banker, has a special property.
3.4.3 Concepts: 'Sale' and 'Agreement to Sell' Explained

(Section 4 and 26)
A contract of sale of goods is a contract whereby a seller:
transfers
or
agrees to transfer
58 the property in goods to a buyer for a price.
/
3.5 SCHEME OF THE ACT
1) Preliminary: Definitions and Applications
2) Formation of Contract of Sale (Sec. 4-17 and 62)
a) General Principles;
b) Conditions and warranties;
3) Effects of the contract of sale (Sec. 18-30 and 63):
a) Transfer of property between seller and buyer;

b) Principles: transfer of title;
4) Performance of the contract (Sec. 31-44)
5) Rights of unpaid seller (Sec. 45-54)
6) Suits for breach of contract of sale (Sec. 55-61)
7) Auction Sale (Sec. 64)

So far as the Sale of Goods Act, 1930 is concerned, following topics are important
for study.
3.6.1 A Contract of Sale

Where property in goods i.e. ownership in goods is transferred from a seller to a
buyer.
3.6.2 Agreement to Sell

Where property in goods i.e. ownership in goods is merely agreed to be transferred
by a seller in favour of a buyer.
In other words, a "sale" is different in meaning from an 'agreement to sell'.
3.6.3 Essentials of a Valid Sale

In a valid sale, it is immaterial as to whether the physical possession of the
particular goods has been handed over/transferred from a seller to a buyer. Most
important feature of' sale' is that there is (must be) a transfer of general property
in goods (i.e. ownership in goods or title to goods) by a seller to a buyer, for
price. Thus, essentials of sale are:
1) there must some goods;
2) there must be some consideration in the transaction means price (when goods
are exchanged for goods, this not a sale)
3) property in goods must pass on from a seller to a buyer.
4) there must be two parties (seller and buyer)
5) no particular form is necessary for a sale.

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1) What are the essentials of a valid sale?
3.6.4 Distinction between Sale and Agreement to Sell

Where the transfer of ownership in the goods is to take place at a future date or
subject to some conditions to be fulfilled, the contract is called as an agreement
to sell.
Distinction
Sale Agreement to Sell

1. There is a transfer of property in 1. There is no such transfer of
the goods. property in goods.
2. Executed contract. 2. Executory contract.
3. Seller can sue for the price. 3. In breach, the seller can only
sue for damages.
4. A sale creates a right in rem. 4. It creates a right in personam.
5. In case ofloss of goods, buyer 5. The loss to be borne by the
carries risk. seller irrespective of
possession of goods.
6. In the event of insolvency of the 6. No such claim is preferable.
seller, the buyer may claim the goods.
7. In insolvency of the buyer, the seller 7. The seller can refuse to deliver
has to deliver goods to the official the goods to the official
. .
assignee or receiver, assignee or Receiver.

2) What is the difference between Sale and Agreement to sell?
60 -.
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3.6.5 Conditions and Warranties (Sec.11-17)
In a contract of sale or an agreement to sell, parties make certain stipulations/
terms. All stipulations cannot be treated on the same footing.
Some stipulations (terms) may be of fundamental nature. They are most essential
terms of a contract and go the roots of a contract.
while
Some stipulation (terms) may be binding, but of a subsidiary or inferior character.
The breach of any stipulation of fundamental nature may be regarded as the

breach of the whole contract and other party may put an end to the contract. To
put to an end to the contract is also known as to rescind or cancel the contract.
Such stipulations are known as conditions.
But breach of any stipulation of a subsidiary character cannot give a right to

other party to put an end to the contract but only make the concerned other party
entitled to claim damages.
Such stipulations are known as warranties. Thus ,'Condition' is stipulation

essential to the main purpose of the contract while 'Warranty' is stipulation
collateral to the main purpose of the contract.
Distinction between 'Conditions' and 'Warranties'

Condition Warranty
1. It is a stipulation which is l. It is a stipulation which is not
essential to the main purpose essential to the main purpose of the
of contract contract. It is collateral or incidental.
2. It goes direct to the root or 2. It does not go direct to the root of

substance of the contract. the contract
3. Its breach gives the buyer a 3. Its breach does not give right to the
right to cancel the contract. buyer to cancel the contract.
(rescind the contract)
4. The buyer has an option to 4. The buyer cannot cancel the
claimdamages, instead of contract, but he can claim damages
cancelling the contract. only.
5. Breach of condition may be 5. Breach of warranty cannot be treated
treated as warranty as condition.
Nature of the Stipulation

Whether a stipulation in a contract is a condition or a warranty depends upon a
each case on the construction of the contract. A stipulation may be condition
though called a warranty in a contract. {Sec.12 (4)}.
3.6.6 Implied Conditions in a Sale/Agreement to Sell

1) Condition as to title;
2) In case of sale by description, goods must correspond to the description;
3) In certain cases, condition as to fitness or quality;
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Essential Business Laws 4) Goods to be of merchant able quality;
5) In case of sale by sample:
a) bulk to correspond with sample.
b) buyer to have reasonable opportunity to compare the bulk with sample;
c) goods to be of merchantable quality.
3.6.7 Implied Warranties
I) warranty of quiet possession;

2) warranty of freedom from encumbrances.
3.6.8 Quality of C;oods (Doctrine of Caveat Emptor)

'Caveat Emptor' is one of the fundamental principles ofthe law of Sale of Goods.
It means 'Caution Buyer' i.e 'Let the buyer beware'. In other words, it is no part
of the sellers duty to point out defects in his own goods. The buyer must inspect
the goods to find out ifthe goods suit his purpose. (as to the quality and fitness).
In other words, in a contract of Sale of Goods, there is no implied warranty or

conditions as to quality or fitness of goods for any particular purpose and therefore
it is presumed under the law that the buyer purchases the goods at his own risk
relying upon his own skill and judgment. (Sec.16). Of course, there are some
lawful exceptions to this doctrine as follows:
Exceptions
1) Custom or Usage of Trade;
2) Fraud;
3) Goods for specific purpose;
4) Merchantable quality; and
5) Sale under patent or trade name;

3) Explain the term 'Caveat Emptor'.
3.6.9 Transfer of Title i.e. Property in Goods

Rule or Doctrine
As a general rule, no one can sell the goods and give a better title thereof unless
he is the owner thereof. This doctrine is expressed in the form of the maxim as
follows.
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"N emo dat quod non habet" The Sale of Goods Act, 1930
{means: "no one can give that which he possesses not"}

In other words:
'A seller cannot give to a buyer of the goods a better title to the goods than what
the seller himself has'
or
'the buyer cannot acquire a better title to the goods than what the seller had'.
Of course, there are few lawful exceptions to this rule ordoctrine. They are as
under:
Exception
1) Title by estoppel (Sec.27)
2) Sale by mercantile agent; (Sec.27)
3) Sale by one of the several joint owners; (Sec.28)
4) Sale of goods by a person in possession of goods under a voidable contract;

(Sec.29)
5) Sale by seller in possession after sale. {Sec. 30(1)}
6) Sale by buyer in possession after sale. {Sec.20(8)}
7) Sale by an unpaid seller {Sec.54 (3)}
8) Sale in market overt.
3.6.10 Remedies for Breach of the Contract of Sale

A) Remedies available to the seller
1) Suit for price; (Sec. 55)
2) Suit for damages;
a) for non-acceptance; (Sec.56)
b) for repudiation of the contract (Sec.60)
3) Suit for interes~ by way of damages etc (Sec.61)

4) What are the remedies available to a seller for Breach of the Contract
of Sale?
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Essential Business Laws B) Remedies available to the Buyer
1) Suit for damages for non-delivery ofthe goods (Sec.57)
2) Suit for specific performance (Sec.58)
3) Suit for breach of warranty (Sec.59)
4) Suit for repudiation of the contract (Sec.60)
5) Suit for interest by way of damages and special damages; (Sec.61)
3.6.11 Performance of the Contract

