Académique Documents
Professionnel Documents
Culture Documents
Examples:
Contract Act, 1872, Sale of Goods Act, 1930,
Negotiable Instruments Act, 1881, Partnership Act,
1932, companies Ordinance, 1984, Factories Act,
1934, Tenancy Agreement and Partnership Deed,
etc. etc.
NEED FOR STUDY OF BUSINESS LAWS
i. Every citizen is required to know the basic law of the
country as ignorance of law is no excuse.
Examples:
a) A milkmen must know the punishment for
adulteration of milk with water. Such punishment
must be inflicted on the milkmen who sell adulterated
milk and spoil the health of people. Thus there is a
need for every citizen to know the basic law.
b) Bribery is prohibited by law. All government servants
should know it is crime.
NEED FOR STUDY OF BUSINESS LAWS
c) All drivers of vehicles should know the law of traffic signals and
should respect them otherwise serious accidents are likely to take
place and endanger human life and property. Thus there is a need
for drivers of vehicles to know and respect the law of road traffic.
d) Accountants, especially public accountants and auditors have to
share and undertake greater responsibility. It is their duty to report
true and financial information and not to hide important relevant
information, in the public interest. If they do not follow the law, it
will amount to dishonesty and criminal act.
CONCLUSION:
Since the aim of all laws is to protect society’s interests, business laws
are also made to achieve the same aim and objective.
Sources of Law
The phrase “Sources of Law” has been used in different
senses by different jurists. According to salmond, an
internationally recognized jurist there are two main
sources of law.
o Formal Sources
o Material Sources
Formal Sources
The formal sources are the will of the state as depicted
by status (laws) made by the parliament and courts.
Material Sources
Material sources are those from which the law drives its
matter. Material sources are further divided into (i) Legal &
(ii) Historical.
i. Legal Sources: Legal sources are those which are the
instruments or organs of the state by which legal rules
are framed, these sources include parliament, customs,
agreements, precedents.
Examples:
Parliaments: Which creates laws it is a source of making
law.
Customs: Customs of the society which become the basis of
a law.
Material Sources
ii. Agreements: Terms and conditions agreed by the
contracting parties have legal effects. All agreements
contain some terms and conditions which serve as rules to
be observed by the parties to the agreements.
iii. Precedent: Precedent is also known as case law or judge-
made law. While studying the development of common law
and equity, we shall note that these two sources of law
developed mainly through a series of decisions given by the
judges.
iv. Historical Sources: In historical sources, primarily the
society’s customs, rules and regulations which were in un-
authoritative form and subsequently, the courts recognized
them and made them the basis of their decisions and
judgments. In this way they took an authoritative form.
Sources of Business Laws
In Pakistan following are the sources of business law:
All agreements are contracts if they are made by the free consent of
parties competent to contract for a lawful consideration and with
lawful object and are not hereby expressly declared to be void.
Undue Influence
Definition:
According to oxford dictionary.
“Undue influence means influence that prevents someone from
exercising an independent judgment with respect to any
transition”.
According to Osborn’s dictionary.
“Undue influence means the act or power of producing an effect
without apparent force or direct exercise of command”.
According to Section 15 of the act.
“A Contract is said to be induced by undue influence where the
relation subsisting between parties are such that one of the
parties is in a position to dominate the will of the other and uses
that position to obtain unfair advantage over the other.
Undue Influence
Undue influence may be induced.
1. By a teacher on his taught.
2. By a medical doctor on his patient.
3. By a lawyer on his client.
4. By a guardian on his ward.
5. By a man on a pardahnashin woman.
Undue influence makes the contract voidable at the
option on the party whose consent has been obtained
by undue influence.
Undue Influence
Elements constitute undue influence.
Surety: The person who gives the guarantee is called the surety.
Creditor: The person to whom the guarantee is given is called the creditor.
Principal debtor: The person in whose default the guarantee is given is called the principle
debtor.
Condition and Warranty
Condition (meaning & definition).
A condition is a stipulation essential to the main purpose of a contract the
breach of which gives rise to a treat the contract repudiated Section 12 (2).
Condition is a stipulation essential to the main purpose of the contract and
breach of which gives the aggrieved party a right to terminate the contract or
to claim damages in case of acceptance of contract.
Example: C Contract to deliver 100 royal fans to B. C delivers climax fans. It is
a breach
Difference between Fraud and
Misrepresentation.
