ASSIGNMENT DRIVE SUMMER 2014

SUBJECT CODE & NAME - MB0051-Legal Aspects of Business

BK ID B1725 CREDIT & MARKS 4 Credits, 60 marks

Q.No 1 Explain the performance of contracts

(Definition 4, Offer of performance 2, Onus of performance) 4 10

Answer: Definition

Sections 37-67 of the Contracts Act deal with the performance of a contract. A

contract creates obligations. Performance of a contract takes effect when the

parties to the contract fulfill their obligations within the time and manner specified

under the contract. The parties to a contract must either perform or offer to

perform their respective promises unless such performance is dispensed with or

excused under the provisions of law (Section 37).

Offer of performance

It may happen that the promisor offers performance of his/her obligation under the

contract at the proper time and place, but the promisee refuses to accept the

performance. This is called ‘tender’ or ‘attempted performance’. If a valid tender is

made and is not accepted by the promisee, the promisor shall not be responsible

for non-performance nor shall he/she lose his/her rights under the contract

(Section 38).

Onus of performance

The promise may be performed by the promisor himself/herelf, his/her agent or

his/her legal representative. In case there was an intention of the parties that the

promise must be performed by the promisor himself/herself, such a promise is to

be performed by him/her only. Thus, where A promises to paint a picture for B,

then A must perform this promise personally. If there is no such intention of the

parties, then the promisor may employ a competent person to perform the

promise. If A had promised to deliver some items of grocery to B, A may perform

this promise either personally or have it delivered to B through someone. In case of

death of the promisor, the legal representative must perform the promise unless a

contrary intention is mentioned in the contract.

2 Elaborate the rights of surety.

(Rights against the creditor 4, Rights against the principal debtor 3, Rights against

co-sureties 3)= 10

Answer:

Rights of Surety against the Creditor:

1. Ask the creditor to sue the debtor: On the guaranteed debt having fallen due

for payment, the surety may ask the creditor to sue the debtor to collect the due

amount, but he cannot compel him to do so. But he must then indemnify the

creditor against any risk or delay arising as a consequence.

2. Require the creditor to terminate the debtor’s services: In the case of the

fidelity guarantee, if the principal debtor’s dishonesty comes to light, the surety

can require the creditor to terminate the principal debtor’s services so as to save

him from further loss.

3. Claim to any set off: The surety on being called upon to pay, can claim any set-

off to which the principal debtor is entitled from the creditor.

4. Access to the securities of the debtor with the creditor: The surety can,

after paying the guaranteed debt, compel the creditor to assign to him all the

securities taken by the creditor either before or at the time of the contract of

guarantee, whether the surety was aware of them or not.

5. Right to Share Reduction: On debtor’s insolvency the surety is entitled to

claim the proportionate reduction of his liability by the amount of dividend claimed

by the creditor (from the Official Receiver of the Principal debtor). Similarly,

debtor’s debt obligation is scaled down by subsequent legislation; the creditor is

entitled to claim proportionate reduction in his liability.

Rights of Surety Against the Principal Debtor

1. Right of subrogation: After paying the guaranteed debt, the surety steps into

the shoes of the creditor and acquires all the rights which the latter had against

the principal debtor (i.e., he gets subrogated to all the rights and remedies

available to the creditor) (Sec. 140). If the creditor has the right to stop goods in

transit or has a lien, the surety, on payment of all he is liable for, will be entitled to

exercise these rights.

2. Right as to securities with the creditor: The surety has the right to proceed

against such securities of the principal debtor, as the creditor could himself

proceed.

3. Right of indemnity: The surety is entitled to be indemnified by the principal

debtor for all payments rightfully made by him (Sec. 145).

4. Compel the principal debtor to perform the promise: The surety has also

the right to insist the principal debtor to perform the promise. The surety can,

before making payment, compel the debtor to relieve him from liability by paying

of the debt, provided that liability is an ascertained and subsisting one.

5. Prove the debt in case of bankruptcy of the debtor: In case of the

bankruptcy of the principal debtor, the surety may prove the debt in respect of

contingent ability even if he has not been called upon to pay a definite amount.

RIGHTS AGAINST CO-SURETIES :

When a debt is guaranteed by two or more sureties, they are called co-sureties. In

such a case all the co-sureties are liable to contribute towards the payment of the

guaranteed debt as per the agreement among them.

1. Right to Contribution 

According to Section 146, “Where two or more persons are co-sureties for the

same debt or duty, either jointly or severally and whether under the same or

different contracts, and whether with or without the knowledge of each other, the

co-sureties, in the absence of any contract to the contrary, are liable, as between

themselves, to pay each an equal share of the whole debt or of that part of it which

remains unpaid by the principal debtor

2. Bound in Different Sums 

According to Section 147, “Co-sureties who are bound in different sums are liable

to pay equally as for as the limits of their respective obligations permit.”

Therefore, the liability when apportioned equally will be subject to the maximum

each one has guaranteed. 

3 Discuss the termination of bailment.

Explanation 10

Answer: A contract of bailment is terminated under the following circumstances:

On the expiry of the stipulated period – Where a bailment is for a specific

period, it comes to an end on the expiry of the specified period.

Example: A room cooler is hired by X from Y for six months. On the expiry of six

months, X must return the cooler to Y.

On the accomplishment of the specified purpose – In case the bailment is for

specific purpose, it terminates as soon as the purpose is accomplished.

When bailee’s act is inconsistent with the conditions of bailment – If the

bailee does any act with regard to the goods bailed, inconsistent with the

conditions of the bailment, the bailor may terminate the bailment (Section 153).

Example: A lets B for hire a horse for his own riding. B drives the horse in his

carriage. A will have the option to terminate the bailment.

