Final Report B & L

8/8/2019 Final Report B & L

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Allama Iqbal Open University Islamabad(Department of Business Administration)

“Select any small scale business organizationand discuss various steps taken by the

company in formation of the sale contract”

Study of “ ”

Assignment No.2

Submitted by: HINA IMTIAZ

AD513637

Submitted to: MR. AHMED





ACKNOWLEDGEMENT

All acclamation to Allah who has empowered and enabled

me to accomplish the task.

Successfully first of all I would like to thank our Allah

Almighty who really helps me in every problem during the

project. I would like to express my sincere and humble

gratitude to Almighty who’s Blessings, help and guidance

has been a real source of all my achievements in my life.

I would like to admit that I completed this project due to

parents who pray for my success.

I also wish to express my appreciation to my supervisor Sir

Asif who helps me a lot and introduce me to new

dimension of knowledge.




DEDICATION

My project is dedicated to my beloved Parents,

teachers,

brothers, sister and all of my well wishers

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Outlines

Introduction and discussion of Sale of Goods Act, 1930

Essential for formation of a sale contract

Case Study

Practical Study Ahmed Fine Textile MillsLimited

Introduction of the organization

Vision and Mission Statement

Purchase department overview

Discussion regarding sale of contract

SWOT Analysis Suggestions Recommendations

Conclusion

Sale of Goods Act, 1930 (Pakistan)

Introduction

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Initially the law governing the sale of goods was part of the contractact 1872 and it was contained from sections 76 to 123. On 1st July,1930 it was enacted as a separate law and renamed as sale of goodact. The number of sections also increased from 48 to 66. The purpose

of this law is to define and amend the law relating to the sale of goods.

FORMATION OF THE CONTRACT, CONTRACT OF SALE [Sec. 4(1)]

Contract of Sale [sec.4(1)]

According to Sec.4(1) of contract of sale of goods act 1930, “ Acontract whereby the seller transfer or agrees to transfer the propertyin goods to the buyer for a price”. A contract of sale of goods may bein writing or oral. The contract of sale includes:-

Sale

When under a contract of sale, property in goods is transferred fromthe seller to the buyer, the contract is called a “sale”. If there is noprice for the goods, which are agreed to be transferred, it will beknown a gift and not a sale of goods.

Agreement to sell [Sec.5(2)]

1. Where under a contract of sale the property in the goods

is transferred from the seller to the buyer, the contract is calleda sale, but where the transfer of the property in the goods is totake place at a future time or subject to some conditionthereafter to be fulfilled, the contract is called in agreement tosell.

2. An agreement to sell becomes a sale when the time elapses orthe conditions are fulfilled subject to which the property in thegoods is to be transferred.

Essentials of contract of sale

Following are the essentials of contract of sale of goods:-

1. Buyer and Seller:

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There must be two different parties namely the buyer and theseller of goods because a person cannot buy his own goods. Acontract without the existence of these two parties cannot beformed. Infect the contract of sale of goods define the rights andobligations of buyer and seller.

Contract of sale how made

A contract of sale is made by an offer to buy or sell goods for aprice and the acceptance of such offer. The contract may providefor the immediate delivery of the goods or immediate paymentof the price or both, or for the delivery or payment byinstallments, or that the delivery or payment or both shall bepostponed.

2. Transfer of Property

Transfer of property is an essential element of a valid contract of sale. There must be a transfer of property or an agreement totransfer the property from seller to the buyer. It means thatownership of property must be transfer by the seller to thebuyer. Mere transfer of goods does not consider a valid contractof sale. So title of goods must be transfer in order to form acontract of sale.

3. Goods 2(7)

According to Sec.7, of the act “Goods means every kind of moveable property including stock, shares, growing crops, grass.Moveable property is that which is not permanently attached tothe earth and can easily moved and taken from one place to theother. But action claims or money are not included in goods. Thegoods which from the subject matter of the contract of sale mustbe moveable and not immovable. There are four kinds of goods.

