MB0051 Legal Aspects of Business

Neelam AswalMBA Sem-3 HRLegal Aspects of Business

Master of Business Administration -Semester 3

MB 0051:“Legal aspects of business” ASSIGNMENT-Set -1

Question 1: All agreements are not contracts, but all contracts are agreements" Comment.

Answer:

Sikkim Manipal UniversityLegal Aspects of business Set-1& 2


A contract is a legally binding agreement or relationship that exists between two or more parties to do or abstain from performing certain acts. A contract can also be defined as a legally binding exchange of promises between two or more parties that the law will enforce.For a contract to be formed an offer made must backed acceptance of which there must be consideration.Both parties involved must intend to create legal relation on a lawful matter which must be entered into freely and should be possible to perform.

An agreement is a form of cross reference between different parties, which may be written, oral and lies upon the honor of the parties for its fulfillment rather than being in any way enforceable.

All contracts are agreement because there must be mutual understanding between two parties for a contract to be formed. All parties should agree and adhere to the terms and conditions of an offer.

The following cases illustrate ways in which all contracts are agreements;

In the case of invitation to treat, where an invitation to treat is merely an invitation to make an offer. When a firm's offer is accepted it results into a contract provided other elements of contracts are accepted.

Considering person A buying a radio on hire purchase from person B who deals with electronics and its appliances. Both parties must come to an agreement on payment of monthly installment within specified period of time. Such an agreement result to specialty contract which a contract under seal.

All contracts are agreement until avoided for example, avoidable contract where one of the parties can withdraw from it if s/he wishes. This occurs due to minor agreement and misrepresentation or undue influence. Considering a case where person A make contract with person B but during the contract period B realizes that he was engaged to perform an agreement under undue influence.Definition of contract

According to section 2(h) of the Indian Contract Act: “An agreement enforceable by law is a contract." A contract therefore, is an agreement the object of which is to create a legal obligation i.e., a duty enforceable by law.

From the above definition, we find that a contract essentially consists of two elements: (1) An agreement and (2) Legal obligation i.e., a duty enforceable by law. We shall now examine these elements detail.

1. Agreement. As per section 2 (e): " Every promise and every set of promises, forming the consideration for each other, is an agreement." Thus it is clear from this definition that a 'promise' is an agreement. What is a 'promise'? the answer to this question is contained in section 2 (b) which defines the term." When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. A proposal, when accepted, becomes a promise."

An agreement, therefore, comes into existence only when one party makes a proposal or offer to the other party and that other party signifies his assent (i.e., gives his acceptance) thereto.



In short, an agreement is the sum total of 'offer' and 'acceptance'.

On analyzing the above definition the following characteristics of an agreement become evident:

(a) At least two persons. There must be two or more persons to make an agreement because one person cannot inter into an agreement with himself.

(b) Consensus-ad-idem. Both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time.

2. Legal obligation. As stated above, an agreement to become a contract must give rise to a legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law. It is not a contract. Thus an agreement is a wider term than a contract. " All contracts are agreements but all agreements are not contracts,"

Agreements of moral, religious or social nature e.g., a promise to lunch together at a friend's house or to take a walk together are not contracts because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences

Essential Elements of a Valid Contract

A contract has been defined in section 2(h) as "an agreement enforceable by law." To be enforceable by law, an agreement must possess the essential elements of a valid contract as contained in sections 10, 29 and 56. According to section 10, all agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration, with a lawful object, are not expressly declared by the Act to be void, and where necessary, satisfy the requirements of any law as to writing or attention or registration. As the details of these essentials form the subject matter of our subsequent chapters, we propose to discuss them in brief here.

The essential elements of a valid contract are as follows.

1. Offer and acceptance. There must a 'lawful offer' and a 'lawful acceptance' of the offer, thus resulting in an agreement. The adjective 'lawful' implies that the offer and acceptance must satisfy the requirements of the contract act in relation thereto.

2. Intention to create legal relations. There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations.

Agreements of a social or domestic nature do not contemplate legal relations, and as such they do not give rise to a contract. An agreement to dine at a friend's house in not an agreement intended to create legal relations and therefore is not a contract. Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts.

Try to work out the solution in the following cases and then go to the answer.

3. Lawful consideration. The third essential element of a valid contract is the presence of 'consideration'. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives



something and gets something. The something given or obtained is the price for the promise and is called 'consideration' subject to certain exceptions; gratuitous promises are not enforceable at law.

The 'consideration' may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something. It may be past, present or future. But only those considerations are valid which are 'lawful'. The consideration is 'lawful'. unless it is forbidden by law; or is of such a nature that, if permitted it would defeat The provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or is immoral; or is opposed to public policy (sec.23).

4. Capacity of parties. The parties to an agreement must be competent to contract. But the question that arises now is that what parties are competent and what are not. The contracting parties must be of the age of majority and of sound mind and must not be disqualified by any law to which they are subject (sec.11). If any of the parties to the agreement suffers from minority, lunacy, idiocy, drunkenness etc. The agreement is not enforceable at law, except in some special cases e.g., in the case of necessaries supplied to a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate (sec 68).

5. Free consent. Free consent of all the parties to an agreement is another essential element. This concept has two aspects. (1) Consent should be made and (2) it should be free of any pressure or misunderstanding. 'Consent' means that the parties must have agreed upon the same thing in the same sense (sec. 13). There is absence of 'free consent,' if the agreement is induced by (i)coercion, (ii) undue influence, (iii) fraud, (iv) mis-representation, or (v) mistake (sec. 14). If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc. The other party (i.e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (sec. 20)

6. Lawful object. For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must mot imply injury to the person or the other of the reasons mentioned above the agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law or a contract for committing a murder is a void contract and unenforceable by law.

7. Writing and registration. According to the Indian contract Act, a contract to be valid, must be in writing and registered. For example, it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered to make the agreement enforceable by law which must be observed.

8. Certainty. Section 29 of the contract Act provides that “Agreements, the meaning of which is not certain or capable of being made certain, are void." In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced

Illustration. A, agrees to sell B " a hundred ton of oil" there is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainly.

9. Possibility of performance. Yet another essential feature of a valid contract is that it must be



capable of performance.

Section 56 lays down that "An agreement to do an act impossible in itself is void". If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law. Illustration. A agrees with B, to discover treasure by magic. The agreement is not enforceable.

10. Not expressly declared void. The agreement must not have been expressly declared to be void under the Act. Sections 24-30 specify certain types of agreements that have been expressly declared to be void. For example, an agreement in restraint of marriage, an agreement in restraint of trade, and an agreement by way of wager have been expressly declared void under sections 26, 27 and 30 respectively.

Question 2: What are the essential of a contract of sale under the sale of Goods Act, 1930?

Answer:Businesses both individual and corporate enter into business relationships with either individuals or businesses to enable them to carry on their day-to-day commercial transactions. Most of these relationships result in “contracts” that have legal consequences. Most contracts do not have to be in writing to be enforceable.Transactions in the nature of sale of goods form the subject matter of the Sale of Goods Act, 1930. The Act covers topics such as the concept of sale of goods, warranties and conditions arising out of sale, delivery of goods and passing of property and other obligations of the buyer and the seller. It also covers the field of documents of title to goods and the transfer of ownership on the basis of such documents. The Act came into force on 1St July, 1930. It extends to the whole of India, except Jammu and Kashmir.

Definition of a Contract:



A contract is a legally enforceable agreement between two or more parties. The core of most contracts is a set of mutual promises (in legal terminology, “consideration”). The promises made by the parties define the rights and obligations of the parties. For every contract there must be an agreement. An agreement is defined as every promise and every set of promises forming the consideration for each other and a promise is an accepted proposal. Contracts are enforceable in the courts. If one party meets its contractual obligations and the other party doesn’t (“breaches the contract”), the non-breaching party is entitled to receive relief through the courts.

Generally, the non-breaching party’s remedy for breach of contract is monetary damages that will put the non-breaching party in the position it would have enjoyed if the contract had been performed. Under special circumstances, a court will order the breaching party to perform its contractual obligations. Because contracts are enforceable, parties who enter into contracts can rely on contracts in structuring their business relationships.

