Legal Aspect of Supply Chain Managementjnujprdistance.com/assets/lms/LMS JNU/MBA/MBA... · VII/JNU OLE List of Tables Table 2.1 Examples negotiable instruments and non negotiable

Legal Aspect of Supply Chain Management

This book is a part of the course by Jaipur National University, Jaipur.This book contains the course content for Legal Aspect of Supply Chain Management.

JNU, JaipurFirst Edition 2013

The content in the book is copyright of JNU. All rights reserved.No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior permission of the publisher.

JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the content whenever the need arises, and to vary it at any time without prior notice.

I/JNU OLE

Index

ContentI. ...................................................................... II

List of FiguresII. ..........................................................VI

List of TablesIII. ......................................................... VII

AbbreviationsIV. ......................................................VIII

Case StudyV. .............................................................. 163

BibliographyVI. ......................................................... 167

Self Assessment AnswersVII. ................................... 169

Book at a Glance

II/JNU OLE

Contents

Chapter I ....................................................................................................................................................... 1The Indian Contract Act, 1872 ................................................................................................................... 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction .............................................................................................................................................. 21.2 Definitions ............................................................................................................................................... 21.3 Role of Communication in Contracts ...................................................................................................... 31.4 Essentials of a Valid Contract .................................................................................................................. 31.5 Contract of Bailment ................................................................................................................................ 5 1.5.1 Duties of the Bailee .................................................................................................................. 5 1.5.2 Rights of a Bailee ..................................................................................................................... 51.6 Contract of Agency .................................................................................................................................. 61.7 Rights/Authorities of an Agent ................................................................................................................ 6 1.7.1 Duties of an Agent ................................................................................................................... 7 1.7.2 Sub-Agent ................................................................................................................................ 7 1.7.3 Types of Agents ........................................................................................................................ 8 1.7.4 Termination of Agency ............................................................................................................ 81.8 Few Terms in Indian Contract Act, 1872 ................................................................................................. 8Summary ......................................................................................................................................................11References ....................................................................................................................................................11Recommended Reading ..............................................................................................................................11Self Assessment ........................................................................................................................................... 12

Chapter II ................................................................................................................................................... 14Negotiable Instruments Act, 1881 ............................................................................................................. 14Aim .............................................................................................................................................................. 14Objectives .................................................................................................................................................... 14Learning outcome ........................................................................................................................................ 142.1 Introduction ............................................................................................................................................ 152.2 Characteristics of a Negotiable Instrument ............................................................................................ 152.3 Promissory Note..................................................................................................................................... 16 2.3.1 Format of a Promissory Note ................................................................................................. 172.4 Bill of Exchange .................................................................................................................................... 172.5 Cheque ................................................................................................................................................... 18 2.5.1 Characteristics of a Cheque ................................................................................................... 182.6 Demand Draft ......................................................................................................................................... 192.7 Modes of Negotiation ............................................................................................................................ 20 2.7.1 Types of Endorsements .......................................................................................................... 21 2.7.2 General Rules Regarding Endorsement ................................................................................. 21 2.7.3 Negotiation Back ................................................................................................................... 22 2.7.4 Crossing ................................................................................................................................. 22 2.7.4.1 General Crossing ..................................................................................................... 22 2.7.4.2 Special Crossing ...................................................................................................... 22 2.7.4.3 Not Negotiable Crossing ......................................................................................... 22 2.7.4.4 Account Payee Crossing .......................................................................................... 22 2.7.4.5 Double Crossing ...................................................................................................... 232.8 Bouncing of a Cheque– a Criminal Offence .......................................................................................... 23 2.8.1 Format of Notice .................................................................................................................... 24 2.8.2 Offences by Companies ......................................................................................................... 25 2.8.3 Cognisance of Offences ......................................................................................................... 25 2.8.3.1 Mode of Service of Summons ................................................................................. 26 2.8.3.2 Evidence on Affidavit .............................................................................................. 26

III/JNU OLE

2.9 Few Terms in Negotiable Instruments Act, 1881 ................................................................................... 26Summary ..................................................................................................................................................... 31References ................................................................................................................................................... 31Recommended Reading ............................................................................................................................. 31Self Assessment ........................................................................................................................................... 32

Chapter III .................................................................................................................................................. 34The Sale of Goods Act, 1930 ...................................................................................................................... 34Aim .............................................................................................................................................................. 34Objectives .................................................................................................................................................... 34Learning outcome ........................................................................................................................................ 343.1 Introduction ............................................................................................................................................ 353.2 Essentials of a Contract of Sale ............................................................................................................. 353.3 Difference Between Sale and Agreement to Sale .................................................................................. 393.4 Conditions and Warranties ..................................................................................................................... 39 3.4.1 Caveat Emptor ....................................................................................................................... 403.5 Rights of an Unpaid Seller ..................................................................................................................... 40 3.5.1 Unpaid Seller's Lien ............................................................................................................... 41 3.5.2 Right of Stoppage in Transit .................................................................................................. 413.6 Few Terms in Sales of Goods Act, 1930 ................................................................................................ 43Summary ..................................................................................................................................................... 46References ................................................................................................................................................... 46Recommended Reading ............................................................................................................................. 46Self Assessment ........................................................................................................................................... 47

Chapter IV .................................................................................................................................................. 49The Standards of Weights and Measures Act, 1976 ................................................................................ 49Aim .............................................................................................................................................................. 49Objectives .................................................................................................................................................... 49Learning outcome ........................................................................................................................................ 494.1 Introduction ............................................................................................................................................ 504.2 Provisions Applicable to Every Part (Part I) .......................................................................................... 504.3 Establishment of Standards of Weights and Measures (Part II) ............................................................. 53 4.3.1 Standard Units ........................................................................................................................ 534.4 Physical Representation of Standard Units ............................................................................................ 544.5 Standards of Weights and Measures ...................................................................................................... 554.6 Custody and Verification of Standard Equipments ................................................................................ 564.7 Import And Export of Weights and Measures (Part V) .......................................................................... 57 4.7.1 Registration of Exporters and Importers ................................................................................ 57 4.7.2 Export and Import of Weights, Measures and Commodities in Packaged Form ................... 574.8 Offences and Their Trial (Part VI) ......................................................................................................... 584.9 Few Terms in Standards in Weights and Measures Act, 1976 ............................................................... 62Summary ..................................................................................................................................................... 64References ................................................................................................................................................... 64Recommended Reading ............................................................................................................................. 64Self Assessment ........................................................................................................................................... 65

Chapter V .................................................................................................................................................... 67The Consumer Protection Act, 1986 ......................................................................................................... 67Aim .............................................................................................................................................................. 67Objectives .................................................................................................................................................... 67Learning outcome ........................................................................................................................................ 675.1 Introduction ............................................................................................................................................ 685.2 The Salient Features of the Act .............................................................................................................. 685.3 Section 2: Definitions ............................................................................................................................ 68

IV/JNU OLE

5.3.1 Additional Information .......................................................................................................... 725.4 District Forum ........................................................................................................................................ 725.5 State Commission .................................................................................................................................. 755.6 National Commission............................................................................................................................. 765.7 Few Terms in Consumer Protection Act, 1986 ...................................................................................... 79Summary ..................................................................................................................................................... 80References ................................................................................................................................................... 80Recommended Reading ............................................................................................................................. 80Self Assessment ........................................................................................................................................... 81

Chapter VI .................................................................................................................................................. 83The Motor Vehicles Act, 1988.................................................................................................................... 83Aim .............................................................................................................................................................. 83Objectives .................................................................................................................................................... 83Learning outcome ........................................................................................................................................ 836.1 Introduction ............................................................................................................................................ 846.2 Act 59 of 1988 ........................................................................................................................................ 846.3 Definitions ............................................................................................................................................. 846.4 Licensing of Drivers of Motor Vehicles ................................................................................................. 876.5 Licensing of Conductors of Stage Carriages ......................................................................................... 966.6 Registration of Motor Vehicles .............................................................................................................. 986.7 Few Terms in Motor Vehicles Act, 1988 .............................................................................................. 103Summary ................................................................................................................................................... 107References ................................................................................................................................................. 107Recommended Reading ........................................................................................................................... 107Self Assessment ......................................................................................................................................... 108

Chapter VII ...............................................................................................................................................110Insurance Laws .........................................................................................................................................110Aim .............................................................................................................................................................110Objectives ...................................................................................................................................................110Learning outcome .......................................................................................................................................1107.1 Introduction ...........................................................................................................................................1117.2 Indian Insurance Industry .....................................................................................................................111 7.2.1 Types of Insurance ................................................................................................................1117.3 Motor Vehicle Insurance .......................................................................................................................111 7.3.1 Liability Only Policies ..........................................................................................................112 7.3.2 Package Policy ......................................................................................................................1127.4 Marine Cargo Policy .............................................................................................................................1137.5 Few Terms in Insurance Laws ..............................................................................................................115Summary ................................................................................................................................................... 124References ................................................................................................................................................. 124Recommended Reading ........................................................................................................................... 124Self Assessment ......................................................................................................................................... 125

Chapter: VIII ........................................................................................................................................... 127Taxation Laws Relevant to SCM ............................................................................................................ 127Aim ............................................................................................................................................................ 127Objectives .................................................................................................................................................. 127Learning outcome ...................................................................................................................................... 1278.1 Introduction .......................................................................................................................................... 1288.2 Income From Salary ............................................................................................................................. 1288.3 Income From Business ......................................................................................................................... 1328.4 Income From Capital Gain ................................................................................................................... 1348.5 Tax Deduction at Source ...................................................................................................................... 134

V/JNU OLE

8.5.1 General Guidelines Regarding TDS .................................................................................... 1358.6 Payment of Advance Tax ..................................................................................................................... 1368.7 Service Tax ........................................................................................................................................... 1378.8 Sales Tax ........................................................................................................................................... 1398.9 Central Excise Act ................................................................................................................................ 1398.10 Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 ....................... 1418.11 Few terms in Taxation Laws Relevant to SCM ................................................................................. 143Summary ................................................................................................................................................... 145References ................................................................................................................................................. 145Recommendation Reading ...................................................................................................................... 145Self Assessment ......................................................................................................................................... 146

Chapter IX ................................................................................................................................................ 148Labour Laws ............................................................................................................................................. 148Aim ............................................................................................................................................................ 148Objectives .................................................................................................................................................. 148Learning outcome ...................................................................................................................................... 1489.1 Introduction .......................................................................................................................................... 1499.2 Definitions ........................................................................................................................................... 1499.3 Important Provisions of Contract Labour Act ...................................................................................... 1529.4 Registration of Establishments Employing Contract Labour .............................................................. 1539.5 Licensing of Contractors ...................................................................................................................... 1549.6 Welfare and Health of Contract Labour ............................................................................................... 1549.7 Penalties and Procedure ....................................................................................................................... 1569.8 The Minimum Wages Act, 1948 .......................................................................................................... 1569.9 Workmen's Compensation Act, 1923 ................................................................................................... 157 9.9.1 Amount of Compensation .................................................................................................... 1589.10 Few Terms in Labour Laws ............................................................................................................... 158Summary ................................................................................................................................................... 160References ................................................................................................................................................. 160Recommended Reading ........................................................................................................................... 160Self Assessment ......................................................................................................................................... 161

VI/JNU OLE

List of Figures

Fig. 1.1 A typical supply chain ....................................................................................................................... 2Fig. 2.1 Format of a promissory note ........................................................................................................... 17Fig. 2.2 Format of a cheque ......................................................................................................................... 19Fig. 2.3 Example of cheque crossed ............................................................................................................ 22Fig. 2.4 Generally crossed cheque payable to order .................................................................................... 23Fig. 2.5 Format of notice .............................................................................................................................. 25

VII/JNU OLE

List of Tables

Table 2.1 Examples negotiable instruments and non negotiable instruments.............................................. 16Table 2.2 Differences between promissory note and bill of exchange ........................................................ 18Table 2.3 Differences between cheque and bill of exchange ....................................................................... 19Table 2.4 Differences between cheque and demand draft ........................................................................... 20Table 2.5 Few terms in Negotiable Instruments Act, 1881 .......................................................................... 30Table 3.1 Differences between sale and agreement to sell .......................................................................... 39Table 3.2 Few terms in Sales of Goods Act, 1930 ....................................................................................... 45Table 4.1 Unit and its abbreviation .............................................................................................................. 54Table 4.2 Few terms in Standards in Weights and Measures Act, 1976 ...................................................... 63Table 5.1 Comparative study of district, state and national forum .............................................................. 78Table 5.2 Few terms in Consumer Protection Act, 1986 ............................................................................. 79Table 6.1 Age limits for driving different vehicles ...................................................................................... 87Table 6.2 Minimum experience for driving different vehicles .................................................................... 88Table 6.3 Few terms in Motor Vehicles Act, 1988 ..................................................................................... 106Table 7.1 Few terms in Insurance Laws ..................................................................................................... 123Table 8.1 Tax rate for AY 2010-11 ............................................................................................................. 128Table 8.2 Nature of deduction .................................................................................................................... 132Table 8.3 Format of income from business ................................................................................................ 133Table 8.4 The important areas of tax deduction at source ......................................................................... 135Table 8.5 Due dates for various instalments of advance tax for non corporate assessees ......................... 136Table 8.6 Due dates for various instalments of advance tax for corporate assessees ................................ 136Table 8.7 Few terms Taxation Laws Relevant to SCM .............................................................................. 144Table 9.1 Amount Payable ......................................................................................................................... 157Table 9.2 Few terms in Labour Laws ......................................................................................................... 159

VIII/JNU OLE

Abbreviations

AY - Assessment YearC & F - Cost & FreightCBDT - Central Board of Direct TaxesCenvat - Central Value Added TaxCIF - Cost, Insurance & FreightESI - Employees' State InsuranceFIR - First Information ReportFOB - Free on BoardGTA - Goods Transport AgencyHRA - House Rent AllowanceHSD - High Speed Diesel OilIDV - Insured's declarEd ValueILO - International Labour OrganisationLDO - Light Diesel OilLIC - Life Insurance CorporationMRP - Material requirements planningN I - Negotiable InstrumentsPA - Power of AttorneyPAN - Permanent Account NumberSCM - Supply Chain ManagementSRCC - Strike Riot and Civil CommotionTAN - Tax Deduction Account NumberTDS - Tax Deduction at Sourcew.e.f - With effect from

1/JNU OLE

Chapter I

The Indian Contract Act, 1872

Aim

The aim of this chapter is to:

describe the essentials of a valid contract•

explaintheimportantdefinitionsoftheIndianContractAct•

illustrate the provision of contract of bailment•

Objectives

The objectives of this chapter are to:

narrate the provision of a contract•

highlight the provision of contract of agency•

describe the modes of discharge of a contract•

Learning outcome

At the end of this chapter, the students will be able to:

understand the Indian Contract Act, 1872•

elaborate the provision of contract of bailment•

understand the provision the contract of agency, duties of an agent•


2/JNU OLE

1.1 IntroductionSupplychainconsistsofallthestagesthataredirectlyorindirectlyinvolvedinfulfillingacustomerrequest.Supplychaininvolvestheconstantflowofinformation,productandfundsbetweendifferentstages.The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves. Withineachorganisation,thesupplychainincludesallfunctionsinvolvedinreceivingandfillingacustomerrequest.All these people are entering into contracts with each other. Therefore, it is essential that the people involved in supply chain management should know the basics of the Indian Contract Act, 1872.

Fig. 1.1 A typical supply chain

A typical supply chain may involve many participants, but some orders may pass through only a few. Not all participants will be in all supply chains. It will depend on the needs of the customers and the roles of the participants fulfillingtheseneeds.

1.2 DefinitionsWhen you place an order for purchase of raw material from a supplier, if the supplier accepts your order, it •means you have entered into a contract with your supplier of raw materials. What is the meaning of "Contract"? As per Section 2 (h), an agreement enforceable by law is a contract. It can •be shown as under:

Contract = Agreement + Enforceability

Agreement must create a legal obligation or duty.•By Enforceability it is meant that the party to a contract can approach a Court of Law to enforce his rights under •thecontractprovidedhehasfulfilledalltheconditionsofavalidcontract.AsperSection2(g)anagreementnot enforceable by law is said to be void agreement.This leads us to a next question, "What is the meaning of Agreement?" As per Section 2 (e) every promise and •every set of promises, forming the consideration for each other, is an agreement. Agreement can be shown as under:

Agreement = Proposal (Offer) + Acceptance

There are two parties in a contract:•One party makes an offer to another party. �When the other party accepts this offer, the agreement takes place. �

Proposalisalsocalledas'Offer'.AsperSection2(a),whenonepersonsignifiestoanotherhiswillingnessto•do or to abstain from doing anything, with a view to obtaining the assent of that either to such act or abstinence, heissaidtomakeaproposal.AsperSection2(b),whenthepersontowhomtheproposalismade,signifieshisassent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.As per Section 2 (c), the person making the proposal is called the ‘promisor’, and the person accepting the •proposal is called ‘promisee.’ As per Section 2 (d), when, at the desire of the promisor, the promisee or any other person has done or abstained •

Tier 2 supplier

Tier 1 supplier Product

ManufacturerWholesaler Distributor

Retailer End Customer

3/JNU OLE

from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. As per Section 2 (f), promises which form the consideration or part of the consideration for each other, are •called reciprocal promises.As per Section 2 (i), an agreement which is enforceable by law at the option of one or more of the parties thereto, •but not at the option of the other or others, is a voidable contract.

1.3 Role of Communication in ContractsSince the offer and acceptance have to be communicated between the parties, the role of communication is •very important.As per Section 3, the communication of proposals, the acceptance of proposals, and the revocation of proposals •and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.As per Section 4, the communication of a proposal is complete when it becomes to the knowledge of the person •to whom it is made.The communication of an acceptance is complete as against the proposer, when it is put in a course of transmission •to him so to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer.The communication of a revocation is complete as against the person who makes it, when it is put into a course •of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge.As per Section 5, a proposal may be revoked at any time before the communication of its acceptance is complete •as against the proposer, but not afterwards.An acceptance may be revoked at any time before the communication of the acceptance is complete as against •the acceptor, but not afterwards.As per Section 6, a proposal is revoked-•

by the communication of notice of revocation by the proposer to the other party1. by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the 2. lapse of a reasonable time, without communication of the acceptancebythefailureoftheacceptortofulfilaconditionprecedenttoacceptanceorbythedeathorinsanityofthe3. proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance

As per Section 7, in order to convert a proposal into a promise the acceptance must:•beabsoluteandunqualified1. be expressed in some reasonable manner or the manner prescribed in the proposal2.

As per Section 8, in so far as the proposal or acceptance of any promise is made in words, the promise is said •to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.

1.4 Essentials of a Valid ContractAs per Section10, all agreements are contracts, if they are made by the free consent of parties competent to •contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India, by which any contract is required to be made in •writing or in the presence of witnesses, or any law relating to the registration of documents.Foracontracttobelegalandvalid,itmustfulfilthefollowingconditions:•


4/JNU OLE

There should be two or more parties.(a) There should be agreement between the parties.(b) There should be free consent of parties.(c) There should be a lawful consideration.(d) There should be a lawful object.(e) The parties should be competent to contract.(f) The agreements are not hereby expressly declared to be void.(g) TheyshouldfulfilnormsunderanyotherapplicableActsinrespectofwitness,(h) documentation, registration and stamp duty etc.

As per Section 11, every person is competent to contract who is of the age of majority according to the law to •whichheissubject,andwhoisofsoundmindandisnotdisqualifiedfromcontractingbyanylawtowhichhe is subject. A person is said to have attained majority, if he has attained the age of 18 years. A person below the age of 18 years is considered as minor. Any contract with a minor is void ab initio. It means right from the beginning,suchcontractsareinvalid.Minorcanbeabeneficiaryofacontract,buthecannotincurliabilityunderthe contract. If you enter into a contract with a minor, you cannot enforce your rights through court of law in the case of non performance by the minor. If you employ a minor to load the goods into a lorry and pay him the advance wages, if the minor does not load the goods you cannot take any action against the minor.As per Section 12, a person is said to be of sound mind for the purposes of making a contract, if, at the time •when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. If a person is in a state of drunkenness then temporarily he is of unsound mind since he is not capable of understanding the consequences of a contract. Therefore, you should not deal with a person when he is under theinfluenceofalcohol.As per Section 13, two or more persons are said to consent when they agree upon the same thing in the same •sense.As per Section 14, consent is said to be free when it is not caused by-•

coercion,asdefinedinsection15,or(1) undueinfluence,asdefinedinsection16,or(2) fraud,asdefinedinsection17,or(3) misrepresentation,asdefinedinsection18,or(4) mistake, subject to the provisions of sections 20, 21, and 22.(5)

As per Section 15, "Coercion" is the committing, or threatening to commit, any act forbidden by the Indian •Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.As per Section 16;•

Acontractissaidtobeinducedby"undueinfluence"wheretherelationssubsistingbetweenthe(1) parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.In particular and without prejudice to the generality of the foregoing principle, a person is deemed (2) to be in a position to dominate the will of another-

whereheholdsarealorapparentauthorityovertheother,orwherehestandsinafiduciary(a) relation to the other; orwhere he makes a contract with a person whose mental capacity is temporarily or permanently (b) affected by reason of age, illness, or mental or bodily distress.

As per Section 17, "Fraud" means and includes any of the following acts committed by a party to a contract, •or with his connivance, or by his agents, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:

the suggestion as a fact, of that which is not true, by one who does not believe it to be true(1) the active concealment of a fact by one having knowledge or belief of the fact(2) a promise made without any intention of performing it(3) anyotheractfittedtodeceive(4) any such act or omission as the law specially declares to be fraudulen(5) t

5/JNU OLE

As per Section 18, "Misrepresentation" means and includes-•the positive assertion, in a manner not warranted by the information of the person making it, of that (1) which is not true, though he believes it to be trueany breach of duty which, without an intent to deceive, gains and advantage to the person (2) committing it, or any one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under himcausing, however innocently, a party to an agreement, to make a mistake as to the substance of the (3) thing which is the subject of the agreement

As per Section 19, when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement •is a contract voidable at the option of the party whose consent was so caused.As per Section 23, the consideration or object of an agreement is lawful, unless-•

It is forbidden by law; or is of such nature that, if permitted it would defeat the provision of any law or is fraudulent; or involves or implies, injury to the person or property of another; or the court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of •which the object or consideration is unlawful is void.

1.5 Contract of BailmentAs per Section 148, a "bailment" is the delivery of goods by one person to another for some purpose, upon a •contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor". The person to whom they are delivered is called the •"bailee". Delivery of goods to transport operator is an example of bailment. Storage of goods in a ware house is another example of bailment.In supply chain management parties repeatedly enter into this contract. As per Section 149, the delivery to the •bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf. As per Section 150, the bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is •aware, and which materially interfere with the use of them, or exposethe bailee to extraordinary risk; and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.

1.5.1 Duties of the Bailee

As per Section 151, the bailee is bound to take as much care of the goods bailed to him as a man of ordinary •prudence would, under similar circumstances, take of his own goods of the same bulk, quantity and value as the goods bailed. As per Section 160, it is the duty of the bailee to return, or deliver according to the bailor's directions, the goods •bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.As per Section 161, if by the fault of the bailee, the goods are not returned, delivered or tendered at the proper •time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time.As per Section 154, if the bailee makes any use of the goods bailed which is not according to the conditions •of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.

1.5.2 Rights of a Bailee

As per Section 152, the bailee, in the absence of any special contract, is not responsible for the loss, destruction •or deterioration of the thing bailed, if he has taken the amount of care of it.As per Section 170, where the bailee has, in accordance with the purpose of the bailment, rendered any service •involving the exercise of labour or skill in respect of the goods bailed he has in the absence of a contract to


6/JNU OLE

the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respectofthem.Thisiscalledrightofparticularlien.IfyouhavedeliveredsomefinishedgoodstoMr.Ashokfor packaging, then Mr. Ashok has right of lien on these goods and he may not return the goods to you unless his charges are paid by you.AsperSection171,Bankers,factor,wharfingers,attorneysofaHighCourtandpolicybrokersmay,inthe•absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed tothem.Ifyouhavefixeddepositwithabankandalsoaloanaccountandifthereisdefaultinloanamount,thenthebankercanrefusetorepaythefixeddeposittoyouandthebankerhasrighttoretainthisamountasasecurity for the loan. This is called Right of General Lien. Lien is an implied pledge.AsperSection71,apersonwhofindsgoodsbelongingtoanother,andtakesthemintohiscustody,issubject•tothesameresponsibilityasabailee,ifavisitortoyourofficeforgetshisbaginyouroffice,youwillbecomea bailee.

1.6 Contract of AgencyWhen a business man is doing the business, very often he acting as an agent of some body and also very often •he deals with the agents. He may be also acts as an agent, since he appoints agents to do certain things on his behalf.When you deposit a cheque in a bank, the bank is acting as your agent. When you ask your supplier to send the •documents through the bank, the posit man is acting an agent. Transport operator is acting as an agent. People acting under power of attorney or mandate are also agents. It is very essential to understand the legal •provisions of contract of agency. When one person is authorised to act on behalf of another it is called a contract of Agency.As per Section 182, an "agent" is a person employed to do any act for another in dealings with third persons. •The person for whom such act is done, or represented, is called the "principal".As per Section 183, any person who is of the age of majority according to the law to which he is subject, and •who is of sound mind, may employ an agent. Minor can be an agent but he will not incur personal liability in case of any default by him. Hence, it is better not to appoint a minor as an agent.

1.7 Rights/Authorities of an AgentThe authority of an agent may be express or implied. As per Section 187, an authority is said to be express •when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case. An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in order to do such act.As per Section 188, an agent having an authority to carry on a business has authority to do every lawful thing •necessary for the purpose, or usually done in the course, of conducting such business. As per Section 189, an agent has authority, in an emergency, to do all such acts for the purpose of protecting •his principal from loss and would be done by a person or ordinary prudence, in his own case, under similar circumstances. As per Section 190, an agent cannot lawfully employ another to perform acts which he has expressly or impliedly •undertaken to perform personally.As per Section 217, an agent may retain, out of any sums received on account of the principal in the business •of the agency, all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business, and also such remuneration as may be payable to him for acting as agent.As per Section 221, in the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and •other property, whether movable or immovable of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.As per Section 222, the employer of an agent is bound to indemnify him against the consequences of all lawful •

7/JNU OLE

acts done by such agent in exercise of the authority conferred upon himAs per Section 230, in the absence of any contract to that effect an agent cannot personally enforce contracts •entered into by him on behalf of his principal, nor is he personally bound by them.

1.7.1 Duties of an Agent

As per Section 211, an agent is bound to conduct the business of his principal according to the directions given by •the principal, or in the absence of any such directions according to the customs which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss besustained,hemustmakeitgoodtohisprincipalandifanyprofitaccrues,hemustaccountforit.As per Section 212, an agent is bound to conduct the business of the agency with as much skill as is generally •possessed by person engaged in similar business unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct.As per Section 213, an agent is bound to render proper accounts to his principal on demand. •AsperSection214,itisthedutyofanagentincaseofdifficulty,touseallreasonablediligenceincommunicating•with his principal, and in seeking to obtain his instructions.As per Section 216, if an agent, without the knowledge of his principal, deals in the business of the agency •on his own account instead of on account to his principal, the principal is entitled to claim from the agent any benefitwhichmayhaveresultedtohimfromthetransaction.As per Section 218, subject to such deductions, the agent is bound to pay to his principal all sums received on •his account.As per Section 227, when an agent does more than he is authorised to do, and when the part of what he does, •which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding as between him and his principal.