• Future goods

• Specific goods

• Unascertained goods

• Contingent goods

4. PriceIt is define as money consideration for sale of goods. Atransaction in which price is missing cannot be regarded a sale of goods. The price always in money and not other things. Thedirect exchange of goods with other goods is termed as barter

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and not sale of goods. So transfer of goods must be in exchangeof money and not goods.

5. Essentials of ContractContract of sale must have all the essentials of a valid contract. If

any element of contract is missing or any provision of law is notfollowed during the performance of contract, it declare void .

Types of Goods

1. Existing Goods Sec. 6(1)

The goods which from the subject matter of a contract of sale areowned or possessed by the seller at the time when contract of sale is made the goods are termed as existing goods. Existinggoods include specific goods, ascertained goods and

unascertained goods. The existing goods have three kinds:-

i. Specific goodsii. Ascertained goodsiii. Unascertained goods

Subject-matter of Contract

Existing or future goods or possessed by the seller, or future goods.

1. The goods which form the subject of a contract of sale may beeither existing goods, owned

2. There may be a contract for the sale of goods the acquisitionof which by the seller depends upon a contingency which may ormay not happen.

3. Where by a contract of sale the seller purports to affect a presentsale of future goods, the contract operates as an agreement tosell the goods.

Conditions and Warranties

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Stipulation as to time

Unless a different intention appears from the terms of the contract,stipulations as to time of payment are not deemed to be of theessence of a contract of sale. Whether any other stipulation as to time

is of the essence of the contract or not depends on the terms of thecontract.

Condition and warranty

1. A stipulation in a contract of sale with reference to goods whichare the subject thereof may be a condition of a warranty.

2. A condition is a stipulation essential to the main purpose of thecontract, the breach of which gives rise to a right to treat the

contact as repudiated.

3. A warranty is a stipulation collateral to the main purpose of thecontract, the breach of which gives rise to claim for damages butnot to a right to reject the goods and treat the contract asrepudiated.

4. Whether a stipulation in contract of sale is a condition or awarranty depends in each cease on the construction of thecontract. A stipulation may be a condition, though called awarranty in the contract.

When condition to be treated as warranty

1. Where a contract of sale is subject to any condition to befulfilled by the seller, the buyer may waive the condition orelect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract asrepudiated.

2.Where a contract of sale is not severable and the buyer hasaccepted the goods are part there of 5 the breach of anycondition to be fulfilled by the seller can only be treated as a

breach of warranty and not as a ground for rejecting the goodsand treating the contract as repudiated, unless there is a termof the contract, express or implied, to that effect.

3.Nothing in this section shall affect the case of any condition orwarranty fulfillment of which is excused by law by reason of impossibility or otherwise.

Implied undertaking, as to title, etc

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In a contract of sale, unless the circumstances of the contract are suchas to show a different intention there is

An implied condition on the part of the seller that, in the case of sale,

he has a right to sell the goods and that, in the case of an agreementto sell, he will have a right to sell the goods at the time when theproperty is to pass;

The words and comma "or where the contract is for specific goods theproperty in which has passed to the buyer," omitted by the Sale of

Goods (Amendment) Ordinance, 1962 (47 of 1962), S.3 (with effectfrom the 7th June, 1962).

(b) An implied warranty that the buyer shall have and enjoy quietpossession of the goods;

(c) An implied warranty that the goods shall be free from any charge orencumbrance in favor of any third party not declared or known to thebuyer before or at the time when the contract is made.

Sale by description

Where there is a contract for the sale of goods by description there isan implied condition that the goods shall correspond with thedescription; and, if the sale is by sample as well as by description, it isnot sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.

Implied conditions as to quality or fitness .