Essentials of a Contract:

The Indian Contract Act -1872 defines “contract” as an agreement enforceable by law. The essentials of a (valid) contract are:

intention to create legal relations; offer and acceptance; consideration; capacity to enter into a contract free consent of the parties lawful object of the agreement

Remedy Clauses:

These clauses state what rights the non-breaching party has if the other party breaches the contract. In contracts for the sale of goods, remedy clauses are usually designed to limit the seller’s liability for damages. In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation.The non-performance of the duty undertaken by a party in a contract amounts to breach of contract for which it can be made liable.

Remedies for breach of contract: The legal remedies for breach of contract are:

a) Damagesb) Specific performance of the contract; and c) Injunction.

When a contract has been breached, the party who suffers by such breach is entitled to receive, from the party who has breached the contract, compensation for any loss or damage caused to him thereby, being loss or damages which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach.



A person who rightfully rescinds a contract is entitled to compensation for any damage, which he has sustained through non-fulfillment of the contract. Liquidated damages and penal stipulations: If a sum is named in the contract as the amount to be paid in case of breach of contract, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage of loss is proved to have been caused thereby, to receive, from the party who has broken the contract, reasonable compensation, not exceeding the amount so named or the penalty stipulated for. A stipulation for increased interest from the date of default may be regarded as a stipulation by “way of penalty”. The court is empowered to reduce it to an amount which is reasonable in the circumstances. Specific performance: In certain special cases (dealt with in the Specific Relief Act, 1963), the court may direct against the party in default “specific performance” of the contract, that is to say, the party may be directed to perform the very obligation which he has undertaken, by the contract. This remedy is discretionary and granted in exceptional cases. Specific performance means actual execution of the contract as agreed between the parties. Specific Performance of any contract may, in the discretion of the court be enforced in the following situations

When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done; or

When the act agreed to be done is such that monetary compensation for its non-performance would not afford adequate relief.

Instances where compensation would be deemed adequate relief are:

Agreement as a consequence of a breach by a landlord for repair of the rented premises;

Contract for the sale of any goods, for instance machinery or goods. Exceptions: A contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms, cannot be specifically enforced. Another situation when a contract cannot be specifically enforced is where “the contract is in its nature determinable”. A contract is said to be determinable, when a party to the contract can put it to an end. A contract the performance of which involves the performance of a continuous duty, which the Court cannot supervise, cannot be specifically enforced. Persons who cannot obtain Specific Performance:



The specific performance of a contract cannot be obtained in favor of a person who could not be entitled to recover compensation for the breach of contract. Specific performance of a contract cannot be enforced in favor of a person who has become incapable of performing the contract that on his part remains to be performed, or who violates any essential term of the contract that on his part remains to be performed, or who acts fraudulently despite the contract, or who willfully acts at variance with, or in subversion, of the relation intended to be established by the contract. I hope this gives you a relevant overview into the key aspect of business contracts and if one takes adequate care when drafting contracts; needless to say relationships will be better and probably more profitable.

Sec.4 defines a contract of sale as ‘a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price’. From the definition, the following essentials of the contract emerge:1. There must be at least two parties.A sale has to be bilateral because the property in goods has to pass from one person to another. The seller and the buyer must be different persons. A person cannot buy his own goods. However, a part-owner may sell to another part-owner.Examples:A partnership firm was dissolved and the surplus assets, including some goods, were divided among the partners in specie. The sales-tax officer sought to tax this transaction. Held, this transaction did not amount to sale. The partners were themselves the joint owners of the goods and they could not be both sellers and buyers. Moreover, no money consideration was promised or paid by any partner to the firm as consideration forth goods allotted to him.2.

2-Transfer or agreement to transfer the ownership of goods.In a contract of sale, it is the ownership that is transferred (in the case of sale), or agreed to be transferred (in the case of agreement to sell), as against transfer of mere possession or limited interest (as in the case of bailment orpledge).3. The subject matter of the contract must necessarily be goods.The sale of immovable property is not covered under Sale of Goods Act. The expression ‘goods’ is defined in Sec.2 (7).4. Price is the consideration of the contract of sale.The consideration in a contract of sale has necessarily to be ‘money’, (i.e., the legal tender money). If for instance, goods are offered as the consideration for goods, it will not amount to sale. It will be called‘barter’.Payment by installments.In the case of sale of goods, the parties may agree that the price will be payable by installments. Also, the terms may stipulate some amount by way of down payment and the balance by installments. Sale and agreement to sell Where under a contract of sale, the property (ownership) in the goods is transferred from the seller to the buyer, it is called a sale [Sec.4 (3)]. Thus, sale takes place when there is a transfer of ownership in goods from the seller to the buyer. A sale is an executed contract.Example:Raman than sells his car to Whim for Rs. 1 lakh. If all essential elements of a valid contract are present, it is a sale and therefore the ownership of the car stands transferred from Raman than to Bhim. This is so even where the payment of the price or the delivery of the car or both have been postponed. Agreement to sell means a contract of sale under which the transfer of property in goods is to take place at a future date or subject to some conditions thereafter to be fulfilled.Distinction between sale and agreement to sell The distinction between the two is of



prime importance as they have different legal repercussions. The rights and duties of the parties vary with the fact whether the contract of sale is an actual sale or an agreement to sell. In a sale, the seller transfers the ownership in the goods at the time of entering into the

contract; in the agreement to sell, the ownership is agreed to be transferred later.

Question 3: Describe the main features of consumer protection act 1986?

Answer:

The Consumer Protection Act, 1986 was born. It is described as a unique legislation of its kind ever enacted in India to offer protection to the consumers. The Act is claimed to have been designed after an in-depth study of consumer protection laws and arrangements in UK, the USA, Australia and New Zealand. The main objective of this Act is to provide better protection to the consumers. Unlike other laws, which are punitive or preventive in nature the provisions of this Act are compensatory in nature. The Act intends to provide simple, speedy and inexpensive redresser to the consumers’ grievances.ObjectivesAfter studying this unit, you should be able to:l Define important terms related to consumerl Explain Rights of consumers Analyze the remedies available for consumer9.2 Important Terms Other salient features of the Act areal It applies to all goods and services unless specifically exempted by the Central Governmental It covers all sectors whether private, public or co-operatively It confers certain rights on consumers’ It envisages establishment of consumer protection councils at the Central and State levels whose main object shall be to promote and protect the rights of the consumers’ The provisions of this Act are in addition to and not in derogation of the provisions of any other Act. The Consumer Protection Act, 1986 was substantially amended in 1991, 1993 and 2002.Complainant:



A complainant means any of the following and having made a complaint:(i) a consumer; or (ii) any voluntary consumer association registered under the Companies Act, 1956 or under any other law for the time being in force; or(iii) the Central Government or any State Government; or(iv) one or more consumers, where there are numerous consumers having the same interest, or(v) in case of death of consumer, his legal heir or representative.Complaint:‘Complaint’ means any allegation in writing made by a complainant with a view to obtaining any relief under the Act, that:(i) any unfair trade practice or restrictive trade practice has been adopted by any trader or service provider; and the complainant has suffered loss or damage;(ii) the goods bought by him or agreed to be bought by him suffer from defect(s) in any respect.(iii) the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect;(iv) a trader or the service provider, as the case may be, has charged for the goods or for the services mentioned in the complaint, a price in excess of the price (a) fixed by or under any law for the time being in force; (b) displayed on the goods or any package containing such goods; (c)displayed on the price list exhibited by him by or under any law for the time being in force; (d) agreed between the parties;(v) goods which will be hazardous to life and safety when used are being offered for sale to the public (a) in contravention of any standards relating to safety of such goods as required to be complied with, by or under any law for the time being in force; (b) if the trader could have known with due diligence that the goods so offered are unsafe to the public;Consumer.‘Consumer’ means any of the following persons: 1.A person who buys any goods for a consideration which has been paid or promised or partly paid and partly promised or under any system of deferred payment i.e., in respect of hire-purchase transactions. The term includes any other user of such goods when such use is made with the approval of the buyer.2. A person who hires or avails of any services for consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment. The term includes any other beneficiary of such services with the approval of the first mentioned person.Consumer dispute [Sec.2 (1) (c)].It means a dispute where the person against whom a complaint has been made, denies or disputes the allegations contained in the complaint.Defect [Sec.2 (1)(f)].A ‘defect’ is defined to mean any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard which is required to be maintained by or under any law for the time being in force or under any contract, express or implied, or as is claimed by the trader in any manner whatsoever in relation to any goods.Deficiency.Parallel to ‘defect’ in case of goods, deficiency is relevant in case of services. Accordingly, it is defined to mean any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.District Forum.‘District Forum’ means a consumer Dispute Redresser Forum established under clause (a) of Sec.9. This section provides that for the purposes of the Act a Consumer Disputes Redresser Forum to be known as the ‘District Forum’ established by the State Government in eachdistrict of the State by notification. The State Government may, if it deems fit, establish more than one District Forum in a district.Goods.‘Goods’ under this Act shall have the same meaning as assigned to them under the Sale of Goods Act, 1930. Accordingly, ‘Goods’ means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass and things



attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale [Sec.2(7) of the Sale of Goods Act, 1930].Manufacturer.The expression ‘Manufacturer’ for the purpose of this Act, means any of the following persons: (i) A person who makes or manufactures any goods or part thereof. (ii) A person who does not make or manufacture any goods but assembles parts thereof made or manufactured by others. But, where a manufacturer dispatches any goods or parts thereof to any branch office maintained by him, such branch office shall not be deemed to be manufacturer even though the parts so dispatched to it are assembled at such branch office and are sold or distributed from such branch office. (iii) A person who puts or causes to be put his own mark on any goods made or manufactured by any other manufacturer.National Commission:‘National Commission’ means the National Consumer Disputes Redresses Commission established under clause (c) of Sec.9. This section provides that there shall be established for the purposes of this Act a National Consumer Disputes Redresser Commission established by the Central Government by notification. The Government vide powers conferred upon it under the said clause established a National Commission in 1987.Rights of Consumers For the first time in the history of consumer legislation in India, the Consumer Protection Act, 1986 extended a statutory recognition to the rights of consumers. Sec.6 of the Act recognizes the following six rights of consumers:

Right to safety,i.e., the right to be protected against the marketing of goods and services which are hazard do us to life and property.Right to be informed,i.e., the right to be informed about the quality, quantity, potency, purity, standard and price of goods or services, as the case may be, so as to protect the consumer against unfair trade practices.Right to choose:It means right to be assured, wherever possible, access to a variety of goods and services at competitive prices. In case of monopolies, say, railways, telephones, etc., it means right to be assured of satisfactory quality and service at a fair price.Right to be heard,i.e., the consumers’ interests will receive due consideration at appropriate forums. It also includes right to be represented in various forums formed to consider the consumers’ welfare.Right to seek redresses:It means the right to seek redresser against unfair practices or restrictive trade practices or unscrupulous exploitation of consumers. It also includes right to fair settlement of the genuine grievances of the consumers.Right to consumer education:It means the right to acquire the knowledge and skill to be an informed consumer.

Nature and Scope of Remedies available to Consumers to provide simple, speedy and inexpensive redressal of consumer grievances, the Act envisages three-tier quasi-judicial machinery at the District, State and National levels. At the District level there are to be District For as the redressal fora. The State Government may, if it deems fit, establish more than one District Forum in a District. At the State level, there are to be similar redressal commissions to be known as State Commissions and at the National level, there is a National Consumer Disputes Redressal Commission to be known as National Commission.9.4.1 Who can file a complaint? (Sec.12)Any of the following persons may file a complaint under the Act:



The consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided. In case of death of a consumer, his legal heir or representative can file a complaint. Any recognized consumers association namely, any voluntary consumer association registered under the Companies Act, 1956 or any other law for the time being in force. It is not necessary that the consumer is a member of such an association.One or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested.

The Central or the State Government.The Amendment Act, 2002 has amended Sec.12. It provides as follows:

Every complaint shall be accompanied with such amount of fee as prescribed.On receipt of a complaint, the District Forum may, by order, allow the complaint to be proceeded with or rejected. However, a complaint shall not be rejected unless an opportunity of being heard has been given to the complainant.Where a complaint is allowed to be proceeded with, the District Forum may proceed with the complaint in the manner as provided under the Act.9.4.2

Where to file a complaint? If the value of the goods or services and the compensation, if any, claimed does not

exceed rupees twenty lakhs, then the complaint can be fielding the District Forum within the local limits of whose jurisdiction the opposite party actually resides or carries on business or has a branch office or personally works for gain or where the cause of action, wholly or in part, arises (Sec.11).

If the value of the goods or services and compensation, if any, claimed exceeds rupees twenty lakhs but does not exceed rupees one crore, the complaint can be filed before the State Commission [Sec.17].Where a joint petition is filed on behalf of a large number of victims, it is the total amount of compensation claimed in the petition (and not the individual claims) that will determine the question of jurisdiction. In case the total compensation claimed exceeds, presently, Rs 20 lakhs but does not exceed Rs one crore, the matter can be heard by the State Commission

[Public Health Engineering Department v Uphokta Sanrakshan Samiti(1992)].The State Commission shall also have the jurisdiction to entertain appeals against the orders of any District Forum within the State. [Sec.17].3. If the value of goods or services and the compensation, if any, claimed exceeds Rs one crore, complaint can be filed before the National Commission [Sec.21]. The National Commission shall also have the jurisdiction to entertain appeals against the orders of any State Commission [Sec.21].9.4.3 How to file a complaint? There is no fee for filing a complaint before any of the aforesaid bodies. The complainant or his authorised agent can present the complaint in person. The complaint can also be sent by post to the appropriate Forum/Commission. The complaint should be addressed to the President of the Forum/Commission. A complaint should contain the following information: (a) The name, description and address of the complainant;(b) The name, description and address of the opposite party or parties, as the case may be, as far as they can be ascertained; (c) The facts relating to complaint and when and where it arose; (d) Documents, if any, in support of the allegations contained in the complaint; (e) The relief which the complaint is seeking.9.4.4 Procedure on admission of complaint (Sec.13)

1. Procedure in respect of goods where the defect alleged requires no testing or analysis:



(i) Refer a copy of the admitted complaint within 21 days from the date of its admission to the opposite party mentioned in the complaint directing him to give his version of the case within a period of 30 days or such extended period not exceeding 15 days, as may be granted by the District Forum.(ii) Where the opposite party, on admission of a complaint referred to him under (a) above, denies or disputes the allegations contained in the complaint, or omits or fails to take any action to represent his case within the time given by the District Forum, the District Forum shall proceed to settle the consumer disputes in the manner specified in clauses (c) to (g) hereunder.2. Procedure in respect of goods where the defect alleged requires analysis or testing:(I) where a complainant alleges a defect in the goods which cannot be determined without proper analysis or test of the goods, the District Forum shall obtain a sample of the goods from the complainant seal it and authenticate it in the manner prescribed. It shall then refer the sample so sealed to the appropriate laboratory along with a direction that such laboratory make an analysis or test, whichever may be necessary, with a view to finding out whether such goods suffer from any defect alleged in the complaint or from any other defect and to report its findings thereof to the District Forum within a period of 45 days of the receipt of the reference or within such extended period as may be granted by the District Forum [Clause (c)].(ii) Before any sample of the goods is referred to any appropriate laboratory under clause (c), the District Forum may require the complainant to deposit to the credit of the Forum such fees as may be specified, for payment to the appropriate laboratory for carrying out the necessary analysis or test in relation to the goods in question [Clause (d)].(iii) The District Forum shall remit the amount deposited to its credit under clause (d) to the appropriate laboratory to enable it to carry out the analysis or test as aforesaid. On receipt of the report from the appropriate laboratory, the District Forum shall forward a copy of the report along with such remarks as the District Forum may feel appropriate to the opposite party [Clause (e)].(iv) If any of the parties disputes the correctness of the findings of the appropriate laboratory, or disputes the correctness of the method of analysis or test adopted by the appropriate laboratory, the District Forum shall require the opposite party or the complainant to submit in writing his objections in regard to the report made by the appropriate laboratory [Clause (f)].(v) The District Forum shall thereafter give a reasonable opportunity to the complainant as well as the opposite party of being heard as to the correctness or otherwise of the report made by the appropriate laboratory and also as to the objection made in relation thereto under clause(f) And issue an appropriate order under Sec.14 [Clause (g)].Power of the district forum District Forum shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of the following matters, namely:

(i) the summoning and enforcing the attendance of any defendant or witness and examining the witness on oath;

(ii) the discovery and production of any document or other material object producible as evidence;

(iii) the reception of evidence on affidavits;(iv) the requisitioning of the concerned analysis or test from the appropriate laboratory

or from any other relevant source; (v) Issuing of any commission (i.e., warrant conferring authority) for the examination of

any witness; and (vi) any other matter which may be prescribed. Reliefs available to consumers If, after the proceeding conducted under Sec.13, the District Forum is satisfied that the goods complained against suffer from any of the defects specified in the complaint or that any of the allegations contained in the complaint about the services are proved, it shall



issue an order to the opposite party directing him to do one or more of the following things, namely: (a) To remove the defect pointed out by the appropriate laboratoryfrom the goods in question; (b) To replace the goods with new goods of similar description this shall be free from defects:(c) To return to the complainant the price, or as the case may be, the charges paid by the complainant; (d) To pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party; (e) to remove the defects in goods or deficiencies in the services in question; (f) To discontinue the unfair trade practice or the restricted trade practice or not to repeat them; (g) Not to offer the hazardous goods for sale; (h) To withdraw the hazardous goods from being offered for sale; (ha) to cease manufacture of hazardous goods and to desist from offering services which are hazardous in nature; (hb) to pay such sum as may be determined by it if it is of the opinion that looser injury has been suffered by a large number of consumers who are not identifiable conveniently. (hc) to issue corrective advertisement to neutralize the effect of misleading advertisement at the cost of the opposite party responsible for issuing such misleading advertisement. (i) To provide for adequate costs to parties. In (a) above, the District Forum shall have the power to grant punitive damages, as it deems fitTime-frame for decisions of consumer courtsThe complaint should be decided by the Redressal Forum, as far as possible, within a period of 3 months from the date of the notice received by the opposite party where complaint does not require analysis or testing of the commodities and within 5 months if it requires analysis or testing of commodities.Appeal to state commission Any person aggrieved by an order made by the District Forum may prefer and appeal against such order to the State Commission within a period of 30 days from the date of the order. However, the State Commission may entertain an appeal after the expiry of the said period of 30 days if it is satisfied that there was sufficient cause for not filing it within that period. Appeal to national commission Any person aggrieved by an order made by the State Commission may prefer an appeal against such order to the National Commission within a period of 30 days from the date of the order [Sec.19].No appeal by a person who is required to pay any amount in terms of an order of the State Commission, shall be entertained by the National Commission, unless the appellant has deposited 50 per cent of the amount or Rs. 55000 whichever is less.Sec.19A provides that an appeal filed before the state commission or the National Commission shall be heard as expeditiously as possible and anendeavour shall be made to finally dispose of the appeal within a period of 90 days from the date of its admission.Appeal to the Supreme Court against the orders of national commissionAny person, aggrieved by an order made by the National Commission, may prefer an appeal against such order to the Supreme Court, within a period of 30 days from the date of the order. However, Supreme Court may entertain an appeal after the expiry of the said period of 30 days if it is satisfied that there was sufficient cause for not filing it within that period [Sec.23].Limitation period (Sec.24A) the District Forum, The State Commission or the National Commission shall not admit a complaint unless it is filed within two years from the date on which the cause of action has arisen. Vacancies or defects in appointment not to invalidate order (Sec.29A)



No Act or proceeding of the District Forum, the State Commission or the National Commission shall be invalid by reason only of the existence of any vacancy amongst its members or any defect in the constitution thereof.Enforcement of orders of the District Forum, the State Commission or the National Commission. The Amendment Act, 2002 has substituted Sec.25by a new section. It provides as follows:

1. Where an interim order made under this Act is not complied with, the District Forum or the State Commission or the National Commission, as the case may be, may order the property of the person, not complying with such order, to be attached.2. No attachment made under Sub-sec.(1) shall remain in force for more than three months at the end of which, if the non-compliance continues, the property attached may be sold and out of the proceeds thereof, the District Forum or the State Commission or the National Commission may award such damages as it thinks fit to the complainant and shall pay the balance, if any, to the party entitled thereto.3. Where any amount is due from any person under an order made by a District Forum, State Commission or the National Commission, as the case may be, the person entitled to the amount may make an application to the District Forum, the State Commission or the National Commission, as the case may be, and such District Forum or the State Commission or the National Commission may issue a certificate for the said amount to the Collector of the district (by whatever name called) and the Collector shall proceed to recover the amount in the same manner as arrears of land revenue.



Question 4: What what are the duties and power of an authorised person under FEMA 1999?

Answer:The Foreign Exchange Management Act (FEMA), 1999 (FEMA) replaces the Foreign Exchange Regulation Act (FERA) 1973. FERA was introduced in 1974 to consolidate and amend the then existing law relating to foreign exchange. FERA aimed at having stringent controls to conserve India’s foreign exchange. FERA was amended in 1993 to bring about certain changes, as a result of introduction of economic reforms and liberalization of the Indian economy. Objectives After studying this unit, you should be able to:· Describe the provisions relating to an authorized person· Explain the regulation and management of foreign exchange· Enumerate the directorate of enforcement· Define miscellaneous provisions11.2 Definition under the ActAuthorised Person.It means an authorized dealer, money changer, offshore banking unit or any other person for the time being authorized under the Act to deal in foreign exchange or foreign securities.Capital account transaction.It means a transaction which alters the assets or liabilities, including contingent liabilities, outside India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in Sec.6(3).Currency.This expression includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers’ cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instrument as may be notified by the Reserve Bank. Vide Notification No. FEMA 15/2000/RB dated May 3, 2000, RBI has notified ‘debit cards’, ‘ATM’ cards or any other instrument by whatever name called that can be used to create a financial liability, as ‘currency’.Currency notes.It means and includes cash in the form of coins and bank notes.Currency account transaction.It means a transaction, other than a capital account transaction and without prejudice to the generality of the foregoing, such transaction includes –

(i) payments due in connection with foreign trade, other current business, services and short term banking and credit facilities in the ordinary course of business;

(ii) payments due as interest on loans and as net income from investments;(iii) Remittances for living expenses of parents, spouse and children residing abroad; and(iv) Expenses in connection with foreign travel, education and medical care of parents

spouse and children.Export.‘Export’ with its grammatical variations and cognate expressions, means. (i) The taking out of India to a place outside India any goods,(ii) provision of services from India to any persons outside India.Foreign currency.It means any currency other than Indian currency.Foreign security.



The expression means any security, in the form of shares, stocks, bonds, debentures, or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where redemption or any form of return such as interest or dividend is payable in Indian currency.Indian currency.It means currency which is expressed or drawn in Indian rupees but does not include special bank notes and special one rupee notes issued under Sec.28A of the Reserve Bank of India Act, 1934.Person resident outside India.It means a person who is not resident in India.Transfer.The expression ‘transfer’ includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer or right, title, possession or lien. Definitions of certain other terms used under FEMA Regulations are:Non-resident Indian (NRI).It means a person resident outside India who is a citizen of India or is a person of Indian origin.Overseas Corporate Body (OCB).The expression means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least 60 per cent by non-resident Indians. Further, the expression includes overseas trusts in which not less than 60 percent beneficial interest is held by non-resident Indians directly or indirectly but irrevocably.Person of Indian Origin (PIO).It means a citizen of any country other than Bangladesh or Pakistan, if (a) he at any time held Indian passport; or(b) he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act of 1955;or(c) the person is a spouse of an Indian citizen or a person referred to in(a) and (b).Convertible currency/Hard currency.Certain currencies are freely convertible i.e. one can exchange these currencies with any other currency without any restriction. Major among these are: Dollars (USA), Pound Sterling (UK), Euro (European Common Currency), Deutsche Mark – DM (Germany), Yen (Japan), Franc (France), Lira (Italy) etc. This is often called ‘hard currency’.Sec.10 provides that the Reserve Bank may, on an application made to it in this behalf, authorize any person to be known as authorized person to deal in foreign exchange or in foreign securities, as an authorized dealer, money changer or offshore banking unit or in any other manner as it deems fit. The authorization shall be in writing and shall be subject to the conditions laid down therein. An authorization so granted may be revoked by the Reserve Bank at any time if it is satisfied that (a) it is in public interest to do so; or(b) the authorized person has failed to comply with the condition subject to which the authorization was granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction or order made there under.