Under the sale of Goods Act, 1930 the delivery of goods is most important aspect.
The delivery of goods is a voluntary transfer of possession of goods from one
person to another {Sec.2 (2)}. Delivery of Goods may be of two types; viz.
1) Actual Delivery: In this type, the goods are handed over by the seller to the
buyer.
2) Constructive Delivery: In this type, the title-documents, are handed over

by the seller to the buyer like Railway Receipts, Bill of Loading, Delivery
warrant etc. The act of the seller amounts to handing over the goods to the
buyer. Doing such act by the seller is sufficient to indicate lawful delivery
of goods. This type of Delivery is known as "Constructive Delivery" or
"Symbolic Delivery". In large organization, this method is generally used.
Rules in General
1) It is the duty of the seller to deliver the goods and it is the duty of buyer to
accept delivery and make payment according to the agreement.
2) Delivery of goods is to be made doing such act by the seller, as may be

agreed to between the parties, part delivery may have be done, if'acceptable
to both.
3) The buyer, according to law, has to apply for delivery of goods. A seller of
goods is not bound to deliver the goods until the buyer applies.
4) The place of delivery, if not decided, shall be the place where the goods
were sold.
5) The goods are to be sent by the seller in a reasonable time, if no time is

fixed.
6) Demand for delivery as well as tender of delivery shall be made at reasonablej,

hour. .
7) Unless and until, there is an agreement about bearing expenses, in normal

course the expenses/incidental charges for delivery are to be borne by the
seller.
8) The buyer has to accept or reject the whole lot, when the goods are mixed
with vivid description.
9) There are separate provisions for acceptance of goods by a buyer.
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Acceptance of Delivery The Sale of Goods Act, 1930
1) The buyer has a right to examination of goods at the time of delivery.
2) The buyer is deemed to have accepted the goods in certain circumstances

but one thing is to be noted that if the buyer rejects the goods, intimation
thereof must be given to the buyer in a reasonable time.
3) Unless and until there is an agreement, the buyer in normal course is not
bound to return the rejected goods. An intimation about refusal of goods by
the buyer is sufficient. It is for the seller to arrange to take delivery of rejected
goods.
Rights of the Seller and the Buyer

Generally, Rights ofthe seller are duties of the buyer and rights of the buyer are
duties of the seller. Let us see important rights of both.
Rights of the Buyer

1) to receive delivery of the goods;
2) to repudiate the contract, if the seller commits breach of contract;
3) to have reasonable opportunity to examine the goods;
4) to sue the seller for damages for non-delivery of the goods;
5) to recover the amount paid if the seller fails to deliver the goods;
6) to sue the seller for specific performance of the contract;
7) to sue seller for damages for breach of warranty;
Rights of the Seller
1) to receive the price of the goods;
2) to receive compensation or sue for damages for any loss occasioned by him
by neglect or refusal of the buyer to take delivery of the goods;
3) to receive reasonable charge for care and custody of the goods;
4) ifhe is unpaid seller then:
a) to exercise his rights oflien;
b) to exercise his right of stoppage in transit;
c) to exercise his right of resale;
5) to sue the buyer for damages for wrongfully neglecting or refusing to accept
the goods;
6) to recover interest from the buyer if there is specific agreement to that effect
or charge interest on the price when it becomes due;
7) to sue for the price of the goods;
8) to sue for damages on buyer repudiating the contract;
(Source: Shri K.R.Balchandra's Book on 'Business Law')
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Essential Business Laws 3.6.12 Unpaid Seller
Who is an unpaid seller? (Sec.4S):
An unpaid seller is one who has not been paid or tendered the whole of the price
or one who receives a bill of exchange or other negotiable instrument as
conditional paymentIt and the condition on which it was received has not been
fulfilled by reason of the dishonor of the instrument or otherwise.
The term 'Seller' includes his agent or consignor.
A seller who has been partly paid is also considered as an un-paid seller, for part
unpaid.
In other words:
•
An unpaid seller means a person who has not received the price or who has
received the Negotiable Instrument which is dishonored.
.
,
Rights of an Unpaid Seller
~
Where the property in the
l
Where the property in the
goods has passed. goods has not passed
+ +
~ l l ~ l
Lien Stoppage in Resale With holding other rights
(Sec.47) transit (Sec.54) delivery (Sec.55&56)
(Sec.50) (Sec.25)
3.6.13 Rules relating to the Auction-Sale

Rules: Sec.64
Following are the general rules governing auction sales:
1) The sale is complete when the auctioneer announces its completion by the
fall of the hammer or in any other customary manner;
2) A bidder is at liberty to withdraw his bid at any time before it is accepted by

the auctioneer;
3) The auctioneer is not bound to sell articles advertised to the highest bidder
except when the sale is with reserve;
4) The auctioneer is not bound to hold auction on the date of advertisement.

His advt. is not an offer but mere invitation.
5) The auctioneer has the right to make the auction subject to any conditions
he likes;
6) A condition in an auction sale 'the biddings once made cannot be

withdrawn' is not enforceable; The bidding can be withdrawn before
acceptance;
7) In case of goods put up for sale in lots, each lot is prima facie deemed to be
the subject of a separate contract of sale;
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8) A right to bid may be reserved expressly by or on behalf of the seller. The Sale of Goods Act, 1930 .
Where such right is expressly reserved the seller or any person on his behalf
may bid at the auction.
9) No seller or any person who has advertised can bid at an auction sale,
unless the right is expressly reserved and sotified, otherwise, any such
sale may be treated as fraudulent by the buyer;
10) Agreements not to bid against each other are called "knockout agreement"
and they are not unlawful. The seller may protect himself by a reserve bid;
11) If the seller makes use of pretended bidding to raise the price, the sale is
voidable at the option of the buyer;
12) Reserve price/upset price:
The sale may be notified subject to a reserve or upset price, for example,
there may be a price below which the goods will not be sold. The reserve
price may be kept a secret;
13) Where the auctioneer discloses the fact that he is acting as an agent, but
does not disclose the name of his Principal and sells specific goods, the
Principal's title to the goods is not lost;
14) If the sale is through the court, it would be subject to the confirmation of
the Court.
Note: Auction sale is 'sale' for the purpose of the Sale of Goods Act. (Loon
Karan Sethia and others v. Iran E.Johns and others.)
(AIR 1973 SC 376(379)

Implied warranties in an auction sale:
1) auctioneer has authority to sell;
2) auctioneer knows of no defects in Principal's title;
3) he shall give quiet and peaceful possession of goods against payment of the
pnce.
3.7 SELECTED CASE-LAWS/COMMENTS

1) Definitions of Goods: Interpretation: (Sec.2)
"The Fixed Deposit Receipts are goods within the meaning of the Indian Contract
Act 1872 (Sec.176) read with the meaning given in the Sale of Goods Act
(Sec.2(7».
The State Bank of India vis Srnt. NeetaAshok Naik (AIR 2000 Bo.151)
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Essential Business Laws 2) Contract of Sale and Contract of Work Distinguished: (Sec.4)
"In a 'contract of sale' , the main object is the transfer of property and delivery of
possession ofthe property; whereas the main object of 'contract of work' is not
the transfer of property but it is one for work and labour It in well
settled law that the substance and not the form of contract is material is
determining the natu~e of transaction".
The State of Andhra Pradesh vis Kone Elevator (India) Ltd (2005 3SCC 389)
3) Ascertainment of Selling Price: (Sec.9)
"The price may be fixed by control order issued by the Government or the Market
Authorities"
Indian Steel and Wire Product Ltd. vis State of Madras (AIR 1968 SC 478)
.. 4) Condition and Warranty: (Sec.12)
"The breach of warranty gives right to claim for damages but not to a right to
reject the goods and treat the contract as repudiated".
Svenska Handels Banker vis M/s Indian Charge Crome (AIR 1994 SC 624)
5) Effect of the Contract: (Sec.19)explained:
"In an auction sale, tender with adequate fair price was accepted. Contract was
entered into between Liquidator and Auction purchaser. Subsequent sale of
property also took place. Possession of Property had already been handed over.
Petition challenging the sale was rejected. It was also rejected because it was
cited one month after completion of sale".
Pratap Scrap Traders vis State of Gujarat (AIR 2005 Guj.13)
6) Acceptance of Goods: (Sec.42)
"If defendant did not reject goods within reasonable time, he would be deemed
to have accepted goods. Long gap after which goods were of ostensibly rejected
on promise that they were defectivelsub standard is clearly fetal in context of
statutory Law; i.e. Sale of Goods Act".
Sohman Rausher, GMBL vis Medisphere MKT. Pvt. Ltd., (117 (2005) D.L.T.95)
,
7) Right of resale to the Seller: (Sec.54)
"The right of resale implies that the property in the goods had passed to the
buyer, unless the property in goods has passed to the buyer, the seller cannot
exercise his right to re-sale."
PSNS -- & Co. Ltd., vis Express News Papers Ltd., (AIR 1968 SC 741)
3.8 SUMMARY
• The general principles in formation and execution of various contracts are
embodied in the Indian Contract Act, 1872. Considering certain additional
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features in respect of a contract of Sale of Goods, a special chapter was The Sale of Goods Act, 1930
originally provided in the Indian Contract Act, 1872. Later on it was found
necessary to have a separate enactment for contracts of sale of goods on the
model of the English Sale of Goods Act, 1893. Hence, the Indian Sale of
Goods Act was passed in 1930 and the chapter thereon in the Contract Act
was deleted. Subsequently the word "Indian" was deleted from the title of
the Act of 1963.
• The Sale of Goods Act 1930 deals with movable property other than cash!
money and actionable claims. But the term 'Goods' includes:
1) Stock and shares;
2) Growing crops;
•
3) Grass and;
4) Things attached to the Earth; Which could be removed.
• "Goods" are divided into two types. Viz;
a) Existing Goods; and
b) Future Goods;
The existing' goods' are further classified into two categories viz;
a) Specific goods and
b) Un-ascertained goods.
• In light of the provisions of the Sale of Goods Act, the concept of 'ownership
in goods' i.e. title in goods may have to be noted carefully.
This concept is also described as 'property in goods', or 'general property