1.7.2 Sub-Agent

As per Section 191, a "sub-agent" is a person employed by, and acting under the control of, the original agent •in the business of the agency. As per Section 192, where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.

Agent's responsibility for sub-agents: � The agent is responsible to the principal for the acts of the sub-agent.Sub-agent's responsibility: � The sub-agent is responsible for his acts to the agent, but not to the principal

Agency by RatificationAs per Section 196, where acts are done by one person on behalf of another, but without his knowledge or •authority,hemayelecttoratifyortodisownsuchacts.Ifheratifiesthem,thesameeffectswillfollowasiftheyhad been performed by his authority. AsperSection197,ratificationmaybeexpressedormaybeimpliedintheconductofthepersononwhose•behalf the acts are done.

Agency by EstoppelIf a person acts as an agent even though he is not appointed as an agent for a considerable time, then he cannot •take a stand that he is not an agent.


8/JNU OLE

1.7.3 Types of AgentsFollowing are the types of agents:

Mercantile Agent:1. Traders who sell goods of another person on commission basis.Sub Agent:2. An agent appointed by an agent.Co-agent:3. When principal appoints two or more agents, the agents are called co-agents.Substituted Agent:4. A new agent appointed in place of an old agent.Consignee:5. A stockist of owner of goods to dispose off them as per his order.Forwarding Agent:6. Agent involved in forwarding the export goods.Clearing Agent:7. Agent involved in clearing imported goods.Commission Agent:8. An agent who sells goods of another on commission basis.Mandate Holder:9. A person holding a letter of mandate (authority) from another person to do certain acts on his behalf.P A Holder:10. A person who is appointed through a Power of Attorney to do certain acts on behalf of the principal.

1.7.4 Termination of Agency

As per Section 201, an agency is terminated by the principal revoking his authority, or by the agent renouncing •the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.As per Section 224, where one person employees another to do an act which is criminal, the employer is not •liable to the agent, either upon an express or an implied promise to indemnify him against the consequences of that Act.

1.8 Few Terms in Indian Contract Act, 1872

Acceptance Whenthepersontowhomtheproposalismadesignifieshisassentthereto.

Agent An "agent" is a person employed to do any act for another in dealings with third persons.

Agreement Every promise and every set of promises forming the consideration for each other is an agreement.

Bailee The person to whom the goods are delivered in a contract of bailment.

Bailor The person delivering the goods in case of bailment.

Coercion The committing, or threatening to commit, any act forbidden by the Indian Penal Code.

Competence to Contract

Every person is competent to contract.who is of the age of majority(a) who is of sound mind(b) whoisnotdisqualifiedfromcontracting(c)

Consent Two or more persons are said to have consented when they agree upon the same thing in the same sense.

9/JNU OLE

ConsiderationWhen at the desire of the promisor, the promisee or any other person has done or abstained from doing something, such act or abstinence or promise is called consideration.

Contingent Contract A contract to do or not to do something, if some event, collateral to such contract, does or does not happen.

Contract An agreement enforceable by law.

Contract of BailmentThe delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions.

Express Proposal In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express.

Fraud Suggesting a fact which is not true, active concealment of a fact etc., with intent to deceive.

Free Consent The consent is said to be free when it is not caused by coercion, undue influence,fraud,misrepresentationandmistake.

Implied Proposal In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.

Insolvent A person who has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due.

Lawful Consideration The consideration which is not forbidden by law.

Mercantile Agent An agent having in the customary course of business as such agent authority either to sell/buy/consign goods.

Misrepresentation Saying something as true which is not true but the person believes that it is true.

Pawnee The bailee in a pledge.

Principal The person for whom agent works or represents.

Principal Debtor The person in respect of whose default the guarantee

Promise A proposal when accepted becomes a promise.

Promisee The person to whom the proposal is made.

Promisor The person who makes the proposal.

ProposalWhenonepersonsignifiestoanotherhiswillingnesstodoortoabstainfrom doing anything, with a view to obtaining the assent to such act or abstinence, he is said to make a proposal.


10/JNU OLE

Reciprocal Promises Promises which form the consideration or part of the consideration for each other are called reciprocal promises.

Sound MindA person is said to be of sound mind for the purposes of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests.

UndueInfluenceWhere the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

Void Agreement An agreement not enforceable by law.

Voidable Contract An agreement enforceable at the option of one or more parties thereto, but not at the option of the other or others.

Table 1.1 Few terms in Indian Contract Act, 1872

11/JNU OLE

SummaryThe supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, •and customers themselves.Contract = Agreement + Enforceability•Agreement = Proposal (Offer) + Acceptance•All participants will be in all supply chains. It will depend on the needs of the customers and the roles of the •participantsfulfillingtheseneeds.The communication of an acceptance is complete as against the proposer, when it is put in a course of transmission •to him so as to be out of the power of the acceptor. As against the acceptor, when it comes to the knowledge of the proposer.The communication of a revocation is complete as against the person who makes it, when it is put into a course •of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge.The person delivering the goods is called the "bailor". The person to whom they are delivered is called the •"bailee".An "agent" is a person employed to do any act for another in dealings with third persons. The person for whom •such act is done, or represented, is called the "principal".

ReferencesArish, M., • Supply Chain. Available at: <http://www.slideshare.net/aarish9696/supply-chain\> [Accessed on 7th March, 2011].Bhadbhade, N., 2010. • Contract Law in India. Kluwer Law International. Pages 316.

Recommended ReadingAvailable at: <http://www.lawzonline.com/bareacts/Indian-Contract-Act/Indian-Contract-Act.html> [Accessed •on 8th March 2011].Available at: <http://www.vakilno1.com/bareacts/indiancontractact/indiancontractact.html> [Accessed on 7• th March 2011].Available on: <http://www.scribd.com/doc/4972338/THE-INDIAN-CONTRACT-ACT-18721> [Accessed on •8th March 2011].Chopra, S. and Meindl, P., • Supply Chain Management. Available at: <http://www.sbaer.uca.edu/publications/supply_chain_management/pdf/01.pdf> [Accessed on 7th March 2011].


12/JNU OLE

Self Assessment______________involvestheconstantflowofinformation,productandfundsbetweendifferentstages.1.

Supply chaina. Supplierb. Agentc. Managementd.

A person is said to have attained majority if he has attained the age of_________.2. 9 yearsa. 18 yearsb. 37 yearsc. 50 yearsd.

Which of the following statements is true?3. A "a. Promisee" is a person employed to do any act for another in dealings with third persons.A "b. Mercantile Agent" is a person employed to do any act for another in dealings with third persons.An "agent" is a person employed to do any act for another in dealings with third persons.c. An "d. Insolvent" is a person employed to do any act for another in dealings with third persons.

A "sub-agent" is a person employed by, and acting under the control of, the original agent in the business of 4. the__________.

authoritya. bureaub. agencyc. promisord.

Which of the following statements is true?5. When principal appoints two or more agents, the agents are called co-agents.a. When principal appoints only one agent, the agent is called co-agent.b. When principal appoints two or more agents, the agents are called sub-agents.c. When principal appoints two or more agents, the agents are called mercantile-agents.d.

An agreement not enforceable by ______ is said to be void agreement.6. contractsa. lawb. agencyc. ratificationd.

______ may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.7. Reciprocal promisesa. Free consentb. Ratificationc. Communicationd.

13/JNU OLE

Which of the following statements is false?8. If a person acts as an agent even though he is not appointed as an agent for a considerable time then he a. cannot take a stand that he is not an agent.A person who is appointed through a Power of Attorney to do certain acts on behalf of the principal.b. Every promise and every set of promises forming the consideration for each other is an agreement.c. Promisor is the person to whom the proposal is made.d.

Match the following.9.

Promise1. An agreement not enforceable by law.a.

Void Agreement2. The person delivering the goods in case of bailment.b.

Pawnee3. A proposal when accepted becomes a promise.c.

Bailor4. The bailee in a pledge.d.

1-d, 2-c, 3-b, 4-aa. 1-c, 2-a, 3-d, 4-bb. 1-b, 2-d, 3-a, 4-cc. 1-a, 2-d, 3-b, 4-cd.

Agent involved in clearing imported goods is called _____________.10. forwarding agenta. substituted agentb. clearing agentc. commission agentd.


14/JNU OLE

Chapter II

Negotiable Instruments Act, 1881

Aim


describetheimportantdefinitionsoftheNegotiableInstrumentsAct,1881•

explain the duties and liabilities of parties to a negotiable instrument•

elucidate the characteristics of negotiable instruments•

Objectives


describe duties and liabilities of parties of a paying banker•

enlist duties and liabilities of collecting banker•

determine the modes of negotiation•

Learning outcome


understand the duties and liabilities of parties to a negotiable instrument•

differentiate between cheque and demand draft, promissory note and bill of exchange and cheque and bill of •

exchange

discuss the provisions in respect of bouncing of a cheque•

15/JNU OLE

2.1 IntroductionWhen you place an order for purchase of raw material from a supplier, the supplier draws a bill on you along with Lorry receipt and sends it to your bankers for collection. This bill is called 'Bill of Exchange'. You may make payment through cheque or demand draft. You will have to endorse the lorry receipt for taking delivery of goods. The provisions in respect of bill, cheque, demand draft and endorsement are covered in Negotiable Instruments Act, 1881. Therefore, it is essential that the people involved in Supply Chain Management should know the basics of the Negotiable Instruments Act, 1881. It is one of the oldest Acts in India.

2.2 Characteristics of a Negotiable InstrumentTheNegotiableInstrumentsActdoesnotdefineanegotiableinstrument,however,ithasnamedthenegotiable•instrument. As per Section 13, a "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.Payable to Order: • A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. Where a promissory note, bill of exchange or cheque, either originally or by endorsement,isexpressedtobepayabletotheorderofaspecifiedpersonandnottohimorhisorder;itisnevertheless payable to him or his order at his option.Payable to Bearer: • A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsements is an endorsement in blank.As per Section (2), a negotiable instrument may be made payable to two or more payees jointly, or it may be •made payable in the alternative to one or two, or one or some of several payees.A negotiable instrument is a written document creating rights for one party and the obligation for another party •expressed in terms of money, payable to bearer or to the order of a person and easily transferable not withstanding any defect in the title of the transferor. The following are the features of a negotiable instrument:

A negotiable instrument is in writing.1) It creates right for one party.2) It creates liability for another party.3) It is expressed in terms of money.4) It is payable to bearer or to the order of a person.5) It is easily transferable not withstanding any defect in the title of the transferor.6)

"Not withstanding any defect in the title of the transferor" is the speciality of a negotiable instrument.•In normal course, if the transferor is having clear title the transferee gets clear title. If the transferor is having •defective title the transferee gets defective title. In case of a negotiable instrument, transferee gets clear title even if the transferor is having defective title. This aspect is the main difference between a negotiable instrument and other type of property.


16/JNU OLE

Examples negotiable instruments Examples non negotiable instruments

Promissory Note Stock Invest

Bill of Exchange NationalSavingCertificateCheque Fixed Deposit ReceiptDemand draft ShareCertificateTraveller’s Cheque Withdrawal SlipGift Cheque Bill of Lading

Dividend warrant Airway Bill

Interest Warrant Railway ReceiptPay Order Lorry Receipt

Banker’s Cheque Warehouse Receipt

Table 2.1 Examples negotiable instruments and non negotiable instruments

Section 118 lists the presumptions as to negotiable instrumentsUntil the contrary is proved, the following presumptions shall be made:

of consideration:a. that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration.as to date:b. that every negotiable instrument bearing a date was made or drawn on such date.as to time of acceptancec. : that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity.as to time of transfer:d. that every transfer of a negotiable instrument was made before its maturity.as to order of endorsements:e. that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon.as to stampsf. : that a lost promissory note, bill of exchange or cheque was duly stampedthat holder is a holder in due course:g. that the holder of a negotiable instrument is a holder in due course, provided that, where the instrument has been contained from its lawful owner, or form any person in lawful custody thereof, by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.Presumption on proof of protest: h. In a suit upon an instrument, which has been dishonoured, the court shall on proof of the protest, presume the fact of dishonour, unless and until such fact is disproved.

2.3 Promissory NoteAs per Section 4, a "promissory note" is an instrument in writing (not being a bank-note or a currency-note) •containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.Following are the characteristics of a promissory note:•

It is an instrument in writing.1) It contains an unconditional undertaking (promise).2) It is signed by the maker. Promisor is a certain person.3) The promise is to pay a certain sum of money.4) It is payable only to the order of a certain person or to the bearer of the instrument.5) It is stamped as per Indian Stamp A6) ct.

Defect in respect of any one or more aspects will render the promissory note as legally invalid and unenforceable •in court of law.Wheneveryoutakealoanfromabankorafinancialinstitutionorbuygoodsoncredityoumayberequiredto•signthepromissorynote.Pleaseensurethattheblanksintheformataredulyfilledinbeforeyousignthem.

17/JNU OLE

2.3.1 Format of a Promissory Note

Fig. 2.1 Format of a promissory note

The promissory notes are of two types:Demand Promissory Note:1) Promise to pay on demand.Usance Promissory Note:2) Promise to pay on a future date.

There are two parties in a promissory noteMaker or Promisor:1) The persons who make the promise.Payee or Promisee:2) The person to whom the sum is payable.

2.4 Bill of ExchangeAs per Section 5, a "bill of exchange" is an instrument in writing containing an unconditional order, signed by •the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.Following are the characteristics of a bill of exchange:•

It is an instrument in writing.1) It contains an unconditional order.2) It is signed by the drawer. 3) Drawer is a certain person.4) Drawee is a certain person.5) The order is to pay a certain sum of money.6) It is payable only to the order of a certain person or to the bearer of the instrument.7) It is stamped as per Indian Stamp Act, if applicable.8)

Defect in respect of any one or more aspects will render the promissory note as legally invalid and unenforceable •in court of law.There are three parties in a bill of exchange:•

Drawer:1) The person who draws the bill.Drawee:2) The person on whom the bill is drawn and who has to make payment.Payee:3) The person to whom the sum is payable.

The bills of exchange are of following types.•Demand Bill:1) Bill payable on demand.Usance Bill:2) Bill payable on a future date.Inland Bill:3) All parties are in India.Overseas Bill:4) Any one or more parties are outside India.Accommodation Bill:5) Bill not backed by any genuine transactions.Genuine Trade Bill:6) Bill backed by any genuine transactions.Clean Bill:7) A bill not accompanied by any document of title to goods.Documentary Bill:8) A bill accompanied by any document of title to goods.

Revenue Stamp(Signature)

Date: 16-12-2007 Rs. 1,000/-On demand I, Mr.Vithalsingh Hajeri, promise to pay Bank of Maharashtra, Pune branch or order a sum of Rs.1, 000/- (Rs. One thousand only) at Pune or wherever demanded at a rate of interest of 12% per annum.


18/JNU OLE

A promise or order to pay is not "conditional", within the meaning of this section and section 4, by reason of the •time for payment of the amount or any instalment thereof being expressed to be on the lapse of certain period aftertheoccurrenceofaspecifiedeventwhich,accordingtotheordinaryexpectationofmankind,iscertaintohappen, although the time of its happening may be uncertain.The sum payable may be "certain", within the meaning of this section and section 4, although it includes future •indicated rater of change, or is according to the course of exchange and although the instrument provides that, on default of payment of an instalment, the balance unpaid shall become due.Thus, specifying instalments and rate of interest for the sum payable are not treated as conditional or uncertain •sums.

Sl. No Particulars Promissory note Bill of exchange

1 Nature of payment Promise to pay Order to pay

2 No. of parties Two Three

3 Drawer's liability Primary Secondary

4 Stamp duty Applicable in case of both demand and usance promissory notes.

Applicable in case of only usance bills.

5 Usage Promissory notes are obtained by Lenders from their borrowers.

Bills are issued by Creditors on their Debtors.

Table 2.2 Differences between promissory note and bill of exchange

2.5 ChequeAsperSection6,a"cheque"isabillofexchangedrawnonaspecifiedbankerandnotexpressedtobepayableotherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Explanation I: For the purposes of this section, the expressions are as follows:"A cheque in the electronic form" means a cheque which contains the exact mirror image of a paper cheque, (a) and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system."A truncated cheque" means a cheque which is truncated during the course of a clearing cycle, either by (b) the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

Explanation II: For the purposes of this section, the expression "clearing house" means the clearing house managed by the Reserve Bank of India or a clearing house recognised as such by the Reserve Bank of India.

2.5.1 Characteristics of a Cheque

It is an instrument in writing or electronic form.•It contains an unconditional order.•It is signed by the drawer, i.e., account holder or his authorised agent.•Drawee is always a branch of a bank.•

19/JNU OLE

The order is to pay a certain sum of money.•It is payable only to the order of a certain person or to the bearer of the instrument.•It is valid for 6 months from the date written on cheque.•In case of post dated cheque, status of the cheque will be that of a usance bill till the date comes. From the date •mentioned, it becomes cheque.

Fig. 2.2 Format of a cheque

There are three parties in a cheque:Drawer:1) The person who issues the cheque, i.e., Account Holder. In reference to the above example: Swaroopa Hajeri is a drawer.Drawee:2) The Branch of a Bank on whom the cheque is drawn and who has to make payment. In reference to the above example: ICICI Bank, Shivajinagar Branch Pune is the drawee.Payee:3) The person to whom the sum is payable. In reference to the above example: Harshalsingh Hajeri is the payee.

Sl. No Particulars Cheque Bill of exchange

1 Drawer Any Account holder A creditor

2 Drawee Any branch of any bank A debtor

3 Drawer's liability Primary Secondary

4 Stamp duty Not applicable Applicable in case of only usance bills

5 Usage Cheques are issued by debtors to creditors Bills are drawn by creditors on their debtors

6 Demand or usance Always payable on demand Payable on demand or on a future date

Table 2.3 Differences between cheque and bill of exchange

2.6 Demand DraftItisanordertopaymoney,drawnbyoneofficeofabankuponanotherofficeofthesamebankforasumof•money payable to order on demand.As per Section 7, the maker of a bill of exchange or Cheque is called the "drawer"; the person thereby directed •to pay is called the "Drawee."


20/JNU OLE

"Drawee in case of need": � When the bill or in any endorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need such person is called a "drawee in case of need"."Acceptor": � After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such part, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the "acceptor"."Acceptor for honour": � When a bill of exchange has been noted or protested for non-acceptance or for better security, and any person accepts it supra protest for honour of the drawer or of any one of the endorser, such person is called an "acceptor for honour"."Payee": � The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the "payee".

As per Section 8, the "holder" of a promissory note, bill of exchange or cheque means any person entitled •in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss •or destruction.As per Section 9, "Holder in due course" means any person who for consideration became the possessor of a •promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorse thereof, if payable to orderbeforetheamountmentionedinitbecamepayable,andwithouthavingsufficientcausetobelievethatany defect existed in the title of the person from whom he derived his title.

Sl. No Particulars Cheque Demand Draft

1 Assurance of payment Payee gets payment only if there is balance in the drawer's account. Payeegetspaymentdefinitely

2 Consideration Presumed Specificallymentionedas"ForValue Received"

3 Drawer Any Account holder Always a banker

4 Drawee Any branch of any bank Any branch of the same bank which issued DD

5 Payable to Order or bearer Always order

Table 2.4 Differences between cheque and demand draft

2.7 Modes of NegotiationNegotiationisdefinedundersection14.Whenapromisenote,billofexchangeorchequeistransferredtoany•person, so as to continue the person the holder thereof, the instrument is said to be negotiated.Order cheques are negotiated by endorsement and delivery. Therefore you should know the meaning of •endorsement.EndorsementisdefinedunderSection15whenthemarkerorholderofannegotiableinstrumentsignsthesame,•otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the endorser.

21/JNU OLE

2.7.1 Types of EndorsementsFollowing are the types of endorsements:

Endorsement in blank or General Endorsement1) Endorsement in full or Special Endorsement2) Per Pro Endorsement3) Sans Recourse Endorsement4) Restrictive Endorsement5)

As per Section 16(1), if the endorser signs his name only, the endorsement is said to be "in blank", and if he adds a directiontopaytheamountmentionedintheinstrumentto,ortotheorderof,aspecifiedperson,theendorsementissaidtobe"infull",andthepersonsospecifiediscalledthe"endorsee"oftheinstrument.

2.7.2 General Rules Regarding EndorsementListed below are the general rules regarding endorsement:

Endorsement is not applicable to bearer instruments. Even if endorsements are made in respect of bearer 1) instruments, such endorsements will be ignored and the instrument will be continued to be treated as bearer.Endorsement is applicable to order instruments.2) Payeehastherighttomakefirstendorsement.3) If the endorsement is made in blank, the instrument which was originally Order now becomes bearer.4) A bearer instrument is negotiated by delivery.5) An Order instrument is negotiated by endorsement and delivery.6) An Order cheque crossed account payee cannot be endorsed by payee.7) Endorser should sign as per the spelling in the instrument. Even if the spelling is wrong, then he has to 8) endorse as per wrong spelling and in bracket he can write correct spelling.Endorsement need not be as per specimen signature.9) It is not the duty of paying or collecting banker to verify the signature of the endorser.10) An endorsement in blank can be converted into an endorsement in full. This does not require the signature 11) of the endorser or drawer.An endorsement in full can be converted into an endorsement in blank. This requires the signature of the 12) endorser.Endorser should not use the title like Dr., Prof., etc while endorsing the cheque. Similarly, he should not 13) includethequalificationintheendorsement.Endorsement should be in proper sequence. A endorsing to B, B endorsing to C, C endorsing to D etc. It 14) means endorsee in one transaction should be become endorser in the next transaction.If the serial number of endorsement is not written, then the order will be presumed as appearing on the 15) cheque.Endorsement can be done on the face or back of the instruments. But, the practice is to do it on the back 16) side.Ifthespaceisnotsufficienttodotheendorsement,apieceofpapercanbeattachedtotheinstrumentand17) endorsement can be made on this paper. This paper is called Allonge.Endorsement can be done by duly authorised agent. Agent has to show that he is endorsing in the capacity 18) of Agent.If the payee has died, the legal heirs of the deceased payee can jointly make the endorsement. They have 19) to show that they are endorsing in the capacity of legal heirs.After doing the endorsement in favour of a person, if the instrument is not delivered then the endorsee does 20) not get any rights.If the cheque is payable to a married woman in the name of her maiden name, she should endorse in present 21) name after marriage and show maiden name also.

Liabilities of parties to a negotiable instrumentLiability of drawer:• As per Section 30, the drawer of a bill of exchange or cheque is bound in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour has been give to, or received by, the drawer as hereinafter provided.


22/JNU OLE

Liability of prior parties to holder in due course:• As per Section 36, every prior party to a negotiable instrument isliablethereontoaholderinduecourseuntiltheinstrumentisdulysatisfied.

2.7.3 Negotiation Back

If payee or endorser becomes endorsee/holder in due course, it is called ‘negotiation back.’ •In this case the intervening parties are not liable in case of dishonour of the instrument.•

2.7.4 Crossing

To prevent frauds in encashment of cheques, there is a system called Crossing. Crossing is an instruction to •paying bank not to make cash payment to payee. Payment should be made only through an account. Even if there is a fraud, the culprit can be traced, because he has an account, he has given photograph, introduction •and address proof.Following are the types of cheque crossing:•

2.7.4.1 General Crossing

As per Section 123, where a cheque bears across its face an addition of the words “and company” or any •abbreviation thereof, between two parallel transverse lines, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally.

Fig. 2.3 Example of cheque crossed

2.7.4.2 Special Crossing

As per Section 124, where a cheque bears across its face an addition of the name of a banker, either with or •without the words "not negotiable", that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker. As per Section 126, where a cheque is crossed generally, the banker on whom it is drawn shall not pay it •otherwise than to a banker.Payment of cheque crossed specially:• Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed or his agent for collection.

2.7.4.3 Not Negotiable Crossing

As per Section 130, a person taking a cheque crossed generally or specially, bearing in either case the words •“not negotiable”, shall not have and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had.

2.7.4.4 Account Payee Crossing

ThistypeofcrossingisnotdefinedbyNegotiableInstrumentsAct.Itisverymuchinpractice.Itincreasesthe•safety of a cheque and prevents frauds.

And Company

23/JNU OLE

It is an instruction to collecting bank to collect the amount of cheque only if the payee is having account with •him. If the payee does not have an account with any bank, he cannot encash the cheque. There is no difference between •bearer or order once the account payee crossing is done.Account payee and not negotiable crossing are used in combination to have highest safety.•

2.7.4.5 Double Crossing

Thesekindsofchequesaretobecollectedbythebankerspecified.Itcannotbecrossedagainasthepurpose•ofthefirstisfrustratedbythesecondcrossing.Thisisonlyallowedifthebanktowhichitiscrosseddoesnothave a branch at the paying banker’s place.After combining the cheques payable to bearer or order and crossed and uncrossed we can have the following •types of cheques.Crossing under Serial No. 11 is the safest mode of issuing a cheque.•

Fig. 2.4 Generally crossed cheque payable to order

2.8 Bouncing of a Cheque– a Criminal OffenceThese provisions were incorporated in the year 1988, with a view to encourage the culture of use of cheques •and enhancing the credibility of the instrument.Section138dealswithdishonourofchequeforinsufficiencyoffundsintheaccountsandcircumstancesunder•which it can become a criminal liability.Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount •of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that accountisinsufficienttohonourthechequeorthatitexceedstheamountarrangedtobepaidfromthataccountby an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for "a term which may extendtotwoyear",orwithfinewhichmayextendtotwicetheamountofthecheque,orwithboth.Provided that nothing contained in this section shall apply unless:

The cheque has been presented to the bank within a period of six months from the date on which it is (a) drawn or within the period of its validity, whichever is earlier.The payee or the holder induce course of the cheque, as the case may be, makes a demand for the (b) payment of the said amount of money by giving a notice, in writing, to the drawer, of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheques as unpaid, andThe drawer of such cheque fails to make the payment of the said amount of money to the payee or, (c)


24/JNU OLE

asthecasemaybe,totheholderinduecourseofthecheque,withinfifteendaysofthereceiptofthesaid notice.

Explanation: For the purpose of this section, "debt or other liability" means a legally enforceable debt or other liability.

As per Section 139, it shall be presumed, unless the Contrary is proved, that the holder of a cheque received •the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability. As per Section 140, it shall not be a defence in a prosecution of an offence under section 138 that the drawer •had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section.Thefollowingconditionsshouldbefulfilledifthebouncingofachequehastobecomecriminaloffence:•

Cheque should have been issued towards discharge of a debt or other liability. However payee need 1. not prove that there was debt. The burden of proof lies on the drawer to show that there was no debt or liability.Chequeshouldhavebeenreturnedunpaidwiththereason"Fundsinsufficient"."AccountClosed",2. "Payment stopped by the drawer", "Exceeds Arrangement", "Not arranged for" are equivalent to "Fundsinsufficient".Ifthereasonis"refertodrawer",itdependswhetherthebalancewasthereinthe account or not.Cheque should have been presented within its validity period or 6 months from the date appearing on 3. the cheque. The cheque can be presented many times as long as it is within validity period. It is not compulsoryforthepayeetotakecriminalactiononthefirstoccasion.Payee/Holder in due course should have been issued notice to drawer within 30 days from the date of 4. intimation of dishonour.The drawer should have failed to make payment within 15 days from the date of receiving the notice.5. Payee/HolderinduecourseshouldhavebeenfiledacaseintheCourtwithin30daysfromthedate6. of expiry of 15 days period available to drawer for payment.

Onlyifalltheaboveconditionsarefulfilled,thenitwillamounttocriminaloffence.Punishmentincaseof•bouncingofacheque–imprisonmentupto2yearsorfineuptotwicetheamountofchequeorboth.