Subject to the provisions of this Act and of any other law for the timebeing in force, thee is no implied warranty or condition as to the

quality or fitness for any particular purpose of goods supplied under acontract of sale, except as follows:-

1. Where the buyer, expressly or by implication, makes known tothe seller the particular purpose for which the goods arerequired, so as to show that the buyer relies on the seller's skillor judgment, and the goods are of a description which it is in thecourse of the seller's business to supply (whether he is the

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manufacturer or products or not), there is an implied conditionthat the goods shall be reasonably fit for such purposes:

Provided that, in the case of a contract for the sale of a specifiedarticle under its patent or other trade name, there is no implied

condition as to its fitness for any particular purpose

2. Where goods are bought by description from a seller who dealsin goods of that description (whether he is the manufacturer orproducer or not), there is an implied condition that the goodsshall be of merchantable quality:

Provided that, if the buyer has examined the goods, there shallbe no implied condition as regards defects which such

examination ought to have revealed.

3. An implied warranty or condition as to quality or fitness for aparticular purpose may be annexed by the usage of trade.

4. An express warranty or condition does not negative a warrantyor condition implied by this Act unless inconsistent therewith.

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Status

The Company is limited by shares incorporated in Pakistan on

December 13, 1989 under the Companies Ordinance, 1984 with an

Authorized Capital of 10000000 Ordinary Shares of Rs. 10/- each i.e.,

Rs. 100000000/-. The Issued, Subscribed and Paid up Capital of the

Company is 3800000 Ordinary Shares of Rs. 10/- each full paid in cash

i.e., Rs. 38000000/-

Nature of Business

The Principal Business of the Company is Manufacture and Sale of Yarn

and Cloth.

Manufacturing Units

The Company has two manufacturing units, one is spinning unit and

the other is Weaving unit.

The Spinning Unit is located at District Rahim Yar Khan and the

Weaving Unit is located at District Multan in the Province of Punjab.

Offices

Head Office of the Company is located at Ist

Floor, International Plaza, Bohra Street, Multan Cantt. Sub Office is

located at 35-KM, Multan-Bahawalpur Road, Near Adda

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Basira, Multan. Another sub office is located in the Spinning Unit at

Rahim Yar Khan. is currently ranked as the sixth largest mobile phone

operator in the world, with more than 172 million subscribers. In

addition, it has extensive broadband and TV distribution operations in

four Nordic Countries.

MISSION STATEMENT

To produce superior quality of Yarn by focusing on customer demand in

order to face the competition in international market and at the same

time taking care of its employees, suppliers, shareholders and society.

Purchase Department

The purchase department is divided into to two sections, cotton

purchase department and store purchase department.

Cotton Purchase Department

Cotton purchase department is most important department in textile

industry. Quality of yarn depends upon cotton that has been

purchased. It becomes most important when there is business of

export. There is no question of compromise on quality. Because your

minor mistake may result in huge losses. Moreover you will loss your

credibility. From director to cotton selectors all are involved in cotton

purchase process.

Purchase Process

The following steps are involved in the purchase of raw material i.e.

cotton.

Visit Of Cotton Selectors

The cotton selectors of AFT visit the cotton ginning factories. Cotton

selectors may visit the factories on their own behalf and some times

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http://en.wikipedia.org/wiki/List_of_mobile_network_operators


http://en.wikipedia.org/wiki/Nordic_Countries

http://en.wikipedia.org/wiki/Nordic_Countries






the cotton factories call them. Their visits are very important because

purchase process starts from here.

Selection of sample

Samples are selected from huge amounts of cotton. Samples are taken

from different suppliers. These samples are then tested. The most

suitable sample at lowest price is selected for Purchase of cotton.

As there is centralized management system so the Director himself

takes the decision of selection and purchase of cotton. In other words

Director is final authority in making decision.

Store Purchase Department

The store purchase department is headed by Stores In charge. The

setup of purchase department is as under:

• Director

• Purchase Officer

• Assistant Purchase Officer

• Purchase Clerk

The store purchase department is responsible for the purchase of

items like Spare parts of machinery, store and Packing material

spares, electric items, oil and lubricants, Stationery items, Building

Material, and General Store,

DOCUMENTS

• Demand Requisition.

• Invoice of Purchase

• Delivery Order

• In Gate Pass

PROCEDURE

The following is the procedure for local purchase department.