in goods'. It is immaterial who is in possession of' goods' . A document is a
prima-facie proof of ownership in goods.
• The Act covers almost all relevant factors touching the contract of sale of
Goods, and defines important terms/keywords.
• A contract of sale is difficult from an agreement to sell goods. In a contract

of sale, the ownership i.e. property in goods is transferred from a seller to a
buyer. But in an agreement to sell goods, the ownership is yet to be
transferred: It is merely an agreementto sell goods. It is executory contract.
The essentials of a valid sale are described in the Act.
• Further, in a sale or an agreement to sell two kinds of terms are generally

used i.e.
i) a condition or
ii) a warranty
The term of contract which is of a fundamental nature and if it is broken,

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Essential Business Laws the other party gets a right to cancel the contract and also to claim damages
then this term is known as a 'condition'.
While the term of contract which is not fundamental or essential, that is to

say, the term is of subsidiary nature, and when such term is broken, the
other party gets a right to claim damages only but does not get right to
cancel (to repudiate) the contract then this term is known as 'warranty'.
" -,
The conditions and/or warranties may be expressed or implied. The Act

provides that certain terms are implied conditions and certain terms are
implied warranties.
• The doctrine 'caveat emptor' is a special feature ofthe Sale of Goods Act. It
says 'a buyer should be aware' of quality and/or fitness of Goods. Barring
six exceptions, there is no implied condition or warranty about the quality
or fitness of goods. A buyer purchases goods at his own risk.
• The doctrine 'Nemo dat quod non habit' is another special feature of the
Act. It refers to the title in the goods i.e. property in goods. Barring 8 lawful
exceptions, this doctrine says that the seller cannot give a better title than
the seller himself possesses.
In another words, a buyer cannot acquire a better title in the goods, if a

seller does not have (example: a stolen motorcycle).
• In case of a breach of contract of sale of goods, the remedies available to a

seller are:
1) to sue for price, and
2) to sue for damages including interest.
While, the remedies available to a buyer are:
1) to sue for damages;
2) to sue for specific performances;
3) to sue for breach of warranty;
4) to sue for repudiation of contract;
5) to sue for interest and special damages
(allor any of them).
• The Act provides rules regarding performance of the contract of sale of

Goods. Two kinds of delivery of goods are envisaged viz;
i) actual delivery and
ii) constructive delivery
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• When a money/price is not paid to a seller by a buyer as per the term of a The Sale of Goods Act, 1930
contract, a seller is known as unpaid seller. The credit sales are not covered
in this concept.
The Act provides specific rights to an unpaid seller. They are as follows:
1) Right of lien; or
2) Right of stoppage of goods in transit, or
3) Resale of goods
(when the property in goods in transferred)
• There are various modes of 'sale'. One ofthe popular modes is to sell goods
by a public auction. The Act lays down detailed, rules governing auction
sales. There are implied warranties in an auction sale. They are as under:
1) Auctioneer has authority to sell goods.
2) Auctioneer knows no defects in the title.
3) Auctioneer will handover quiet and peaceful possession of goods on

payment of the price.

1) State the salient Features ofthe Sale of Goods Act, 1930.
2) Describe the difference between 'sale' and 'agreement to sell'.
3) Distinguish between the concepts 'warranty' and 'condition'.
4) Explain, with exceptions, the Doctrine of Caveat Emptor.
5) 'No seller can give a better title than he has' discuss this (nemo dat quod
non habet)

1) Refer to Sub-sestion 3.6.3
Terminal Questions
1) Refer to Section 3.5
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a) Bare Act: The Sale of Goods Act 1930; Universal Series (New Delhi) or
Professional Series, New Delhi
b) The relevant chapter on 'the Sales of Goods Act' of the Book "Elements of
Mercantile Lawr written by N.D.Kapoor.
, .
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UNIT 4 CIVIL PROCEDURE CODE, 1908
Structure
4.1 Introduction
4.2 Objectives
4.4.1 Court
4.4.2 Jurisdiction of Courts
4.4.3 Suit
4.4.4 Plaintiff and Defendant
4.4.5 Judge
4.4.6 Foreign Court
, . 4.4.7 Legal Representative

4.4.8 Decree
4.4.9 Order
4.4.10 Decree Holder
4.4.11 Judgment Debtor
4.4.12 Execution
4.4.13 Attachment
4.5 Scheme of the Civil Procedure Code (CPC), 1908

4.6 Important Topics for Study
4.6.1 Broad Outlines in the Matter of Settlement of Disputes
4.6.2 Place of Suit
4.6.3 Some Essentials of a Suit
4.6.4 Parties to the Suit
4.6.6 Point of Limitation
4.6.7 Principle or Doctrine of Res Judicata
4.6.8 Decree and Award
4.6.9 Important Steps in Execution of Money Decree
4.6.10 Related Powers of a Civil Court
4.6.11 Execution of Decrees
4.(>.12 Some Procedure in the Matter of Execution
4.6.13 Competent Courts by which Decrees may be Executed
4.6.14 Precepts (Attachment before Execution by other Court)
4.6.15 Execution against Person i.e. The Judgement-Debtor
4.6.16 Execution against Property of Judgement-Debtor
4.6.17 Important Terms
4.6.18 Attachement of Movable Property
4.6.19 Attachment ofImmovable Property
4.6.20 Sale of Attached Property
4.6.21 Execution of Decree against the Firm
4.6.22 Rateable Distribution of Assets
4.6.23 Liability ofLegaJ Representatives
4.6.24 Interest on Dues Recoverable
4.6.25 Interest in Mortgage Suits
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Essential Business Laws 4.6.26 Power of Court to Enforce Execution
4.6.27 Execution against Property: General Provisions
4.7 Provisions for Recovery of Dues of Co-operative Societies
4.8 Summary
4.9 Terminal Questjons
4.1 INTRODUCTION
The Civil Procedure Code, 1908 is one ofthe oldest Acts. It is very important, as
it provides almost all procedural aspects in the area of powers, functions and
jurisdiction of the civil courts and matters relating to execution of decrees etc.
By and large, Principles of jurisprudence are incorporated in the Code. The various
decisions of the High Courts and of the Supreme Court in the above area have
further developed the Law on the subject. C.P.C. is intended to regulate all
procedural matters in civil courts. When any person has a claim of civil nature
against another, he has to approach a civil court unless the claim falls under the
peview of any other special Act. The claim usually arises for the purpose of recovery
of money and for property. But the complainant may also pray for the purpose of
other reliefs, such as, injunction, partition, division of property, winding up etc.
4.2 OBJECTIVES
• state briefly the salient features of the C.P.C.1908;
• define some important terms, such as, decree, award, precepts;
• describe the provisions relating to execution of decree, order or recovery
certificate; and
• understand which properties are non-attachable under the C.P.C.

There were no uniform procedural rules in India prior to 1908 for settlement of
disputes of civil nature. It was found necessary to define the scope of the various
courts, their jurisdiction, their powers, and to provide for execution of decrees,
for appeals, that is to say, right from the beginning stage of filing a suit to the
end, statutory provisions have been made in the Civil Procedure Code. It came
into effect from 1-1-1909.
It contains about 158 sections besides orders 1 to LI and relevant rules there
under. It is a beautiful manual for those who are going to involve in the various ..
types of civil litigations, like plaintiffs and defendants, as well as for advocates
and judges, who are concerned with administration of justice.
The Code is not applicable to:
a) the State of Jammu and Kashmir;
b) the State ofNagaland and certain tribal areas, as specified.
The Code is amended from time to time and lastly in 2002.
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Civil Procedure Code, 1908
4.4.1 Court
The term 'court' is used in a wider sense. In England, the Parliament is also a
'court' . .In Indian context, a court means any person or persons before whom a
legal proceeding is held or taken (Bankers' Book Evidence Act, 1891). For the
purpose of the Civil Procedure Code, a Court means a Civil Court having
jurisdiction to decide the questions forming the subject matter of a reference
(dispute). The term 'court' is defined under the various Acts in different sense.
The Supreme Court has clarified the term as follows:

In order to constitute a court in the strict sense of the term, an essential condition
is that the Court should have, apart from having some of the trappings of a
judicial tribunal, power to give a decision or a definitive judgment, which has
the finality and authoritiveness, which are the essential tests of a "judicial
pronouncement" .
(Barjnandan Singh v. Jyoti Narain = reported in AIR 1956 SC 66).
4.4.2 Jurisdiction of Courts

The Civil Courts, under the C.P.Code, have specific jurisdiction, territorial and /
or pecuniary. For example:
1) Tahsil court, having territorial jurisdiction of one Tahsil.