2.8.1 Format of NoticeNotice should be sent by registered post. Even if the drawer refused to take the cheque or the door is closed, it will be deemed that the notice is served on him. It is not necessary to send notice through advocate.

25/JNU OLE

Fig. 2.5 Format of notice 2.8.2 Offences by CompaniesAs per Section 141:

If the person committing an offence under section 138 is a company, every person who, at the time the (1) offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and proceeded against and punished accordingly.

Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.

Provided further that where a person is nominated as a director of a company by virtue of his holding anyofficeoremploymentintheCentralGovernmentorStateGovernmentorafinancialcorporationowned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.

Notwithstanding anything contained in sub-section (1), where any offence under this Act has been (2) committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attribute to, any neglect on the part of, any director, Manager, secretary, or other officeofthecompany,suchdirector,manager,secretaryorotherofficershallalsobedeemedtobeguiltyof that offence and shall be liable to be proceeded against and punished accordingly.

Explanation: For the purpose of this section:"company"meansanybodycorporateandincludesafirmorotherassociationofindividuals.(a) "director",inrelationtoafirm,meansapartnerinthefirm.(b)

2.8.3 Cognisance of OffencesAs per Section 142,

No court shall take cognisance of any offence punishable under section 138 except upon a complaint, a) in writing, made by the payee or, as the case may be, the holder in due course of the cheque

From: Mrs. Nirmala, Anandnagar, Pune

To,Mrs. Manju, Vithalwadi, PuneDear Madam, (By Regd AD Post)Reg:

Sub: Dishonour of cheque issued by you.

This is to inform you that the Cheque No. 12345 dated 1-12-2009 issued by you in our favour drawn on Bank of Maharashtra, Pune Branch has been dishonoured by your bank on 6-12-2009 with the reason “Insufficient Funds”. Please make the payment of Rs. 5, 000/- (Rs. Five Thousand only) within 15 days from the date of receipt of this notice.

We shall be constrained to take legal action against you under section 138 of NI Act if we do not receive the payment from you.

Thanking you.Yours Faithfully,Signature


26/JNU OLE

Such complaint is made within one month of the date on which the cause of action arises under b) clause (C) of the provision to section 138. Provided that the cognisance of a complaint may be taken bytheCourtaftertheprescribedperiod,ifthecomplainantsatisfiestheCourtthathehadsufficientcause for not making a complaint within such period.NocourtinferiortothatofaMagistrateoraJudicialMagistrateofthefirstclassshalltryanyoffencec) punishable under section 138.

As per Section 143, JudicialMagistrateofthefirstclassorbyaMetropolitanMagistratehaspowertotrycasessummarily.(1) ThemaximumimprisonmentwillbeoneyearandminimumfinewillbeRs.5,000/-incaseofsummarytrial.The trial of a case under this section shall, so far as practicable, consistently with the interests of justice, (2) becontinuedfromdaytodayuntilitsconclusion,unlesstheCourtfindstheadjournmentofthetrialbeyond the following day to be necessary for reasons to be recorded in writing.Every trial under this section shall be conducted as expeditiously as possible and an endeavour shall be (3) madetoconcludethetrialwithinsixmonthsfromthedateoffilingofthecomplaint.

2.8.3.1 Mode of Service of SummonsAs per Section 144,

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974) and for the (1) purposes of this Chapter, a Magistrate issuing a summons to an accused or a witness may direct a copy of summons to be served at the place where such accused or witness ordinarily resides or carries on business or personally works for gain, by speed post or by such courier services as are approved by a Court of Session.Where an acknowledgment purporting to be signed by the accused or the witness or an endorsement purported (2) to be made by any person authorised by the postal department or the courier services that the accused or the witness refused to take delivery of summons has been received, the Court issuing the summons may declare that the summons has been duly served.

2.8.3.2 Evidence on AffidavitAs per Section 145,(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974.) the evidence of the complainantmaybegivenbyhimonaffidavitandmay,subjecttoalljustexceptionsbereadinevidenceinanyenquiry, trial or other proceeding under the said code. (2)TheCourtmay,ifitthinksfit,andshall,ontheapplicationoftheprosecutionortheaccused,summonandexamineanypersongivingevidenceonaffidavitastothefactscontainedtherein.

As per Section 146, the Court shall, in respect of every proceeding under this Chapter, on production of bank’s •slipormemohavingthereontheofficialmarkdenotingthatthechequehasbeendishonoured,presumethefactof dishonour of such cheque, unless and until such fact is disproved.As per Section 147, notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974.) •every offence punishable under this Act shall be compoundable.

2.9 Few Terms in Negotiable Instruments Act, 1881

Acceptance of a Bill The drawee of a bill has signed his assent upon the bill.

Acceptor The drawee after acceptance of a bill.

Acceptor for Honour Any person who accepts it supra protests for honour of the drawer or of any one of the endorser.

27/JNU OLE

Accommodation Bill Bill of exchange drawn without a real transaction to help payee to raise financefromabank.

Account Payee Crossing Direction to the collecting bank to credit the amount to the account of payee.

AgentAn "agent" is a person employed to do any act for another, who is so in dealings with third persons. The person for whom such act is done, or represented, is called the "principal".

Allonge Apieceofpaperattachedtoaninstrumentifthespaceisnotsufficientforendorsement.

Bearer Cheque Cheque payable to bearer. The word "Bearer" is written after the payee.

Bill of Exchange An instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money.

Blank endorsement If the endorser signs his name only without naming any body.

Cheque Billofexchangedrawnonaspecifiedbankerandnotexpressedtobepayable otherwise than on demand.

Days of Grace 3 days added to the arithmetical due date to arrive at actual due date.

Demand Bill Bill payable on demand.

Demand Draft An order by one branch of a bank to another branch of a bank to pay certain sum for value received.

Drawee The person directed to pay.

Drawee in case of need Name of any person which is given in addition to the drawee.

Drawer The maker of a Bill of exchange or Cheque.

Due Date The date on which a bill is due for payment.

Endorsee The person to whom a negotiable instrument has been endorsed.

Endorsement Signature of the marker or holder of a negotiable instrument for the purpose of negotiation on the back or face thereof.


28/JNU OLE

Endorser The marker or holder of a negotiable instrument signs for the purpose of negotiation on the back or face thereof.

Exceeds Arrangement Theunutilisedportionofacashcreditlimitisnotsufficienttopassacheque.

Foreign Bill A bill of exchange when any one or more of drawer/drawee/payee reside in a foreign country

Full Endorsement Endorseraddsadirectiontopaytheamountto,ortotheorderof,aspecifiedperson.

General CrossingA cheque bears across its face an addition of the words "and company" or any abbreviation thereof, between two parallel transverse lines. It is a direction to paying banker to pay through an account.

General lien Right of Bankers etc to retain as a security for a general balance of account, any goods bailed to them.

Holder Any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon.

Holder in due courseAny person who for consideration became the possessor or the payee or indorseofaninstrumentwithouthavingsufficientcausetobelievethatanydefect existed in the title of the person from whom he derived his title.

Inchoate Instrument Instrument which is incomplete except for signature.

Inland Bill A bill drawn and payable in India.

Kite Plying Issuing accommodation bills/cheques not supported by transactions for raisingfinancefrombank.

Material Alteration Alteration in date, amount, payee etc which makes a material difference and require drawer’s full signature.

Negotiable Instrument Promissory note, Bill of Exchange or Cheque. An instrument in writing which creates rights and obligations and freely transferable.

Negotiation Transfer of ownership of a negotiable instrument.

Negotiation Back Drawer/Payee/endorser becomes holder in due course. A cheque transferred by Mr. X is again received by Mr. X after passing through several hands.

Not Negotiable Crossing A transferee does not get better title than that of transferor.

29/JNU OLE

Order Cheque Cheque payable to or to the order of a person named in it. The word "Order" is added after the name of payee.

Payee The person named in the instrument, to whom or to whose order the money is directed to be paid.

Payment in due course

Payment in accordance with the apparent tenor, in good faith and without negligence under circumstances which do not afford a reasonable ground for believing that the payee is not entitled to receive payment of the amount therein mentioned.

Per Pro Endorsement Endorsement in the capacity of an agent, i.e., for and on behalf of.

Post-dated Cheque A cheque which bears a future date.

Promissory Note An instrument in writing containing an unconditional undertaking to pay a certain sum of money.

Restrictive Endorsement Word "Only" is added to the name of endorsee. Endorsee can not further transfer this cheque.

Sans Recourse Endorsement Endorser is not liable if the cheque is bounced.

Special Crossing A cheque bears across its face an addition of the name of a banker.

Stale Cheque A cheque which is more than 6 months old or validity period has expired.

Stop Payment of a Cheque A request by drawer to bank not to make payment of the cheque.

Truncated Cheque A cheque which is truncated during the course of a clearing cycle.


30/JNU OLE

Usance Bill A bill payable on a future date.

Validity of a Cheque The period up to which a cheque can be presented for payment.

Table 2.5 Few terms in Negotiable Instruments Act, 1881

31/JNU OLE

SummaryA "negotiable instrument"• means a promissory note, bill of exchange or cheque payable either to order or to bearer.TheNegotiableInstrumentsActdoesnotdefinetheNegotiableInstrument.•In this chapter features of a negotiable instrument are stated.•The three basic negotiable instruments are • promissory note, bill of exchange and cheque.A "promissory note" is an instrument in writing containing an unconditional undertaking signed by the maker, •to pay a certain sum of money.A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing •a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.A"cheque"isabillofexchangedrawnonaspecifiedbankerandnotexpressedtobepayableotherwisethan•on demand.There are three parties in a bill of exchange and cheque, these are the drawer, drawee and payee.•Demanddraftisanordertopaymoney,drawnbyoneofficeofabankuponanotherofficeofthesamebankfor•a sum of money payable to order on demand.A bearer cheque is negotiated by delivery. Order cheques are negotiated by endorsement and delivery.•Signature of the marker or holder of a negotiable instrument for the purpose of negotiation on the back or face •thereof is called as endorsement.Conditionsarestatedwhichmustbefulfilledifthebouncingofachequehastobecomecriminaloffence.•Punishment in case of bouncing of a cheque Imprisonment up to 2 years or Fine up to twice the amount of •cheque or both.Theevidenceofthecomplainantmaybegivenbyhimonaffidavitandmay,subjecttoalljustexceptionsbe•read in evidence in any enquiry, trial or other proceeding under the said Code.

ReferencesGulshan S. S., G. K. Kapoor, 2005.• Business Law Including Company Law. New Age International. pp. 206–269.Negotiable Instruments Act, 1881. Available at: <http://www.indianlawcds.com/banking/nia1881.htm> Accessed •on 10th March, 2011.Prof. (Commodore) P. K. Goel, 2006. • Business Law for Managers. 2006–07 edition. Dreamtech Press. 340 pages.

Recommended ReadingNegotiable Instruments Act, 1881• . [pdf]. Available at: <http://chddistrictcourts.gov.in/THE%20NEGOTIABLE%20INSTRUMENTS%20ACT.pdf> [Accessed on 10th March, 2011].Pathak, 2007. • Legal Aspects of Business. Tata McGraw-Hill. 573 pages.Gulshan, S., 2005. • Business and Corporate Laws For C. A. Professional Examination-2. New Age International.


32/JNU OLE

Self AssessmentWhich of the following statements is true?1.

A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or a. on which the only or last endorsements is an endorsement in blank.A usance promissory note, demand promissory note, bill of exchange or cheque is payable to bearer which b. is expressed to be so payable or on which the only or last endorsements is an endorsement in blank.A demand promissory note, bill of exchange, overseas bill, drawee or cheque is payable to bearer which is c. expressed to be so payable or on which the only or last endorsements is an endorsement in blank.A usance promissory note, bill of exchange, drawer or cheque is payable to bearer which is expressed to be d. so payable or on which the only or last endorsements is an endorsement in blank.

The person named in the instrument, to whom or to whose order the money is by the instrument directed to be 2. paid, is called the ‘_________.’

drawera. payeeb. draweec. acceptord.

Which of the following statements is true?3. If the endorser signs the third party name, the endorsement is said to be ‘in blank’.a. If the endorser signs his name only, the endorsement is said to be ‘in full’.b. If the endorser signs his name only, the endorsement is said to be ‘in blank’.c. If the endorsee signs his name only, the endorsement is said to be ‘in endorsed’.d.

_________ is not applicable to bearer instruments.4. Crossinga. Chequeb. Bill of exchangec. Endorsementd.

Direction to the collecting bank to credit the amount to the account of payee is called as____________.5. account payee crossinga. not negotiable crossingb. special crossingc. general crossingd.

33/JNU OLE


General crossing1. Endorsee cannot further endorsea.

Not negotiable crossing2. It is the endorsement where the endorser is not liable in case of dishonour b. of the instrument

Sans recourse endorsement3. If a cheque bears across its face two parallel line with or without the c. words "and company"

Restrictive endorsement4. If a transferee does not get better title than that of transferord.

1-a, 2-c, 3-d, 4-b.a. 1-c, 2-d, 3-b, 4-a.b. 1-d, 2-c, 3-a, 4-b.c. 1-b, 2-a, 3-d, 4-c.d.

Who issues the cheque?7. Payeea. Draweeb. Drawerc. Holderd.

Which of the following statements is false?8. Drawee is always a branch of a bank.a. Cheque contains an unconditional order.b. A"cheque"isabillofexchangedrawnonaspecifiedbankerandnotexpressedtobepayableotherwisec. than on demand.Cheque is valid for 12 months from the date written on cheque.d.

Which of the following statements is false?9. An endorsement in full cannot be converted into an endorsement in blank.a. Endorser should not use the title like Dr., Prof., etc while endorsing the cheque.b. Endorsement should be in proper sequence.c. Endorsement can be done on the face or back of the instruments.d.

To prevent frauds in encashment of cheques, there is a system called__________.10. endorsementa. crossingb. chequec. bill of exchanged.


34/JNU OLE

Chapter III

The Sale of Goods Act, 1930

Aim


explain the essentials of a • sales contract

describe the provisions of conditions and warranties•

state the rights of an unpaid seller•

Objectives


highlight the importance of sales contract•

describe the difference between sale and agreement to sell•

explain the rights of stoppage in transit•

Learning outcome


understand the essentials of the Sale of Goods Act, 1930•

understand the difference between sale and agreement to sell•

discuss the transfer of ownership•

35/JNU OLE

3.1 IntroductionSupply chain consists of buying of goods from suppliers and selling of goods to retailers or wholesalers and customers. These transactions are basically contract of sales. Therefore, it is essential that the people involved in supply chain management know the basics of the Sale of Goods Act, 1930.

3.2 Essentials of a Contract of SaleWhen you place an order for purchase of raw material from a supplier, if the supplier accepts your order, it means your supplier has entered into a contract of sale with you for selling raw materials. Following are some section covered under the Sale of Goods Act, 1930:

As per Section 4(1), a contract of sale of goods is a contract whereby the seller transfers or agrees to transfer •the property in goods to the buyer for a price. This leads us to a next question, "What is the meaning of Seller and Buyer?" As per Section 2(13), "seller" means a person who sells or agrees to sell goods. •As per Section 2(1), "buyer" means a person who buys or agrees to buy goods.•As per Section 2(7), "goods" means every kind of moveable 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.As per Section 2(2), "delivery" means voluntary transfer of possession from one person to another. As per •Section 2(10), "price" means the money consideration for a sale of goods.There are two parties in a contract of sale. One party makes offer to sell the goods to another party. When the •other party accepts to buy the goods at the offered price then the contract of sale takes place. Contract of sale isbasicallyacontract.Hence,alltheessentialsofavalidcontractmustbefulfilledsothatthecontractofsalecan become a valid contract.As per Section 4(2), a contract of sale may be absolute or conditional. "Absolute" means there are no conditions. •"Conditional" means some conditions are attached by either party or both the parties.As per Section 4(1), a contract of sale is made by an offer to buy or sell goods for a price and the acceptance •of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed.As per Section 4(2), a contract of sale may be made in writing or by word of mouth, or partly in writing and •partly by word of mouth or may be implied from the conduct of the parties. Normally business transactions are in writing through the Purchase Orders. Nowadays, the purchase are made through emails, fax etc.As per Section 6(1), the goods which form the subject of a contract of sale may be either existing goods, owned •or possessed by the seller, or future goods.AsperSection7,wherethereisacontractforthesaleofspecificgoods,thecontractisvoidifthegoodswithout•the knowledge of the seller have, at the time when the contract was made, perished or become so damaged as no longer to answer to their description in the contract.AsperSection9(1),thepriceinacontractofsalemaybefixedbythecontractormaybelefttobefixedin•manner thereby agreed or may be determined by the course of dealing between the parties.As per Section 18, where there is a contract for the sale of unascertained goods, no property in the goods is •transferred to the buyer unless and until the goods are ascertained.AsperSection19(1),wherethereisacontractforthesaleofspecificorascertainedgoodsthepropertyinthem•is transferred to the buyer at such time as the parties to the contract intend it to be transferred.As per Section 19(2), for the purpose of ascertaining the intention of the parties regard shall be had to the terms •of the contract, the conduct of the parties and the circumstances of the case.AsperSection20,wherethereisanunconditionalcontractforthesaleofspecificgoodsinadeliverablestate,•the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.


36/JNU OLE

AsperSection21,wherethereisacontractforthesaleofspecificgoodsandthesellerisboundtodosomething•to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.AsperSection22,wherethereisacontractforthesaleofspecificgoodsinadeliverablestate,buttheseller•is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof.As per Section 23(1), where there is a contract for the sale of unascertained or future goods by description and •goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made.As per Section 23(2), where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier •or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.As per Section 24, when goods are delivered to the buyer on approval or "on sale or return" or other similar •terms, the property therein passes to the buyer:

whenhesignifieshisapprovaloracceptancetothesellerordoesanyotheractadoptingthetransaction �if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of �rejection,then,ifatimehasbeenfixedforthereturnofthegoods,ontheexpirationofsuchtime,and,ifnotimehasbeenfixed,ontheexpirationofareasonabletime

AsperSection25(1),wherethereisacontractforthesaleofspecificgoodsorwheregoodsaresubsequently•appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposalofthegoodsuntilcertainconditionsarefulfilled.Insuchcase,notwithstandingthedeliveryofthegoods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goodsdoesnotpasstothebuyeruntiltheconditionsimposedbythesellerarefulfilled.As per Section 25 (2), here goods are shipped or delivered to a railway administration for carriage by railway •and by the bill of lading or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve right of disposal.As per Section 25(3), where the seller of goods draws on the buyer for the price and transmits to the buyer the •bill of exchange together with the bill of lading or, as the case may be, the railway receipt, to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honour the bill of exchange; and, if he wrongfully retains the bill lading or the railway receipt, the property in the goods does not pass to him.As per Section 26, the goods remain at the seller’s risk until the property therein is transferred to the buyer, but •when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not. After the property is transferred to the buyer, if the delivery of goods is not taken by the buyer, the seller will be deemed to be bailee. Where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault. The duties or liabilities of either seller or buyer as a bailee of the goods of the other party will continue.As per Section 27, where goods are sold by a person who is not the owner thereof and who does not sell them •under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had. Therefore, it is essential to verify the ownership of the seller before buying any goods from him.As per Section 27, where a mercantile agent is, with the consent of the owner, in possession of the goods or •of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same. Provided that the buyer acts in good faith and has not at the time of the contract of sale notice that the seller has not authority to sell.

37/JNU OLE

As per Section 28, if one of several joint owners of goods has the sole possession of them by permission of the •co-owners, the property in the goods is transferred to any person who buys them from such joint owner in good faith and has, at the time of the contract of sale, no notice that the seller has no authority to sell.As per Section 29, when the seller of goods has obtained possession thereof under a contract voidable under •section 19 or section 19A of the Indian Contract Act, 1872, but the contract has not rescinded at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.As per Section 30(1), where a person, having sold goods continues or is in possession of the goods or of the •documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.As per Section 30(2), where a person, having bought or agreed to buy goods, obtains with the consent of the •seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist. As per Section 31, it is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, •in accordance with the terms of the contract of sale.As per Section 32, unless otherwise agreed, delivery of the goods and payment of the price are concurrent •conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of the goods.As per Section 33, delivery of goods sold may be made by doing anything which 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.As per Section 35, apart from any express contract, the seller of goods is not bound to deliver them until the •buyer applies for delivery.As per Section 36(1), whether it is for the buyer to take possession of the goods or for the seller to send them •to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, goods sold are to be delivered at the place at which they are at the time of the sale, and goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell, if not then in existence, at the place at which they are manufactured or produced.As per Section 36(2), where under the contract of sale the seller is bound to send the goods to the buyer, but no •timeforsendingthemisfixed,thesellerisboundtosendthemwithinareasonabletime.As per Section 36(3), where the goods at the time of sale are in the possession of a third person, there is no •delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf. This shall not affect the operation of the issue or transfer of any document of title to goods.As per Section 2(4), "document of title to goods" includes bill of lading, dock warrant, warehouse keeper’s •certificate,wharfinger’scertificate,railwayreceipt,multimodaltransportdocument,warrantororderforthedelivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.As per Section 36(4), demand or tender of delivery may be treated as ineffectual unless made at a reasonable •hour. What is a reasonable hour is a question of fact.As per Section 36(5), unless otherwise agreed, the expenses of and incidental to putting the goods into a •deliverable state shall be borne by the seller.As per Section 37(1), where the seller delivers to the buyer a quantity of goods less than he contracted to sell, •the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate.


38/JNU OLE

As per Section 37(2), where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, •the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pay for them at the contract rate.As per Section 37(3), where the seller delivers to the buyer the goods he contracted to sell mixed with goods •of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest, or may reject the whole.As per Section 38(1), unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by •instalments.As per Section 38(2), where there is a contract for the sale of goods to be delivered by stated instalments which •are to be separately paid for, and the seller makes no delivery or defective delivery in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each case depending on the terms of the contract and the circumstances of the case, whether the breach of contract is a repudiation of the whole contract, or whether it is a severable breach giving rise to a claim for compensation, but not to a right to treat the whole contract as repudiated.As per Section 39(1), where the seller is authorised or required to send the goods to the buyer, delivery of the •goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of thegoodstoawharfingerforsafecustody,isprimafaciedeemedtobeadeliveryofthegoodstothebuyer.As per Section 39(2), unless otherwise authorised by the buyer, the seller shall make such contract with the •carrierorwharfingeronbehalfofthebuyerasmaybereasonablehavingregardtothenatureofthegoodsandthe other circumstances of the case. If the seller omits so to do and the goods are lost or damaged in course of transitorwhilstinthecustodyofthewharfinger,thebuyermaydeclinetotreatthedeliverytothecarrierorwharfingerasadeliverytohimself,ormayholdthesellerresponsibleindamages.As per Section 39(3), unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving •sea transit, in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to insure them during their sea transit and if the seller fails so to do, the goods shall be deemed to be at his risk during such sea transit.As per Section 40, where the seller of goods agrees to deliver them at his own risk at a place other than that •where they are when sold, the buyer shall, nevertheless, unless otherwise agreed, take any risk of deterioration in the goods necessarily incident to the course of transit.As per Section 41(1), where goods are delivered to the buyer which he has not previously examined, he is not •deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.As per Section 41(2), unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, •on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract.As per Section 42, the buyer is deemed to have accepted the goods when he intimates to the seller that he has •accepted them, or when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.As per Section 43, unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept •them,havingtherightsotodo,heisnotboundtoreturnthemtotheseller,butitissufficientifheintimatestothe seller that he refuses to accept them.As per Section 44, when the seller is ready and willing to deliver the goods and requests the buyer to take delivery, •and the buyer does not within a reasonable time after such request take delivery of the goods, he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery and also for a reasonable charge for the care and custody of the goods. It shall not affect the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.

39/JNU OLE

3.3 Difference Between Sale and Agreement to SaleAs per Section 4(3) where under a contract of sale, the property in the goods is transferred from the seller to the •buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future timeorsubjecttosomeconditionthereaftertobefulfilled,thecontractiscalledanagreementtosell.Transfer of ownership is the real test of sale or agreement to sell. Payment of price and delivery of goods are •not the criteria for deciding whether a contract is a sale or agreement to sell.

Criteria Sale Agreement to sell

Transfer of ownership Immediate On a future date

Risk in case of damage to goods ready in a deliverable state Of buyer Of seller

Nature of contract Executed executory

State of goods Existing or Future

Table 3.1 Differences between sale and agreement to sell

AsperSection4(4),anagreementtosellbecomesasalewhenthetimeelapsesortheconditionsarefulfilled•subject to which the property in the goods is to be transferred.As per Section 6(2), there may be a contract for the sale of goods the acquisition of which by the seller depends •upon a contingency which may or may not happen. As per Section 6(3), where by a contract of sale the seller purports to affect a present sale of future goods, the contract operates as an agreement to sell the goods.AsperSection8,wherethereisanagreementtosellspecificgoods,andsubsequentlythegoodswithoutany•fault on the part of the seller or buyer perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided.

3.4 Conditions and WarrantiesAs per Section 12(1), a stipulation in a contract of sale with reference to goods which are the subject thereof •may be a condition or a warranty.As per Section 12(2), a condition is a stipulation essential to the main purpose of the contract, the breach of •which gives rise to a right to treat the contract as repudiated.As per Section 12(3), a warranty is a stipulation collateral to the main purpose of the contract, the breach of which •gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.As per Section 12(4), whether a stipulation in a contract of sale is a condition or a warranty depends in each case •on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract.Rights to the buyer under Sale of Goods Act are in addition to rights under Consumer Protection Act.•AsperSection13(1),whereacontractofsaleissubjecttoanyconditiontobefulfilledbytheseller,thebuyer•may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.As per Section 13(2), where a contract of sale is not severable and the buyer has accepted the goods or part •thereof,thebreachofanyconditiontobefulfilledbythesellercanonlybetreatedasabreachofwarrantyand not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect.


40/JNU OLE

As per Section 14, the following are the implied conditions and warranties, unless the circumstances of the •contract are such as to show a different intention there is:

an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods (a) and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to passan implied warranty that the buyer shall have and enjoy quiet possession of the goods(b) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third (c) party not declared or known to the buyer before or at the time when the contract is made

As per Section 15, where there is a contract for the sale of goods by description, there is an implied condition •that the goods shall correspond with the description; and, if the sale is by sample as well as by description, it is notsufficientthatthebulkofthegoodscorrespondswiththesampleifthegoodsdonotalsocorrespondwiththe description.AsperSection16,thereisnoimpliedwarrantyorconditionastothequalityorfitnessforanyparticularpurpose•of goods supplied under a contract of sale, except as follows:

Where the buyer, expressly or by implication, makes known to the seller the particular purpose for (1) which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fitforsuchpurpose.Where goods are bought by description from a seller who deals in goods of that description (whether (2) he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality. Provided that, if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed.Animpliedwarrantyorconditionastoqualityorfitnessforaparticularpurposemaybeannexedby(3) the usage of trade.An express warranty or condition does no(4) t negative a warranty or condition implied by this Act unless inconsistent therewith.

As per Section 17(2), in the case of a contract for sale by sample there is an implied condition:•that the bulk shall correspond with the sample in quality(a) that the buyer shall have a reasonable opportunity of comparing the bulk with the sample(b) that the goods shall be free from any defect, rendering them un-merchantable, which would not be (c) apparent on reasonable examination of the sample

3.4.1 Caveat Emptor

Caveat emptor means "Let the buyer beware". It means, it is the duty of the buyer to verify and inspect the goods •thatheisbuyingandconfirmwhethertheyaresuitableforthepurposeforwhichheisbuying.Caveat emptor is not applicable in case of implied warranties and implied conditions.•

3.5 Rights of an Unpaid SellerWhen the goods are delivered to buyer without receiving full payment, the seller is called unpaid seller. In case of credit sales and instalment sales, the seller is unpaid seller. If a buyer has made payment by cheque and the cheque is bounced for any reason then the seller will be considered as unpaid sell.