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• The purchase department receives the demand requisition from

store in charge at store at mills this is in fact an intention or

requirement of commodities at mill

• The purchase demand requisition contains a full detail of quality

and quantity of commodities required. It also contains price detail of

goods purchased previously

• The purchase department on the basis of indent does an inquiry for

rate from at least two suppliers from approved suppliers list. After

inquiry Purchase Manager discusses with Director for approval of

rate and other necessary requirement.

• After the approval the Purchase Department purchases the items

from suppliers and sent them to the mill with three copies of

delivery orders

• In case of no rejection of items store in charge send one copy of

delivery order back to the purchase department along with one

copy of In Gate Pass. Store in charge also keeps a copy of delivery

order and in Gate Pass for his own record.

• In case of rejection of items store in charge sends all copies of

Delivery Orders with items back to the purchase department at

Multan Office of AFT

EXPORT DEPARTMENT

Export department plays a vital role in any organization. AFT export

department is headed by the export manager. The export manager

supervises all the marketing & export activities. Export manager is also

responsible for the exploration of local and foreign markets. He is also

making efforts for the development and the progress of the company.

OBJECTIVES

1) To increase the Export of the Grey Fabric and yarn.

2) To maximize the company profit by increasing exports.

3) Exploration of the new markets.

4) Market research making the better information system

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5) Adopting the new technological a developmental changes in the

field of

textile.

FUNCTIONS

Following are the main functions of the export department.

• Export department is responsible for the production planning and

the production follow up with the mill.

• Customer correspondence as well

• Export department also follow-up the local sale and purchase of

the yarn and the Grey fabric.

• The important function of the export department is to make

shipment schedule and the planning.

• Visiting to the existing and new customer.

• Providing timely information about the production of the

products to the customers which is also providing a service to its

customers and promoting the company image.

• Improving the quality of the products with a collaboration with

the buyer and the production department.

• Bank documents preparation and the follow-up.

• Preparing the custom documents

• Dealing with the agents and providing timely information to the

parties.

EXPORT DOCUMENTATION

Export procedure is a very lengthy process. It involves a number of

documents required by the importer from the exporter. AFT export

department carefully handle all the steps involve in it. Because a little

bit of mistake can cause a great loss to the exporter and the importer.

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1. Indent

2. Sales contract

3. Letter of Credit

4. Custom documents

5. Packing list

6. Bill of lading

7. Bill of exchange

8. Certificate of origin

9. Inspection certificate

10. Form E

11. Form M

12. Shipping bill

INDENT

Indent is the first export document which is send by the agents to

export department. After the careful analysis of all the terms and

conditions such as the quality description the selvedge, shipment date,

piece length, price per unit, the packing and payments terms. It also

contains the buyer name and the reference number of buyer or agent.

SALES CONTRACT

The export department after the careful analysis of indent issues the

sales contract. As they have the products and in the sales contract

they confirm the terms and conditions of the indent, such as the

quality, packing, payment terms, commission, shipment date and the

price of the product. Issuing sales contract is the confirming the sale of

the products to the buyer on the specified price. If there is changing

made by the buyer or agent, so the later revised sales contract is

issued by the export department. In which they can revised any thing,

the

shipment schedule, the price & the product specification. Export

department handle carefully the steps of that procedure. Also the

contract copies are sent to the agent, the buyer, the accounts and the

audit department of the AFT for their record purpose.

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LETTER OF CREDIT

Letter of credit is very important documents in the whole export

procedure. Because without this the process could not be complete.

L/C is a written instruction issued by buyer’s bank, authorizing the

exports to draw in accordance with the terms and stimulate legal forms

that bill will be honored.

In the L/C all the term and the conditions are given by the buyer. What

documents he needs. In the L/c there are important things mentioned

there.

1. The Buyer name is there in the L/C

2. The bank of the importer is also mentioned.

3. The importer name and address is also given.

4. L/C number is mentioned on the top or the L/C

5. Issuing date of the L/c, the expiry date of the L/C, the amount of L/C,

the quantity of the products.