Fraud:
Fraud may be defined as an intentional or will full misstatement of facts which are
necessary for formation of the contract. It includes all acts committed by a person in
order to deceive another person (section 17) states. Fraud means and includes any of
the following acts committed by a party to a contract with his connivance or by his
agent, with intent to deceive another party there to or his agent or to induce him to
enter into the contract.
Misrepresentation:
The term misrepresentation means false representation of a fact made innocently or
non-disclosure of material fact without any intention to deceive the other party.
According to Section 18.
Example: A tells B that his land produces 4000Kg of wheat per acre. A believes it to be
true. B buys it. Later, it appears that the land produces 1000Kg of wheat per acre. It is
misrepresentation.
Difference between Fraud and
Misrepresentation.
Misrepresentation:
1. A false statement without any intention to deceive would be a misrepresentation.
2. It makes a contract voidable.
3. The fact that the plaintiff has the means of discovering the truth is a good plea.
Fraud:
1. A false statement deliberately made to deceive another is a case of fraud.
2. It gives rise to an independent action.
3. It is not open to the person making of false statement to say that the plaintiff had
means of discovering truth with ordinary diligence.
Contracts, Voidable Contracts & Void
Agreements
Q. Explain and discuss the essentials of a valid contract?
OR
What are the essentials of a valid contract?
Ans. (1) Definition of Contract.
i. According to section 2(h) of contract act 1872: An agreement enforceable by law
is a contract.
ii. According to Anson: A contract is an agreement enforceable at law made
between two or more persons, by which rights are acquired by one or more to act
or forbearance on the part of the other or others.
iii. According to Sir Frederic Pollock: Every agreement and promise enforceable at
law is a contract.
Definition of Valid Contract
According to Section 10 of Contract Act 1872: All agreements are contract if they are made by
the free consent of parties competent to contract, for a lawful consideration and with lawful
object and are not hereby declared as void.
Example:
I. A contract C to buy 1 ton of iron for Rs. 80,000. A also contract to sell B, 1 ton iron
for Rs. 1 Lac. A informs C about the purpose of contract C fails to supply. As a
result, A cannot supply to B. C is liable for loss of profit which A would have
earned from B.
II. S delivered his samples to NWR Co. for exhibition at New Castle. He wrote on
consignment “must be at New Castle on Monday certain”. Due to negligence, the
goods reached after the show. The NWR Co. was aware of the object of carrying
the goods. Held S could claim special damages. (Simpson vs. London & V.W
Railway)
Remedies for Breach of Contract
Exemplary Damages: Exemplary damages are awarded to punish the guilty party for
the breach of contract. The breach of contract results in monetary loss to the
aggrieved party and causes disappointment. Exemplary damages have no place in law
of contract and are not recoverable. These are awarded in the following cases:
• In case of breach of contract to marry, the amount of damage depends upon the
extent of injury to the feelings of the party.
• In case of dishonor of cheque by a bank when there are sufficient fund to the
credit of the customer. According to rule, the smaller the cheque dishonored, the
greater the damage.
Example:
OS bank promised to give loan to W for a trip to California by crediting his account.
Bank failed to do so and W’s cheque was dishonored. The court allowed exemplary
damages for the emotional distress. (Wests vs. Olathe State Bank)
Remedies for Breach of Contract
Liquid Damages: When parties to a contract fix the amount of damages for breach of contract at
the time of formation of contract, such damages are called liquidated damages. Where a sum is
agreed in the contract to be paid by the defaulting party in case of breach of contract, the court
will allow reasonable damages not exceeding the amount already agreed. If actual loss is more
than the agreed amount, damages will be payable to the agreed amount. (Sec.74)
Example:
A contract to pay Rs. 20, 000 as damages to B, if he fails to pay Rs. 5 Lac on a given day, A fails to
pay on that day, B can recover damages not exceeding Rs. 20, 000.
Nominal Damages: Nominal damages are neither awarded to compensate the aggrieved party
not to punish the guilty party, when the aggrieved party suffers no loss. The court may award
nominal damages in recognition of his right. The court has discretion in this case. The court may
refuse to award damages.
Example:
• A promises to sell cement to B for Rs. 200 per bag. A does not supply. At the time of breach,
the market rate of cement is the same. B is entitled to nominal damages.
• S contracted to buy a Hillman car from C, a car dealer, but later refused to buy. C sold the
same car to another customer and suffered no loss. C sued for loss of profit. Held he could
recover nominal damages. (Charter vs. Sullivan)
Suit for Specific Performance
Specific performance means the actual carrying out of the contract by a party in cases where
damages are not an adequate remedy, the court may direct the guilty party to fulfill the contract.