Duties of an authorized person The duties of an authorized person as provided in the Act are summarized hereunder:1-To comply with RBI directions [Sec.10 (4)].An authorized person shall, in all his dealings in foreign exchange or foreign security, comply with such general or special direction or order as the Reserve Bank may, from time to time, think fit to give.

2-Not to engage in unauthorized transactions [Sec.10 (4)].



Except with the previous permission of the Reserve Bank, an authorized person shall not engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of authorize action under this section.3-To ensure compliance of FEMA provisions [Sec.10 (5)].An authorized person shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information, as will reasonably satisfy him that the transaction will not involve and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made there under. Where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorized person shall refuse in writing to undertake the transactions and shall, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank.Powers of the authorized person1. To deal in or transfer any foreign exchange or foreign security to any person [Sec.3 (a)]2. Receive any payment by order or on behalf of any person resident outside India in any name. [Sec.3(c)]However, an authorized person is not allowed to credit the account of any person without any corresponding remittance from any place outside India.3. to open NRO, NRE, NRNR, NRSR and FCNR accounts.4. To sell or purchase foreign exchange for current account transactions. [Sec.5]5. To sell or purchase foreign exchange for permissible capital account transactions. [Sec.6].Bank’s powers to issue directions to authorized persons (SEC.11)The Reserve Bank may, for the purpose of securing compliance with the provisions of this Act and of any rules, regulations, notifications or directions made there under, give to the authorized persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security.

Question 5: WHAT DO YOU MEAN BY Memorandum of association? What does it contain?

Answer:



Memorandum of Association Meaning and purposeThe Memorandum of Association of a company is its charter which contains the fundamental conditions upon which alone the company cans be incorporated. It tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go. Thus, it defines as well as confines the powers of the company. If anything is done beyond these powers, that will be ultra vires (beyond powers of) the company and so void. The memorandum serves a two-fold purpose. It enables shareholders, creditors and all those who deal with the company to know what its powers are and what is the range of its activities. Thus, the intending shareholder can find out the field in, or the purpose for which his money is going to bused by the company and what risk he is taking in making the investment. Also, any one dealing with the company, say, a supplier of goods or money, will know whether the transaction he intends to make with the company is within the objects of the company and not ultra virus its objects. Form and contents Sec.14 Requires that the memorandum of a company shall be in such one of the Forms in Tables B, C, D and E in Schedule I to the Act, as may be applicable in the case of the company, or in Forms as near thereto as circumstances admit. Sec.15 requires the memorandum to be printed, divided into paragraphs, numbered consecutively and signed by at least seven persons (two in the case of a private company) in the presence of at least one witness, who will attest the signature. Each of the members must take at least one share and write opposite his name the number of shares he takes.Sec.13 requires the memorandum of a limited company to contain: (i) the name of the company, with ‘limited’ as the last word of the name in theCase of a public company and ‘private limited’ as the last words in the case of a private company; (ii) The name of the State, in which the registered officer of the company is to be situated;(iii)The objects of the company, stating separately ‘Main objects’ and ‘other objects’;(iv) The declaration that the liability of the members is limited; and (v) The amount of the authorized share capital, divided into shares of fixed amounts. These contents of the memorandum are called compulsory clauses and are explained below:The name clause.The promoters are free to choose any suitable name for the company provided:(a) the last word in the name of the company, if limited by shares or guarantee is ‘limited’ unless the company is

registered under Sec.25 as an ‘association not for profit’ [Sec.13(1) (a) & Sec.25].(b) In the

opinion of the Central Government, the name chosen is not undesirable [Sec.20(1)].Too similar name.In case of too similar names, the resemblance between the two names must be such as to be calculated to deceive. A name shall be said to be calculated to deceive where it suggests some connection or association with the existing company.

Publication of name (Sec.147).



Every company shall: (a) paint or affix its name and the address of its registered office and keep the same painted or affixed, on the outside of every office or place of business in a conspicuous position in letters easily legible and in the language in general use inthe localityAlteration of memorandum Provides that the company cannot alter the conditions contained in memorandum except in the cases and in the mode and to the extent express provision has been made in the Act. These provisions are explained herein below:Change of name.Provides that the name of a company may be changed at any time by passing a special resolution at a general meeting of the company and with the written approval of the Central Government. However, no approval of the Central Government is necessary if the change of the name involves only the addition or deletion of the word ‘private’ (i.e., when public company is converted into a private company or vice versa).The change of name must be communicated to the Registrar of Companies within 30 days of the change. The Registrar shall then enter the new name on the register in the place of the old name and shall issue a fresh certificate of incorporation with necessary alterations [Sec.23 (1)]. The change of name becomes effective on the issue of fresh certificate of incorporation.Change of registered office.The procedure depends on whether the change is within the jurisdiction of same registrar of companies (Sec.146) or whether the shifting is to the jurisdiction of another registrar of companies in the same state (Sec.146 and Sec.17A). This may include :( a)Change of registered office from one premises to another premises in the same city, town or village.The company may do so anytime. Are solution passed by the Board of directors shall be sufficient. However, notice of the change should, within 30 days after the date of the change, be given to the Registrar who shall record the same (Sec.146).(b)Change of registered office from one town or city or village to another town or city or village in the same State (Sec.146).In this case, the procedure is:(i) a special resolution is required to be passed at a general meeting of the shareholders;(ii) a copy of it is to be filed with the Registrar within 30 days.(iii) Within 30 days of the removal of the registered office, notice of the new location has to be given to the Registrar who shall record the same.(c)Shifting of the registered office from one place to another within the same state (Sec.17A):The shifting of the registered office by a company from the jurisdiction of one registrar of companies to the jurisdiction of another registrar of companies within the same state shall (in addition to requirements under Sec.146) also require confirmation by the Regional Director. For this purpose, an application is to be made in the prescribedForm and the confirmation shall be communicated within four weeks. Such confirmation is required to be filed within two months with the registrar of companies who shall register and certify the same within one month. Such certificate shall be conclusive evidence of the compliance of all requirements under the Act.Question 6: Write the short note of:A-Copy right act B-pledge

Answer:A-Copy right actThe law relating to copyright is contained in the Copyright Act, 1957. It extends to the whole of India and came into force on January 21, 1958. The Act has been amended in 1983, 1984, 1992 and 1994 primarily to bring the Indian law in conformity with the international conventions in general and Bern Convention and the Universal Copyright Convention in particular.Secs.44 to 50 deal with the registration of copyright. Sec.44 provides for a Register of copyright to be kept



in the copyright office. The names or titles of the works, the names and addresses of authors, publishers and owners of copyright and certain other prescribed particulars are entered in the Register. Copyright (or ©) is a form of intellectual property which gives the creator of an original work exclusive rights for a certain time period in relation to that work, including its publication, distribution and adaptation; after which time the work is said to enter the public domain. Copyright applies to any expressible form of an idea or information that is substantive and discrete. Some jurisdictions also recognize "moral rights" of the creator of a work, such as the right to be credited for the work. Copyright has been internationally standardized, lasting between fifty to a hundred years from the author’s death, or a finite period for anonymous or corporate authorship. It is enforceable as a civil matter. GlossaryCopyright:The term copyright means the exclusive right, by virtue of, and subject to the provision of the Act:Copyright Owner:The author of the work is recognized to be the first owner of the copyright therein.International Copyright:Sec.40 authorizes the Central Government to extend copyright protection to foreign works.Infringement of copyright:when any person without a license from the owner or the Registrar of copyrights does anything, the exclusive right to do which is by this Act conferred upon the owner of copyright.Works in which copyright subsists (Sec.13)Copyright subsists throughout India in the following classes of work:(a) original, literary, dramatic, musical and artistic works; (b) cinematograph films; and (c) soundrecordings.already been defined in Part -1.However, copyright shall not subsist in any work specified above (other than foreign works or works of certain international organizations unless(i) in the case of a published work, the work is first published in India, or where the work is

first published outside India, the author was a citizen of India on the date of publication, and if dead on that date, on the date of his death;

(ii) in the case of an unpublished work (other than a work Of architecture), the author is at the date of making of the work, a citizen of India or domiciled in India, and

(iii) in the case of a work of architecture, the work is located in India. The copyright in a cinematograph film or a sound recording shall not affect the separate copyright in any work in respect of which or substantial part of which, the film, or as the case may be, the sound recording is made.