2) District Court, having territorial jurisdiction of one District.
The jurisdiction i.e. area of operation is detennined under the specific Acts or
under the order of the High Court of the State.
4.4.3 Suit
In ordinary sense, a suit means proceeding filed in the Court of Law for settlement
of dispute. The C.P.Code 1908 provides that every suit shall be instituted by
presentation of a plaint or in such a manner as may be prescribed. (sec.26 of the
C.P.C.). However, a suit does not include an appeal or an application. The Plaint
is required to be filed in the civil court in a proper format. The main document,
containing the application given to the original court for settlement of dispute in
the format, is known as a Plaint, on the basis of which the (order 7 of the CPC)
proceeding of the court i.e. suit commences.

a) Plaintiff
One who commences a law suit i.e. who is a complaining party in the litigation
before cl civil court is known as a 'Plaintiff'.
In other words, the applicant in a suit.
b) Defendant
.One who is required to make answer in a legal action or suit is known as a
'Defendant' .
In other words, a defendant is an opposite of the Plaintiff.
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Essential Business Laws 4.4.5 Judge
Judge means the presiding officer of a civil court (section 2(8) CPC).
4.4.6 Foreign Court

Foreign court means a court situate outside India and not established or continued
by the authority of the Central Government. (section 2(5) CPC
4.4.6 Judgment
'Judgment' means the statement given by the judge on the grounds ofa decree or
order. (sec.2(9) CPC).
The word 'Judgment' in Article 133 of the Constitution of India means a final
determination of the right or liability in controversy before the court.
In other words, a detailed statement giving reasons on the basis of which a decree
or an order is issued by the Court is known as a judgment.
4.4.7 Legal Representative

Legal representative means a person who is in law represents the estate of a
deceased person. The word legal representative includes the intermeddles (sec.2
(11) CPC). In common language, the legal heirs are also termed as legal
representatives, who can sue or who can be sued for rights and for liabilities of
the deceased.
4.4.8 Decree
'Decree' means the formal expression of an adjudication, which conclusively
determines the rights ofthe parties with regard to matter or matters in controversy
in the suit; and may be either preliminary or final (sec.2 (2) CPC).
4.4.9 Order
'Order' means the formal expression of any decision of a civil court, which is
not a decree (section 2(2)CPC).
4.4.10 Decree Holder

Means any person in whose favour a decree in a civil suit has been passed or an
order capable of execution has been made (section 2 (24) CPC).

1) Who is a decree-holder?
4.4.11 Judgment Debtor

Means any person against whom a decree has been passed or an order capable of
execution has been made (section 2 (l0) CPC).
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4.4.12 Execution Civil Procedure Code, 1908
The word 'execution' in its wide sense signifies the enforcement or giving effect
to the judgments or the orders of the Courts of justice.
If a decree passed by a civil court is not complied with, it is required to be
executed through the executing court. There is a time limit for the execution of a
decree. The work of execution of a decree is done by a civil court by due process
of law and in accordance with the provisions made in the c.P.c. (Part II section
36 to 74 of the CPC and orders there under).
4.4.13 Attachment
It means a seizure of property by legal process. The attachments of different
kinds of property in execution of decree are made under the provisions of the
CPC. (rule 42 to 54 of order 21, CPC).
Note: Some of the above terms are defined/explained as given in the book "Legal
and Commercial Dictionary" published by the Eastern Law House, Calcutta.
4.5 SCHEME OF THE CIVIL PROCEDURE CODE

(CPC),1908
The scheme of the Civil Procedure Code can be briefly described as follows:
Preliminary Scope, Definitions, Sub-ordinate Court, 1 to 8

pecuniary Jurisdiction etc.
Part I Suits in general, jurisdiction of courts, 9 to 35
Resjudicata, stay, place, judgment, degree,
Interest, Cost, etc.
Part II Execution of Decrees: 36 to 74
General, time limit, procedure, assets &
Detention, attachment, sale, distribution
of assets etc.
Sec.60 (Important)
(Property liable for attachment and not liable
for attachment is described in sec.60)
Part III Incidental Proceedings 75 to 78
Part IV Suits in Particular cases (Notice-Imp-to Govt.) 79 to 88
Part V Special Proceedings 89-93
Part VI Supplemental Proceedings 94-95
Part VII Appeals 96 to112
Part VIII Reference, Review & Revisions 113 to115
Part IX Special Provisions -High Court 116 to120
Part X Rules 121 to131
Part XI Miscellaneous 132 to158
Schedule Orders 1 to LI with Rules under each order
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Essential Business Laws We will briefly see the provisions relating to execution of decrees and allied
matters. (Sec. 36 to 74) as they are important from the curriculum point of view.
The ordinary proceeding in a civil court is called a 'suit'. In special cases, the
proceeding is called a 'petition'.
The Civil Procedure Code deals with procedural matters only, The Code came
into force from 1-1-1909. It applies to all proceedings in all the Courts dealing
with Civil matters/civil claims. For the purpose of criminal procedural matters,
there is a separate Act known as 'Criminal Procedure Code1976'.

4.6.1 Broad, Outlines in the Matter of Settlement of Disputes
Broadly, the matter of settlement of disputes is divided into following two phases:
Phase I Phase 11
To obtain certification of the claim To get the Decree executed:

from the competent court by way of
a decree. (Application for this Note: It may not be sufficient to obtain a
purpose is known as 'Plaint' and the decree in the suit. Of course, subject to
applicant as 'plaintiff'). (The an appeal to the higher court, a person
proceedings are known as suit)(the against whom the decree is passed
final order given by the competent (known as Judgment Debtor) may not
court in the suit is known as decree). comply with the Decree. In such
circumstances, a question of getting the
Decree executed through the competent
Court arises. For this purpose, an
application in the prescribed form is
required to be given by the Judgment
Holder (plaintiff) to the competent court
for execution of decree. The proceedings
in this behalf are known as Execution
Proceedings i.e. to get the Decree
executed by legal coercive measures. All
such aspects relating to execution of
Decrees are dealt with in the c.P.C.
4.6.2 Place of Suit

Where a suit should be instituted?
(place of a suit) (Section 15 to 25)
The general rule is that the suit should be instituted by the Plaintiff in a local
limits of whose jurisdiction the property is situated or a person (against whom
the suit to be filed) resides.
Wherever the property is situated in local limits of different courts, the suit can
be filed in any of the courts at the option of the Plaintiff. However; any defendant
may apply for transfer of suit to another court and in that case, on hearing the
concerned parties, the court may decide the place of court where the suit should
be filed.
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The High Court and District Courts have general powers to transfer any suit or Civil Procedure Code, 1908
withdraw any suit for reasons. Similarly, the Supreme Court has absolute power
to transfer any pending suit, appeal or any other proceedings from one High
Court or other; or from the Civil Court in one State to another Civil Court in any
State or to a High Court on the basis of application of other parties.
The C.P.C. provides that the Civil Courts have jurisdiction to try all suits of civil
nature excepting such suits of which their cognizance is either expressly or implied
barred.
4.6.3 Some Essentials of a Suit /-

I) A suit is generally filed in a format known as "Plaint" by paying stamp-duty
and other cost, if any;
2) There must be atleast one plaintiff and one defendant. (parties to a suit),
with their particulars such as age, occupation,
3) A suit must contain specific addresses, cause of action and when it arose.
4) Subject matter: This is the most important part of the Plaint. A subject matter
or subject - matters, which lead to a dispute, should be clearly described
and in support thereof, the Plaintiff is expected to furnish requisite documents
along with the Plaint.
5) Relief Claimed: The Plaintiff should specifically mention the nature of relief
or relief's, he seeks from the Civil Court.
It may be noted that the relief claimed must be of such nature which the
Civil Court is competent to grant.
6) When a plaint is received by the Civil Court, the particulars thereof are
recorded in a "Register of Civil Suits".
7) The Court may ask for Affidavit in support of facts mentioned in the Plaint.