The aggrieved party can sue for specific performance in the following cases:
• When monetary compensation is not an adequate remedy.
• When it is difficult to calculate the actual damages.
• When compensation in money cannot be obtained.
Example:
a) B agrees to sell his plot to C, who wants to erect a factory. B commits breach. On the suit of
C, B is directed by the court to perform the contract.
b) A agrees to sell B his painting but commits breach. B cannot sue for damages. A shall be
ordered to make specific performance to B.
Suit for Injunction
Suit for injunction means to demand a court’s stay order. Injunction means an order of
a court which prohibits a person from doing a particular act. Where a party to a
contract does something which he promised not to do, the court may issue an order
prohibiting him from doing so.
Example:
• W agreed to sing at Lu’s theatre and for no one else. Afterward, W contracted Z to
sing at another theatre and refused to sing for Lu. Held, W could be restrained by
injunction from singing for Z. (Lumly vs. Wagner)
• G agreed to take the supply of electricity only from M Co. G was, restrained
Introduction
The first act for the purpose of regulating the activities of Joint Stock Companies in
sub-continent was enacted in 1850 in the then British India with the title ‘Registration
of Joint Stock Companies Act, 1850. Thereafter, various Companies Act were
promulgated to regulate the joint stock companies. These acts were Indian Companies
Act, 1857, Indian Companies Act 1866, Indian Companies Act, 1882 and lastly the
Indian Companies Act, 1913.
After the emergency of the Islamic Republic of Pakistan, the Companies Act, 1913 was
adopted. Since then till 1984 that Act, with some minor amendments, was the law
regulating the Stock Companies in Pakistan.
In Oct, 1984, the President of Pakistan approved the Companies Ordinance, 1984. It
was published on Oct 08, 1984 at pages 195 through 571 of the Gazzette of Pakistan,
Extraordinary. This Ordinance is the combination of various Acts and Ordinance, such
as, the Companies Act, 1913, the Companies (Foreign Interests) Act, 1918, the
Companies (amendment) Act, 1930, the Undesirable Companies Act, 1958, the
Securities and Exchange Ordinance, 1969, the Companies (Managing Agency and
Election of Directors) Order, 1972, and the companies (shifting of Registered Office)
Ordinance, 1972. All these laws (expect the Securities and Exchange Ordinance, 1969)
were repealed by the Seventh Schedule of the Companies Ordinance 1984.
Introduction
Currently, the Companies Ordinance, 1984 (XLVII of 1984) is the law which regulates all matters
relating to the companies. Originally it had 514 section and eight schedules. Thereafter, off and on
certain amendments have been incorporated. It provides the guiding principles and lays dawn the
rules and regulations which cover almost the whole matters relating to a company.
Lord cairns has defined a memorandum as a charter of a company which defines the
limitations of the power of the company established under the law/ It contains the
fundamental conditions upon which alone the company is allowed to be incorporated. It
is the constitution of the company and is the foundation on which the structure of the
company is based. It defines its relation with the outside world and the scope of its
activities. Its purpose is to enable the shareholders and those who deal with the
company to know what permitted range of the enterprise is.
Interpretation
The ‘articles’ of a company is a booklet of rules and regulations. Just like other bye-laws, it may have
its own terminology. Thus at the start, it generally contains the specially assigned meanings of such
terms which are frequently to be used in the articles. These definitions shall apply to a particular
company only.
Commencement of Business.
In case of a public company, the articles shall impose a restriction that the company shall commence
its business only if it has obtained the certificate of commencement business as required under
section 146 of the Ordinance.
Articles of Association
Shares
The articles shall contain the regulations about the following matters:
• Any restriction on the issue of shares to the public.
• Amount payable on application for the shares.
• Procedures for issuance of shares.
• Issue of share certificate.
• Transfer and transmission of shares.
• Any restrictions on transfer of shares.
• Issue of duplicate share certificate in a case where original certificate is defaced, lost or
destroyed, and
• Fee payable to the company on transfer of shares and issue of duplicate shares certificate.
Alteration of Capital
Generally, the power of a company to alter its share capital is provided in the memorandum. The
articles shall contain the provisions regarding the procedure to be adopted while increasing,
consolidating, dividing, sub-dividing, cancelling or reducing the share capital of the company.
Articles of Association
General Meeting
The articles shall provide for the following matters:
• Types of meetings.
• Number of meetings to be held.
• Period for holding general meetings.
• Business to be transacted in general meetings.
• Notice period.
• Quorum of the meetings.