As per Section 45,•The seller of goods is deemed to be an "unpaid seller"(1)

when the whole of the price has not been paid or tendered(a) when a bill of exchange or other negotiable instrument has been received as conditional payment (b) andtheconditiononwhichitwasreceivedhasnotbeenfulfilledbyreasonofthedishonouroftheinstrument or otherwise

The term "seller" includes any person who is in the position of a seller, as, for instance, an agent of the (2) seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price.

41/JNU OLE

As per Section 46(1) the unpaid seller of goods has the following rights:•a lien on the goods for the price while he is in possession of thema) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with b) the possession of thema right of re-salec)

3.5.1 Unpaid Seller's Lien

As per Section 47(1), the unpaid seller of goods who is in possession of them is entitled to retain possession of •them until payment or tender of the price in the following cases

where the goods have been sold without any stipulation as to credit(a) where the goods have been sold on credit, but the term of credit has expired(b) where the buyer becomes insolvent(c)

As per Section 48, where an unpaid seller has made part delivery of the goods, he may exercise his right of lien •on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien.As per Section 49(1), the unpaid seller of goods loses his lien thereon:•

when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer (a) without reserving the right of disposal of the goodswhen the buyer or his agent lawfully obtains possession of the goods(b) by waiver thereof(c)

3.5.2 Right of Stoppage in Transit

As per Section 50, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the •possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price.As per Section 51(1), goods are deemed to be in course of transit from the time when they are delivered to a •carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee.As per Section 51(3), after the arrival of the goods at the appointed destination if the carrier or other bailee •acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer.As per Section 51(4), if the goods are rejected by the buyer and the carrier or other bailee continues in possession •of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.As per Section 51(5), when goods are delivered to a ship chartered by the buyer, it is a question depending on •the circumstances of the particular case, whether they are in the possession of the master as a carrier or as agent of the buyer.As per Section 51(6), where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or •his agent in that behalf, the transit is deemed to be at an end.As per Section 51(7), where part delivery of the goods has been made to the buyer or his agent in that behalf, the •remainder of the goods may be stopped in transit, unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods.As per Section 52(1), the unpaid seller may exercise his right of stoppage in transit either by taking actual •possession of the goods, or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, shall be given at such time and in such circumstances, that the principal, by the exercise of reasonable diligence, may communicate it to his servant or agent in time to prevent a delivery to the buyer.As per Section 52(2), when notice of stoppage in transit is given by the seller to the carrier or other bailee in •possession of the goods, he shall re-deliver the goods to, or according to the directions of, the seller. The expenses


42/JNU OLE

of such re-delivery shall be borne by the seller.As per Section 53(1), the unpaid seller’s right of lien or stoppage in transit is not affected by any sale or other •disposition of the goods which the buyer may have made, unless the seller has assented thereto.Where a document of title to goods has been issued or lawfully transferred to any person as buyer or owner •of the goods, and that person transfers the document to a person who takes the document in good faith and for consideration, then, if such last mentioned transfer was by way of sale, the unpaid seller’s right of lien or stoppage in transit is defeated, and, if such last mentioned transfer was by way of pledge or other disposition for value, the unpaid seller’s right of lien or stoppage in transit can only be exercised subject to the rights of the transferee.As per Section 53(2), where the transfer is by way of pledge, the unpaid seller may require the pledgee to have •theamountsecuredbythepledgesatisfiedinthefirstinstance,asfaraspossible,outofanyothergoodsorsecurities of the buyer in the hands of the pledgee and available against the buyer.As per Section 54(1), a contract of sale is not rescinded by the mere exercise by an unpaid seller of his right of •lien or stoppage in transit.As per Section 54(2), where the goods are of a perishable nature, or where the unpaid seller who has exercised •his right of lien or stoppage in transit gives notice to the buyer of his intention to re-sell, the unpaid seller may, if the buyer does not within a reasonable time pay or tender the price, re-sell the goods within a reasonable time and recover from the original buyer damages for any loss occasioned by his breach of contract, but the buyer shall notbeentitledtoanyprofitwhichmayoccuronthere-sale.Ifsuchnoticeisnotgiven,theunpaidsellershallnotbeentitledtorecoversuchdamagesandthebuyershallbeentitledtotheprofit,ifany,onthere-sale.As per Section 54(3), where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells •the goods, the buyer acquires a good title thereto as against the original buyer, notwithstanding that no notice of the re-sale has been given to the original buyer.As per Section 54(4), where the seller expressly reserves a right of re-sale in case the buyer should make default, •and, on the buyer making default, re-sells the goods, the original contract of sale is thereby rescinded, but without prejudice to any claim which the seller may have for damages.As per Section 55(1), where under a contract of sale, the property in the goods has passed to the buyer and the •buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods.As per Section 55(2), where under a contract of sale the price is payable on a day certain irrespective of delivery •and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract.As per Section 56, where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller •may sue him for damages for non-acceptance.As per Section 57, where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer •may sue the seller for damages for non-delivery.AsperSection58,inanysuitforbreachofcontracttodeliverspecificorascertainedgoods,thecourtmay,ifit•thinksfit,ontheapplicationoftheplaintiff,byitsdecreedirectthatthecontractshallbeperformedspecifically,without giving the defendant the option of retaining the goods on payment of damages.As per Section 59(1), where there is a breach of warranty by the seller, or where the buyer elects or is compelled •to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he mayset up against the seller the breach of warranty in diminution or extinction of the price, or•sue the seller for damages for breach of warranty•As per Section 60, where either party to a contract of sale repudiates the contract before the date of delivery, the •other may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.As per Section 61(1), nothing in this Act shall affect the right of the seller or the buyer to recover interest or •special damages in any case whereby law interest or special damages may be recoverable, or to recover the

43/JNU OLE

money paid where the consideration for the payment of it has failed.AsperSection61(2),thecourtmayawardinterestatsuchrateasitthinksfitontheamountoftheprice:•

to the seller in a suit by him for the amount of the price-from the date of the tender of the goods or from (a) the date on which the price was payable.to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part (b) of the seller-from the date on which the payment was made.

As per Section 64, in the case of sale by auction:•where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate (1) contract of salethe sale is complete when the auctioneer announces its completion by the fall of the hammer or in (2) other customary manner; and, until such announcement is made, any bidder may retract his bida right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly (3) so reserved, but not otherwise, the seller or any one person on his behalf may, subject to the provisions hereinafter contained, bid at the auctionwherethesaleisnotnotifiedtobesubjecttoarighttobidonbehalfoftheseller,itshallnotbe(4) lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person; and any sale contravening this rule may be treated as fraudulent by the buyerthesalemaybenotifiedtobesubjecttoareservedorupsetprice(5) if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of (6) the buyer

As per Section 64A,•Unless a different intention appears from the terms of the contract, in the event of any tax of the nature (1) described in sub-section Being imposed, increased, decreased or remitted in respect of any goods after the making of any (2) contract for the sale or purchase of such goods without stipulation as to the payment of tax,

if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or (a) any part of such tax is paid or is payable, the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition; andif such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may (b) be, is paid or is payable, the buyer may deduct so much from the contract price as will be equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay, or be sued for, or in respect of, such deduction.

The provisions of sub-section (1) apply to the following taxes, namely,(3) any duty of customs or excise on goods(a) any tax on the sale or purchase of goods(b)

Theunpaidsellercanhypothecatehisbookdebts/receivablestoabankerandraisefinanceagainsttheamount•receivable by him. The unpaid seller can sell his book debts or receivables to a factor authorizing him to recover the money from his debtors.

3.6 Few Terms in Sales of Goods Act, 1930

Agreement to SellWhere the transfer of the property in the goods is to take place at a future time orsubjecttosomeconditionthereaftertobefulfilled,thecontractiscalledanagreement to sell.

Bailee The person to whom the goods are delivered in a contract of bailment.


44/JNU OLE

Bill of Exchange An instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money.

Buyer A person who buys or agrees to buy goods.

Condition A stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.

ConsiderationWhen, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, such act or abstinence or promise is called consideration.

Contract An agreement enforceable by law.

Contract of Sale A contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.

Delivered State The goods are in such state that the buyer would be bound to take delivery of them.

Delivery Voluntary transfer of possession from one person to another.

Dishonour of Cheque Cheque is returned by the drawee bank for any reason.

Document of title to goods Any document used in the ordinary course of business as proof of the possession or control of goods.

Endorsement Signature of the marker or holder of a negotiable instrument for the purpose of negotiation on the back or face thereof.

Future Goods Goods to be manufactured or produced or acquired by the seller after making of the contract of sale.

45/JNU OLE

General Lien Right of Bankers etc to retain as a security for a general balance of account, any goods bailed to them.

Goods Every kind of moveable property other than actionable claims and money.

Mercantile Agent An agent having in the customary course of business as such agent authority either to sell/buy/consign goods.

Negotiable Instrument Promissory note, Bill of Exchange or Cheque. An instrument in writing which creates rights and obligations and freely transferable.

Pledge The bailment of goods as security for payment of a debt or performance of a promise.

Price The money consideration for a sale of goods.

Property The general property in goods and not merely a special property.

Quality The state or condition of goods.

Sale When, under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called a sale.

Seller A person who sells or agrees to sell goods.

SpecificGoods Goodsidentifiedandagreeduponatthetimeacontractofsaleismade.

WarrantyA warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

Table 3.2 Few terms in Sales of Goods Act, 1930


46/JNU OLE

SummarySupply chain consists of buying of goods from suppliers of raw materials and selling of goods to retailers or •wholesalers and customers. These transactions are basically contract of sales.A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods •to the buyer for a price."Seller" means a person who sells or agrees to sell goods. "Buyer" means a person who buys or agrees to buy •goods."Delivery" means voluntary transfer of possession from one person to another. "Price" means the money •consideration for a sale of goods.Under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is •called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to someconditionthereaftertobefulfilled,Caveat emptor means "Let the buyer beware". It means, it is the duty of the buyer to verify and inspect the goods •thatheisbuyingandconfirmwhethertheyaresuitableforthepurposeforwhichheisbuying.When the goods are delivered to buyer without receiving full payment, the seller is called unpaid seller. In case •of credit sales and instalment sales, the seller is unpaid seller.Rights to the buyer under Sale of Goods Act are in addition to rights under Consumer Protection Act.•When the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods •has the right of stopping them in transit.

ReferencesBose, C., 2008. • Business Law. PHI Learning Pvt. Ltd. pp.107–123.Dr. Sharma, A., 2007. • Business Regulatory Framework. FK Publications. 301 pages.

Recommended ReadingCampbell, D., 2008. • Remedies for International Sellers of Goods, Volume II. Yorkhill Law Publishing. pp.135–156.Iqbal S. and Adeel, K. • Contract of Sale of Goods.Availableat:<http://www.financedoctors.net/Notes/60.pdf>[Accessed on 8th March, 2011].The Sale of Goods Act, 1930.• Available at: <http://www.citeman.com/7017-agreement-to-sell-and-hire-purchase-agreement-distinguished/> [Accessed on 8th March, 2011].The Sale of Goods Act, 1930.• Available at: < http://www.docstoc.com/docs/17046550/6-Sale-of-Goods-Act-1930> [Accessed on 8th March, 2011].

47/JNU OLE

Self Assessment

A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods 1. to the buyer for a_________.

pricea. rewardb. consequencesc. goodsd.

Which of the following statements is false?2. ‘Deliver’ means voluntary transfer of possession from one person to another.a. There are three parties in a contract of sale.b. Supply chain consists of buying of goods from suppliers of raw materials and selling of goods to retailers c. or wholesalers and customers.When the goods are delivered to buyer without receiving full payment, the seller is called unpaid seller.d.

Payment of price and delivery of goods are not the criteria for deciding whether a ___________ is a sale or 3. agreement to sell.

concurrencea. buyerb. contractc. deliveryd.

Which of the following statements is true?4. Anagreementtosellbecomesasalewhenthetimeelapsesortheconditionsarefulfilledsubjecttowhicha. the property in the goods is to be auctioned off.Anagreementtosellbecomesasalewhenthetimeelapsesortheconditionsarenotfulfilledsubjecttob. which the property in the goods is to be sold.Anagreementtosellbecomesasalewhenthetimeelapsesortheconditionsarefulfilledsubjecttowhichc. thepropertyinthegoodsistobefixed.Anagreementtosellbecomesasalewhenthetimeelapsesortheconditionsarefulfilledsubjecttowhichd. the property in the goods is to be transferred.

A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a 5. right to treat the contract as _________.

repudiateda. transferrableb. illegalc. rejectedd.

Identify the meaning of ‘Caveat Emptor’. 6. "Let the merchant beware."a. "Let the buyer beware."b. "Let the dealer beware."c. "Let the trader beware."d.


48/JNU OLE

Which of the following statements is true?7. Caveat emptor is applicable in case of implied warranties and implied conditions.a. Caveat emptor is not applicable in case of contract of sale and conditions.b. Caveat emptor is not applicable in case of implied warranties and implied conditions.c. Caveat emptor is not applicable in case of contract of sale and agreement to sell.d.

Match the following?8.

Price1. Goodsidentifiedandagreeduponat thetimeacontractofsale isA. made

Quality2. The money consideration for a sale of goodsB.

Specificgoods3. Voluntary transfer of possession from one person to anotherC.

Delivery4. The state or condition of goodsD.

1-C, 2-A, 3-D, 4-Ba. 1-A, 2-C, 3-B, 4-Db. 1-D, 2-B, 3-D, 4-Ac. 1-B, 2-D, 3-A, 4-Cd.

When the goods are delivered to buyer without receiving full payment, the seller is called ________ seller.9. unpaida. paidb. gainfulc. professionald.

__________ of ownership is the real test of sale or agreement to sell.10. Powera. Transferb. Contractc. Warrantyd.

49/JNU OLE

Chapter IV

The Standards of Weights and Measures Act, 1976

Aim


statetheimportantdefinitionsoftheStandardsofWeightsandMeasuresAct•

explain the standards for weights and measurement•

describe the provisions of offences and their trial•

Objectives


narrate the standards for weights and measures•

enlist various penalties for using of non-standard weights, or measures•

explain the establishment of standards of weights and measures•

Learning outcome At the end of this chapter, the students will be able to:

knowtheimportantdefinitionsoftheAct•

understand the standards for weights and measures•

identify the offences and their trial under this Act•


50/JNU OLE

4.1 IntroductionSupply chain includes the manufacturers, suppliers, transporters, warehouses, retailers, wholesalers and customers themselves. At every stage the goods are transported. These goods are packed into different units before they are transported. They should be pack ed as per the standards of weights and measurements. Therefore, it is essential that the people involved in supply chain management should know the basics of the standards of weights and measures act, 1976. The objective of the act is to establish standards of weights and measures, to regulate trade or commerce in weights, measures and other goods which are sold or distributed by weight, measure or number, to provide for matters connected therewith or incidental thereto.

4.2 Provisions Applicable to Every Part (Part I)As per Section 1,

This Act may be called the Standards of Weights and Measures and Enforcement Act, 1976.(1) It extends to the whole of India.(2) ItshallcomeintoforceonsuchdateastheCentralGovernmentmay,bynotification,appoint,anddifferent(3) dates may be appointed for different --

provisions of this Act;(a) areas,(b) classes of undertakings,(c) classes of goods,(d) classes of weights and measures, or(e) classes of users of weights and measures,(f)

and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision in such areas, or in respect of such classes of undertakings, goods, weights and measures or users of weights and measures in relation to which this Act has been brought into force. Provided that the provisions of this Act (including the standards established by or under this Act) shall come into force in the State ofSikkimonsuchdate,notbeinglaterthanfiveyearsfromthepassingofthisAct,astheCentralGovernmentmay,bynotification,appoint,anddifferentdatesmaybeappointedfordifferentprovisionsofthisActorfordifferentareas or for different classes of undertaking or for different classes of goods, or for different classes of weights and measures or for different classes of users of weights and measures.

Section 2: DefinitionsIn this Act, unless the context otherwise requires:

'Calibration' means all the operations which are necessary for the purpose of determining the values of the (a) errors of a weight or measure and, if necessary, to determine the other metrological properties of such weight ormeasure,andincludestheactualfixingofthepositionsofthegaugemarksorscalemarksofaweightor measure, or in some cases, of certain principal marks only, in relation to the corresponding values of the quantity to be measured. Explanation: Calibration may also be carried out with a view to permitting the use of a weight or measure.'Commodity in packaged form' means commodity packaged whether in any bottle, tin, wrapper or otherwise, (b) in units suitable for sale, whether wholesale or retail;'Dealer',inrelationtoanyweightormeasure,meansapersonswho,orafirmoraHinduundividedfamily(c) which, carried on, directly or otherwise, the business of buying, selling, supplying or distributing any such weight or measure, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration and includes:

a commission agent who carries on such business on behalf of any principal,(ii) an importer who sells, supplies, distributes or otherwise delivers any weight or measure to any user, (iii) manufacturer, repairer, consumer or any other person, but does not include a manufacturer who sells, supplies, distributes or otherwise delivers any weight or measure to any person or category of persons referred to in this clause. Explanation: For the removal of doubts, it is hereby declared that a manufacturer, who sells, supplies, distributes or otherwise delivers any weight or measure to any person other than a dealer, shall be deemed to be a dealer:

'Director' means the Director of Legal Metrology appointed under section 28;(d)

51/JNU OLE

'Export' with its grammatical variations and cognate expressions, means taking out of India to a place outside (e) India;'False package' means any package which does not conform to the provisions of this Act or any rule or order (f) made there under in relation to such package;'False weight or measure' means any weight or measure which does not conform to the standards established (g) by or under this Act in relation to that weight or measure;‘General Conference on Weights and Measures' means the Conference General des Poids et Measures (h) established under the Convention du Metre;'Import' with its grammatical variations and cognate expressions, means bringing into India from a place (i) outside India;'International Bureau of Weights and Measures' means the Bureau International des Poids et Measures, (j) established under the Convention du Metre, at Sevres in France.'International Organisation of Legal Metrology' means the Organisation International de Metrology Legal (k) established under the Convention Instituant Une Organisation Internationale de Metrologie Legale;'International prototype of the Kilogram' means the prototype sanctioned by the First General Conference (l) on Weights and Measures held in Paris in 1989, and deposited at the International Bureau of Weights and Measures;'Inter-state trade or commerce', in relation to any weight or measure or other goods which are bought, sold, (m) supplied, distributed or delivered by weight, measure or number, means the purchase, sale, supply, distribution or delivery which--

occasions the movement of such weight, measure or other goods from one State to another, or(i) is effected by a transfer of documents of title to such weight, measure or other goods during its (ii) movement from one state to another.

Explanation I: Where any such weight or measure is, or other goods are, delivered to a carrier to other bailee for transmission, the movement of such weight, measure or other goods shall, for the purposes of sub-clause (ii), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.Explanation II: Where the movement of any such weight, measure or other goods commences and terminates in the same State, it shall not be deemed to be a movement of such weight, measure or other goods from one State to another merely by reason of the fact that in the course of such movement it passes through the territory of any other state.'Label'meansanywritten,marked,stamped,printed,orgraphicmatteraffixedto,orappearingupon,any(n) commodity or package containing any commodity;'Manufacturer'inrelationtoanyweightormeasure,meansapersonwho,orafirmoraHinduundivided(o) family which--

makes or manufacturers such weight or measure(i) makes or manufactures one or more parts, and acquires the other parts, of such weight or measure (ii) and, after assembling those parts, claims the end product to be a weight or measure manufactured by himself or itself, as the case may be,does not make or manufacture any part of such weight or measure but assembles parts thereof made (iii) or manufactured by others and claims the end product to be a weight or measure manufactured by himself or itself, as the case may be,puts, or causes to be put, his own mark on any complete weight or measure made or manufactured (iv) by any other person and claims such product to be a weight or measure made or manufactured by himself or itself, as the case may be.

Explanation: Where any manufacturer dispatches any weight or measure or any part thereof to any branch officemaintainedbyhimorit,suchbranchofficeshallnotbedeemedtobeamanufacturereventhoughthepartssodispatchedtoitareassembledatsuchbranchoffice;'Notification'meansanotificationpublishedintheOfficialGazette;(p) 'Person' includes(q)

everydepartmentoroffice,(i) every organisation established or constituted by Government,(ii) every local authority within the territory of India(iii) every co-operative society,(iv) every other society registered under the Societies Registration Act, 1860;(v)


52/JNU OLE

'Premises' includes:(r) a place where any business industry, production or trade is carried on by a person, whether by himself (i) or through an agent, by whatever name called.a warehouse, go-down or other place where any weight measure or other goods are stored or (ii) exhibited.a place where any books of account or other documents pertaining to any trade or transaction are (iii) kept,a dwelling house, if any part thereof is used for the purpose of carrying on any business, industry, (iv) production or trade.

Explanation: 'Place' includes a vehicle or vessel or any other mobile device, with the help of which any trade or business is carried on, and also includes any measuring instrument on a vehicle vessel or other mobile device;'Prescribed' means prescribed by rules made under this Act and 'prescribed authority' means such authority (s) asmaybespecifiedbysuchrules;'Reference standard' means the set of standard weight or measure which is made or manufactured by or on (t) behalfoftheCentralGovernmentfortheverificationofanysecondarystandard;'Repairer' includes a person who adjusts, cleans, lubricates or paints any weight or measure or renders any (u) other service to such weight or measure to ensure that such weight or measure conforms to the standards established by or under this Act;'Sale' with its grammatical variations and cognate expressions, means transfer of property in any weight, (v) measure or other goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer of any weight, measure or other goods on the hire-purchase system or any other system of payment by instalments, but does not include a mortgage or hypothecation of, or a charge or pledge on, such weight, measure or other goods;'Seal' means a device or process by which a stamp is made, and includes any wire or other accessory which (w) is used for ensuring the integrity of any stamp;'Secondary standard' means the set of standard weight or measure which is made or manufactured by or on (x) behalfoftheCentralorStateGovernmentfortheverificationofanyworkingstandard;'Stamp' means a mark, which is made on, or in relation to, any weight or measure with a view to-(y)

certifyingthatsuchweightormeasureconformstothestandardspecifiedbyorunderthisAct,or(i) indicating that any mark which was previously made thereon certifying that such weight or measure (ii) conformstothestandardsspecifiedbyorunderthisAct,hasbeenobliterated.

Explanation: A stamp may be made by impressing, casting engraving, etching, branding, or any other process;'Transaction' means:(z)

any contract, whether for sale, purchase, exchange or any other purpose, or(i) any assessment of royalty, toll, duty or other dues, or(ii) the assessment of any work done, wages due or services rendered;(iii)

'Unverifiedweightormeasure'meansaweightormeasurewhich,beingrequiredtobeverifiedandstamped(za) underthisAct,hasnotbeensoverifiedandstamped;'Verification',withitsgrammaticalvariationsandcognateexpressions,includes,inrelationtoanyweight(zb) or measure, the process of comparing, checking, testing or adjusting such weight or measure with a view to ensuring that such weight or measure conforms to the standards established by or under this Act, and also includesre-verificationandcalibration;'Weighing or measuring instrument' means any object, instrument, apparatus or device, or any combination (zc) thereof, which is, or is intended to be, used, exclusively or additionally, for the purpose of making any weighment or measurement, and includes any appliance, accessory or part associated with any such object, instrument, apparatus or device;'Weightormeasure'meansaweightormeasurespecifiedbyorunderthisAct,andincludesaweighingor(zd) measuring instrument;'Working standard' means the set of standard weight or measure which is made or manufactured by or on (ze) behalfofGovernmentfortheverificationofanystandardweightormeasure,otherthananationalprototypeor national reference or secondary standard.

53/JNU OLE

Section 3: The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument having affect by virtue of any enactment other than this Act.

4.3 Establishment of Standards of Weights and Measures (Part II)Chapter I (The Standards of Weights and Measures Act, 1976)

4.3.1 Standard UnitsSection 4: Units of weight and measures to be based on metric system

Every unit of weight or measures shall be based on the units of the metric system.(1) For the purposes of sub-section (1),(2)

the international system of units as recommended by the General Conference on Weights and Measures, (a) andsuch additional units as may be recommended by the International Organisation of Legal Metrology, (b) shall be the units of the metric system

Section 5: Base unit of lengthThe base unit of length shall be the metre.(1) The 'metre' is the length equal to 1650763.73 wave lengths in vacuum of the radiation corresponding to the (2) transition between the levels 2P10 and 5d5 of the Krypton-86 atom.

Section 6: Base unit of massThe base unit of mass shall be the kilogram.(1) The 'kilogram' is the unit of mass; it is equal to the mass of the international prototype of the kilogram.(2)

Section 7: Base unit of timeThe base unit of time shall be the second.(1) The 'second' is the duration of 9 192 631 770 periods of the radiation corresponding to the transition between (2) twohyperfinelevelsofthegroundstateoftheCaesium-133atom.

Section 8: Base unit of electric currentThe base unit of electric current shall be the ampere.(1) The'ampere'isthatconstantcurrent,whichifmaintainedintwostraightparallelconductorsofinfinitelength,(2) of negligible circular cross-section, and placed one meter apart in vacuum, would produced between these conductors a force equal to 2 ×10 7 Newton per metre of length.

Section 9: Base unit of thermodynamic temperatureThe base unit of thermodynamic temperature shall be the kelvin.(1) The "kelvin" is the fraction 1/273.16 of the thermodynamic temperature of the triple point of water.(2) The kelvin shall also be used for expressing the interval or difference of temperature.(3) Zero Degree Celsius corresponds to 273.15 kelvin.(4) The degree Celsius may also be used for expressing the interval or difference of temperature, unit degree (5) Celsius being equal to unit kelvin.

Section 10: Base unit of luminous intensityThe base unit of luminous intensity shall be the candela.(1) The 'candela' is the luminous intensity, in the perpendicular direction, of a surface of 1/600,000 square metre of (2) a black body at the temperature freezing platinum under a pressure of 101 325 Newtons per square metre.

Section 11: Base unit of amount of substanceThe base unit of amount of substance shall be the mole.(1) The 'mole' is the amount of substance of a system which contains as many elementary entities as there are (2) atoms in 0.012 kilogram of Carbon 12.


54/JNU OLE

Whenthemoleisused,theelementaryentitiesshallinvariablybespecifiedandmaybeatoms,molecules,(3) ions,electrons,otherparticle,orspecifiedgroupsofsuchparticles.

Section 12: Supplementary, derived, special and other units of weight or measure-their symbols definitions, etc.

The Central Government may, by rules made in this behalf, specify the base units and also specify in relation to (1) thebaseunitsofweightormeasure,suchsupplementary,derived,orotherunitsorstandardsymbolsordefinitionsas the General Conference on Weights and Measures or the International Organisation of Legal Metrology may recommend. Explanation: 'Derived unit' means a unit which is derived from the base or supplementary units or both.The Central Government may, by rules made in this behalf, specify, such multiples and sub-multiples of, and (2) physicalconstants,andratiosorcoefficientsinrelationto,unitsofweightormeasureastheGeneralConferenceon Weights and Measures or the International Organisation of Legal Metrology may recommend.TheCentralGovernmentmay, bynotification, declare, for suchperiod as itmay consider necessary such(3) special units of weight or measure as the General Conference on Weights and Measures or the International Organisation of Legal Metrology may recommend.