6. The complete description of the products and the rate.

7. The terms, either CNF or CFR,

8. The shipment date is also mentioned.

9. The port is given there in L/C.

TRANSPORT DOCUMENTS

The transport documents are very important because it provide the

evidence that goods have been transported and it enables the

importer to receive the goods from the custom authorities. As the

order placed by the importer is ready on the due date, the export

department issues the dispatch order to the mill. That the following

quality should be dispatched on the containers specified on this L/C.

The goods are loaded on the specified containers and they are sent to

the Karachi port on the specified shipping line.

AFT mostly does its shipment through the shipping companies. The

shipping lines charge their freight and other charges are paid the

agents as well as for clearance of the goods from the port. The agents

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handover the documents which involve packing list and invoices to the

shipping lines.

As the trailer number, the container number E form number, quality

and the quantity is completely mentioned on this invoices.

Mode Document Carrier

By sea Bill of lading Shipping lines

By Rail Receipt Railway service

By Road Road way bill Transporters

By Air Air way bill Air lines

BILL OF LADING

Bill of lading is one of the most important documents in the whole

export documents. Because without this the importer cannot receive

their goods from the destination port.

AFT first of all draft the bill of lading and that is sent to the shipping

line. Bill of lading also contains the specifications related to the

importer and the exporter.

CERTIFICATE OF ORIGIN

Certificate of origin shows that the good which are being exported are

originate from a country form which importer is allowed. These are

required by the authorities in the importing countries. In order to

satisfy and support a claim for the import duty.

This certificate of origin may also be made by the consultants of the

importing country in the form of consoler invoice or legalize the

exporter’s commercial invoice. When explorer called for L/C, of is with

the other documents by reference to the invoice number, L/C number

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and by quoting shipping marks and numbers in order to identify the

goods.

PACKING LIST

Packing list is a document which involves all the complete list of the

goods packed in the particular shipment. It is very important.

Documents. It provides a convenience to the shipping and the

clearance authorities.

Features OF PACKING LIST

1. It usually shows the marks a number mentioned on the

packages.

2. It shows the weight also.

3. Each package is marked by a number.

4. It shows the contents of each package, what is nature, quality

and quantity of the package.

5. It provides a linkage with the other documents to reference to

the invoice number, date, letter of credit number, date and

vessel name.

BILL OF EXCHANGE

It is unconditional order in writing, addressed by a person to another,

signed by person giving it, requiring the person to when it is addressed

to pay on demand or at a fixed determinable future date. When the

L/C is opened the B/E must be strictly drawn according to the terms

and conditions of the creditor may be drown on the request of the

applicant or on the bank request through which the credit is opened.

B/E is also a important document of export.

SWOT ANALYSIS

STRENGTHS

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• Good know how about the textile business. Which is improving the

progress of the company.

• Cheap labor is available to AFT which is reducing the per unit cost.

• The products are at compatible prices.

OPPORTUNITIES

• AFT has opportunity to export to the U.S.A and the Europe markets.

• There is more scope of exporting to these markets.

• Govt. is also providing lot of incentives to the exporters.

• The AFT can move in horizontal and the forward integration.

• The decreasing interest rates on the loans

THREATS

• Quotas are lifting AFT will face the major threat.

• AFT has a threat from the domestic and the international

competitors.

• China, Thailand and Indonesia are the emerging giants in textile.

CONCLUSION & RECOMMENDATION

Taking in view the structured departments of purchase and sale of theMill I came to know that the mill has to do the following while forming abinding sale agreement and contract.

• The mill should follow all the essentials given in the sale act 1930so that the buyer and seller both can proceed for any violation of the contract terms.

• Expert lawyers having technical skills of practical business andcompany law should be hired for different purchase and saleagreements.

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• The internal documents of the mill should be complete in anycase for each and every agreement so that the mill would entitleto sue for any negligence being made under contract or bindingagreement.

Conclusion

Following the given recommendation for the desired contracts andagreements the mill would get competitive advantage over otherorganization. Legal system of every organization is the stream line forsuccess and competitive edge for any organization. Stronger the legaldepartment stronger would be the position of the company in anymishap or breach of contract.