Types of Companies
Various types of companies are found in the world. These may be classified in the following broad
categories:-
1. Chartered Companies.
2. Statutory Companies.
3. Registered Companies.
Chartered Companies:
Chartered Company means a company that is formed by and is being regulated through the provisions of a
special charter granted by the king. Queen of the state. Such type of companies enjoys certain privileges
over other companies and at the same time has also to perform special functions and fulfill special
obligations. In the sub-continent East India Company and the Chartered Bank of England (now-a-days
known as Standard Chartered Bank, after mergers with some other banks) were some of the chartered
companies.
Statutory Companies:
Statutory Company means a company which is incorporated and regulated by a special act of the
parliament or an ordinance issued by the Head of State. The provisions of the statute shall be applicable
only to that particular company. Generally, a statutory company does not have the memorandum or
articles. The objects, limitations, liabilities, jurisdictions and the concerned statute and the regulations
made under that statute. The State Bank of Pakistan is the first statutory company of Pakistan. Institute of
Chartered Accountants of Pakistan. Institute of Cost and Management Accountants of Pakistan, Agricultural
Development Bank of Pakistan, Investment Corporation of Pakistan and House Building Finance
Corporation are some other examples of statutory companies.
Types of Companies
Registered Companies:
Registered Company means a company, which has been registered under the specific law of the country
regulating the companies, in general, in that particular Country. In Pakistan, a company that is registered
under the Companies Ordinance 1984 or any of the previous companies acts falls under this category of
companies. The Companies Ordinance further classifies the registered companies into the following four
broad classifications: {15(2) & 42}
a) Companies limited by shares.
b) Companies limited by guarantee.
c) Unlimited Companies.
d) Associations not for profits.
Unregistered Company:
For the purpose of Part-XIII of the Companies Ordinance, 1984 (i.e. Winding-up of unregistered
Companies) the expression “unregistered company” has been defined as below:
“Unregistered Company” shall not a railway company incorporated by act of parliament of the United
Kingdom or by a Pakistan law, nor a company registered under any previous companies act or under the
Companies Ordinance, 1984 but save as aforesaid shall include any partnership, association or company
consisting of more than seven (7) numbers.
Foreign Company:
“Foreign Company” means such a company which is incorporated or formed outside Pakistan and has
established a place of business within Pakistan.
Part-XIV of the Companies Ordinance, 1984 (i.e. Section 450 through 465) provides specific provisions
which are applicable to foreign companies.
Types of Companies
Company Limited by Shares:
It means a company whose memorandum of association limits the liabilities of its members to the amount
unpaid, if any, on the shares respectively held by each of them. It is the most popular from of companies
throughout the world. Practically some individuals get together, decide the objects, pool the required
capital, obtain the registration from the concerned authority and start their business in the name of the
Company.
Company Limited by Guarantee:
It means a company whose memorandum of association limits the liabilities of its members to the amount
as the members may respectively undertake to contribute to the assets of the company in the event of its
winding up. This company may or may not have a share capital.
Where a company is being wound-up , a member of such company may be called to contribute towards
the assets of the company for:
i. The payment of debts and liabilities of the company contracted during the period when he was a
member.
ii. The costs, charges and expenses of winding-up.
iii. The adjustment of the rights of the contributories among themselves.
A member can be called upon to contribute for above purposes during the period of his membership or
within one year afterwards.
Types of Companies
Unlimited Company:
“Unlimited Company” is a company which does not limit the liability of its members. A company whose
memorandum of association either state that liability of the members shall be unlimited or does not state
the liability shall be limited to the extent specified therein is termed as an unlimited company. As there is
no limit on the liability of members, only few companies are registered in Pakistan as unlimited.
Association not for Profits:
The Companies Ordinance, 1984 provides that an association capable of being formed as a limited
company may be formed as a company with limited liability but without adding to its name the words
“Limited”, “(Private)” Limited” or “(Guarantee) Limited” as the case may be. The securities and Exchange
Commission of Pakistan may allow the registration of such a company if the following conditions are
fulfilled:
1. The company is being formed for promotion of:
i. Commerce.
ii. Science
iii. Religious
iv. Sports
v. Social Services
vi. Charity
vii. Any other useful object
2. It applies or intends to apply its profits. If any, or incomes in promoting its objects.
3. It prohibits the payment of any dividend to its members.
Types of Companies
While granting license, the SECP may impose such conditions and regulations as it may think fit. The
association, upon registration, shall enjoy all privileges of a limited company.
The SECP may at any time revoke the license granted u/s 42. But before revocation of the license. It
shall give the association a written notice of its intention and shall provides an opportunity of
submitting a representation in opposition to the revocation.