Section 13: Base unit of numerationThe base unit of numeration shall be the unit of the international form of Indian numerals.(1) Every numeration shall be made in accordance with the decimal system.(2) The decimal multiples and sub-multiples of the numerals shall be of such denominations and be written in (3) such manner as the Central Government may, after previous publication, specify by rules made in this behalf: Provided that no such rule shall be made before the expiry of six months from the date on which the draft of theproposedruleswasfirstpublishedintheOfficialGazette.

Section 14: Standard unit of weight or measureThebaseunitofmassspecifiedinsection6andbaseunitsofmeasuresspecifiedinsection5andsections7to(1) 11(bothinclusive)andthesupplementaryandotherunitsspecifiedbyrulesmadeundersection12,shallbethe standard units of weight or measure, as the case may be.Theunitsofnumerationspecifiedbyorundersection13shallbethestandardunitsofnumeration(2)

Unit Abbreviation

Mass Kilogram (kg), gram (g), milligram (mg).

Length Metre (m), centimetre (cm), milli-metre (mm).

Area Square metre (m2).

Capacity Kilo litre (kl), litre (l or L), milli-litre (ml).

Temperature Degree Celsius (0C) of Degree Kelvin (0K).

Volume Cubic metre (m3), Cubic Centi-metre (cm3) cubic milli metre (mm3).

Table 4.1 Unit and its abbreviation

4.4 Physical Representation of Standard UnitsChapter II (The Standards of Weights and Measures Act, 1976)Section 15: National prototypesFor the purpose of deriving the value of the kilogram, the Central Government shall cause to be prepared a national prototypeofthekilogramandshallcauseitsaccuracytobecertifiedbytheInternationalBureauofWeightsand

55/JNU OLE

Measures in terms of the international prototype of the kilogram and shall deposit the same in such custody and at suchplaceasthatGovernmentmaythinkfit.

For the purpose of deriving the value of the metre, the Central Government may cause to be prepared a national (1) prototypeofthemetreand,wheresuchprototypeiscausedtobemade,shallalsocauseitsaccuracytobecertifiedby the International Bureau of Weights and Measures and deposit the same in such custody and at such place asthatGovernmentmaythinkfit.

Section 16: National StandardsFor the purpose of deriving the value of the base units, other than the base unit of mass, the Central Government (1) shall cause to be prepared such objects or equipments, or both, as may be necessary for the purpose and shall causetheaccuracyofsuchobjectsorequipments,orboth,tobecertifiedbytheInternationalBureauofWeightsandMeasuresatsuchperiodicalintervalsasmaybeprescribed,and,shall,aftersuchcertification,depositsuchobjectsorequipments,orboth,insuchcustodyandatsuchplaceasthatGovernmentmaythinkfit.Forthepurposeofderivingthevalueofthesupplementaryandotherunitsspecifiedundersection12,theCentral(2) Government shall cause to be prepared such objects or equipments, or both as may be necessary for the purpose andshallcausetheaccuracyofsuchobjectsorequipments,orboth,tobecertifiedatsuchperiodicalintervalsandbysuchauthorityasmaybeprescribed,and,shallaftercertification,depositsuchobjectsorequipments,orboth,insuchcustodyandatsuchplaceasthatGovernmentmaythinkfit.

Section 17: Everynationalprototypespecifiedinsection15andeveryobjectorequipment,orboth,referredtoinsection 16, shall be kept in such manner and under such conditions as may be prescribed.

Section 18: Reference, secondary and working standardsEvery-(1)

reference standard,(a) secondary standard, and(b) working standard,(c)

shallconformtothestandardsestablishedbyorunderthisActandbeverifiedandauthenticatedatsuchperiodicalintervals and in such manner as may be prescribed.Every reference standard, every secondary standard and every working standard shall be kept in such manner (2) and under such conditions as may be prescribed.

Section 19: Power of Central Government to prescribe physical characteristics, etc. of weights and measures

The Central Government shall, in relation to any weight or measure, prescribe the physical characteristics, (1) configuration,constructionaldetails,materials,equipment,performance, tolerances,methodsorproceduresof tests in accordance with the recommendations made by the International Organisation of Legal Metrology: Provided that where no such recommendation has been made, the Central Government shall prescribe such physicalcharacteristics,configuration,constructionaldetails,andmaterials,equipment,performance,tolerances,methodsorproceduresoftestsinrelationtoanyweightormeasureasitmaythinkfit.

Where it is not reasonably practicable to give effect to any recommendation made by the International Organisation (2) of Legal Metrology, the Central Government may make such changes of a minor nature in the recommendation of the International Organisation of Legal Metrology as may appear to it to be necessary.

4.5 Standards of Weights and MeasuresChapter III (The Standards of Weights and Measures Act, 1976)

Section 20: Standard weight or measureAny weight or measure which conforms to the standard unit of such weight or measure and also conforms to (1) such of the provisions of sections 15 to 19 (both inclusive) as are applicable to it shall be the standard weight or measure.


56/JNU OLE

Any numeral which conforms to the provisions of section 13 shall be the standard numeral.(2)

Section 21: Use of non-standard weight or measure prohibitedNo weight, measure or numeral, other than the standard weight, measure or numeral, shall be used as a standard weight, measure or numeral.

Section 22: Manufacture of non-standard weight or measure prohibitedNo weight or measure shall be made or manufactured unless it conforms to the standards of weight or measure established by or under this Act: Provided that the Central Government may permit the making or manufacturing of any weight or measure which does not conform to the standards established by or under this Act, if such weight ormeasureismadeormanufacturedexclusivelyforthepurposeofanyscientificinvestigationorresearchorforexport and is made or manufactured under such conditions and restrictions as may be prescribed.

Section 23: Prohibition with regard to inscriptions, etc.No weight, measure or other goods shall bear thereon any inscription or indication of weight, measure or number except in accordance with the standard unit of such weight, measure or numeration established by or under this Act: Providedthatinrelationtoanyweight,measureorothergoodswhicharemanufacturedforscientificinvestigationor research or for export, inscription or indication thereon of any weight, measure or number may also be made in accordance with any other system of weight, measure or numeration if such inscription or indication is demanded bythepersonbywhomsuchscientificinvestigationorresearchittobemadeorbythepersontowhomtheexportis to be made.

4.6 Custody and Verification of Standard EquipmentsChapter IV (The Standards of Weights and Measures Act, 1976)

Section 24: Supply, etc. of reference standardsThe Central Government shall cause to be prepared and keep in its custody as many sets of reference standards (1) as it may be necessary and shall supply to each State Government as many sets of reference standards as it may thinkfit.The Central Government shall keep in its custody, for the purposes of this Act, such number of reference (2) standards as may be necessary. Every reference Standard referred to in sub-section (2) shall be kept at such place and such custody as may be (3) prescribed and no such reference standards shall be deemed to be a reference standard and shall by used as such unlessithasbeenverifiedandauthenticatedinaccordancewiththerulesmadeunderthisAct.

Section 25: Preparation and custody of secondary or working standardsThe Central Government shall cause to be prepared, for the purposes of this Act, as many sets of secondary standard or working standard as it may think necessary and shall keep such sets of secondary standard or working standard at such place and in such custody as may be prescribed.

Section 26: Verification, stamping, etc. of secondary or working standardsEverysecondarystandardreferredtoinsection25shallbeverifiedwiththereferencestandardonpayment(1) ofsuchfeebysuchauthorityasmaybeprescribedandshalliffoundonsuchverificationtoconformtothestandards established by or under this Act, be stamped by that authority.Everyworkingstandardreferredtoinsection25shallbeverifiedwiththesecondarystandardwhichhasbeen(2) stamped in accordance with the provisions of sub-section (1),on payment of such fee, by such authority as may beprescribedandshall,iffoundonsuchverificationtoconformtothestandardsestablishedbyorunderthisAct, be stamped by that authority.Where any secondary standard or working standard is stamped in accordance with the provisions of sub-section (3) (1),orsub-section(2),asthecasemaybe,acertificateshallbeseparatelygivenshowingthedateonwhichsuch weight or measure was stamped.Everysecondarystandardorworkingstandardwhichisnotverifiedandstampedinaccordancewiththeprovisions(4) of sub-section (1) or sub-section (2) as the case may be, shall be not be deemed to be a secondary standard or working standard and shall not be used as such.

57/JNU OLE

Section 27: Where the Central Government is of the opinion that by reason of the size or nature of any secondary standard of working standard referred to in section 25, it is not desirable or practicable to put a stamp thereon, it may directthatinsteadofputtingastamponsuchsecondarystandardorworkingstandard,acertificatemaybeissuedto the effect that such secondary standard or working standard conforms to the standards established by or under thisActandeverysecondarystandardorworkingstandardsocertifiedshallbedeemedtohavebeendulystampedunderthisActonthedateonwhichsuchcertificatewasissued.

4.7 Import And Export of Weights and Measures (Part V)Chapter I (The Standards of Weights and Measures Act, 1976)

4.7.1 Registration of Exporters and ImportersSection 47: Persons exporting or importing any weight or measure to get them self registered

No dealer or manufacturer shall export or import any weight or measure unless he is registered under this section (1) as such exporter or importer, as the case may be.Every person who intends to commence or continue business as an exporter or importer of any weight or measure (2) shall make, within such time from the commencement of this Act as may be prescribed, an application for the inclusion of his name in the register to be maintained for the purpose.The application referred to in sub-section (2) shall be made to the Director and every such application shall be (3) made in such form, in such manner and on payment of such fees, not exceeding one thousand rupees, as may be prescribed.Onreceiptofanapplicationreferredtoinsub-section(2),theDirectorshall,ifheissatisfiedaftersuchinquiry(4) ashemaythinkfit,thatitisexpedientinthepublicinterestsotodo,includethenameoftheapplicantintheregisterreferredtoinsub-section(2)andissuetotheapplicantacertificatetotheeffectthathisnamehasbeensoincludedandsendacopyofthesaidcertificatetotheControllerofLegalMetrologyintheStateinwhichsuch exporter or importer is carrying on his business.Acertificategrantedundersub-section(4)shallbevalidfortheperiodspecifiedthereinandmayberenewed,(5) from time to time, for such further period as may be prescribed.

4.7.2 Export and Import of Weights, Measures and Commodities in Packaged FormChapter II (The Standards of Weights and Measures Act, 1976)

Section 48: Conditions under which export of non-standards weights and measures and other goods may be made

Subject to such conditions, limitations and restriction as may be prescribed, the Central Government may allow, (1) on application to the Director, the export of any weight or measure which has been made or manufactured exclusively for export, notwithstanding that such weight or measure does not conform to the standards established by or under this Act. The application referred to in sub-section (1) shall be made in such form, in such manner and on payment of such fees, not exceeding one thousand rupees, as may be prescribed.Where any commodity in packaged form is exported and the person to whom such export is to be made so (2) requires, the exporter may, in addition to specifying the net contents of such package in terms of the standards unit of weight or measure established by or under this Act, also specify the weight or the net contents thereof intermsofsuchunitsofweightormeasureasmaybespecifiedbythepersontowhomsuchcommodityisto be exported.Notwithstanding anything contained elsewhere in this Act, in relation to any goods which are exported--(3)

quotation of any price;(a) issue of any price list, invoice or cash memo;(b) indication of the weight or measure or number of net contents of package on any label, carton or other (c) thing;expression of any dimension, may be made in accordance with any other system of weight, measure or (d) numeration if the person to whom the export is to be made so requires.


58/JNU OLE

Section 49: Non-metric weight or measure not to be importedSave as otherwise provided in sub-section (2) no weight or measure, whether singly or as a part or component (1) of any machine or machinery, shall be imported unless it conforms to the standards of weights or measure established by or under this Act.Where any commodity, machinery or any part or component of any machinery is imported from a country (2) in which the metric system of weight or measure is not in force, or in which such system being in force, such commodity, machinery, part or component of any machinery has not been made or manufactured in accordance with such system, the importer shall, before making such import, make an endeavour to obtain, on such commodity, machinery, part or component, and also on the drawings thereof, the weight or measurement thereof expressed in terms of the standard unit of weight or measure established by or under this Act: Provided that where any weight or measure has not been expressed in terms of the standard unit of weight or measure established by or under this Act, on any commodity, machinery, part or component or on any drawings thereof the importer shall, within six months from the date of import, get the weight or measure thereof expressed on such commodity, machinery, part or component and on the drawings thereof in terms of the standard unit of weight or measure established by or under this Act.

4.8 Offences and Their Trial (Part VI)Following sections fall under offences and their trial part:

Section 50: Penalty for use of non-standard weights, or measuresWhoever uses any weight or measure or makes any numeration otherwise than in accordance with the standards of weight or measure or the standards of numeration, as the case may be, established by or under this Act, shall bepunishedwithimprisonmentforatermwhichmayextendtosixmonths,orwithfinewhichmayextendtoonethousand rupees, or with both, and, for the second or subsequent offence, with imprisonment for a term which may extendtotwoyearsandalsowithfine.

Section 51: Penalty for contravention of section 18Whoever tampers with, or alters, in any way, any reference standard, secondary standard, or working standard except wheresuchalterationismadeforthecorrectionofanyerrornoticedthereinonverification,shallbepunishedwithimprisonmentforatermwhichmayextendtotwoyears,orwithfinewhichmayextendtofivethousandrupees,or with both.

Section 52: Penalty for contravention of section 22Except where any weight or measure is made or manufactured, with the permission of the Central Government, exclusively for export, every person who makes or manufactures any weight or measure which does not conform to the standards of weight or measure established by or under this Act, shall, where such offence is not punishable under any other law relating to weights and measures for the time being in force, be punished with imprisonment foratermwhichmayextendtooneyearorwithfinewhichmayextendtotwothousandrupees,orwithboth,and,for the second or subsequent offence with imprisonment for a term which may extend to three years and also with fine.

Section 53: Penalty for contravention of section 23Except where any weight or measure is made or manufactured, with the permission of the Central Government, exclusively for export, every person who makes or manufactures any weight or measure which bears thereon any inscription of weight, measure or number which does not conform to the standards of weight, measure or numeration established by or under this Act, shall, where such offence is not punishable under any other law relating to weights and measures for the time being in force, be punished with imprisonment for a term which may extend to one year, orwithfinewhichmayextendtotwothousandrupees,orwithboth,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtothreeyearsandalsowithfine.

Section 54: Penalty for contravention of section 29Whoever obstructs the Director or any person authorised to exercise the powers or discharge the functions of the Director(hereafter,inthisPart,referredtoasthe'authorisedofficer')intheexerciseofhispowersordischargeofhisfunctionsassuchDirectororauthorisedofficer,orwithintenttopreventordetertheDirectororsuchauthorised

59/JNU OLE

officerfromexercisinghispowersordischarginghisfunctions,orinconsequenceofanythingdoneorattemptedtobedonebytheDirectororsuchauthorisedofficerinthelawfulexerciseofhispowersordischargeofhisfunctionsas such, shall be punished with imprisonment for a term which may extend to two years, and, for the second or subsequentoffence,withimprisonmentforatermwhichmayextendtofiveyears.

Section 55: Penalty for contravention of section 32Whoever in the course of any inter-state trade or commerce makes any transaction, deal or contract in contravention oftheprovisionsofsection32shallbepunishedwithfinewhichmayextendtotwothousandrupees,andforsecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtooneyearandalsowithfine.

Section 56: Penalty for contravention of section 33Whoever, in the course of any inter-state trade or commerce, contravenes the provisions of section 33 shall be punished withfinewhichmayextendtotwothousandrupees,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtothreeyearsandalsowithfine.

Section 57: Penalty for contravention of section 34Whoever, in the course of any inter-state trade or commerce,

sells, delivers, or causes to be sold or delivered, to the purchaser any quantity or number of any article or (i) thing, less than the quantity or number contracted for or paid for; orrenders any service by weight, measure or number, less than the service contracted for or paid for; or(ii) demands, or causes to be demanded, or receives, or causes to be received, while buying any article or thing, (iii) any quantity or number of goods in excess of the quantity or number contracted for or paid for; orobtains any service in excess of the service contracted for or paid for, (iv)

shallbepunishedwithfinewhichmayextendtofivethousandrupees,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtofiveyearsandalsowithfine.

Section 58: Penalty for contravention of section 35Whoever, being required by or under this Act so to do, without any reasonable excuse, omits or fails to maintain anyrecordorregister,orbeingrequiredbytheDirectorortheauthorisedofficer,toproduceanyrecordorregisterforhisinspection,omitsorfails,withoutanyreasonableexcuse,sotodo,shallbepunishedwithfinewhichmayextend to one thousand rupees, and, for the second or subsequent offence, with imprisonment for a term which may extendtosixmonthsandalsowithfine.

Section 59: Penalty for contravention of section 36Whoever, being required by section 36 to submit the model of any weight or measure for approval, omits, or fails, withoutanyreasonableexcuse,sotodo,shallbepunishedwithfinewhichmayextendtofivethousandrupees,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtofiveyearsandalsowithfine.

Section 60: Penalty for manufacture of weights or measures unless approval of model is in forceWhoever makes or manufactures any weight or measure which is, or is intended to be, sold, distributed, delivered (1) orotherwisetransferredinthecourseofinter-Statetradeorcommerce,shall,unlessacertificateofapprovalofthe model of such weight or measure granted under section 36 is in force, be punished with imprisonment for a termwhichmayextendtotwoyearsandshallalsobeliabletofine,and,forthesecondorsubsequentoffence,withforatermwhichmayextendtofiveyearsandalsowithfine.Whoever, without any reasonable excuse, manufactures any weight or measure in accordance with an approved (2) model with any material other than the material approved or recommended by the prescribed authority, shall be punishedwithimprisonmentforatermwhichmayextendtofiveyearsandalsowithfine.

Section 61: Penalty for contravention of section 38Whoever makes or manufactures any weight or measure without complying with the equipments of section 38 shall bepunishedwithfinewhichmayextendtofivethousandrupees,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtofiveyearsandalsowithfine.


60/JNU OLE

Section 62: Penalty for sale, etc. or unverified weights or measures in the course of inter-state trade or commerceWhoever, in the course of inter-State trade or commerce, sells, distributes, delivers or otherwise transfers any weight or measure which does not conform to the standards of weight or measure established by or under this Act or which hasnotbeendulyverifiedunderanyotherlawrelatingtoweightsandmeasuresforthetimebeinginforce,shallbepunishedwithfinewhichmayextendtotenthousandrupees,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtosevenyearsandalsowithfine.

Section 63: Penalty for contravention of section 39Whoever, in the course of inter-State trade or commerce, sells, distributes, delivers or otherwise transfers, or causes to be sold, distributed, delivered or otherwise transferred any commodity in a packaged form which does not conformtotheprovisionsofthisActoranyrulemadethereunder,shallbepunishedwithfinewhichmayextenttofivethousandrupees,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtofiveyearsandalsowithfine.

Section 64: Penalty for contravention of section 47Whoever exports or imports any weight or measure without being registered under this Act shall be punished with finewhichmayextendtoonethousandrupees,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtosixmonthsandalsowithfine.

Section 65: Penalty for contravention of section 48Every person who exports any weight or measure or commodity in packaged form which does not conform to the standards of weight or measure established by or under this Act shall, except where such export has been made with thepreviousapprovaloftheCentralGovernment,bepunishedwithfinewhichmayextendtofivethousandrupees,andforthesecondoroffencewithimprisonmentforatermwhichmayextendtofiveyearsandalsowithfine.

Section 66: Penalty for contravention of section 49Whoevercontravenes,withoutanyreasonableexcuse,theprovisionsofsection49,shallbepunishedwithfine,whichmayextendtofivethousandrupees,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtofiveyearsandalsowithfine.

Section 67: Penalty where no specific penalty is providedWhoever contravenes any provisions of this Act for the contravention, of which no punishment has been separately provided in anyof the provisionsof thisAct, shall be punishedwithfinewhichmay extend to two thousandrupees.

Section 68: Presumption to be made in certain casesIf any person, in the course of inter-State trade or commerce, uses, or causes to be used, sells, distributes, (1) delivers or otherwise transfers, or causes to be sold, distributed, delivered or otherwise transferred, any false orunverifiedweightormeasure,itshallbepresumed,untilthecontraryisproved,thathehaddonesowiththeknowledgethattheweightormeasurewasafalseorunverifiedweightormeasure.Ifanypersonmakesormanufacturesorhasinhispossession,custodyorcontrolanyfalseorunverifiedweight(2) or measure in such circumstances as to indicate that such weight or measure is likely to be used in the course ofinter-Statetradeorcommerce,itshallbepresumed,untilthecontraryisproved,thatsuchfalseorunverifiedweight or measure was made, manufactured, possessed, held or controlled by such person with the knowledge that the same would be, or is intended to be, used in the course of inter-State trade or commerce.

Section 69: Penalty for personation of officialsWhoeverpersonates,inanyway,theDirector,oranyauthorisedofficer,shallbepunishedwithimprisonmentforaterm which may extend to three years.

61/JNU OLE

Section 70: Penalty for giving false information or false returnsWhoevergivesinformationtotheDirectorortheauthorisedofficerwhichhemayrequireoraskforinthe(1) course of his duty and which such person either knows or has reason to believe to be false shall be punished withimprisonmentforatermwhichmayextendtosixmonths,orwithfinewhichmayextendtoonethousandrupees, or with both.Whoever, being required by or under this Act so to do, submits a return which is false in material particulars, (2) shallbepunishedwithfinewhichmayextendtotwothousandrupees,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtooneyearandalsowithfine.

Section 71: Vexatious actionsAnauthorisedofficerwhoknowsthattherearenoreasonablegroundsforsodoing,andyet--(1)

searches, or causes to be searched, any house, conveyance or place; or(a) searches any person; or(b) seizes any weight, measure or other moveable property,(c)

shall, for every such offence, be punished with imprisonment for a term which may extend to one year, or with finewhichmayextendtotwothousandrupees,orwithboth.IfalocalInspector,asdefinedinsection40,(2) withoutanyreasonablecauseverifiesanyweightormeasureoffirstcategory,withinthemeaningofsection(a) 41,without any reasonable cause obliterates any stamp on any such weight or measure, in contravention of the (b) provisionsofthefirstprovisotosection42,he shall, for every such offence be punished with imprisonment for a term which may extend to one year, or withfinewhichmayextendtotwothousandrupees,orwithboth.

Section 72: Cognisance of offences, etc.Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), (1)

no court shall take cognizance of an offence punishable under this Act except upon a complaint, in writing, (a) made by:

the Director;(i) anyotherauthorisedofficer;(ii) any person aggrieved; or(iii) a recognised consumer association whether the person aggrieved is a member of such association (iv) or not

Explanation: For the purposes of this clause 'recognised consumer association' means a voluntary consumer association registered under the Companies Act, 1956 (1 of 1956) or under any other law for the time being in force;nocourtinferiortothatofaMetropolitanMagistrateoraJudicialMagistrateofthefirstclassshalltryany(b) offence under this Act;an offence punishable under Section 50, Section 52, Section 53, Section 56, Section 58, Section 60, Section (c) 61, Section 63, Section 64, Section 65 or Section 66, may be tried summarily by a Magistrate and no sentence of imprisonment for a term exceeding one year shall be passed in the case of any conviction for an offence which is summarily tried under this section.

Section 73: Compounding of offencesAny offence punishable under Section 50, Section 55, Section 56, Section 57, Section 58, Section 59, Section (1) 60, Section 63, Section 64, Section 65, Section 66 Or Section 67 may, either before or after the institution of theprosecution,becompoundedbytheDirectororsuchotherofficerasmaybespeciallyauthorisedbyhiminthisbehalf,onpaymentforcredittotheGovernmentofsuchsumastheDirectororsuchotherofficermayspecify: Providedthatsuchsumshallnot,inanycase,exceedthemaximumamountofthefine,whichmaybeimposed under this Act for the offence so compounded.Nothing in sub-section (1) shall apply to a person who commits the same or similar offence within a period of (2) threeyearsfromthedateonwhichthefirstoffence,committedbyhim,wascompounded.Explanation: For the purposes of this sub-section, any second or subsequent offence committed after the expiry


62/JNU OLE

of a period of three years from the date on which the offence was previously compounded, shall be deemed to beafirstoffence.Where an offence has been compounded under sub-section (1), no proceeding or further proceeding, as the (3) case may be, shall be taken against the offender in respect of the offence so compounded, and the offender, if in custody, shall be discharged forthwith.No offence under this Act shall be compounded except as provided by this section.(4)

Section 74: Offences by companies and power of court to publish name, place of business, etc. of companies convinced

If an offence under this Act is committed by a company, every person who, at the time the offence was committed (1) was in charge of, and was responsible to the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed (2) by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributabletotheneglectonthepartof,anyDirector,manager,secretaryorotherofficer,suchDirector,manager,secretaryorotherofficershallalsobedeemedtobeguiltyofthatoffenceandshallbeliabletobeproceededagainst and punished accordingly.Where any company is convicted under this Act for contravention of any of the provisions thereof, it shall be (3) competent for the court convicting the company to cause the name and place of business of the company, nature of the contravention, the fact that the company has been so convicted and such other particulars as the court may consider to be appropriate in the circumstances of the case, to be published at the expense of the company in such newspapers or in such other manner as the court may direct.No publication under sub-section (3) shall be made until the period for preferring an appeal against the orders (4) of the court has expired without any appeal having been preferred, or such an appeal, having been preferred, has been disposed of.The expenses of any publication under sub-section (3) shall be recoverable from the company as if it were a (5) fineimposedbythecourt.Explanation: For the purposes of this section:

'company'meansanybodycorporateandincludesafirmorotherassociationofindividuals;and(a) 'Director',inrelationtoafirm,meansapartnerinthefirm.(b)

Section 75: The provisions of the Indian Penal Code, in so far as such provisions relate to offences with regard to weights and measures, shall not apply to any offence which is punishable under this Act.

4.9 Few Terms in Standards in Weights and Measures Act, 1976

VerificationThe process of comparing, checking, testing or adjusting such weight or measure with a view to ensuring that such weight or measure conforms to the standards.

Calibration All the operations which are necessary for the purpose of determining the values of the errors of a weight or measure.

Commodity in Packaged Form

Commodity packaged whether in any bottle, tin, wrapper or otherwise, in units suitable for sale, whether wholesale or retail.

63/JNU OLE

Dealer A person who carries on the business of buying, selling, supplying or distributing any such weight or measure.

LabelAnywritten,marked,stamped,printed,orgraphicmatteraffixedto, or appearing upon, any commodity or package containing any commodity.

SealA device or process by which a stamp is made, and includes any wire or other accessory which is used for ensuring the integrity of any stamp.

Secondary StandardThe set of standard weight or measure which is made or manufactured byoronbehalfoftheCentralorStateGovernmentfortheverificationof any working standard.

StampA mark, which is made on, or in relation to, any weight or measure with a view to certifying that such weight or measure conforms to the standardspecified.

Weighing or Measuring

Any object, instrument, apparatus or device, or any instrument combination thereof, which is, or is intended to be, used, exclusively or additionally, for the purpose of making any weighment or measurement.

Working StandardThe set of standard weight or measure which is made or manufactured byoronbehalfofGovernmentfortheverificationofanystandardweight or measure.