Meaning of copyright (Sec.14)The term copyright means the exclusive right, by virtue of, and subject to the provision of the Act :( a) in the case of literary, dramatic or musical work, not being a computer programmed

(i) to reproduce the work in any material form including the storing of it in any medium by electronic means;

(ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work;(v) to make any translation of the work; (vi) to make any adaptation of the work;(vi) to do, in relation to a translation or an adaptation of the work,

any of the acts specified in relation to the work in (i) to (vi);(b) in the case of computer programmed ± (i) to do any of the acts specified in clause (a) above;(ii) to sell or give on hire, or offer for sale or hire any copy of the computer programmed, regardless of whether such copy has been sold or given on hire on earlier occasions;(c) in the case of an artistic work ± (i) to



reproduce the work in any material form including depiction in three dimensions of a two ± dimensional work or in two dimensions of a three ± dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in (i) to (iv) above;(d) in the case of a cinematograph film ± (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire; or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii)to communicate the film to the public.(e) In the case of a sound recording ± (i) to make any other sound recording embodying it; (ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the sound recording to the public.15.2.3 Ownership of copyright (Sec.17)The author of the work is recognized to be the first owner of the copyright therein. This is however, subject to some exceptions given below:

In the case of a literary, dramatic or artistic work made by the author in the course of his employment or apprenticeship under the proprietor of a newspaper, magazine or similar periodical, for the purpose of publication, the said proprietor shall be the first owner of the copyright in the work (in the absence of any agreement to the contrary) insofar as the copyright relates to the publication in the newspaper, magazine or other periodical. Except in such cases, the author will be the first owner of the copyright in the work.

2. If the photograph is taken or a painting or portrait is drawn or an engraving or cinematograph film is made on payment at the instance of any person, such person, in the absence of any agreement to the contrary, shall be the first owner of the copyright therein.

3. If a work is made in the course of the author’s employment under a contract of service or apprenticeship, the employer (not being the proprietor of a newspaper, magazine or periodical) in the absence of any agreement to the contrary, the employer shall be the first owner of the copyright therein.

4. If any person has delivered any address or speech in public, then he shall be the first owner of the copyright. However, if the address or speech is delivered on behalf of any other person, then such other person shall be the owner of the copyright therein.

5. In the case of government work, the government is the owner of the copyright in the absence of any agreement to the contrary.

6. In the case of a work made or first published by or under the direction or control of any public undertaking, such public undertaking shall, in the absence of any agreement to the contrary, Bethe first owner of the copyright therein.

B-pledgePledge:The bailment of goods as security for payment of a debt or performance of a promise is called pledge.Defines a pledge as the bailment of goods as security for payment of a debt or performance of a promise. The person, who delivers the goods as security, is called the ‘pledge’ and the person to whom the goods are so delivered is called the ‘pledge’. The ownership remains with the pledge. It is only a qualified property that passes to the pledge. He acquires a special property, and lien which is not of ordinary nature and so long as his loan is not repaid, no other creditor or ‘authority’ can take away the goods or its price. Thus, inBank of Bihar v. State of Bihar and Ors



(1971) Company Cases 591, where sugar pledged with the Bank was seized by the Government of Bihar, the Court ordered the State Government of Bihar to reimburse the bank for such amount as the Bank in the ordinary course would have realized by the sale of sugar seized.Delivery essential.A pledge is created only when the goods are delivered by the borrower to the lender or to someone on his behalf with the intention of their being treated as security against the advance. Delivery of goods may, however, be actual or constructive. It is constructive delivery where the key of a go down (in which the goods are kept) or documents of title to the goods are delivered. The owner of the goods can create a valid pledge by transferring to the creditor the documents of title relating to the goods.Example:A businessman pledged a railway receipt to a bank, duly endorsed. Later he was declared bankrupt. The Official Assignee contended that the pledge of the railway receipt was not valid. Held, that the railway receipts in India are title to goods, and that the pledge of the railway receipt to the bank, duly endorsed, constituted a valid pledge of the goods. Similarly, where the goods continue to remain in the borrower’s possession but are agreed to be held as a ‘bailee’ on behalf of the pledge and subject to the pledge’s order, it amounts to constructive delivery, and is a valid pledge.Advantages of pledge.To a creditor, pledge is perhaps the most satisfactory mode of creating a charge on goods. It offers the following advantages: 1. The goods are in the possession of the creditor and therefore, in case the borrower makes a default in payment, they can be disposed of after a reasonable notice.2. Stocks cannot be manipulated as they are under the lender’s possession and control.3. In the case of insolvency of the borrower, lender can sell the goods and prove for the balance of the debt, if any.4. There is hardly any possibility of the same goods being charged with some other party if actual possession of the goods is taken by the lender

The general rule is that it is the owner of the goods who can ordinarily create a valid pledge. However, in the following cases, even a pledge by non-owners shall be valid:1-Pledge by a mercantile agent.Where a mercantile agent is, with the consent of the owner, in possession of goods or the documents of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorized by the owner of the goods to make the same. Such a pledge shall, however, be valid only if the Pawnee acts in good faith and has not at the time of the pledge notice that the paw nor has no authority to pledge (Sec.178).A ‘mercantile agent’ as per Sec.2(9) of the Sale of Goods Act, 1930, means a mercantile agent having, in the customary course of business as such agent, authority either to sell goods or to consign goods for the purpose of sale or to buy goods or to raise money on the security of goods. For a pledge by a mercantile agent to be valid the following conditions must be satisfied:

Good faith. The pledge must have acted in good faith and must not have at the time of the pledge notice that the paw nor had no authority to pledge the goods. The onus of proving both these facts rests upon the person disputing the validity of the pledge.

Acting in the ordinary course of business. The mercantile agent must have acted in the ordinary course of his business. Therefore, if he does the business outside his business premises or out of business hours, such a transaction would fall outside this section.2.

2-Pledge by seller or buyer in possession after sale.Under Sec.30 of the Sale of Goods Act, a seller left in possession of goods after sale, and a buyer, who obtains possession of goods with the consent of the seller, before sale, can create a valid pledge. Once again, for the pledge to be valid the pledge should have acted in good faith



and without notice of previous sale of goods to the buyer or of the lien of the seller over the goods.3.3-Pledge by a person in possession under a voidable contract (Sec.178-A).Where a person obtains possession of goods under a voidable contract the pledge created by him is valid provided:

the contract has not been rescinded before the contract of pledge and The Pawnee act is good faith and without notice of the pawn or’s defect of title.4.

4-Pledge by co-owner in possession.One of several joint owners of goods in sole possession thereof with the consent of the rest may make a valid pledge of the goods.5.5-Pledge by a person having limited interest (Sec.179).Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of the interest. Thus, a pledge may further pledge goods to the extent of the amount advanced thereon.

Master of Business Administration -Semester 3

MB 0051:“Legal aspects of business” ASSIGNMENT-Set -2



Question 1: “FREEDOM TO COTRACT IS A MYTH OR AN ILLUSION"DISCUSS

Answer:

Arbitration law is a process that involves the assistance of one or more neutral parties known as arbitrators. Arbitrators are charged with hearing evidence from numerous involved parties in a dispute, and their main duty is to issue an award deciding who gets what in order to resolve the situation. In some instances of arbitration law, an arbitrator may also issue an opinion in conjunction with the award, which is designed to explain the award and the reasoning that led to it. Arbitration law and mediation law are two different processes and should not be confused. The award and the opinion are not capable of being reviewed by a court, and there is no availability for appeal. The purpose of arbitration law is to serve as a substitution to a trial and a review of the decision by a trial court.