2) What are the essentials of a Suit?
4.6.4 Parties to the Suit

Generally, the Plaintiff files a suit against opposite party or parties, as he considers
essential. However, there should not carry a defect of
a) mis-joinder of parties and for

b) non-joinder of necessary parties:
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Essential Business Laws To avoid any preliminary objection on any ofthe above two aspects, it is essential
on the part of plaintiffto consider the issue, who should be made opposite parties
in the suit. For this purpose, parties are classified into following.
a) Necessary Party and

b) Proper Party
This issue depends upon the facts and circumstances of each case.

A person who brings action in a court for settlement is called a "Plaintiff' and a
person against whom a suit is brought for granting relief's is called a "Defendant";
There may be one or more plaintiffs as well as one or more defendants, depending
upon the facts and circumstances of the case.
The Plaint, that is a written complaint of the Plaintiff filed in the Civil Court,
having jurisdiction (territorial and pecuniary) for granting reliefs is an important
document in the process of adjudication. Broadly, it consists of three essential
parts, viz;
1) Heading and Title;

2) Body of the Plaint; and
3) Relief or Relief's prayed for i.e. claimed
4.6.6 Point of Limitation

Though the claim, preferred by the Plaintiff might be genuine and true, the Law
of Limitation i.e. Indian Limitation Act 1963 requires the claimant to prefer the
claim/suit within the stipulated period only. Otherwise, the claim/suit becomes a
time barred. In such time barred claim/suit, the same is liable to be rejected.
In the event, the suit is filed after the period of limitation, prima facie, it is
necessary on the part ofthe Plaintiff to pray for exemption. A special application
requires to be given for condonation of delay by the Plaintiff along with the
Plaint. It may be disposed off by the Civil Court as a preliminary point, on giving
opportunity to other party to give it say.
4.6.7 Principle or Doctrine of Res Judicata

A) Res Judicata
The Section 11 deals with the doctrine of res judicata. The leading case on the
subject is the Duchess of Kingstone's case and the following classic passage
from the judgment of Sir Wiliam de Grey is a statement of the leading principle
of res judicata: - '
"From the variety of cases relative to judgments being given in evidence in civil
suits, these two deductions seem to follow as generally true; first that judgment
of a Court of concurrent jurisdiction, directly upon the point, is, as a plea, a bar,
or as evidence conclusive, between the same parties upon the same matter, directly
in question in another Court; secondly that the judgment of a Court of exclusive
jurisdiction, directly on the point, is in like manner, conclusive upon the same
matter, between the same parties, coming incidentally in question in another
Court for a different purpose. But neither the judgment of a Court of concurrent
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nor exclusive jurisdiction, is evidence of any matter which came collaterally in Civil Procedure Code, 1908
question, though within their jurisdiction nor of any matter incidentally
cognizable, nor of any matter to be inferred by argument from the judgment."
This passage summarizes the law enacted in Section 11. The rule of res judicata
is readily distinguished from the rule in Sec. 10, for the latter relates to a res sub
judice, that is, a matter which is pending judicial inquiry; while the rule in section
11 relates to res judicata, that is, a matter adjudicated upon or a matter on which
judgment has been pronounced.
Section 10 bars the trial of a suit in which the matter directly and substantially in
issue is pending adjudication in a previous suit. The present Section 11 bars the
trial of a suit of an issue in which the matter directly and substantially in issue
has already been adjudicated upon in a previous suit.
Thus, if A sues B for damages for breach of contract, and the suit is dismissed, a
subsequent suit by A against B for damages for breach of the same contract is
barred.
This is the rule of res judicata stated in its simplest form. The question of A's
right to claim damages from B having been decided in the previous suit, it becomes
res judicata, and it cannot therefore be tried in another suit. It would be useless
and vexatious to subject B to another suit for the same cause.
Moreover, public policy requires that there should be an end of litigation. The
question whether the decision is correct or erroneous has no bearing on the
question whether it operates or does not operate as res judicata; otherwise, every
decision would be impugned as erroneous and there would be no finality. The
rule of res judicata may thus be put upon two grounds - 1) the one, the hardship
to the individual that he should be vexed twice for the same cause and 2) the
other, public policy, that it is in the interest of the State that there should be an
end of litigation.
Putting it in another form, it may be said that every suit must be sustained by a
cause of action, and there is no cause of action to sustain the second suit of A, it
being merged in the first.

3) Explain the Doctrine of'Resjudicate'.
B) Section 11 Mandatory
The section No.l l is mandatory and the ordinary litigant, claiming under one of
the parties to the former suit, can avoid its provisions only by taking advantage
of section 44 of the Indian Evidence Act. The grounds of avoidance under that
section are fraud and collusion.
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Essential Business Laws Gross negligence is different from fraud or collusion. Collusion of one of several
defendants with the plaintiff is not enough to avoid the rule of res judicata.
Wrong Decision
It is immaterial whether the previous decision was right or wrong. According to
the Calcutta High Court however, an erroneous decision on a question of
jurisdiction cannot operate as res judicata in a subsequent suit.
Question of Law
I
Even an erroneous decision on a question oflaw operates as a res judicata between \
the parties. The correctness or otherwise of a judicial decision has no bearing
upon whether or not it operates as a res judicata.
A judgment may be res judicata, even if it is founded on a view of the law

• contrary to one' subsequently expressed by the Supreme Court in a different case .
If the conditions for applicability of resjudicata are satisfied in the later case,
then the correctness or otherwise of the earlier decision is wholly irrelevant.
Declaratory Suit
A decree passed in an earlier suit for bare declaration operates as res judicata,
irrespective of the question whether the earlier suit was properly entertained
under section 34 of the Specific Relief Act, 1963. That section does not make
the decree incompetent.
Possession and Title

A decree for permanent injunction restraining interference with possession does
not operate as a res judicata in a suit based on title against the decree-holder in
the first suit.
Relief
If a relief has been granted to the plaintiff in earlier suit, the defendant cannot
raise in a subsequent suit a plea that would interfere with the earlier relief.
Res Judicata and Estoppel

Res judicata is sometimes treated as a part to the doctrine of estoppel, but the
two are essentially different. Estoppel is part ofthe law of evidence and prevents
a man from saying one thing one time and the opposite thing at another time,
while res judicata precludes a man from avowing the same thing in successive
.litigation.
(Source: CPC Book by Sarkar)
To summarize the Doctrine of Res judicata, the essential ingredients can be stated
as follows:
1) The matter directly and substantially in issue in former suit is also the same
in the latter suit.
2) The former suit has been decided.
3) The issue has he en heard and finally decided in the former suit.
4) The former and latter suit are between the same parties making same claims.
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5) A competent Court having jurisdiction has heard and decided the issues Civil Procedure Code, 1908
finally between the same parties in the former suit.
6) The same issue between the same parties is again brought before the same
or other Courts having jurisdiction to try the same matter.
4.6.8 Decree and Award

In ordinary sense, the decree is final expression of the civil court in the settlement
of dispute and that the decree is passed for the purpose of execution, in the event
the said decree is not executed by a party concerned. The world' decree' is used
in civil litigations in accordance with the provisions of the Civil Procedure Code.
Whilethe term 'award' is generally used in quasijudicial proceedings. The award

is passed in arbitration proceedings and some other quasi judicial litigations. For
example, when a final executory order is issued by the Re-gistrar of Co-operative
Societies under the Co-operative Societies Act, the said final order is known as
Award. The award may be executed like a decree as per the provisions of the
particular special Act.
4.6.9 Important Steps in Execution of Money Decree

On admitting an application for execution of money decree under phase II (refer
para noA.6.8) above, the competent court is empowered to take following steps
for recovery of the decretal amount in general. The claimed amount includes the
following.
a) Principal
b) Interest up to the date of decree .
c) Cost of the suit
d) Future interest recoverable
1) Whenever necessary, to issue a show cause notice to the Judgment Debtor

or his legal representatives;
2) To attach movable property; (by actual seizure)
3) To arrange sale of attached movable property;
4) To dispose off the movable property at once which is of perishable
nature, like fruits and vegetables;
5) To attach immovable property;
Note: If the court is satisfied to take this step simultaneously with the
step of attaching movable property, it can be done at the discretion of
the court.
6) To dispose off the attached immovable property by public auction; for
which Proclamation has to be issued.
4.6.10 Related Powers of a Civil Court