Table 4.2 Few terms in Standards in Weights and Measures Act, 1976


64/JNU OLE

SummarySupply Chain includes the manufacturer, suppliers, transporters, warehouses, retailers, wholesalers and customers •themselves. At every stage the goods are transported. These goods are packed into different units before they are transported. They should be packed as per the standards of weights and measurements.Verificationmeanstheprocessofcomparing,checking,testingoradjustingsuchweightormeasurewithaview•to ensuring that such weight or measure conforms to the standards.'Weightormeasure'meansaweightormeasurespecifiedbyorunderthisAct,andincludesaweighingor•measuring instrument.Every unit of weight or measures shall be based on the units of the metric system.•The Central Government shall keep in its custody, for the purposes of this Act, such number of reference •standards as may be necessary.As per Section 50, whoever uses any weight or measure or makes any numeration otherwise than in accordance •with the standards of weight or measure or the standards of numeration, as the case may be, established by or under this Act, shall be punished with imprisonment for a term which may extend to six months, or with finewhichmayextendtoonethousandrupees,orwithboth,and,forthesecondorsubsequentoffence,withimprisonmentforatermwhichmayextendtotwoyearsandalsowithfine.Anyweight ormeasurewhich, being subject to verification and stampingunder theState lawas in force•immediately before the commencement of this Act is in use at such commencement.WeightormeasureofthefirstcategorytobepresumedtobecorrectthroughouttheterritoryofIndia.•Weights or measures of the second category received from transferor State to be produced before the local •Inspector of the transferee State.

ReferencesThe Standards of Weights and Measures Act, 1976. • Available at: <http://admis.hp.nic.in/ehimapurti/wact1.htm> [Accessed on 11th March, 2011].The Standards of Weights and Measures Act, 1976. • Available at: <http://www.fcamin.nic.in> [Accessed on 11th March, 2011].Pathak, 2007. • Legal Aspects of Business. Tata McGraw-Hill. 573 pages.

Recommended ReadingThe Standards of Weights and Measures Act, 1976• . Available at: <http://fcamin.nic.in/Events/EventDetails.asp?EventId=684&Section=Weight+and+Measures&ParentID=0&Parent=1&check=0> [Accessed on 14th March, 2011].The Standards of Weights and Measures Act, 1976. • Available at: < http://www.advocatekhoj.com/library/bareacts/standardsofweights/index.php> [Accessed on 14th March, 2011].The Standards of Weights and Measures Act, 1976.• Available at: <http://fcamin.nic.in/Events/EventDetails.asp?EventId=1690&Section=Weight+and+Measures&ParentID=0&Parent=1&check=0> [Accessed on 14th March, 2011].

65/JNU OLE

Self Assessment

As per Section 8, the base unit of electric current shall be the _________.1. milliamperea. ampereb. coulombc. wattd.

As per Section 20, any numeral which conforms to the provisions of ________ shall be the standard numeral.2. Section 13a. Section 14b. Section 15c. Section 16d.

Which statement is false?3. The kelvin shall also be used for expressing the interval or difference of temperature.a. The base unit of thermodynamic temperature shall be the kelvin.b. Zero Degree Celsius corresponds to 273.15 ampere.c. The ‘kelvin’ is the fraction 1/273.16 of the thermodynamic temperature of the triple point of water.d.


The base unit of mass1. KelvinA.

The base unit of luminous intensity2. MoleB.

The base unit of amount of substance 3. KilogramC.

The base unit of thermodynamic temperature4. CandelaD.

1-C, 2-D, 3-B, 4-Aa. 1-A, 2-C, 3-D, 4-Bb. 1-D, 2-C, 3-A, 4-Bc. 1-B, 2-A, 3-D, 4-Cd.

'___________' means the state in which any weight or measure is delivered or received for sale or use therein 5. from any other state.

Transferee statea. Transferor stateb. Inspectorc. State lawd.


66/JNU OLE

_______________ means all the operations which are necessary for the purpose of determining the values of 6. the errors of a weight or measure.

Commoditya. Calibrationb. Dealerc. Verificationd.

'________'meansanywritten,marked,stamped,printed,orgraphicmatteraffixedto,orappearingupon,any7. commodity or package containing any commodity.

Manufacturera. Directorb. Labelc. Leveld.

Whenthe_________isused,theelementaryentitiesshallinvariablybespecifiedandmaybeatoms,molecules,8. ions,electrons,otherparticle,orspecifiedgroupsofsuchparticles.

kelvina. ampereb. metrec. moled.

Which of the following is false?9. 'Director' means the Director of Legal Metrology appointed under section 28.a. 'Delivery' with its grammatical variations and cognate expressions, means taking out of India to a place b. outside India.'False package' means any package which does not conform to the provisions of this Act or any rule or order c. made there under in relation to such package;'False weight or measure' means any weight or measure which does not conform to the standards established d. by or under this Act in relation to that weight or measure;

___________ means all the operations which are necessary for the purpose of determining the values of the 10. errors of a weight or measure.

Calibrationa. Verificationb. Commodity in packaged formc. Working standardd.

67/JNU OLE

Chapter V

The Consumer Protection Act, 1986

Aim


explaintheimportantdefinitionsoftheConsumerProtectionAct,1986•

explain the consumer protection councils•

describe the district consumer forum•

Objectives


state the salient features of the Act•

describe the machinery and procedure for redressal of consumer grievances•

identify the areas of consumer complaints•

Learning outcome


narratetheimportanttermsanddefinitionsinthisAct•

know the areas of consumer complaints•

recognise the composition of national and state commission•


68/JNU OLE

5.1 IntroductionWithineachorganisation,thesupplychainincludesallfunctionsinvolvedinfulfillingcustomerrequest.Itincludesthe manufacturer, suppliers, transporters, warehouses, retailers, wholesalers and customers themselves. In respect of Manufacturer you are a consumer and in respect of you customer you are service provided. Therefore, it is essential that the people involved in Supply Chain Management should know the basics of The Consumer Protection Act, 1986.

The Consumer Protection Act, 1986 was enacted for better protection of the interests of consumers. The provisions of the Act came into force with effect from 15-4-87. Consumer Protection Act imposes strict liability on a manufacturer, in caseofsupplyofdefectivegoodsbyhim,andaserviceprovider,incaseofdeficiencyinrenderingofitsservices.

Theterm"defect"and"deficiency",asheldinacatenaofcases,aretobecouchedinthewidesthorizonoftherebeing any kind of fault, imperfection or shortcoming. Furthermore, the standard, which is required to be maintained, in services or goods is not to be restricted to the statutory mandate but shall extend to that claimed by the trader, expressly or impliedly, in any manner whatsoever.

5.2 The Salient Features of the ActThe following are the salient features of the Consumer Protection Act, 1986.

It covers all the sectors whether private, public, and cooperative or any person. The provisions of the Act (I) are compensatory as well as preventive and punitive in nature and the Act applies to all goods covered by saleofgoodsActandservicesunlessspecificallyexemptedbytheCentralGovernment;It enshrines the following (II) rights of consumers:

right to be protected against the marketing of goods and services which are hazardous to life and (a) property;right to be informed about the quality, quantity, potency, purity, standard and price of goods or services (b) so as to protect the consumers against unfair trade practices;right to be assured, wherever possible, access to a variety of goods and services at competitive (c) prices;right to be heard and to be assured that consumers’ interests will receive due consideration at the (d) appropriate forum;right to seek redressal against unfair trade practices or unscrupulous exploitation of consumers; and(e) right to consumer education;(f)

The Act also envisages establishment of Consumer Protection Councils at the central, state and district (III) levels, whose main objectives are to promote and protect the rights of consumers;To provide a simple, speedy and inexpensive redressal of consumer grievances, the Act envisages three-tier (IV) quasi-judicial machinery at the national, state and district levels. These are: National Consumer Disputes Redressal Commission known as National Commission, State Consumer Disputes Redressal Commissions known as State Commissions and District Consumer Disputes Redressal Forum known as District Forum; andThe provisions of this Act are in addition to and not in derogation of the provisions of any other law for (V) the time being in force.

5.3 Section 2: DefinitionsChapter I (The Consumer Protection Act, 1986)

SincetheActisallaboutconsumerrights,thefirstthingthatyoushouldknowisthemeaningofconsumer.In this Act, unless the context otherwise requires—(1)

"appropriate laboratory" means a laboratory or organisation-(a) recognised by the Central Government;(i) recognised by State Government, subject to such guidelines as may be prescribed by the (ii) Central Government in this behalf; or

69/JNU OLE

any such laboratory or organisation established by or under any law for the time being (iii) inforce,whichismaintained,financedoraidedbytheCentralGovernmentoraStateGovernment for carrying out analysis or test of any goods with a view to determining whether such goods suffer from any;

"branchoffice"means-(aa) any establishment described as a branch by the opposite party; or(i) any establishment carrying on either the same or substantially the same activity as that (ii) carriedonbytheheadofficeoftheestablishment;]

"complainant" means-(b) a consumer; or(i) any voluntary consumer association registered under the companies Act,1986(1 of 1956) (ii) or under any other law for the time being in force; orthe Central Government or any State Government;(iii)

[one or more consumers, where there are numerous consumers having the same (iv) interest;]

Who or which makes a complaint;"complaint" means any allegation in writing made by a complainant that-(c)

an unfair trade practice or a restrictive trade practice has been adopted by any trader;(i) [the goods bought by him or agreed to be bought by him] suffer from one or more (ii) defects;[the service hired or availed of a agreed to be hired or availed of by him] suffer from (iii) deficiencyinanyrespect;a trader has charged for the goods mentioned in the complaint a price in excess of the (iv) pricefixedbyorunderanylawforthetimebeinginforceordisplayedonthegoodsorany package containing such goods;

goods which will be hazardous to life and safety when used, are being offered for sale (v) to the public in contravention of the provisions of any law for the time being in force requiring traders to display information in regard to the contents, manner and effect of use of such goods,

With a view to obtaining any relief provided by or under this Act,"consumer' means any person who-(d)

buys any goods for a consideration which has been paid or promised or partly paid and (i) partly promised, or under any system of deferred payment and includes any user of such goods other then the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

[hires or avails of] any services for a consideration which has been paid or promised or (ii) partly paid and partly promised, or under any system of deferred payment and includes anybeneficiaryofsuchservicesotherthenthepersonwho[hiresoravailsof]theservicesfor consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment,

When such services are availed of with the approval of the first mentioned person; Explanation: For the purpose of sub-clause (i), "commercial purpose" does not include use by a consumer of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment:

"consumer dispute" means a dispute where the person against whom a complaint has been made, (e) denies or disputes the allegation contained in the complaint;"defect" means any fault, imperfection or shortcoming in the quality, quantity, potency, purity or (f) 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;


70/JNU OLE

"deficiency"means any fault, imperfection, shortcomingor inadequacy in the quality, nature(g) and manner or 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" means a Consumer Disputes Redressal Forum established under clause (a) of (h) section 9;"goods"meansgoodsasdefinedinthesaleofGoodsAct,1930;(i) "manufacture" means a person who-(j)

makes or manufacture any goods or parts thereof; or(i) does not make or manufacture any goods but assembles parts thereof made or manufactured (ii) by others and claims the end-product to be goods manufactured by himself; or

puts or causes to be put his own mark on any goods made or manufactured by any other (iii) manufacturer and claims such goods to be goods made or manufactured by himself.

Explanation:Whereamanufacturerdispatchesanygoodsorpartthereoftoanybranchofficemaintainedbyhim,suchbranchofficeshallnotbedeemedtobethemanufacturereventhoughthepartssodispatchedtoitareassembledatsuchbranchofficeandaresoldordistributedfromsuchbranchoffice;

(jj) "member" includes the President and a member of the National Commission or a State Commission or a District Forum, as the case may be;

(k) "National Commission" means the National Consumer Disputes Redressal Commission established under clause (c) of section9;

(l) "notification"meansanotificationpublishedintheOfficialGazette; (m) "person" includes,- (i) afirmwhetherregisteredornot; (ii) a Hindu undivided family; (iii) a co-operative society; (iv) every other association of persons whether registered under the societies Registration

Act, 1860 (21 of 1860) or not; (n) "prescribed" means prescribed by rules made by the State Government, or as the case may be, by

the Central Government, under this Act; (nn) "restrictive trade practice" means any trade practice which requires a consumer to buy, hire or avail

of any goods or, as the case may be, services as a condition precedent for buying, hiring or availing of other goods or services;

(o) "service" means service of any description which is made available to potential users and includes theprovisionoffacilitiesinconnectionwithbanking,financinginsurance,transport,processing,supply of electrical or other energy, board or lodging or both, [housing construction] entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service;

(p) "State Commission" means a Consumer Dispute Redressal Commission established in a state under clause (b) of section 9;

(q) "trader" in relation to any goods means a person who sells or distributes any goods for sale and includes the manufacturer thereof, and where such goods are soled or distributed in package from, includes the packer thereof;

(r) "unfair trade practice" means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely:

(1) the practice of making any statement, whether orally or in writing or by visible representation which;-(i) falsely represents that the goods are of a particular standard, quality, quantity, grade,

composition, style or model;(ii) falsely represents that the services are of a particular standard, quality or grade;(iii) falsely represents any re-built, second-hand, renovated, recondition or old goods as new

goods;(iv) represents that the goods or services have sponsorship, approval, performance,

characteristics,accessories,usesorbenefitswhichsuchgoodsorservicesdonothave;(v) representsthatthesellerorthesupplierhasasponsorshiporapprovaloraffiliationwhich

71/JNU OLE

such seller or supplier does not have; (vi) makes a false or misleading representation concerning the need for, or the usefulness of,

any goods or services;(vii) givestothepublicanywarrantyorguaranteeoftheperformance,efficacyorlengthof

life of a product or of any goods that is not based on an adequate or proper test thereof: Provided that where a defense is raised to the effect that such warranty or guarantee is based on adequate or proper test, the burden of proof of such defense shall lie on the person raising such defense;

(viii) Makes to the public a representation in a form that purports to be-(i) a warranty or guarantee of a product or of any goods or services; or(ii) a promise to replace, maintain or repair an article or any part thereof or to repeat

orcontinueaserviceuntilithasachievedaspecifiedresult,ifsuchpurportedwarranty or guarantee or promise is materially misleading or if there is no reasonable prospect that such warranty, guarantee or promise will be carried out;

(ix) materially misleads the public concerning the price at which a product or like products or goods or services, have been or are, ordinarily sold or provided, and, for this purpose, a representation as to price shall be deemed to refer to the price at which the product or goods or services has or have been sold by sellers or provided by suppliers generally in therelevantmarketunlessitisclearlyspecifiedtobethepriceatwhichtheproducthasbeen sold or services have been provided by the person by whom or on whose behalf the representation is made;

(x) gives false or misleading facts disparaging the goods, services or trade of another person. Explanation: For the purposes of clause (1), a statement that is-(a) expressed on an article offered or displayed for sale, or on its wrapper or container;

or (b) expressed on anything attached to, inserted in, or accompanying, an article offered

or displayed for sale, or on anything on which the article is mounted for display or sale; or

(c) contained in or on anything that is sold, sent, delivered, transmitted or in any other manner whatsoever made available to a member of the public, shall be deemed to be a statement made to the public by, and only by, the person who had caused the statement to be so expressed, made or contained;

permits the publication of any advertisement whether in any newspaper or otherwise, for the sale or (2) supply at a bargain price, of goods or services that are not intended to be offered for sale or supply at the bargain price, or for a period that is, and in qualities that are, reasonable, having regard to the nature of the market in which the business is carried on, the nature and size of business, and the nature of the advertisement. Explanation: For the purpose of clause (2), "bargaining price" means-

a price that is stated in any advertisement to be a bargain price, by reference to an ordinary price (a) or otherwise, ora price that a person who reads, hears or sees the advertisement, would reasonably understand to (b) be a bargain price having regard to the prices at which the product advertised or like products are ordinarily sold;

permits-(3) the offering of gifts, prizes or other items with the intention of not providing them as offered or (a) creating impression that something is being given or offered free of charge when it is fully or partly covered by the amount charged in the transaction as a whole; the conduct of any contest, lottery, game of chance or skill, for the purpose of promoting, directly (b) or indirectly, the sale, use or supply of any product or any business interest;

permits the sale or supply of goods intended to be used, or are of a kind likely to be used, by consumers, (4) knowing or having reason to believe that the goods do not comply with the standards prescribed by competentauthorityrelatingtoperformance,composition,contents,design,constructions,finishingorpackaging as are necessary to prevent or reduce the risk of injury to the person using the goods;


72/JNU OLE

permits the hoarding or destruction of goods, or refuses to sell the goods or to make them available for (5) sale or to provide any service, if such hoarding or destruction or refusal raises or tends to raise or is intended to raise, the cost of those or other similar goods or services.

(2) Any reference in this Act to any other Act or provision thereof which is not in force in any area to which this Act applies shall be construed to have a reference to the corresponding Act or provision thereof in force in such areas.

Section 3: Act not in derogation of any other law- The provisions of this Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force.

5.3.1 Additional InformationDeficiency of serviceAnyshortcominginthemannerormethodofserviceiscalleddeficiencyofservice.

Defect in goodsAny fault or imperfection or short coming in goods is called defect in goods. It may be in respect of quantity, or quality or price or non suitability to the stated purpose.

When to lodge the complaintThe complaint should be lodged within 2 years from the date of cause of action.

Where to lodge the complaintIt depends upon the geographical and pecuniary jurisdiction of consumer courts.

If the claim amount is up to Rs. 5.00 lacs, the complaint should be lodged with District Forum of the (1) concerned district.If the claim amount is more than Rs. 5.00 lacs and less than 20 lacs, the complaint should be lodged (2) with State Commission of the concerned state.If the claim amount is more than Rs. 20.00 lacs, the complaint should be lodged with National (3) Commission.

5.4 District ForumSection 10: Composition of the District Forum-

Each District Forum shall consist of,-(1) apersonwhois,orhasbeen,orisqualifiedtobeaDistrictJudge,whoshallbeitsPresident;a. two other members, who shall be persons of ability, integrity and standing, and have adequate b. knowledge or experience of, or have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs or administration , one of whom shall be a woman.

Every appointment under sub-section (1) shall be made by the State Government on the recommendation of (1A) a selection committee consisting of the following, namely :-

The President of the State Commission -Chairman.(i) Secretary, Law Department of the State -Member.(ii) Secretary, in-charge of the Department. -Member. dealing with consumer affairs in the (iii) State

EverymemberoftheDistrictForumshallholdofficeforatermoffiveyearsoruptotheageof65years,(2) whichever is earlier, and shall not be eligible for re-appointment: Provided that a member may resign his officeinwritingunderhishand-addressedtotheStateGovernmentandonsuchresignationbeingaccepted,hisofficeshallbecomevacantandmaybefilledbytheappointmentofapersonpossessinganyofthequalificationsmentionedinsub-section(1)inrelationtothecategoryofthememberwhohasresigned.The salary or honorarium and other allowances payable to, and the other terms and conditions of service of (3) the members of the District Forum shall be such as may be prescribed by the State Government.

73/JNU OLE

Section 11: Jurisdiction of the District Forum-Subject to the other provisions of this Act, the District Forum shall have jurisdiction to entertain complaints (1) where the value of the goods or services and the compensation, if any, claimed [does not exceed rupees fivelakhs].A complaints shall be instituted in a District Forum within the local limits of whose jurisdiction,-(2)

the opposite party or each of the opposite parties, where there are more than one, at the time of the a. institution of the complaint, actually and voluntarily resides or [carries on business or has a branch officeor]personallyworksforgain,orany of the opposite parties, where there are more than one, at the time of the institution of the complaint, b. actuallyandvoluntarilyresides,orcarriesonbusinessorhasabranchoffice],orpersonallyworksforgain: Provided that in such case either the permission of the District Forum is given, or the opposite partieswhodonotreside,or[carryonbusinessorhaveabranchoffice],orpersonallyworkforgain,as the case may be, acquiesce in such institution; or the cause of action, wholly or in part, arises.c.

Section 12: Manner in which complaint shall be made-A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any service provided or agreedtobeprovidedmaybefiledwithaDistrictForumby-

the consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service (a) provided or agreed to be provided; any recognised consumer association whether the consumer to whom the goods sold or delivered or agreed to (b) be sold or delivered or service provided or agreed to be provided is a member of such association or not;one or more consumers, where there are numerous consumers having the same interest, with the permission (c) oftheDistrictForum,onbehalfof,orforthebenefitof,allconsumerssointerested;orthe Central or the State Government(d)

Explanation: For the purpose of this section, "recognised consumer association" means any voluntary consumer association registered under the Companies Act, 1956 (1 of 1956) or any other law for the time being in force.

Section 13: Procedure on receipt of Complaint-The District Forum shall, on receipt of a complaint, if it relates to any goods,-(1)

refer a copy of the complaint to the opposite party mentioned in the complaint directing him to give his (a) versionofthecasewithinaperiodofthirtydaysorsuchextendedperiodnotexceedingfifteendaysasmaybe granted by the District Forum;where the opposite party on receipt of a complaint referred to him under clause (a) denies or disputes the (b) 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 dispute in the mannerspecifiedinclauses(c)to(g);where the complaint alleges a defect in the goods which cannot be determined without proper analysis or (c) 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 and 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 findingoutwhethersuchgoodssufferfromanydefectallegedinthecomplaintorfromanyotherdefectandtoreportitsfindingsthereontotheDistrictForumwithinaperiodofforty-fivedaysofthereceiptofthe reference or within such extended period as may be granted by the District Forum; before any sample of the goods is referred to any appropriate laboratory under clause (c), the District (d) ForummayrequirethecomplainanttodeposittothecreditoftheForumsuchfeeasmaybespecified,forpayment to the appropriate laboratory for carrying out the necessary analysis or test in relation to the goods in question; the District Forum shall remit the amount deposited to its credit under clause (d) to the appropriate laboratory (e) to enable it to carry out the analysis or test mentioned in clause (c) and 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;


74/JNU OLE

ifanyofthepartiesdisputesthecorrectnessofthefindingsoftheappropriatelaboratory,ordisputesthe(f) correctness of the methods 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; the District Forum shall thereafter give a reasonable opportunity to the complainant as well as the opposite (g) party of being heard as to the correctness or otherwise of the report made by the appropriate laboratory and also as to the objections made in relation thereto under clause and issue an appropriate order under section 14.(h)

The District Forum shall, if the complaint received by it under section 12 relates to goods in respect of which (2) theprocedurespecifiedinsub-section(1)cannotbefollowed,orifthecomplaintrelatestoanyservices,-

refer a copy of such complaint to the opposite party directing him to give his version of the case within a (b) periodofthirtydaysorsuchextendedperiodnotexceedingfifteendaysasmaybegrantedbytheDistrictForum; where the opposite party, on receipt of a copy, of the complaint, referred to him under clause (a) denies (c) 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 dispute,-

on the basis of evidence brought to its notice by the complainant and the opposite party, where the (ii) opposite party denies or disputes the allegations contained in the complaint, or on the basis of evidence brought to its notice by the complainant where the opposite party omits or (iii) fails to take any action to represent his case within the time given by the Forum.

No proceedings complying with the procedure lay down in sub-sections (1) and (2) shall be called in question (3) in any court on the ground that principals of natural justice have not been complied with.For the purposes of this section, the District Forum shall have the same powers as are vested in a civil court (4) under 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, the discovery and production of any document or other material object producible as evidence,(ii) thereceptionofevidenceonaffidavits,(iii) the requisitioning of the report of the concerned analysis or test from the appropriate laboratory or from (iv) any other relevant source.issuing of any commission for the examination of any witness, and(v) any other matter which may be prescribed.(vi)

Every proceeding before the District Forum shall be deemed to be a judicial proceeding within the meaning of (5) sections 193 and 228 of the Indian Penal Code (45 of 1860), and the District Forum shall be deemed to be a civil court for the purpose of section 195, and chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974).Where the complainant is a consumer referred to in sub-clause (iv) of clause (b) of sub-section (1) of section 2, (6) the provisions of rule 8 of Order I of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908) shall applysubjecttothemodificationthateveryreferencethereintoasuitordecreeshallbeconstruedasareferenceto a complaint or the order of the District Forum thereon.

Section 14: Finding of the District Forum-If,aftertheproceedingconductedundersection13,theDistrictForumissatisfiedthatthegoodscomplained(1) againstsufferfromanyofthedefectsspecifiesinthecomplaintorthatanyoftheallegationscontainedinthecomplaint 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:

to remove the defect pointed out by the appropriate laboratory form the goods in question;(a) to replace the goods with new goods of similar description which shall be free from any defect;(b) to return to the complainant the price, or, as the case may be, the charges paid by the complainant;(c) to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered (d) by the consumer due to the negligence of the opposite party;toremovethedefectsordeficienciesintheservicesinquestion;(e) to discontinue the unfair trade practice or the restrictive trade practice or not to repeat them;(f) not to offer the hazardous goods for sale;(g)

75/JNU OLE

to withdraw the hazardous goods from being offered for sale;(h) to provide for adequate costs to parties(i)

Every proceeding referred to in sub-section (1) shall be conducted by the President of the District Forum and (2) at least one member thereof sitting together: Provided that where the member, for any reason, is unable to conduct the proceeding till it is completed, the President and the other member shall conduct such proceeding de novo.

Every order made by the District Forum under sub-section (1) shall be signed by its President and the (2A) member or members who conducted the proceeding: Provided that where the proceeding is conducted by the President and one member and they differ on any point or points, they shall state the point or points on which they differ and refer the same to the other member for hearing on such point or points and the opinion of the majority shall be the order of the District Forum.Subject to the foregoing provisions, the procedure relating to the conduct of the meetings of the District Forum, (3) its sitting and other matters shall be such as may be prescribed by the State Government.

Section 15: AppealAny person aggrieved by an order made by the District forum may prefer an appeal against such order to the State Commission within a period of 30 days from the date of the order, in such form and manner as may be prescribed: Provided that the State Commission may entertain an appeal after the expiry of the said period of thirty days if it issatisfiedthattherewassufficientcausefornotfindingitwithinthatperiod.

5.5 State CommissionFollowing sections fall under State Commission:

Section 16: Composition of the State Commission:Each State Commission shall consist of:(1)

a person who is or has been a Judge of a High Court, appointed by the State Government, who shall be (a) its President: Provided that no appointment under this clause shall be made except after consultation with the Chief Justice of the High Court;two other members, who shall be persons of ability, integrity and standing and have adequate knowledge (b) or experience of, or have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs or administration, one of whom shall be a woman: Provided that every appointment made under this clause shall be made by the State Government on the recommendation of a selection committee consisting of the following, namely:-

President of the State Commission...................Chairman (i) Secretary of the Law Department of the State........Member.(ii) Secretary, in-charge of Department dealing with consumer affairs in the State...............Member.(iii)

The salary or honorarium and other allowances payable to, and the other terms and conditions of service (2) of, the members of the State Commission shall be such as may be prescribed by the State Government.EverymemberoftheStateCommissionshallholdofficeforatermoffiveyearsoruptotheageofsixty-(3) seven years, whichever is earlier and shall not be eligible for reappointment.Notwithstanding anything contained in sub-section (3), a person appointed as a President or as a member (4) before the commencement of the Consumer Protection (Amendment) Act, 1993, shall continue to hold such officeasPresidentormember,asthecasemaybe,tillthecompletionofhisterm.

Section 17: Jurisdiction of the State CommissionSubject to the other provisions of this Act, the State Commission shall have jurisdiction-

to entertain-(a) complaints where the value of the goods or services and compensation, if any, claimed exceeds rupees (i) [fivelakhsbutdoesnotexceedrupeestwentylakhs];andappeals against the orders of any District Forum within the State; and(ii)


76/JNU OLE

to call for the records and pass appropriate orders in any consumer dispute which is pending before or has been (b) decided by any District Forum within the State, where it appears to the State Commission that such District Forum has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested or has acted in exercise of its jurisdiction illegally or with material irregularity.

Section 18: Procedure applicable to State CommissionsThe provisions of Section 12, 13 and 14 and the rules made there under] for the disposal of complaints by the DistrictForumshall,withsuchmodificationsasmaybenecessary,beapplicabletothedisposalofdisputesbytheState Commission.