Subject matter of arbitration:

Any commercial matter including an action in tort if it arises out of or relates to a contract can be referred to arbitration. However, public policy would not permit matrimonial matters, criminal proceedings, insolvency matters anti-competition matters or commercial court matters to be referred to arbitration. Employment contracts also cannot be referred to arbitration but director - company disputes are abatable (as there is no master servant relationship here)5. Generally, matters covered by statutory reliefs through statutory tribunals would be non-abatable.

Arbitration is an Alternative Dispute Resolution process whereby a person chosen as an arbitrator settles disputes between parties. Arbitration is similar to a court trial, with several exceptions:

The arbitrator makes the decision called an "arbitration award”



The arbitration does not take place in a courtroom The arbitration award is binding. With rare exceptions, there is no right to appeal Arbitration is not a matter of public record. It is private and confidential There is no court reporter or written transcripts Lawyers generally prepare their cases in an extremely limited manner The rules of evidence are relaxed so that the parties have a broader scope, more

expanded opportunity to tell their stories to present their cases With very few exceptions, it is much less expensive than legal litigation An arbitration time frame is substantially less than that of litigation and going to trial No jury. The Arbitrator(s) maintain neutrality and conflicts of interests Generally, all paperwork and evidence presented are destroyed after the Arbitration The arbitration and arbitration award does not have to adhere to Judicial Case precedent

nor formality of traditional court proceedings

In India, Arbitration is one of the most effective and trusted proceedings in regard to private dispute settlement are guided by the Arbitration & Conciliation Act, 1996.

Kind of matters cannot be referred for arbitration:

As per general practice, matters involving moral questions or questions of public law cannot be resolved by arbitration. For instance, the following matters are not referred to arbitration:

Matrimonial matters Guardianship of a minor or any other person under disability Testamentary matters Insolvency, proceedings Criminal proceedings Questions relating to charity or charitable trusts Matters relating to anti-trust or competition law Dissolution or winding up of a company

Indian Arbitration Act follows the guideline of:

The Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 The New York Convention of 1958 on the Recognition and Enforcement of Foreign

Arbitral Awards The Geneva Protocol on Arbitration Clauses of 1923



Question 2: DISTINGUISH BETWEEN A CONTRACT OF GUARANTEE AND A CONTRACT OF INDEMNITY.

Answer:

Distinction between a contract of guarantee and a contract of indemnity. L.C. Mather in his book “Securities Acceptable to the Lending Banker” has very briefly, but excellently, brought out the distinction between indemnity and guarantee by the following illustration.

A contract in which A says to B, “If you lend £20 to C, I will see that your money comes back‟ is an indemnity. On the other hand undertaking in these words, “If you lend £20 to C and he does not pay you, I will is a guarantee. Thus, in a contract of indemnity, there are only two parties, indemnifier and indemnified. In case of a guarantee, on the other hand, there are three parties, the “principal debtor‟, the “creditor‟ and the “surety‟.

Indemnity Guarantee

Comprise only two parties- the indemnifier and the indemnity holder.

There are three parties namely the surety, principal debtor and the creditor

Liability of the indemnifier is primary The liability of the surety is secondary. The surety is liable only if the principal debtor makes a default. The primary liability being that of the principal debtor.

The indemnifier need not necessarily act at the request of the indemnified.

The surety give guarantee only at the request of the principal debtor

The possibility of any loss happening is the only contingency against which the indemnifier undertakes to indemnify.

There is an existing debt or duty’ the performance of which is guarantee by the surety



The indemnifier cannot proceed against third parties in his own name, unless there is an assignment in his favour.

after discharging the debt, the surety is entitled to proceed against the principal debtor in his own name

Question 3 what is the partnership? Briefly state special features of a partnership on the basis of which its existence can be determined under the Indian partnership act?

Answer:The Monopolies and Restrictive Trade Practices Commission has been constituted under Section 5(1) of the MRTP Act, 1969. The Commission is empowered to enquire into Monopolistic or Restrictive Trade Practices upon a reference from the Central Government or upon its own knowledge or information. The MRTP Act also provides for appointment of a Director General of Investigation and Registration for making investigations for the purpose of enquiries by the MRTP Commission and for maintenance of register of agreements relating to restrictive trade practices.

The MRTP Commission receives complaints both from registered consumer and trade associations and also from individuals. Complaints regarding Restrictive Trade Practices or Unfair Trade Practices from an association are required to be referred to the Director General of Investigation and Registration for conducting preliminary investigation. The Commission can also order a preliminary investigation by the Director General of Investigation and Registration when a reference on a restrictive trade practice is received from the Central/State Government, or when Commission's own knowledge warrants a preliminary investigation. Enquiries are instituted by the Commission after the Director General of Investigation and Registration completes preliminary investigation and submits an application to the Commission for an enquiry.

Unfair Trade Practices:

An unfair trade practice means a trade practice, which, for the purpose of promoting any sale, use or supply of any goods or services, adopts unfair method, or unfair or deceptive practice.

1) False Representation:

The practice of making any oral or written statement or representation which:

Falsely suggests that the goods are of a particular standard quality, quantity, grade, composition, style or model;

Falsely suggests that the services are of a particular standard, quantity or grade; Falsely suggests any re-built, second-hand renovated, reconditioned or old goods as new

goods; Represents that the goods or services have sponsorship, approval, performance,

characteristics, accessories, uses or benefits which they do not have; Represents that the seller or the supplier has a sponsorship or approval or affiliation

which he does not have; Makes a false or misleading representation concerning the need for, or the usefulness of,

any goods or services;



Gives any warranty or guarantee of the performance, efficacy or length of life of the goods, that is not based on an adequate or proper test;

Makes to the public a representation in the form that purports to be- warranty or guarantee of the goods or services, a promise to replace, maintain or repair the goods until it has achieved a

specified result, If such representation is materially misleading or there is no reasonable prospect that such warranty, guarantee or promise will be fulfilled

Materially misleads about the prices at which such goods or services are available in the market; or

Gives false or misleading facts disparaging the goods, services or trade of another person.

2) False Offer Of Bargain Price:

Where an advertisement is published in a newspaper or otherwise, whereby goods or services are offered at a bargain price when in fact there is no intention that the same may be offered at that price, for a reasonable period or reasonable quantity, it shall amount to an unfair trade practice.

The bargain price, for this purpose means: the price stated in the advertisement in such manner as suggests that it is lesser than

the ordinary price, or The price which any person coming across the advertisement would believe to be better

than the price at which such goods are ordinarily sold.

3) Free Gifts Offer And Prize Scheme:

The unfair trade practices under this category are:

Offering any gifts, prizes or other items along with the goods when the real intention is different, or

Creating impression that something is being offered free along with the goods, when in fact the price is wholly or partly covered by the price of the article sold, or

Offering some prizes to the buyers by the conduct of any contest, lottery or game of chance or skill, with real intention to promote sales or business.

4) Non-Compliance Of Prescribed Standards:

Any sale or supply of goods, for use by consumers, knowing or having reason to believe that the goods do not comply with the standards prescribed by some competent authority, in relation to their performance, composition, contents, design, construction, finishing or packing, as are necessary to prevent or reduce the risk of injury to the person using such goods, shall amount to an unfair trade practice.

5) Hoarding, Destruction, Etc.:

Any practice that permits the hoarding or destruction of goods, or refusal to sell the goods or provide any services, with an intention to raise the cost of those or other similar goods or services, shall be an unfair trade practice.



6) Inquiry Into Unfair Trade Practices:

The Commission may inquire into any unfair trade practice: Upon receiving a complaint from any trade association, consumer or a registered

consumer association, or Upon reference made to it by the Central Government or State Government Upon an application to it by the Director General or Upon its own knowledge or information.