The above' are the broad steps or important powers of the Civil Court in the
matter of execution of decree. However, there are some more powers, vested in
the Court, in the interest of justice. They are summarized below:
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Essential Business Laws 1) The Court may, for sufficient and lawful reasons, stay the execution of a
decree for a reasonable time;
2) The Court may take adequate security from the Judgment Debtor awl may
waive the attachment on certain terms, as may think reasonable;
3) The Court may, on application, issue a notice to the Gamishee calling upon
him to take action as per the gamishee order.
(Example: The Court may issue an order to any bank in which the Judgment
Debtor has some interest by way of Deposit or any other investments/interest,
to pay the same into the Court).
4) The Court may issue an order to any Employer of the Judgment Debtor to
attach, withhold salary or remit the amount of salary by installment, subject
to provisions of section 60 of the C.P.c.
5) The Court may postpone the sale of movable property, pending the objection.
6) The Court may not confirm the sale of immovable property, under certain
circumstances.
7) The Court may postpone sale if judgment debtor satisfies the court that the
judgment debtor is raising the amount of decree shortly.
8) The Court may, in the event of death of judgment debtor, replace the names
of legal representatives, in place of Judgment Debtor on enquiry and may
proceed to execute the decree against the legal representatives, as per law.
Note: It is to be noted that in the event of death of Judgment Debtor, the
estate ofthe legal representatives is liable only to the extent the estate is in-
heritated by the legal representatives from the deceased. In other words, the
legal representatives are not personally responsible for debt of the deceased.
9) The COUli, on application of the Decree-holder, may consider arrest of the
judgment debtor on certain terms and conditions.
10) The Court in the execution proceedings is known as "Executing Court".
Similarly, any authority under any other law delegated with powers of
recovery of dues under any order /award or certificate, the said authority is
also known as "Executing Court". For example: In certain States, the
Registrar of Cooperative Societies is delegated with powers to recover the
dues as awarded in the matter of settlement of Dispute. In such cases, the
Registrar or his representative is a "Executive Court".
4.6.11 Execution of Decrees

i) All proceedings in execution are thus commenced on the basis of an
application by the Plaintiff/D.H. The application for execution must be in
writing and should contain the particulars as required under the Code. Ifthe
decree is transferred by the decree-holder, the transferee may apply for
execution. If the decree holder is dead, his legal representatives may apply
for execution. If the judgment debtor is living, execution is to be applied for
against him. Ifhe is dead, execution must be applied for against the heirs or
legal representatives of the deceased; but the execution will be done only
against the property of the judgment debtor which has come into the hands
of the heirs or legal representatives and has not been duly disposed of by
them.
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4.6.12 Some Procedure in the Matter of Execution
1) As a general rule, the Decree Holder must submit an application to the
court for execution of a decree, in writing in the form prescribed.
2) However, when the decree is relating to recovery of money (known as money-

decree) and when the Judgment Debtor is present in the court, the oral
application/request by the Decree Holder to t4e court can be admitted.
3) The payment to be made to the Decree Holder as per the decree can be done
in following modes:
a) by depositing the amount in the court or
b) by making payment direct to the Decree Holder.
• 4) On receipt of application of the Decree Holder for execution, the court may
Issue a show cause notice at his discretion.
5) The application for execution must contain the following details in the form
prescribed.
a) A serial number of the suit;
b) Names and addresses of both sides (Plaintiff and Judgment Debtor);
c) A date of decree;
d) Brief summary of a decree;
e) Whether any appeal preferred and what is the present position thereof;
f) Details of payment made after decree if any;
g) Details of previous execution proceedings; if any;
h) Amount of decree for execution with all details, such as interest, future
interest, costs, fees etc the date of application;
i) Mode of execution; etc.
Note: A Certified copy of the decree duly certified by the clerk of the court,
must accompany the application for execution. ,/
Noter When an application for execution is given to the court, in which matter
an attachment of immovable property is demanded, the application should contain
all necessary details, description ofthe property and that the applicant must enclose
the documentary evidence, like revenue-record of right, showing the title,
ownership or interest of the Judgment Debtor in such property.
4.6.13 Competent Courts by which Decrees may be Executed

A decree may be executed either by the local competent Court which passed it or
by the Court to-which it is sent for execution. A decree may be sent by the Court
(which passed it) for execution to another Court in the following circumstances.
1) If the judgment-debtor resides or carries on business within the local limits

of jurisdiction of such other court or,
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Essential Business Laws 2) If the property sought to be attached and sold in execution of the decree is
situated within limits of such other court, or
3) If the decree directs that sale or delivery of immovable property situated

within those limits.
4.6.14 Precepts (Attachment before Execution by other Court)

,
If the decree-holder has reasons to apprehend that the judgment-debtor will
. dispose of the property before it is attached by the other court, he may apply to
the Court (which passed he decree) to issue a precept to the other Court to attach
the property at once. Accordingly; where such precept is issued, the Court to
which it is issued, should proceed to attach the property.
4.6.15 Execution against Person i.e. The Judgment-Debtor

• In the case of decree for payment of money, if the judgment holder i.e. Creditor
applies for execution against the person i.e. the judgment-debtor, the Court shall,
instead of issuing a warrant for the arrest of the debtor, issue a notice calling
upon him to appear and show cause why he should not be committed to the civil
.prison in execution of the decree. If the debtor appears or is brought before the
Court and the Court is satisfied that he had done any act or behaved in any
manner with the object of defeating or delaying the execution of the decree, the
Court may order his arrest and detention in a civil prison. Where a warrant of
arrest is issued, it should be executed by an officer ofthe court.
4.6.16 Execution against Property of Judgment-Debtor

Property, liable to attachment and sale in execution of decree, is described below:
1) lands, houses or other buildings,
2) goods,
3) money,
4) bank notes,
5) cheques, bill of exchanges, hundis, promissory notes,
6) Government securities, bonds or their securities for money debts,
7) shares in a corporation and,
8) all other saleable property, movable or immovable, belonging to the judgment

debtor, or over which, or the profits of which he has a disposing power
which he may exercise for his own benefit, whether the same be held in the
name of the judgment debtor or by another person in trust for him or on his
behalf.
4.6.17 Important Terms

Properties which are not attachable under Section 60 of the c.P.C ..
The following is the list of non-attachable property under section 60 of the C.P.C.
a) The necessary wearing apparel, cooking vessels, beds and bedding of the
judgment debtor, his wife and children, and such personal ornaments of
woman.
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b) Tools of artisans, and where the judgment debtor is an agriculturist, his Civil Procedure Code, 1908
implements of husbandry and such cattle and seed, grain may be necessary
to enable him to earn his livelihood and such portion of agricultural produce
or of any class of agricultural produce as may have been declared to be free
from liability under the provisions of the Code.
c) Houses and other buildings (with the materials and the sites thereof and the
land immediately appurtenant thereto and necessary for their enjoyment)
belonging to an agriculturist or a labour or a domestic servant and occupied
by him;
d) Books of accounts;
e) A mere right to sue for damages;
f) Any right of personal service;
g) Stipends and gratuities allowed to pensioners of the Government (or of a
local authority or of any other employer) or payable out of any service family <
pension fund and political pension.

.
, h) The wages of labourers and domestic servants, whether payable in money
or in kind
i) Salary to the extent of the one thousand rupees and two third of the remainder
in execution of any decree other than a decree for maintenance.
j) One-third of the salary in execution of any decree for maintenance;
k) .. The pay and allowance of person to whom the Air Force Act, 1950 or the
Army Act, 1950 or the Navy Act, 1952 applies.
1) All compulsory deposits and other sums in or derived from the fund which
the Provident Funds Act for the time being, applies in so far as they are
declared by the said Act not to be liable to attachment.
m) All deposits and other sums in or derived from any fund to which the Public
Provident Fund Act, 1968 for the time being applies.
n) All money payable under a policy of insurance on the life of the judgment
debtor; . .
0) The interest of a lessess of a residential building.

p) Any special allowance forming part of the emoluments declared to be exempt
from attachment, and any subsistence grant for allowance made to any such
a servant while under suspension.
q) Any allowance declared by any Indian Law to be exempt from liability to
attachment or sale in execution of a decree; etc.
Note:
1) For the purposes of this proviso, the expression "agriculturist" means a

person who cultivates land personally and who depends for his livelihood
mainly on the income from agricultural land, whether as owner, tenant,
partner or agricultural labour.
2) Notwithstanding anything contained in any other law for the time being in
force, an agreement by which a person agrees to waive the benefit of any
exemption under this section shall be void.
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Essential Business Laws 4.6.18 Attachment of Movable Property
The attachment shall be made by actual seizure and the attaching officer shall
keep property in his own custody or of his subordinates and shall be responsible
for its due custody.
4.6.19 Attachment of Immovable Property

If the property is immovable, the attachment is to be made by an order prohibiting
the judgment-debtor from transferring or creating any charge on the property in
any way, and prohibiting all other persons from taking any benefit from such
transfer or charge. The order is to be proclaimed on some place adjacent to the
property, and a copy ofthe order is to be placed in some conspicuous part ofthe
property and then upon a conspicuous part of the Court-house.
4.6.20 Sale of Attached Property