Private Company:
“Private Company” is a company which by its articles,
1. Limits the number of its members to fifty excluding the persons who are in the employment of
the company.
2. Restricts the right to transfer its shares, if any.
3. Prohibits any invitation to the public to subscribe for the shares in, if any or debentures of the
company.
Notes:
1. Where two or more persons hold one or more shares in the company jointly, they shall, for the
purpose of this definition, be treated as a single member.
2. A private company may be formed with at least one member.
Types of Companies
Public Company:
“Public Company” means a company, which is not a private company. In other words, it is a company,
which does not:
1. Limit the maximum number of its members to fifty.
2. Restrict the right to transfer its shares, if any.
3. Prohibit from inviting public to subscribe for the shares in, if any, or debentures of the company.
A public company may be incorporated with at least three (3) members {15(1)}. Public companies may
further be classified into the following two categories:
a. Listed companies.
b. Non-listed companies.
Listed Company:
A listed company means a company whose securities are allowed to be traded on a stock exchange.
Non-Listed Company:
A non-listed company is a company whose securities are not allowed to be traded on a stock exchange.
Holding Company:
A company or a body corporate shall be the holding company of another company or body corporate, if
any of the following conditions is satisfied:
1. It holds more than 50% of the voting securities of another company (these securities may be held
directly or indirectly).
2. It has the power to elect and appoint more than 50% of the directors of another company.
A company may control, beneficially own or hold the voting securities either directly or indirectly.
Types of Companies
“Voting Security” means such a security which carries voting rights in meetings of
members of the company. It includes shares and may include debentures and other
securities which carry voting rights.
The civil liability is a liability to pay for the loss or damage occurred to some person due to the act,
omission or abstinence of some other person. The criminal liability is the punishment in item of a
fine or imprisonment for contravention of any of the provisions of the law.
Remedies Available to a Subscriber
Where a person subscribes for the shares or debentures of a company by responding a prospectus
that contains as untrue statement, then the following remedies shall be available to him:
1. Declaring the Contract as Void:
A contract induced by misrepresentation is voidable. A person may render a contract for shares
or debentures as void if the following conditions are fulfilled:
a) There was a misstatement in the prospectus.
b) The misstatement must be about the facts.
c) The statement on which he relied upon was actually untrue.
d) The misstatement is of the nature that may influence the decision of the investors.
e) The investor actually relied upon such statement while deciding for the subscription in
shares or debentures.
Directors
The companies ordinance does not provide a comprehensive definition of the “Director”. According
to section 2(1)(13) any person, by whatever named called, occupying the position of a director is a
director. A director is an officer of the company concerned with the management of the affairs of
the company on behalf of the members. He acts as an agent and representative of the company. It is
to be noted that only a natural person can become a director of a company.
Kinds of Directors:
Under the companies ordinance, 1984 and rules made thereunder there may be the following kinds
of directors.
Elected Director:
It is the most common kind of directors. Initially the subscribers to the memorandum and
thereafter, the members of the company elect the persons out of themselves who will act as
directors of the company. These persons are termed as elected directors.
Nominated Director:
Certain persons may become director of a company due to their nomination by some other person
or body. Such directors are known as “nominated directors”. This nomination may be under the
provision of any law or an agreement with the company.
Directors
Ex-Officio Director:
Every person who is appointed as “Chief Executive” of a company, if already not a director of that
company, will automatically become a director of the company. Such a director is called an “ex-
officio director”. Such a person will cease to be a director as soon as he vacates the office of chief
executive.
Sole Director:
A person who is the single member of a Single Member Company shall also be the director of that
company and is termed as “sole director”. If there is more than one director in that company than
such director shall be termed as the “member director”.
Nominee Director:
In a single member company a person is nominated by the single member to act as director in case
of death of the single member. The person so nominated is called “nominee director”.
Notes:
1. A single member company shall also have one “nominee director” and another “alternate
nominee director”. These persons shall have a legal role only in the event of death of the single
member.
2. A listed company shall have at least seven (7) elected directors. However, in case of a non-listed
public company or a multi member private company the minimum number of directors may
include the nominated and ex-officio directors.
Directors
Director and his position in relation to a company:
Only a natural person, who does not fall under any of the ineligibilities specified by the law or the
articles, shall be a director of company. Unlike a partner in a firm, a director has restricted powers
and is not a variable representative of the company. A director can exercise only those powers and
jurisdiction as have specifically been assigned to him.
Note:
Disqualification under point number 10 and 11 shall apply in case of a listed company.