Vacancy in the office of the President(18-A) WhentheofficeofthePresidentoftheDistrictForumoroftheStateCommission,asthecasemaybe,isvacantorwhenanysuchPresidentis,byreasonofabsenceorotherwise,unabletoperformthedutiesofhisoffice,thedutiesoftheofficeshallbeperformedbysuchperson,whoisqualifiedtobeappointedasPresidentoftheDistrictForumor, as the case may be, of the State Commission, as the State Government may appoint for the purpose.

Section 19: AppealsAny person aggrieved by an order made by the State Commission in exercise of its powers conferred by sub-clause (i) of clause (a) section 17 may prefer an appeal against such order to the National Commission within a period of thirty days from the date of the order in such form and manner as may be prescribed: Provided that the National Commissionmayentertainanappealaftertheexpiryofthesaidpersonofthirtydaysifitissatisfiedthattherewassufficientcausefornotfilingitwithinthatperiod.

5.6 National CommissionSection 20: Composition of the National Commission

The National Commission shall consist of:(1) a person who is or has been a Judge of the Supreme Court, to be appointed by the Central Government, (a) who shall be its President; Provided that no appointment under this clause shall be made except after consultation with the Chief Justice of India;four other members who shall be person of ability, integrity and standing and have adequate knowledge or (b) experience of, or have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs or administration, one of whom shall be a woman: Provided that every appointment under this clause shall be made by the Central Government on the recommendation of a selection committee consisting of the following, namely:-

a person who is a Judge of the Supreme Court, to be nominated by the Chief Justice of India...........(a) Chairman the Secretary in the Department of Legal Affairs in the Government of India .............................(b) Member.Secretary of the Department dealing with consumer affairs in the Government of India ............(c) Member.

The salary or honorarium and other allowances payable to and other terms and conditions of service of the (2) members of the National Commission shall be such as may be prescribed by the Central Government.EverymemberoftheNationalCommissionshallholdofficeforatermoffiveyearsoruptotheageofseventy(3) years, whichever is earlier and shall not be eligible for reappointment.Notwithstanding anything contained in sub-section (3), a person appointed as a President or as a member before (4) thecommencementoftheConsumerProtection(Amendment)Act,1993,shallcontinuetoholdsuchofficeasPresident or member, as the case may be, till the completion of his term.

Section 21: Jurisdiction of the National CommissionSubject to the other provisions of this Act, the National Commission shall have jurisdiction:

to entertain:(a) complaints where the value of goods or services and compensation, if any, claimed exceeds rupees (i) [twenty lakhs]; andappeals against the orders of any State Commission; and (ii)

77/JNU OLE

to call for the record and pass appropriate orders in any consumer dispute which is pending before or (b) has been decided by any State Commission where it appears to the National Commission that such State Commission has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested, or has acted in the exercise of its jurisdiction illegally or with material irregularity.

Section 22: Power of and procedure applicable to the National CommissionThe National Commission shall, in the disposal of any complaints or any proceedings before it, have:

thepowersofacivilcourtasspecifiedinsub-section(4),(5)and(6)ofsection13;(a) the power to issue an order to the opposite party directing him to do any one or more of the things referred (b) to in clause (a) to (i) of sub-section (1) of section 14, and follow such procedure as may be prescribed by the Central Government].

Section 23: AppealAny person, aggrieved by an order made by the National Commission in exercise of its powers conferred by sub-clause (i) of clause (a) of section 21, may prefer an appeal against such order of the Supreme Court within a period of thirty days from the date of the order: Provided that the Supreme Court may entertain an appeal after the expiry ofthesaidperiodofthirtydaysifitissatisfiedthattherewassufficientcausefornotfilingitwithinthatperiod.

Section 24: Finality of ordersEvery order of a District Forum, the State Commission or the National Commission shall, if no appeal has been preferredagainstsuchorderundertheprovisionsofthisAct,befinal.

Section 24A: Limitation periodThe District Forum, the State Commission or the National Commission shall not admit a complaint unless (1) itisfiledwithintwoyearsfromthedateonwhichthecauseofactionhasarisen.Notwithstanding anything contained in sub-section (1), a complaint may be entertained after the period (2) specifiedinsub-section(1),ifthecomplainantsatisfiestheDistrictForum,theStateCommissionortheNationalCommission,asthecasemaybe,thathehadsufficientcausefornotfilingthecomplaintswithinsuch period: Provided that no such complaint shall be entertained unless the National Commission, the State Commission or the District Forum, as the case may be, records its reasons for condoning such delay.

Section 24B: Administrative controlThe National Commission, shall have administrative control over all the State Commissions in the following (1) matter, namely;-

calling for periodical return regarding the institution, disposal, pendency of cases;(i) issuance of instructions regarding adoption of uniform procedure in the hearing of matters, prior (ii) service of copies of documents produced by one party to the opposite parties, furnishing of English translation of judgments written in any language, speedy grant of copy of documents;generally overseeing the functioning of the State Commission or the District Fora to ensure that the (iii) objects and purposes of the Act are best served without in any way interfering with their quasi-judicial freedom.

The State Commission shall have administrative control over all the District Forum within its jurisdiction (2) in all matters referred to in sub-section (1).

Section 25: Enforcement of orders by the Forum, the State Commission to the National CommissionEvery order made by the District Forum, the State Commission or the National Commission may be enforced by the District Forum, the State Commission or the National Commission, as the case may be, in the same manner as if it were decree or order made by a Court in a suit pending therein and it shall be lawful for the District Forum, the State Commission or the National Commission to send, in the event of its inability to execute it, such order to the court within the local limits of whose jurisdiction,-

inthecaseofanorderagainstacompany,theregisteredofficeofthecompanyissituated,or(a) in the case of an order against any other person, the place where the person concerned voluntarily resides (b) or carries on business or personally works for gain, is situated, and thereupon, the court to which the order is so sent, shall execute the order as if it were a decree or order sent to it for execution.


78/JNU OLE

Section 26: Dismissal of frivolous or vexatious complaintsWhere a complaint instituted before the District Forum, the State Commission or, as the case may be, the National Commission is found to be frivolous or vexatious, it shall, for reasons to be recorded in writing, dismiss the complaint and make an order that the complainant shall pay to the opposite party such cost, not exceeding ten thousand rupees, asmaybespecifiedintheorder.

Section 27: PenaltiesWhere a trader or person against whom a complaint is made [or the complainant] fails or omits to comply with any order made by the District Forum, the State Commission or the National Commission, as the case may be, such trader or person [or complainant] shall be punishable with imprisonment for a term which shall be not less than one monthbutwhichmayextendedtothreeyears,orwithfinewhichshallnotbelessthantwothousandsrupeesbutwhich may extend to ten thousand rupees, or with both: Provided that the District Forum, the State Commission or theNationalCommission,asthecasemaybe,may,ifitissatisfiedthatthecircumstancesofanycasesorequire,imposeasentenceofimprisonmentorfine,orboth,oratermlesserthantheminimumtermandtheamountlesserthantheminimumamount,specifiedinthissection.

Sl. No. Particulars District Forum State Commission National Commission

1 Claim amount Up to 20 lacs >20 to 100 lacs >100 lacs

2 Entertaining Appeal Not Applicable Appeals against

decision of DFAppeals against decision of State Com

3 President equivalent to District Judge High Court Judge Supreme Court Judge

4 No. of members Two Two Four

5 Of which woman One One One

6 Ifnotsatisfiedwith the order

Appeal to State Commission

Appeal to National Commission Appeal to Supreme Court

Table 5.1 Comparative study of district, state and national forum

79/JNU OLE

5.7 Few Terms in Consumer Protection Act, 1986

Complainant A consumer who makes a complaint.

Complaint Any allegation in writing made by a complainant against unfair trade practice ordefectivegoodsordeficiencyofservice.

Consumer A person who buys goods or services for a price.

Defect in goods Any fault or imperfection or short coming in goods.

Deficiencyofservice Any shortcoming in the manner/method of service.

Goods Every kind of moveable property other than actionable claims and money.

Price The money consideration for a sale of goods.

Table 5.2 Few terms in Consumer Protection Act, 1986


80/JNU OLE

SummaryThe Consumer Protection Act, 1986 was enacted for better protection of the interests of consumers.•Anyshortcominginthemannerormethodofserviceiscalleddeficiencyofservice.•Any fault or imperfection or short coming in goods is called defect in goods. It may be in respect of quantity, •or quality or price or non suitability to the stated purpose.The complaint should be lodged within 2 years from the date of cause of action.•'Consumer' means any 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 and includes any user of such goods other then the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any person, but does not include a person who obtains such goods for resale or for any commercial purpose.Every order of a District Forum, the State Commission or the National Commission shall, if no appeal has been •preferredagainstsuchorderundertheprovisionsofthisAct,befinal.Where a complaint instituted before the District Forum, the State Commission or, as the case may be, the National •Commission is found to be frivolous or vexatious, it shall, for reasons to be recorded in writing, dismiss the complaint and make an order that the complainant shall pay to the opposite party such cost, not exceeding ten thousandrupees,asmaybespecifiedintheorder.

ReferencesThe Consumer Protection Act, 1986. Available at: <http://admis.hp.nic.in/ehimapurti/cpa1986.htm> Accessed •on 15th March, 2011.The Consumer Protection Act, 1986. Available at: http://www.vakilno1.com/bareacts/consumerprotectionact/•s2.htm> Accessed on 15th March, 2011.

Recommended ReadingSudhakaran, E., 1996. • Doctor in Consumer Court: The Consumer Protection Act, 1986. D.C. Books. 199 pages.Pathak, 2007. • Legal Aspects of Business. Tata McGraw-Hill Education. 573 pages.The Consumer Protection Act, 1986. • Available at: <http://www.scribd.com/doc/19011650/2-Consumer-Protection-Act> Accessed on 15th March, 2011.

81/JNU OLE

Self Assessment

The Consumer Protection Act, 1986 was enacted for better protection of the interests of __________.1. consumersa. dealersb. merchantc. suppliersd.

The complaint should be lodged within __________ from the date of cause of action.2. 1 yearsa. 2 yearsb. 3 yearsc. 4 yearsd.

Which of the following false?3. Branchofficemeansanyestablishmentdescribedasabranchbytheoppositeparty.a. "Consumer dispute" means a dispute where the person against whom a complaint has been made, denies or b. disputes the allegation contained in the complaint;."Complainant" means a complainer.c. "Appropriate laboratory" means a laboratory or organisation-recognised by the Central Government.d.

EverymemberoftheDistrictForumshallholdofficeforatermof_____________oruptotheageof654. years.

two yearsa. three yearsb. four yearsc. fiveyearsd.

Every proceeding before the ___________ shall be deemed to be a judicial proceeding within the meaning of 5. sections 193 and 228 of the Indian Penal Code.

District Foruma. State Commissionb. National Commissionc. Supreme Courtd.

Goods mean every kind of ________ property other than actionable claims and money. 6. moveablea. unmovableb. originalc. transferabled.

"_________" means any allegation in writing made by a complainant that-an unfair trade practice or a restrictive 7. trade practice has been adopted by any trader.

Disordera. Defect in goodsb. Complaintc. Deficiencyofserviced.


82/JNU OLE

Anyshortcominginthemannerormethodof________iscalleddeficiencyofservice.8. Servinga. servicingb. service c. manufacturingd.

Consumer Protection Act imposes strict liability on a ____________.9. manufacturera. customerb. transporterc. consumerd.

If the claim amount is more than Rs. 5.00 lacs and less than ______ lacs, the complaint should be lodged with 10. State Commission of the concerned state.

20a. 10b. 15c. 25d.

83/JNU OLE

Chapter VI

The Motor Vehicles Act, 1988

Aim


describetheimportantdefinitionsoftheMotorVehiclesAct,1988•

state the provisions regarding driving licence•

illustrate the provisions regarding registration of vehicles•

Objectives


explain the requirements for driving licence•

describe the necessity and grant of conductor's licence•

state the provisions regarding registration of vehicles•

Learning outcome


knowthedefinitionsoftermscoveredunderthisAct•

understand the provisions regarding driving licence•

recognise the provisions regarding registration of vehicles•


84/JNU OLE

6.1 IntroductionRoad transport is frequently used by the people engaged in supply chain management. Even though it is costly compared to Railway transport the road transport has several distinct advantages. Transport through a lorry is a common mode of transport. Lorry is basically a motor vehicle. Hence, it is essential for the people in supply chain management to understand some of the provisions of Motor Vehicles Act, 1988.

6.2 Act 59 of 1988The Motor Vehicles Bill, having been passed by both the Houses of Parliament, received the assent of the President on 14th October, 1988. It came into force on 1st day of July, 1989, as The Motor Vehicles Act, 1988 (59 of 1988).

6.3 Definitions

Chapter I (The Motor Vehicles Act, 1988)Section 2: States the important definitions as under:

"area", in relation to any provision of this Act, means such area as the State Government may, having regard (1) totherequirementsofthatprovisions,specifybynotificationintheOfficialGazette; "articulated vehicle" means a motor vehicle to which a semi-trailer is attached;(2) "axle weight" means in relation to an axle of a vehicle the total weight transmitted by the several wheels (3) attached to that axle to the surface on which the vehicle rests; "certificateofregistration"meansthecertificateissuedbyacompetentauthoritytotheeffectthatamotor (4) vehicle has been duly registered; "conductor" in relation to a stage carriage, means a person engaged in collecting fares from passengers, regulating (5) their entrance into, or exit from, the stage carriage and performing such other functions as may be prescribed; "conductor’slicence"meansthelicenceissuedbyacompetentauthorityauthorisingthepersonspecifiedtherein (6) to act as a conductor; "contract carriage" means a motor vehicle which carries a passenger or passengers for hire or reward and is (7) engaged under a contract, whether expressed or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation tosuchvehicleoranypersonauthorisedbyhiminthisbehalfonafixedoranagreedrateorsum:

on a time basis, whether or not with reference to any route or distance; or(a) from one point to another, and in either case, without stopping to pick up or set down passengers not included (b) in the contract anywhere during the journey, and includes:

a maxicab; and(i) a motorcar notwithstanding the separate fares are charged for its passengers;(ii)

"dealer" includes a person who is engaged:(8) in the manufacture of motor vehicles; or(a) in building bodies for attachment to chassis; or(b) in the repair of motor vehicles; or(c) in the business of hypothecation, leasing or hire-purchase of motor vehicles;(d)

"driver" includes, in relation to a motor vehicle which is drawn by another motor vehicle, the person who (9) acts as a steersman of the drawn vehicle; "drivinglicence"meansthelicenceissuedbyacompetentauthorityauthorisingthepersonspecified thereintodrive,otherwisethanasalearner,amotorvehicleoramotorvehicleofanyspecifiedclassor description;

"educational institution bus" means an omnibus, which is owned by a college, school or other educational (10) institution and used solely for the purpose of transporting students or staff of the educational institution in connection with any of its activities;

85/JNU OLE

"fares" includes sums payable for a season ticket or in respect of the hire of a contract carriage;(11) "goods" includes livestock, and anything (other than equipment ordinarily used with the vehicle) carried (12)

by a vehicle except living persons, but does not include luggage or personal effects carried in a motor car or in a trailer attached to a motor car or the personal luggage of passengers travelling in the vehicle;

"goods carriage" means any motor vehicle constructed or adapted for use solely for the carriage of goods, (13) or any motor vehicle not so constructed or adapted when used for the carriage of goods;

"grossvehicleweight"meansinrespectofanyvehiclethetotalweightofthevehicleandloadcertifiedand (14) registered by the registering authority as permissible for that vehicle;

"heavy goods vehicle" means any goods carriage the gross vehicle weight of which, or a tractor or a (15) road-roller the un-laden weight of either of which, exceeds 12,000 kilograms;

"heavy passenger motor vehicle" means any public service vehicle or private service vehicle or (16) educational institution bus or omnibus the gross vehicle weight of any of which, or a motor car the un-laden weight of which, exceeds 12,000 kilograms;

"invalid carriage" means a motor vehicle specially designed and constructed, and not merely (17) adapted, for the use of a person suffering from some physical defect or disability, and used solely by or for such a person;

"learner's licence"means the licence issuedby a competent authority authorising the person specified (18) therein to drive as a learner, a motor vehicle or a motor vehicle of any specified class or description;

"licensing authority" means an authority empowered to issue licences;(19) "light motor vehicle" means a transport vehicle or omnibus the gross vehicle weight of either of (20)

which or a motor car or tractor or road-roller the un-laden weight of any of which, does not exceed 7500 kilograms;

"maxicab" means any motor vehicle constructed or adapted to carry more than six passengers, but (21) not more than twelve passengers, excluding the driver, for hire or reward;

"medium goods vehicle" means any goods carriage other than a light motor vehicle or a heavy (22) goods vehicle;

"medium passenger motor vehicle" means any public service vehicle or private service vehicle, (23) or educational institution bus other than a motor cycle, invalid carriage, light motor vehicle or heavy passenger motor vehicle;

"motorcab" means any motor vehicle constructed or adapted to carry not more than six passengers (24) excluding the driver for hire or reward;

"motor car" means any motor vehicle other than a transport vehicle, omnibus, road-roller, tractor, (25) motor cycle or invalid carriage;

"motor cycle" means a two-wheeled motor vehicle, inclusive of any detachable side-car having an (26) extra wheel, attached to the motor vehicle;

"motor vehicle" or "vehicle" means any mechanically propelled vehicle adapted for use upon roads (27) whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running uponfixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than fourwheels fittedwith engine capacity ofnotexceedingthirty-fivecubiccentimetres;

"omnibus" means any motor vehicle constructed or adapted to carry more than six persons excluding (28) the driver,

"owner" means a person in whose name a motor vehicle stands registered, and where such person (29) is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire-purchase, agreement, or an agreement of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement;

"permit" means a permit issued by a State or Regional Transport Authority or an authority prescribed (30) in this behalf under this Act authorising the use of a motor vehicle as a transport vehicle;

"prescribed" means prescribed by rules made under this Act;(31) "private service vehicle" means a motor vehicle constructed or adapted to carry more than six (32)


86/JNU OLE

persons excluding the driver and ordinarily used by or on behalf of the owner of such vehicle for the purpose of carrying persons for, or in connection with, his trade or business otherwise than for hire or reward but does not include a motor vehicle used for public purposes;

"public place" means a road, street, way or other place, whether a thorough-fare or not, to which (33) the public have a right of access, and includes any place or stand at which passengers are picked up or set down by a stage carriage;

"public service vehicle" means any motor vehicle used or adapted to be used for the carriage (34) of passengers for hire or reward, and includes a maxicab, a motorcab, contract carriage, and stage carriage;

"registered axleweight"means in respect of the axle of any vehicle, the axleweight certified and (35) registered by the registering authority as permissible for that axle;

"registering authority" means an authority empowered to register motor vehicles;(36) "route" means a line of travel which specifies the highway which may be traversed by a motor (37)

vehicle between one terminus and another;"semi-trailer" means a vehicle not mechanically propelled (other than a trailer), which is intended (38)

to be connected to a motor vehicle and which is so constructed that a portion of it is super-imposed on, and a part of whose weight is borne by that motor vehicle;]

"stage carriage" means a motor vehicle constructed or adapted to carry more than six passengers (39) excluding the driver for hire or reward at separate fares paid by or for individual passengers, either for the whole journey or for stages of the journey;

"State Government" in relation to a Union territory means the Administrator thereof appointed (40) under article 239 of the Constitution;

"State transport undertaking" means any undertaking providing road transport service, where such (41) undertaking is carried on by,—

the Central Government or a State Government;(i) any Road Transport Corporation established under Section 3 of the Road Transport Corporations Act, (ii) 1950 (64 of 1950)any municipality or any corporation or company owned or controlled by the Central Government or one (iii) or more State Governments, or by the Central Government and one or more State Governments.

Explanation: For the purposes of this clause, "road transport service" mans a service of motor vehicles carrying passengers or goods or both by road for hire or reward;

"tourist vehicle" means a contract carriage, constructed or adapted and equipped and maintained (42) inaccordancewithsuchspecificationsasmaybeprescribedonthisbehalf;

"tractor" means a motor vehicle which is not itself constructed to carry any load (other than (43) equipment used for the purpose of propulsion); but excludes a road-roller;

"traffic signs" includes all signals, warning sign posts, direction posts, markings on the road or (44) other devices for the information, guidance or direction of drivers of motor vehicles;

"trailer" means any vehicle, other than a semi-trailer and a side-car, drawn or intended to be drawn (45) by a motor vehicle;

"transport vehicle" means a public service vehicle, a goods carriage, an educational institution bus (46) or a private service vehicle;

"un-laden weight" means the weight of a vehicle or trailer including all equipment ordinarily used (47) with the vehicle or trailer when working, but excluding the weight of a driver or attendant; and where alternative parts or bodies are used the un-laden weight of the vehicle means that weight of the vehicle with the heaviest such alternative part or body;

"weight" means the total weight transmitted for the time being by the wheels of a vehicle to the (48) surface on which the vehicle rests.

87/JNU OLE

6.4 Licensing of Drivers of Motor VehiclesChapter II (The Motor Vehicles Act, 1988)

Section 3: Necessity for driving licence:No person shall drive a motor vehicle in any public place unless he holds an effective driving licence issued to (1) him authorising him to drive the vehicle; and no person shall so drive a transport vehicle [other than a motor cab hired for his own use or rented under any scheme made under sub- Section (2) of Section 75] unless his drivinglicencespecificallyentitleshimsotodo.The conditions subject to which sub-section (1) shall not apply to a person receiving instructions in driving a (2) motor vehicle shall be such as may be prescribed by the Central Government.

Section 4: Age limit in connection with driving of motor vehicles:No person under the age of eighteen years shall drive a motor vehicle in any public place: (1) Provided that a motor cycle without gear may be driven in a public place by a person after attaining the age of sixteen years.Subject to the provisions of Section 18, no person under the age of twenty years shall drive a transport vehicle (2) in any public place.No learner's licence or driving licence shall be issued to any person to drive a vehicle of the class to which he (3) has made an application unless he is eligible to drive that class of vehicle under this Section.

S. No. Minimum Age For Licence to Drive

1 16 years Motor cycle without gear

2 18 years Motor cycle with gear

3 20 years Transport vehicle

Table 6.1 Age limits for driving different vehicles

Section 5: Responsibility of owners of motor vehicles for contravention of Sections 3 and 4:

No owner or person in charge of a motor vehicle shall cause or permit any person who does not satisfy the provisions of Section 3 or Section 4 to drive the vehicle.

Section 6: Restrictions on the holding of driving licencesNo person shall, while he holds any driving licence for the time being in force, hold any other driving licence (1) except a learner's licence or a driving licence issued in accordance with the provisions of Section 18 or a documentauthorising,inaccordancewiththerulesmadeunderSection139,thepersonspecifiedthereintodrive a motor vehicle.No holder of a driving licence or a learner's licence shall permit it to be used by any other person.(2) Nothing in this Section shall prevent a licensing authority having the jurisdiction referred to in sub-section (3) (1) of Section 9 from adding to the classes of vehicles which the driving licence authorises the holder to drive.

Section 7: Restrictions on the granting of learner's licences for certain vehiclesNo person shall be granted a learner's licence:(1)

to drive a heavy goods vehicle unless he has held a driving licence for at least two years to drive a light (a) motor vehicle or for at least one year to drive a medium goods vehicle;to drive a heavy passenger motor vehicle unless he has held a driving licence for at least two years to drive (b) a light motor vehicle or for at least one year to drive a medium passenger motor vehicle; 583


88/JNU OLE

to drive a medium goods vehicle or a medium passenger motor vehicle unless he has held a driving licence (c) for at least one year to drive a light motor vehicle.

No person under the age of eighteen years shall be granted a learner's licence to drive a motor cycle without gear (2) except with the consent in writing of the person having the care of the person desiring the learner's licence.

Sl. No. Minimum Experience For Licence to Drive

1 Licence to drive a light motor vehicle for at least one year. Transport vehicle

2

Licence for at least two years to drive a light motor vehicle or for at least one year to drive a medium passenger motor vehicle.

Heavy passenger motor vehicle

3 Licence to drive a light motor vehicle for at least one year. Medium goods vehicle

Table 6.2 Minimum experience for driving different vehicles

Section 8: Grant of learner's licenceAnypersonwhoisnotdisqualifiedunderSection4fordrivingamotorvehicleandwhoisnotforthetimebeing(1) disqualifiedforholdingorobtainingadrivinglicencemay,subjecttotheprovisionsofSection7,applytothelicensing authority having jurisdiction in the area--

in which he ordinarily resides or carries on business, or(i) in which the school or establishment referred to in Section 12 from where he intends to receive instruction (ii) in driving a motor vehicle is situate, for the issue to him of a learner's licence.

Every application under sub-section (1) shall be in such form and shall be accompanied by such documents and (2) with such fee as may be prescribed by the Central Government. Everyapplicationundersub-section(1)shallbeaccompaniedbyamedicalcertificateinsuchformasmaybe(3) prescribed by the Central Government and signed by such registered medical practitioner, as the State Government oranypersonauthorisedinthisbehalfbytheStateGovernmentmay,bynotificationintheOfficialGazette,appoint for this purpose.If,fromtheapplicationorfromthemedicalcertificatereferredtoinsub-section(3),itappearsthattheapplicant(4) is suffering from any disease or disability which is likely to cause the driving by him of a motor vehicle of the class which he would be authorised by the learner's licence applied for to drive to be a source of danger to the public or to the passengers, the licensing authority shall refuse to issue the learner's licence: Provided that a learner's licence limited to driving an invalid carriage may be issued to the applicant, if the licensing authority issatisfiedthatheisfittodrivesuchacarriage.No learner's licence shall be issued to any applicant unless he passes to the satisfaction of the licensing authority (5) such test as may be prescribed by the Central Government.Whenanapplicationhasbeendulymadetotheappropriatelicensingauthorityandtheapplicanthassatisfied(6) suchauthorityofhisphysicalfitnessundersub-section(3)andhaspassedtothesatisfactionofthelicensingauthority the test referred to in sub- Section (5), the licensing authority shall, subject to the provisions of Section7,issuetheapplicantalearner'slicenceunlesstheapplicantisdisqualifiedunderSection4fordrivingamotorvehicleorisforthetimebeingdisqualifiedforholdingorobtainingalicencetodriveamotorvehicle:Provided that a licensing authority may issue a learner's licence to drive a motor cycle or a light motor vehicle notwithstandingthatitisnottheappropriatelicensingauthority,ifsuchauthorityissatisfiedthatthereisgoodreason for the applicant's inability to apply to the appropriate licensing authority.

89/JNU OLE

WheretheCentralGovernmentissatisfiedthatitisnecessaryorexpedientsotodo,itmay,byrulesmadein(7) thisbehalf,exemptgenerally,eitherabsolutelyorsubjecttosuchconditionsasmaybespecifiedintherules,any class of persons from the provisions of sub-section (3), or sub-section (5), or both. Any learner's licence for driving a motor cycle in force immediately before the commencement of this Act shall, (8) after such commencement, be deemed to be effective for driving a motor cycle with or without gear.

Section 9: Grant of driving licenceAnypersonwhoisnotforthetimebeingdisqualifiedforholdingorobtainingadrivinglicencemayapplyto(1) the licensing authority having jurisdiction in the area--

in which he ordinarily resides or carries on business, or (i) in which the school or establishment referred to in Section 12 from where he is receiving or has received (ii) instruction in driving a motor vehicle is situated, for the issue to him of a driving licence.