Ifthe property attached is movable property which is subject to speedy and natural
decay, the same will be sold as early as possible.
.
,
4.6.21 Execution of Decree against the Firm
Where a decree has been passed against a firm, the execution may be granted
against Property of any members of the partnership as the Partners are jointly
and severally liable.
4.6.22 Rateable Distribution of Assets

Where assets are held by a Court, and more persons than one, have, before the
receipt of such assets, made application to the Court (executing the decrees) for
the payment of money passed against the same judgment-debtor and have not
obtained satisfaction thereof, the assets, after deducting the costs of realizing
such assets, shall be rateably distributed among all such persons. The object of
this Section is to provide a cheap and expeditious remedy for the execution of
money-decrees held against the same judgment-debtor by adjusting the claims
of several rival decree-holders without the necessity for separate proceedings.
4.6.23 Liability of Legal Representatives

A 'legal Representative' means a person who, in law, represents the estate of a
deceased person and includes any person who intermeddles with the estate of
the deceased and where a party uses or is used in a representative character, the
person on whom the estate devolves on the death of the party so using or used:
The Section 50 of the CPC provides for execution of a decree against the Legal
Representative of a deceased judgment debtor. Attachment can be made only of
the property of the judgment debtor found in the hands ofthe representatives, or
of the property of the representative only to the extent that he has used the assets
of the judgment debtor without satisfying the debts of the deceased. The liability
of the Legal Representative is confined to the property of the deceased which
has actually come to his hands.
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4) Explain the liability of Legal Representatives.
4.6.24 Interest on Dues Recoverable

The interest prior to institution of suit is a matter of contract and of the substantive
law.
The Interest on the principal sum decreed from the date of institution of suit till
the date of decree is to be awarded by the Court as per law on the subject;
Granting interest lies in the discretion of the Court, subject to guidelines given
by the Supreme Court in this matter ..
4.6.25 Interest in Mortgage Suits

The law on interest in mortgage-suit provides for payment of interest from the
date of filing of the suit till the date of realization.
Interest upto the date of the suit is governed by the contract between the parties
and it is to be awarded by the court unless the rate stipulated violates any other
Law. Where no interest is stipulated, the plaintiff is not entitled to any interest,
except under any mercantile usage or under certain statutory rights.
The Co-operative Societies Act provides for execution of an award or a recovery
certificate or an order passed under the Cooperative Societies Act and according
to the provision, the award or order may be executed either by Registrar or the
same may be executed through the Collector meant for recovery of arrears of
land-revenue or by a Civil Court. If an award passed under the Co-operative
Societies Act is transferred to a Civil Court for execution, the Civil Court executes
the award in the same manner by which it executes its own decree.
4.6.26 Power of Court to Enforce Execution

Subject to such conditions and limitations as may be prescribed, the Court may
on the application of the decree holder, order executing of the decree in following
means:
a) By delivery of any property specifically decreed,

b) By attachment and sale or by sale without attachment of any property;
c) By arrest and detention in prison;
d) By appointing a Receiver.
4.6.27 Execution against Property: General Provisions

No Officer in execution of a decree should enter dwelling house after sun-set or
before sun-rise. He should not break open the outer door unless the judgment-
debtor is in occupation and he refuses to open.
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Essential Business Laws Private alienation of a property after attachment is void. This is provided by
Section 64 of the Civil Procedure Code.
4.7 PROVISIONS FOR RECOVERY OF DUES OF .

CO-OPERATIVE SOCIETIES
So far as the matter relating to recovery of dues of cooperative societies is
concerned, it may be noted that the State Level Cooperative Societies Act of
each State provides specific provisions. So far as the matter relating to recovery
of dues of a Multi State Cooperative Society is concerned, the M.S.C.S.Act 2002
provides for a methods of recovery of dues.
1) General Provisions
Whenever a question of recovery of dues against a defaulting member of a
cooperative society arises, a cooperative society has to refer the case to the
Registrar for settlement of dispute and thereon an award is passed by the
.. Registrar or his nominee, known as an Arbitrator. This is a quasi judicial
proceeding.
2) Special Provisions
Whenever a question of recovery of dues in respect of agricultural credit
(short term, medium term and or long term) granted by a Primary Agricultural
Credit Society (known as PAC or service society) from a defaulting member
arises, the matter is referred to the Registrar for issuance of Recovery
Certificate. This is an alternative remedy for obtaining the certification of
claim speedily and with almost no cost. This is in a way a summary
proceeding and on enquiry and/or verification of loan-documents etc, the
Registrar grants a certificate of Recovery. In certain State, this privilege is
extended under the C.S.Act, for recovery of dues of some other types of
societies also.
Execution
Once an award or a Recovery Certificate is obtained by a cooperative society
against a defaulting member, a question of its execution arises. By and large,
the C.S.Act provides following three modes for execution of the Award,
Recovery Certificate or Order.
1) Through the Civil Court;
2) Through the Collector of the District; or
3) Through the Registrar himself; if the Registrar has been empowered under
the C.S.Act to recovery the dues himself or through his sub-ordinates.
a) When the issue of execution is entrusted to the Civil Court, the Civil
Court executes the Award/R.C., as if it is a decree and in that case, all
provisions relating to execution of decree, given in the Civil Procedure
Code, apply. In such case, however, a certificate from the Registrar to a
Civil Court is necessary indicating that the Award is a decree under the
C.P.Code, and be executed as per powers given to the Civil Court under
the C.P.c.
b) When the issue of execution is entrusted to the Collector, the Collector
executes the Award/R.C. as if the dues mentioned therein are arrears of
90 land-revenue. In such cases, the provisions, given in the Land Revenue
/
/
Act of the concerned State apply. However, a certificate from the Civil Procedure Code, 1908
Registrar to the Collector, stating that the dues mentioned in the Awardl
R.C. are to be deemed as arrears of land revenue and be recovered by
the Collector accordingly, is necessary.
c) Whenever the issue of execution is taken over by the Registrar himself
on application of a society, the Registrar, if delegated with the powers
of execution also, is competent to recovery the dues on )he basis of
Award, Recovery Certificate or Order, as the case may be, in accordance
with the specific provisions of the C.S.Act and Rules there under.
(Note: For reference, a student may refer to the C.S.Act of the
Maharashtra State as a specimen; Refer: Section 91,101,156 of the
M.C.S.Act 1960 and Rule No. 107 of the MCS Rules 1961).
The Registrar, in such cases, takes steps for coercive recovery by
attachment and sale of movable and immovable property. For this task,
the Recovery officers and the Sale officers are appointed by the Registrar
.
, to assist him.
Important Duties and Powers of Recovery Officer and of Sale Officer are as
under:
1) A Recovery Officer is to entertain an execution application, verify its
correctness and genuineness, prepare demand notice against the defaulter
and forward it to Sale Officer for recovery of the dues by attachment and
sale of defaulter's property;
2) He can adjourn the sale for reasons to be recorded by him;
3) He can issue prohibitory and attachment orders regarding salary allowance
and wages of a public officer or a servant of a local authority, a firm, a
company, any other institution.
4) The Recovery Officer is to issue demand notice allowing such time for
payment as he may prescribe and supply particulars of the immovable
property to be proceeded. But when the Recovery Officer is satisfied that
the defaulter is about to dispose of the whole or any part of his property, the
demand notice issued under rules may not allow time for payment and the
property of the defaulter may be attached forthwith.
5) Recovery Officer can set aside a sale if moved within 30 days from the date
of sale by the person owing such property or holding an interest therein by
virtue of a title acquired before such sale, on such person's depositing money.
6) It is a Recovery Officer who is competent to issue certificate of sale of

immovable property;
7) He can compel a legal representative of a defaulter to produce such accounts