A gratuitous bailment may be terminated at any time (Section 159) –

However, if premature termination causes any loss to the bailee exceeding the

benefit derived from the bailment, the bailor must indemnify. Further, a gratuitous

bailment terminates by death of either the bailor or the bailee (Section 162).

4 Explain the performance of a contract of sale of goods. Explanation 10

Answer: The contract of sale of goods is to be performed. In this context, Sections

31-44 provide for duties of the seller and the buyer and the rules regarding

delivery of goods.

Duties of the seller and the buyer

It is the duty of the seller to deliver goods and the buyer to accept and pay for

them, in accordance with the terms of the contract of sale (Section 31). However,

no delivery need be given, if the buyer is not willing to pay the price, nor need the

buyer pay the price, unless the seller is ready and willing to give delivery, as

unless otherwise agreed, delivery and payment of price are concurrent conditions

(Section 32).

The seller has the duty of giving delivery of goods according to the:

Terms of the contract, and

Rules contained in the Act.

The buyer of goods has to pay for the goods, accept delivery and pay compensation

to the seller in case he/she wrongfully refuses to accept delivery.

Delivery

Delivery is defined as a voluntary transfer of possession from one person to

another [Section 2 (2)]. Section 33 provides that delivery of goods sold may be

made by doing anything that the parties agree, shall be treated as delivery or

which has the effect of putting the goods in the possession of the buyer or of any

person authorised to hold them on his behalf.

Passing of property in goods in the case of foreign trade

There are certain terms that are used in the contract of sale of goods in foreign

trade. These terms reflect a number of conditions that are either attached by the

parties or by custom and practice of business people. Usually such contracts are:

Free on board (F.O.B.) or Free on Airport (F.O.A.), and

Cost, Insurance and Freight (C.I.F.) and Ex-Ship

5 Discuss the law related to the prohibition of anti-competitive

agreements.

Explanation 10

Answer: Section 3 provides for prohibition of entering into anti-competitive

agreements. Accordingly, no enterprise or person or association of

enterprises/persons shall enter into any agreement in respect of production,

supply, distribution, storage, acquisition or control of goods or provision of

services, which causes or is likely to cause an appreciable adverse effect on

competition within India. Any agreement entered into in contravention of this

provision shall be void.

Further, this section also specifies certain activities that shall be presumed to have

an appreciable adverse effect on competition. Any enterprise or person or

association of enterprises/persons, including cartels, shall be presumed to have an

appreciable adverse effect on competition if they do any of the following:

Directly or indirectly determine purchase or sale prices

Limit or control production, supply, markets, technical development, investment

or provision of services

Share the market or source of production or provision of services by way of

allocation of geographical area of market, or type of goods and services, or number

of customers in the market or any other similar way

Directly or indirectly results in bid rigging or collusive bidding.

Factors that adversely affect competition: Section 19 enumerates the factors

that are to be kept in mind by the commission while determining whether an

agreement has an appreciable adverse effect on competition or not under Section

3.

Q6. Explain the need and types of meetings. (Need for meeting, Statutory

meetings, Annual General Meetings, Extraordinary meetings, Class

meetings) 2, 2, 2, 2

Answer:

Need for meetings

A company is an artificial person and therefore, must act through some human

intermediary. The various provisions of law empower shareholders to do certain

things. They are specifically reserved for them to be done in company’s general

meetings. Section 291 empowers the Board of Directors to manage the affairs of

the company. In this context, meetings of shareholders and directors become

necessary. The Act has made provisions for following different types of meetings of

shareholders:

(i) Statutory Meeting; (ii) Annual General Meeting; (iii) Extraordinary General

Meeting; and (iv) Class Meetings

Statutory meetings (Section 165)

The most important legal provisions regarding statutory meetings are:

It is required to be held only by a public company having share capital. A

private company or a public company registered without share capital is

under no obligation to hold such a meeting.

It must be held within a period of not less than one month and not more

than six months from the date on which the company is entitled to

commence business.

At least 21 days before the day of meeting, a notice of the meeting is to be

sent to every member stating it to be a Statutory Meeting.

Annual general meeting (AGM) (Sections 166-168)

As the name signifies, this is an annual meeting of a company. The provisions

relating to this meeting are:

Every company, whether public or private, having a share capital or not,

limited or unlimited must hold this meeting.

The meeting must be held in each calendar year and not more than 15

months shall elapse between two meetings. However, the first AGM may be

held within 18 months from the date of its incorporation and if such general

meeting is held within that period, it need not hold any such meeting in the

year of its incorporation or in the following year. The maximum gap between

two such meetings may be extended by three months by taking permission

of the Registrar, who may so allow for any special reason.

The meeting must be held

On a day that is not a public holiday

During business hours

At the registered office of the company or at some other place within the

city, town or village in which the registered office is situated. (Section 166

(2).

Extraordinary Meeting (EGM) Section 169

Clause 47 of Table A (Schedule – I) provides that all general meetings other than

AGMs shall be called the EGMs. The legal provisions as regards such meetings are:

EGM is convened for transacting some special or urgent business that may

arise in between two AGMs, for instance, change in the objects or shift of

registered office or alteration of capital. All business transacted at such

meetings is called special business. Therefore, every item on the agenda

must be accompanied by an ‘Explanatory Statement’.

An EGM may be called by:

Directors of their own accord

Directors on requisition

Requisitionists themselves

The Tribunal. The Board of Directors may call a general meeting of the

members at any time by giving not less than 21 days notice. A shorter notice

may, however, be held valid if consent is accorded thereto by members of

the company holding 95 percent or more of the voting rights (Section 171).

Class Meetings

A company has two classes of shares – equity shares and preference shares. The

class meetings are held for these different classes of shareholders, as and when

their rights are affected.