Relief Available:

After making an inquiry into the unfair trade practices if the Commission is of the opinion that the practice is prejudicial to the pubic interest, or to the interest of any consumer it may direct that?

The practice shall be discontinued or shall not be repeated; The agreement relating thereto shall be void in respect of such unfair trade practice or

shall stand modified. Any information, statement or advertisement relating to such unfair trade practice shall

be disclosed, issued or published as may be specified The Commission may permit the party to carry on any trade practice to take steps to

ensure that it is no longer prejudicial to the public interest or to the interest of the consumer.

However no order shall be made in respect a trade practice which is expressly authorized by any law in force. The Commission is empowered to direct publication of corrective advertisement and disclosure of additional information while passing orders relating to unfair trade practices.

Question 4: DISTINGUISH BETWEEN CONDITION AND WARNTY.STATE THE CIRCUMSTANCE UNDERWHICH ACONDITION CAN BE WAIVED AND TREATED AS A WARRANTY.Answer:



Offer:A proposal is an expression of will or intention to do or not to do something. It is also called an "offer". It is one of the essential elements of an agreement. It is the very basis of the contract. It becomes a promise when it accepted. Section 2 (a) of the Contract Act defines the proposal as "when one person signifies to another his willingness to do or to abstain from doing anything, 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 proposer or offer or the promisor. The person to whom the proposal is made is called the offeree or promisee. For example; Sunil offers to sell his car to Padmaja for Rs. 50000. This is a proposal. Sunil is the offeror and Padmaja is the offeree. An offer may be express or implied. An offer which is expressed by words, written or spoken, is called an express offer. An offer which is expressed by conduct is called an implied offer. An offer may be positive or negative. It may be in the form of a statement or a question. for example; Sridhar says to Radhika that he will sell his scooter to her for Rs.20000. This is an express offer. The offer must be made in order to create legal relations otherwise there will be an agreement. If an offer does not give rise to legal obligations between the parties it is not a valid offer in the eye of law. In business transactions there is a presumption that the parties propose to make legal relationships. For example a person invite to another person to diner if the other person accepts the invitation then it is not any legal agreement between the parties it is social agreement.

An offer must be definite and clear. If the terms of an offer are not definite and clear it cannot be called a valid offer. If such offer is accepted it cannot create a binding contract. An agreement to agree in future is not a contract because the terms of an agreement are not clear. A person has two motorbikes. He offers to another person to sell his one bike for a certain price then it is not a legal and valid offer because there is an ambiguity in the offer that which motorcycle the person wants to sell. There is a difference between the offer and invitation of offer. Sometime people offer the invitation for the sale.

Essentials of a valid offer:

A valid offer must intend to create legal relations. It must not be a casual statement. If the offer is not intended to create legal relationship, it is not an offer in the eyes of law e.g. Sunil invites Sridhar to a dinner party and Sridhar accepts the invitation. Sridhar does not turn up at the dinner party. Sunil cannot sue Sridhar for breach of contract as there was no intention to create legal obligation. Hence, an offer to perform social, religious or moral acts without any intention of creating legal relations will not be a valid offer.

The terms of an offer must be definite, unambiguous and certain. They must not be loose and vague. A promise to pay an extra Rs. 500 if a particular house proves lucky is too vague to be enforceable. E.g. Sridhar says to Sunil "I will give you some money if you marry my daughter". This is not an offer which can be accepted because the amount of money to be paid is not certain.

An offer may be made to a definite person or to the general public. When offer is made to a definite person or to a special class of persons, it is called "specific offer". When an offer is made to the world at large or public in general, it is called "general offer". A specific offer can be accepted only by that person to whom it has been made and a general offer can be accepted by any person. E.g. Sunil promises to give Rs.100 to Sridhar, if he brings back his missing dog. This is a specific offer and can only be accepted by Sridhar. Sunil issues a



public advertisement to the effect that he would give Rs.100 to anyone who brings back his missing dog. This is a general offer. Any member of the public can accept this offer by searching for and bringing back Sunil's missing dog.

An offer to do or not to do must be made with a view to obtaining the assent of the other party. Mere enquiry is not an offer.

An offer should may contain any term or condition. The offeror may prescribe any mode of acceptance. But he cannot prescribe the form or time of refusal so as to fix a contract on the acceptor. He cannot say that if the acceptor does not communicate his acceptance within a specified time, he is deemed to have accepted the offer.

The offeror is free to lay down any terms any terms and conditions in his offer. If the other party accepts it, then he has to abide by all the terms and conditions of the offer. It is immaterial whether the terms and conditions were harsh or ridiculous. The special terms or conditions in an offer must be brought to the notice of the offeree at the time of making a proposal.

An offer is effective only when it is communicated to the offeree. Communication is necessary whether the offer is general or specific. The offeror may communicate the offer by choosing any available means such as a word of mouth, mail, telegram, messenger, a written document, or even signs and gestures. Communication may also be implied by his conduct. A person can accept the offer only when he knows about it. If he does not know, he cannot accept it. An acceptance of an offer, in ignorance of the offer, is no acceptance at all.

It should be noted that an invitation to offer is not an offer. The following are only invitations to offer but not actual offers:

Invitations made by a trade for the sale of goods. A price list of goods for sale. Quotations of lowest prices. An advertisement to sell goods by auction. An advertisement inviting tenders. Display of goods with price-tags attached. Railway time-table. Prospectus issued by a company. Loud speaker announcements.

Question 5 :A CHEQUE IS A BILL OF EXCHANGE DRAWN ON A BANKER"-COMMENTAnswer:

CHEQUE IS A BILL OF EXCHANGE

CHEQUEIt is drawn on a banker



•It has three parties - the drawer, the drawer, and payee.

•It is seldom drawn in sets

It does not require acceptance by the drawer

•Days of grace are not allowed to a banker

.•No stamp duty is payable on checks

•It is usually printed

BILL OF EXCHANGE

It may be drawn on any party or individual.

There are three parties - the drawer, the drawer, and the payee.

Foreign bills are drawn in sets

It must be accepted by the drawer before he can be made liable to pay the bill.

Three days of grace are always allowed to the drawer.

Three days of grace are always allowed to the drawer

Stamp duty has to be paid on bill of exchange.

It may be drawn in any paper and need notnecessarily be printed.

Question 6: Write short note on :

A-Digital SignatureB-Prospectus

Answer:

Information Technology Act:

In May 2000, at the height of the dot-com boom, India enacted the IT Act and became part of a select group of countries to have put in place cyber laws. In all these years, despite the growing



crime rate in the cyber world, only less than 25 cases have been registered under the IT Act 2000 and no final verdict has been passed in any of these cases as they are now pending with various courts in the country. Although the law came into operation on October 17, 2000, it still has an element of mystery around it. Not only from the perception of the common man, but also from the perception of lawyers, law enforcing agencies and even the judiciary. The prime reason for this is the fact that the IT Act is a set of technical laws. Another major hurdle is the reluctance on the part of companies to report the instances of cyber-crimes, as they don't want to get negative publicity or worse get entangled in legal proceedings. A major hurdle in cracking down on the perpetrators of cyber-crimes such as hacking is the fact that most of them are not in India. The IT Act does give extra-territorial jurisdiction to law enforcement agencies, but such powers are largely inefficient. This is because India does not have reciprocity and extradition treaties with a large number of countries.

The Indian IT Act also needs to evolve with the rapidly changing technology environment that breeds new forms of crimes and criminals. We are now beginning to see new categories and varieties of cyber-crimes, which have not been addressed in the IT Act. This includes cyber stalking, cyber nuisance, cyber harassment, cyber defamation and the like. Though Section 67 of the Information Technology Act, 2000 provides for punishment to whoever transmits or publishes or causes to be published or transmitted, any material which is obscene in electronic form with imprisonment for a term which may extend to two years and with fine which may extend to twenty five thousand rupees on first convection and in the event of second may extend to five years and also with fine which may extend to fifty thousand rupees, it does not expressly talk of cyber defamation. The above provision chiefly aim at curbing the increasing number of child pornography cases and does not encompass other crimes which could have been expressly brought within its ambit such as cyber defamation.