ofthe estate of the deceased defaulter as he may think fit. This action can be
taken by the Recovery Officer of his own motion or when moved by the
decree-holder.
Duties and Powers of Sale Officer
1) On receipt of demand notice, the Sale Officer would first serve the notice on
the defaulter and if the latter fails to pay the dues, the Sale Officer shall first
proceed against the movab le property of the defaulter in the manner provided.
91
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Essential Business Laws In case no such property is available or it is found to be insufficient, then
Sale Officer shall proceed to attach and sell the immovable property of the
defaulter.
2) Sale Officer is not authorized to effect attachment or distress etc. after sunset
or before sunrise.
,
3) Sale Officer is empowered to attach and sell only so much property as may
be sufficient to meet the Award/R.e.. and costs etc. whether it is movable or
immovable property. After attachment of movable property he can deliver
the attached property to the defaulter or the decree-holder on execution of a
bond giving undertaking for producing it for sale;
4) Sale Officer can enter any premises to proceed against the property of the
defaulter and in case of need, can take assistance of the police. He can break
open any locks or door of a dwelling house etc to carry out the attachment.
He is bound to give facilities to women folk to withdraw from such premises;
5) Sale Officer shall proclaim time and place for sale of attached movable
property and can put it for sale in one lot or more and can refuse to accept
the highest bid where he may be of opinion that it is unduly low or for any
other reasons;
6) Sale Officer can adjourn any sale after recording reasons for the same;
7) In case, the defaulter or any person acting on his behalf or any person claiming
an interest in the attached property, pay the full amount due interest and
other costs incurred for attachment.Sale Officer shall cancel the attachment
and release the property forthwith.
8) Sale Officer cannot attach any property or salary and allowance etc. which
are exempted from attachment and sale under section 60 C.P.C.
9). In case of sale of immovable property, Sale Officer shall issue proclamation
of sale showing not only the time and place of sale but also the following
material facts:
a) the property to be sold
b) any encumbrance on such property
c) the amount for the recovery of which sale is ordered; and
d)· any other matter which sale Officer may consider material for a purchaser
to know in order to judge the nature and value of the Property;
10) A sum equal to 15% of the sale 'price shall be recovered by Sale Officer at
the spot from the purchaser but he can waive this, if the decree-holder is
purchaser and entitled to set off the purchase money.
11) Sale Officer shall be competent to receive and issue receipts for such amount
as may be received by him.
12) Sale Officer shall certify any deficiency of price in re-sale which shall be
recoverable from the defaulting purchase;
13) Sale Officer is empowered to rateably distribute the assets of the default,
amongst various decree-holders of the same defaulter in the manner provided
by 73 of the C.P.c.
92
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5) What are the Duties and Powers of sale officer?
................................................................ ,~ .
4.8 SUMMARY
•
• The Civil Procedure Code, 1908 is one the oldest Acts. It provides all
procedural aspects in the settlement of civil disputes. It has come into effect
from l.l.1909.
• Important terms, generally used in the civil matters, such as, court,
jurisdiction of courts, suit, plaintiff and defendant, judgment, decree,
execution are defined under the Code.
• The C.P.C. is divided into XI parts and the schedules containing Orders and
Rules there under. There are in all 158 sections and 51 orders. For procedural
matters relating to crimes/offences, there is a separate Act, called the Criminal
Procedure Code, 1976.
• Important topics for study are given in para no.4.6 and they are briefly
discussed vide sub-paras 4.6.1 to 4.6.27. Besides, the provisions relating to
recovery of dues of cooperative societies are narrated in para no.4. 7.
• The settlement of disputes is broadly divided into 2 phases viz 1) getting

decree passed and 2) getting the passed decree executed. For thepurpose of
getting a decree passed from a civil court having jurisdiction to try such
issue, one has to file a suit. There are certain essentials for a suit. That is to
say, a suit must contain certain details. The person who files a suit in a court
of law is called plaintiff and the opposite party a defendant. The suit is
required to be filed within the time specified in the Indian Limitation Act
1963, subject to exceptions.
• If the subject matter of a present suit is already tried and decided, a present
suit is liable to be dismissed. In other words, a suit in which the matter
directly and substantially in issue has already adjudicated, is barred. This
doctrine is known as "Res Judicata".
• Having understood the meaning of a decree, a next question arises how the
decree is executed by a civil court, in the event it is not complied with by
the lD.
• The steps involved in the matter of execution are very important. They are
spelt out in para no.4.6.9 to 4.6.12 with necessary details. The details include
1) What kinds of dues are recoverable?

2) What are the related powers of a civil court in execution?
93
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Essential Business Laws 3) What are the procedures which are required to be followed by a Civil
Court? etc.
• The most important provision in the C.P.c. describing which properties are
not attachable in the process of execution of decree, .is given in Section 60
of the Act. It gives a long list. It must be noted that this provision is so
fundamental that, for the purpose of arty recovery of dues under any other
Act, say Income Tax Act or Co-operative Societies Act, the provisions
contained in Section 60 required to be followed by all concerned Recovery
officers/executive authorities.
• The Act deals with other related aspects, such as,
1) How the movable property is attached and sold?

2) How the immovable property is attached and sold?
•
3) What is the liability of a legal representatives?
4) Interest on dues and interest on mortgage property?
• For recovery of dues of cooperative societies from defaulters, the provisions

generally contained in almost all State Level Co-operative Societies Act are
given in para no.4.7 with powers of Recovery Officer and Sale Officer.
• Broad provisions are mentioned in sections of the C.P.C.(ltoI58) while

detailed provisions of procedural nature are given in the first schedule. The
first schedule contains Order no. 1 to 51 and appropriate rules are given
below each order.

1) State the general frame work or salient features of the CPC.
2) How the decree is executed by a Civil Courts? (steps envisaged in execution)
3) State which properties are not attachable under the CPC?
4) Explain the doctrine of "Res judicata"?
5) What are the provision in the Co-operative Societies Act for recovery of
dues of co-operatives from their members?

, ,
94
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Terminal Questions Civil Procedure Code, 1908


1) Bare Act: CP.Code 1908 - Professionals' Series (Delhi) or Universals' Series (Delhi)
2) Commentary Book (Sarkar on Code of Civil Procedure, written by Sarkar and YR.
Manhor, Edition 2000.
, .
95
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·NOTES
» •
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IGNOU/SOLIP.O.IT/OCTOBER-20IO
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Essential Business Laws

"Education is a liberating force, and ill

Shri K.C. Mishra Dr. S.O. Junare

Dr. T. Paranjothi Prof. K. Elumalai

Block Preparation Team

Unit Writers Editor

Mr. lH. Jhadav Ms. Ananya R. Bibave

We welcome you to start your journey by understanding business law as applicable

Best Regards & Happy Reading!

The emphasis ofBLE-O 13 is on the Business Laws as Applicable to Co-operatives.

Block 1 has been divided into 4 Units.

·. L6 Important Topics for Study

a) "Business Law" touches all kinds of Acts/rules etc relating to business

d) The cooperatives are business organisations. They deal with members,

Remedies for breach of contract etc.

1.3 .BRIEF HISTORY

1.4 IMPORTANT DEFINITIONS

1.4.2 The Term 'Business Law' Explained

Self Assessment Question

1.5 SCHEME OF THE INDIAN CONTRACT ACT,

When one person signifiesjo another his willingness to do or not to do something;

1) Proposal must be specific and certain. It should not be vague or ambiguous.

1.6.2 Lawful Acceptance (Sec.7)

1) It must be absolute and unqualified, that means without any condition or

2) It must be communicated to the proposer;

3) It must be given in the manner specified in the proposal or according to the

4) It must be given within a reasonable time and before the proposal is

1.63 Capacity of Parties or Competency of Parties to make a

2) That a person should be of sound mind at the time of giving a proposal or a .

Example: A contract by an insolvent person is not a valid contract, as under the

1.6.4 Minor's Agreement (Compentency to Contract Sec.11)

1) A contract by a minor is void ab initio (Case law: Mohiribibi v. Dharamdas

Note: The Case is given below for study ofthe learners.

Full case name: Mohiribibi v. Dharmodas Ghose

Authority which decided the case: The Privy Council, V.K.

1.6.5 Lawful Consideration (Sec. 2(d)

Generally, 'consideration' consists in the form of cash, property (movable and

Example: As per proposal of B, A agrees to purchase a house of B for Rs.5

1.6.6 Free Consent-{Sec.Id)

When it is not caused

Self Assessment Question

1.6.7 Lawful Consideration and Lawful Objects

The important features relating to consideration may be summed up as follows

1) It must move at the desire of the promisor.

3) It is in the form of some act, abstinence or forbearance.

4) It may be past, present or future;

5) It may be adequate or may be inadequate. If it is inadequate owing to undue

7) It must not be illegal, immoral or opposed to Public Policy.

Note: Generally it is presumed that the advertisements, tenders, catalogues and

Full Case name: Carlill v. Carbolic Smoke Ball Company

Facts of the case: (English Case)

The Company published advertisement in the Pall Mall Gazette on November

I) An offer and acceptance

Citation: {l893} 1 QB 256

1.6.8 Kinds of Contracts

1) . Valid Contract: means a contract which is enforceable by law {Section 2

2) Void Contract: means a contract which is not enforceable by law (Section

3) A is a patient of B, who is a Doctor. B has exercised undue influence on A,

••••••••••••••••••••••••••••••.••••••••••••••.•••...••••..•....•.•...•••....•...• "....••.•...•• 'r•.•.•.........

1.6.9 Void Agreement

1) If considerations and objects are unlawful. in part, the agreement is void

1.6.10 Contingent Contracts