Every application under sub-section (1) shall be in such form and shall be accompanied by such fee and such (2) documents as may be prescribed by the Central Government.No driving licence shall be issued to any applicant unless he passes to the satisfaction of the licensing authority (3) such test of competence to drive as may be prescribed by the Central Government: Provided that, where the application is for a driving licence to drive a motor cycle or a light motor vehicle, the licensing authority shall exempt the applicant from the test of competence prescribed under this sub-Section, if the licensing authority issatisfied--

(i) that the applicant has previously held a driving licence and that the period between the date of expiry of (a) thatlicenceandthedateofsuchapplicationdoesnotexceedfiveyears;or

that the applicant holds or has previously held a driving licence issued under Section 18; or(ii) that the applicant holds a driving licence issued by a competent authority of any country outside India; (iii) and

that the applicant is not suffering from any disease or disability which is likely to cause the driving by him (b) of a motor cycle or, as the case may be, a light motor vehicle to be a source of danger to the public; and the licensingauthoritymayforthatpurposerequiretheapplicanttoproduceamedicalcertificateinthesameform and in the same manner as is referred to in sub-section (3) of Section 8: Provided further that where the application is for a driving licence to drive a motor vehicle (not being a transport vehicle), the licensing authority may exempt the applicant from the test of competence to drive prescribed under this sub-Section, iftheapplicantpossessesadrivingcertificateissuedbyanautomobileassociationrecognisedinthisbehalfby the State Government.

Where the application is for a licence to drive a transport vehicle, no such authorisation shall be granted to (4) anyapplicantunlesshepossessessuchminimumeducationalqualificationasmaybeprescribedbytheCentralGovernmentandadrivingcertificateissuedbyaschoolorestablishmentreferredtoinSection12.Where the applicant does not pass to the satisfaction of the licensing authority the test of competence to drive (5) undersub-section(3),heshallnotbequalifiedtore-appearforsuchtest,--

inthecaseoffirstthreesuchtests,beforeaperiodofonemonthfromthedateoflastsuchtest;and(b) inthecaseofsuchtestafterthefirstthreetests,beforeaperiodofoneyearfromthedateoflastsuchtest.(c)

The test of competence to drive shall be carried out in a vehicle of the type to which the application refers: (6) Provided that a person who passed a test in driving a motor cycle with gear shall be deemed also to have passed a test in driving a motor cycle without gearWhenanyapplicationhasbeendulymadetotheappropriatelicensingauthorityandtheapplicanthassatisfied(7) such authority of his competence to drive, the licensing authority shall issue the applicant a driving licence unless theapplicantisforthetimebeingdisqualifiedforholdingorobtainingadrivinglicence:Provided that a licensing authority may issue a driving licence to drive a motor cycle or a light motor vehicle notwithstanding that it isnottheappropriatelicensingauthority,ifthelicensingauthorityissatisfiedthatthereisgoodandsufficientreasonfortheapplicant'sinabilitytoapplytotheappropriatelicensingauthority:Provided further that the licensing authority shall not issue a new driving licence to the applicant, if he had previouslyheldadrivinglicence,unlessitissatisfiedthatthereisgoodandsufficientreasonforhisinability to obtain a duplicate copy of his former licenceIfthelicensingauthorityissatisfied,aftergivingtheapplicantanopportunityofbeingheard,that(8) he—


90/JNU OLE

is a habitual criminal or a habitual drunkard; or(b) is a habitual addict to any narcotic drug or psychotropic substance within the meaning of the Narcotic Drugs (c) and Psychotropic Substances Act, 1985; (61 of 1985.) oris a person whose licence to drive any motor vehicle has, at any time earlier, been revoked, it may, for (d) reasons to be recorded tin writing, make an order refusing to issue a driving licence to such person and any person aggrieved by an order made by a licensing authority under this sub-section may, within thirty days of the receipt of the order, appeal to the prescribed authority.

Any driving licence for driving a motor cycle in force immediately before the commencement of this Act shall, (9) after such commencement, is deemed to be effective for driving a motor cycle with or without gear.

Section10: Form and contents of licences to driveEvery learner's licence and driving licence, except a driving licence issued under Section 18, shall be in such (1) form and shall contain such information as may be prescribed by the Central Government.A learner's licence or, as the case may be, driving licence shall also be expressed as entitling the holder to drive (2) a motor vehicle of one or more of the following classes, namely:

motor cycle without gear;(a) motor cycle with gear;(b) invalid carriage;(c) light motor vehicle;(d) medium goods vehicle;(e) medium passenger motor vehicle;(f) heavy goods vehicle;(g) heavy passenger motor vehicle;(h) road-roller;(i) motorvehicleofaspecifieddescription.(j)

Section 11: Additions to driving licenceAny person holding a driving licence to drive any class or description of motor vehicles, who is not for the time (1) beingdisqualifiedforholdingorobtainingadrivinglicencetodriveanyotherclassordescriptionofmotorvehicles, may apply to the licensing authority having jurisdiction in the area in which he resides or carries on his business in such form and accompanied by such documents and with such fees as may be prescribed by the Central Government for the addition of such other class or description of motor vehicles to the licence. Subject to such rules as may be prescribed by the Central Government, the provisions of Section 9 shall apply (2) to an application under this Section as if the said application were for the grant of a licence under that Section to drive the class or description of motor vehicles which the applicant desires to be added to his licence.

Section 12: Licensing and regulation of schools or establishments for imparting instruction in driving of motor vehicles.

The Central Government may make rules for the purpose of licensing and regulating, by the State Governments, (1) schools or establishments (by whatever name called) for imparting instruction in driving of motor vehicles and matters connected therewith.In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or (2) any of the following matters, namely:

licensing of such schools or establishments including grant, renewal and revocation of such licences;(a) supervision of such schools or establishments;(b) the form of application and the form of licence and the particulars to be contained therein;(c) fee to be paid with the application for such licences;(d) conditions subject to which such licences may be granted;(e) appeals against the orders of refusal to grant or renew such licences and appeals against the orders revoking (f) such licences;conditions subject to which a person may establish and maintain any such school or establishment for (g) imparting instruction in driving of motor vehicles;nature,syllabusanddurationofcourseorcoursesforefficientinstructionindrivinganymotorvehicle;(h)

91/JNU OLE

apparatusandequipments(includingmotorvehiclesfittedwithdualcontrol)requiredforthepurposeof(i) imparting such instruction;suitability of the premises at which such schools or establishments may be established or maintained and (j) facilities to be provided therein;qualifications,botheducationalandprofessional(includingexperience),whichapersonimpartinginstruction(k) in driving a motor vehicle shall possess;inspection of such schools and establishments (including the services rendered by them and the apparatus, (l) equipments and motor vehicles maintained by them for imparting such instruction);maintenance of records by such schools or establishments;(m) financialstabilityofsuchschoolsorestablishments;(n) thedrivingcertificates,ifany,tobeissuedbysuchschoolsorestablishmentsandtheforminwhichsuch(o) drivingcertificatesshallbeissuedandtherequirementstobecompliedwithforthepurposesofissuingsuchcertificates;such other matters as may be necessary to carry out the purposes of this Section.(p)

WheretheCentralGovernmentissatisfiedthatitisnecessaryorexpedientsotodo,itmay,byrulesmadein(3) thisbehalf,exemptgenerally,eitherabsolutelyorsubjecttosuchconditionsasmaybespecifiedintherules,any class of schools or establishments imparting instruction in driving of motor vehicles or matters connected therewith from the provisions of this Section.A school or establishment imparting instruction in driving of motor vehicles or matters connected therewith (4) immediately before the commencement of this Act whether under a licence or not, may continue to impart such instruction without a licence issued under this Act for a period of one month from such commencement, and if it has made an application for such licence under this Act within the said period of one month and such application is in the prescribed form, contains the prescribed particulars and is accompanied by the prescribed fee, till the disposal of such application by the licensing authority.

Section 13: Extent of effectiveness of licences, to drive motor vehiclesA learner's licence or a driving licence issued under this Act shall be effective throughout India.

Section 14: Currency of licences to drive motor vehiclesA learner's licence issued under this Act shall, subject to the other provisions of this Act, be effective for a period (1) of six months from the date of issue of the licence.A driving licence issued or renewed under this Act shall,(2)

in the case of a licence to drive a transport vehicle, be effective for a period of three years; and(a) in the case of any other licence,(b)

if the person obtaining the licence, either originally or on renewal thereof, has not attained the age (i) of forty years on the date of issue or, as the case may be, renewal thereof,-

be effective for a period of twenty years from the date of such issue or renewal; or(A) until the date on which such person attains the age of forty years, whichever is earlier;(B)

if the person referred to in sub-clause (i) has attained the age of forty years on the date of issue or, (ii) asthecasemaybe,renewalthereof,beeffectiveforaperiodoffiveyearsfromthedateofsuchissue or renewal: Provided that every driving licence shall, notwithstanding its expiry under this sub-Section, continue to be effective for a period of thirty days from such expiry.

Section 15: Renewal of driving licencesAny licensing authority may, on application made to it, renew a driving licence issued under the provisions of (1) this Act with effect from the date of its expiry: Provided that in any case where the application for the renewal of a licence is made more than thirty days after the date of its expiry, the driving licence shall be renewed with effect from the date of its renewal: Provided further that where the application is for the renewal of a licence to drive a transport vehicle or where in any other case the applicant has attained the age of forty years, the same shallbe589accompaniedbyamedicalcertificateinthesameformandinthesamemannerasisreferredtoinsub-section (3) of Section 8, and the provisions of sub-section (4) of Section 8 shall, so far as may be, apply in relation to every such case as they apply in relation to a learner's licence.An application for the renewal of a driving licence shall be made in such form and accompanied by such (2) documents as may be prescribed by the Central Government.Where an application for the renewal of a driving licence is made previous to, or not more than thirty days (3)


92/JNU OLE

after the date of its expiry, the fee payable for such renewal shall be such as may be prescribed by the Central Government in this behalf.Where an application for the renewal of a driving licence is made more than thirty days after the date of its (4) expiry, the fee payable for such renewal shall be such amount as may be prescribed by the Central Government: Provided that the fee referred to in sub-section (3) may be accepted by the licensing authority in respect of an applicationfortherenewalofadrivinglicencemadeunderthissub-sectionifitissatisfiedthattheapplicantwaspreventedbygoodandsufficientcausefromapplyingwithinthetimespecifiedinsub-section(3):Provided furtherthatiftheapplicationismademorethanfiveyearsafterthedrivinglicencehasceasedtobeeffective,the licensing authority may refuse to renew the driving licence, unless the applicant undergoes and passes to its satisfaction the test of competence to drive referred to in sub-section (3) of Section 9.Where the application for renewal has been rejected, the fee paid shall be refunded to such extent and in such (5) manner as may be prescribed by the Central Government.Where the authority renewing the driving licence is not the authority which issued the driving licence it shall (6) intimate the fact of renewal to the authority which issued the driving licence.

As per Section 16, Revocation of driving licence on grounds of disease or disabilityNotwithstanding anything contained in the foregoing Sections, any licensing authority may at any time revoke a driving licence or may require, as a condition of continuing to hold such driving licence, the holder thereof to produceamedicalcertificateinthesameformandinthesamemannerasisreferredtoinsub-Section(3)ofSection8, if the licensing authority has reasonable grounds to believe that the holder of the driving licence is, by virtue of anydiseaseordisability,unfittodriveamotorvehicleandwheretheauthorityrevokingadrivinglicenceisnottheauthority which issued the same, it shall intimate the fact of revocation to the authority which issued that licence.

Section 17: Orders refusing or revoking driving licences and appeals there-fromWhere a licensing authority refuses to issue any learner's licence or to issue or renew, or revokes, any driving (1) licence, or refuses to add a class or description of motor vehicle to any driving licence, it shall do so by an order communicated to the applicant or the holder, as the case may be, giving the reasons in writing for such refusal or revocation.Any person aggrieved by an order made under sub-section (1) may, within thirty days of the service on him (2) of the order, appeal to the prescribed authority which shall decide the appeal after giving such person and the authority which made the order an opportunity of being heard and the decision of the appellate authority shall be binding on the authority which made the order.

Section 18: Driving licences to drive motor vehicles, belonging to the Central GovernmentSuch authority as may be prescribed by the Central Government may issue driving licence valid throughout (1) India to persons who have completed their eighteenth year to drive motor vehicles which are the property or for the time being under the exclusive control of the Central Government and are used for Government purposes relating to the defence of the country and unconnected with any commercial enterprise.A driving licence issued under this Section shall specify the class or description of vehicle which the holder (2) is entitled to drive and the period for which he is so entitled.A driving licence issued under this Section shall not entitle the holder to drive any motor vehicle except a (3) motor vehicle referred to in sub-section (1).The authority issuing any driving licence under this Section shall, at the request of any State Government, (4) furnish such information respecting any person to whom a driving licence is issued as that Government may at any time require.

Section 19: Power of licensing authority to disqualify from holding a driving licence or revoke such licenceIfalicensingauthorityissatisfied,aftergivingtheholderofadrivinglicenceanopportunityofbeingheard,(1) that he—

is a habitual criminal or a habitual drunkard; or(a) is a habitual addict to any narcotic drug or psychotropic substance within the meaning of the Narcotic (b) Drugs and Psychotropic Substances Act, 1985; (61 of 1985.) oris using or has used a motor vehicle in the commission of a cognisable offence; or(c) has by his previous conduct as driver of a motor vehicle shown that his driving is likely to be attended (d) with danger to the public; or

93/JNU OLE

has obtained any driving licence or a licence to drive a particular class or description of motor vehicle by (e) fraud or misrepresentation; orhas committed any such act which is likely to cause nuisance or danger to the public, as may be prescribed (f) by the Central Government, having regard to the objects of this Act; orhas failed to submit to, or has not passed, the tests referred to in the proviso to sub-section (3) of Section (g) 22; orbeing a person under the age of eighteen years who has been granted a learner's licence or a driving licence (h) with the consent in writing of the person having the care of the holder of the licence and has ceased to be in such care, it may, for reasons to be recorded in writing, make an order—

disqualifyingthatpersonforaspecifiedperiodforholdingorobtaininganydrivinglicencetodrive(i) alloranyclassesordescriptionsofvehiclesspecifiedinthelicence;orrevoke any such licence.(ii)

Where an order under sub-section (1) is made, the holder of a driving licence shall forthwith surrender his driving (2) licence to the licensing authority making the order, if the driving licence has not already been surrendered, and the licensing authority shall,--

ifthedrivinglicenceisadrivinglicenceissuedunderthisAct,keepituntilthedisqualificationhasexpired(a) or has been removed; orifitisnotadrivinglicenceissuedunderthisAct,endorsethedisqualificationuponitandsendittothe(b) licensing authority by which it was issued; or in the case of revocation of any licence, endorse the revocation upon it and if it is not the authority which (c) issued the same, intimate the fact of revocation to the authority which issued that licence: Provided that where the driving licence of a person authorises him to drive more than one class or description of motor vehiclesandtheorder,madeundersub-section(1),disqualifieshimfromdrivinganyspecifiedclassordescriptionofmotorvehicles,thelicensingauthorityshallendorsethedisqualificationuponthedrivinglicence and return the same to the holder.

Any person aggrieved by an order made by a licensing authority under sub-section (1) may, within thirty days (3) of the receipt of the order, appeal to the prescribed authority, and such appellate authority shall give notice to thelicensingauthorityandheareitherpartyifsorequiredbythatpartyandmaypasssuchorderasitthinksfitandanorderpassedbyanysuchappellateauthorityshallbefinal.

Section 20: Power of Court to disqualifyWhere a person is convicted of an offence under this Act or of an offence in the commission of which a motor (1) vehicle was used, the Court by which such person is convicted may, subject to the provisions of this Act, in additiontoimposinganyotherpunishmentauthorisedbylaw,declarethepersonssoconvictedtobedisqualified,for such period as the Court may specify, from holding any driving licence to drive all classes or description ofvehicles,oranyparticularclassordescriptionofsuchvehicles,asarespecifiedinsuchlicence:Provided thatinrespectofanoffencepunishableunderSection183nosuchordershallbemadeforthefirstorsecondoffence.Where a person is convicted of an offence under clause (c) of sub-section (1) of Section 132, Section 134 or (2) Section185,theCourtconvictinganypersonofanysuchoffenceshallorderthedisqualificationundersub-section (1), and if the offence is relatable to clause (c) of sub-section (1) of Section 132 or Section 134, such disqualificationshallbeforaperiodofnotlessthanonemonth,andiftheoffenceisrelatabletoSection185,suchdisqualificationshallbeforaperiodofnotlessthansixmonths.ACourtshall,unlessforspecialreasonstoberecordedinwritingitthinksfittoorderotherwise,orderthe(3) disqualificationofaperson—

who having been convicted of an offence punishable under Section 184 is again convicted of an offence (a) punishable under that Section,who is convicted of an offence punishable under Section 189, or(b) who is convicted of an offence punishable under Section 192: (c) Providedthattheperiodofdisqualificationshallnotexceed,inthecasereferredtoinclause(a),fiveyears,or,inthecasereferredtoinclause(b),twoyears or, in the case referred to in clause (c), one year.

ACourtorderingthedisqualificationofapersonconvictedofanoffencepunishableunderSection184may(4) direct that such person shall, whether he has previously passed the test of competence to drive as referred to in sub-section(3)ofSection9ornot,remaindisqualifieduntilhehassubsequenttothemakingoftheorderofdisqualificationpassedthattesttothesatisfactionofthelicensingauthority.


94/JNU OLE

TheCourttowhichanappealwouldordinarilyliefromanyconvictionofanoffenceofthenaturespecifiedin(5) sub-section(1)maysetasideorvaryanyorderofdisqualificationmadeunderthatsub-sectionnotwithstandingthatnoappealwouldlieagainsttheconvictionasaresultofwhichsuchorderofdisqualificationwasmade.

Section 21: Suspension of driving licence in certain casesWhere, in relation to a person who had been previously convicted of an offence punishable under Section 184, (1) acaseisregisteredbyapoliceofficerontheallegationthatsuchpersonhas,bysuchdangerousdrivingasisreferred to in the said Section 184, of any class or description of motor vehicle caused the death of, or grievous hurt to, one or more persons, the driving licence held by such person shall in relation to such class or description of motor vehicle become suspended:

for a period of six months from the date on which the case is registered, or(a) if such person is discharged or acquitted before the expiry of the period aforesaid, until such discharge or (b) acquittal, as the case may be.

Where by virtue of the provisions of sub-section (1), the driving licence held by a person becomes suspended, (2) thepoliceofficer,bywhomthecasereferredtoinsub-section(1)isregistered,shallbringsuchsuspensionto the notice of the Court competent to take cognizance of such offence, and thereupon, such Court shall take possession of the driving licence, endorse the suspension thereon and intimate the fact of such endorsement to the licensing authority by which the licence was granted or last renewed.Where the person referred to in sub-section (1) is acquitted or discharged, the Court shall cancel the endorsement (3) on such driving licence with regard to the suspension thereof.If a driving licence in relation to a particular class or description of motor vehicles is suspended under sub-(4) section (1), the person holding such licence shall be debarred from holding or obtaining any licence to drive such particular class or description of motor vehicles so long as the suspension of the driving licence remains in force.

Section 22: Suspension or cancellation of driving licence on convictionWithout prejudice to the provisions of sub-section (3) of Section 20 where a person, referred to in sub-section (1) (1) of Section 21 is convicted of an offence of causing, by such dangerous driving as is referred to in Section 184 of any class or description of motor vehicle the death of, or grievous hurt to, one or more persons, the Courtbywhichsuchpersonisconvictedmaycancel,orsuspendforsuchperiodasitmaythinkfit,thedrivinglicence held by such person in so far as it relates to that class or description of motor vehicle.Without prejudice to the provisions of sub-section (2) of Section 20, if a person, having been previously (2) convicted of an offence punishable under Section 185 is again convicted of an offence punishable under that Section, the Court, making such subsequent conviction, shall, by order, cancel the driving licence held by such person.If a driving licence is cancelled or suspended under this Section, the Court shall take the driving licence in (3) its custody, endorse the cancellation or, as the case may be, suspension, thereon and send the driving licence so endorsed to the authority by which the licence was issued or last renewed and such authority shall, on receipt of the licence, keep the licence in its safe custody, and in the case of a suspended licence, return the licence to the holder thereof after the expiry of the period of suspension on an application made by him for such return: Provided that no such licence shall be returned unless the holder thereof has, after the expiry of the period of suspension, undergone and passed, to the satisfaction of the licensing authority by which the licence was issued or last renewed, a fresh test of competence to drive referred to in sub-section (3) of Section 9andproducedamedicalcertificateinthesameformandinthesamemannerasisreferredtoinsub-section(3) of Section 8.If a licence to drive a particular class or description of motor vehicles is cancelled or suspended under this (4) Section, the person holding such a licence shall be debarred from holding, or obtaining, any licence to drive such particular class or description of motor vehicles so long as the cancellation or suspension of the driving licence remains in force.

Section 23: Effect of disqualification orderApersoninrespectofwhomanydisqualificationorderismadeunderSection19orSection20shallbedebarred(1) totheextentandfortheperiodspecifiedinsuchorderfromholdingorobtainingadrivinglicenceandthedriving licence, if any, held by such person at the date of the order shall cease to be effective to such extent and during such period.

95/JNU OLE

TheoperationofadisqualificationordermadeunderSection20shallnotbesuspendedorpostponedwhilean(2) appeal is pending against such order or against the conviction as a result of which such order is made, unless the appellate court so directs.Anypersoninrespectofwhomanydisqualificationorderhasbeenmademayatanytimeaftertheexpiryofsix(3) months from the date of the order apply to the Court or other authority by which the order was made, to remove thedisqualification;andtheCourtorauthority,asthecasemaybe,may,havingregardtoallthecircumstances,eithercancelorvarythedisqualificationorder:Provided that where the Court or other authority refuses to cancel orvaryanydisqualificationorderunderthisSection,asecondapplicationthereundershallnotbeentertainedbefore the expiry of a period of three months from the date of such refusal.

Section 24: EndorsementTheCourtorauthoritymakinganorderofdisqualificationshallendorseorcausetobeendorseduponthedriving(1) licenceifany,heldbythepersondisqualified,particularsoftheorderofdisqualificationandofanyconvictionofanoffenceinrespectofwhichanorderofdisqualificationismade;andparticularsofanycancellationorvariationofanorderofdisqualificationmadeundersub-section(3)ofSection23shallbesimilarlysoendorsed.A Court by which any person is convicted of an offence under this Act as may be prescribed by the Central (2) Government,havingregardtotheobjectsofthisAct,shall,whetherornotadisqualificationorderismadeinrespect of such conviction, endorse or cause to be endorsed particulars of such conviction on any driving licence held by the person convicted.Any person accused of an offence prescribed under sub-section (2) shall when attending the Court bring with (3) him his driving licence if it is in his possession.Where any person is convicted of any offence under this Act and sentenced to imprisonment for a period exceeding (4) three months the Court awarding the sentence shall endorse the fact of such sentence upon the driving licence of the person concerned and the prosecuting authority shall intimate the fact of such endorsement to the authority by which the driving licence was granted or last renewed.When the driving licence is endorsed or caused to be endorsed by any Court, such Court shall send the particulars (5) of the endorsement to the licensing authority by which the driving licence was granted or last renewed.Where on an appeal against any conviction or order of a Court, which has been endorsed on a driving licence, (6) the appellate court varies or sets aside the conviction or order, the appellate court shall inform the licensing authority by which the driving licence was granted or last renewed and such authority shall amend or cause to be amended the endorsement.

Section 25: Transfer of endorsement and issue of driving licence free from endorsementAn endorsement on any driving licence shall be transferred to any new or duplicate driving licence obtained (1) by the holder thereof until the holder becomes entitled under the provisions of this Section to have a driving licence issued to him free from endorsement.Where a driving licence is required to be endorsed and the driving licence is not in the possession of the Court (2) or authority by which the endorsement is to be made, then—

if the person in respect of whom the endorsement is to be made is at the time the holder of a driving licence, (a) heshallproducethedrivinglicencetotheCourtorauthoritywithinfivedays,orsuchlongertimeastheCourtorauthoritymayfix;orif, not being then the holder of a driving licence, he subsequently obtains a driving licence, he shall within (b) fivedaysafterobtainingthedrivinglicenceproduceittotheCourtorauthority,andifthedrivinglicenceisnotproducedwithinthetimespecified,itshall,ontheexpirationofsuchtime,beofnoeffectuntilitisproduced for the purpose of endorsement.

A person whose driving licence has been endorsed shall, if during a continuous period of three years after such (3) endorsement no further endorsement has been made against him, be entitled on surrendering his driving licence free from all endorsements: Provided that if the endorsement is only in respect of an offence contravening the speed limits referred to in Section 112, such person shall be entitled to receive a new driving licence free from such endorsements on the expiration of one year of the date of the endorsement: Provided further that in reckoning the said period of three years and one year, respectively, any period during which the said person wasdisqualifiedforholdingorobtainingadrivinglicenceshallbeexcluded


96/JNU OLE

6.5 Licensing of Conductors of Stage CarriagesChapter III (The Motor Vehicles Act, 1988)

Section 29: Necessity for conductor's licenceNo person shall act as a conductor of a stage carriage unless he holds an effective conductor's licence issued to (1) him authorising him to act as such conductor; and no person shall employ or permit any person who is not so licensed to act as a conductor of a stage carriage.A State Government may prescribe the conditions subject to which sub-section (1) shall not apply to a driver (2) of a stage carriage performing the functions of a conductor or to a person employed to act as a conductor for a period not exceeding one month.

Section 30: Grant of conductor's licenceAnypersonwhopossessessuchminimumeducationalqualificationasmaybeprescribedbytheStateGovernment(1) andisnotdisqualifiedundersub-section(1)ofSection31andwhoisnotforthetimebeingdisqualifiedforholding or obtaining a conductor's licence may apply to the licensing authority having jurisdiction in the area in which he ordinarily resides or carries on business for the issue to him of a conductor's licence. Every application under sub-section (1) shall be in such form and shall contain such information as may be (2) prescribed.Everyapplicationforaconductor'slicenceshallbeaccompaniedbyamedicalcertificateinsuchformasmay(3) be prescribed, signed by a registered medical practitioner and shall also be accompanied by two clear copies of a recent photograph of the applicant.A conductor's licence issued under this Chapter shall be in such form and contain such particulars as may be (4) prescribed and shall be effective throughout the State in which it is issued.The fee for a conductor's licence and for each renewal thereof shall be one-half of that for a driving licence.(5)

Section 31: Disqualifications for the grant of conductor's licenceNo person under the age of eighteen years shall hold, or be granted, a conductor's licence.(1) The licensing authority may refuse to issue a conductor's licence—(2)

iftheapplicantdoesnotpossesstheminimumeducationalqualification;(a) ifthemedicalcertificateproducedbytheapplicantdisclosesthatheisphysicallyunfittoactasaconductor;(b) andif any previous conductor's licence held by the applicant was revoked.(c)

Section 32: Revocation of a conductor's licence on grounds of disease or disabilityA conductor's licence may at any time be revoked by any licensing authority if that authority has reasonable grounds to believe that the holder of the licence is suffering from any disease or disability which is likely to render him permanentlyunfittoholdsuchalicenceandwheretheauthorityrevokingaconductor'slicenceisnottheauthoritywhich issued the same, it shall intimate the fact of such revocation to the authority which issued that licence: Provided that before revoking any licence, the licensing authority shall give the person holding such licence a reasonable opportunity of being heard

Section 33: Orders refusing, etc, conductor's licences and appeals there- fromWhere a licensing authority refuses to issue or renew, or revokes any conductor's licence, it shall do so by an (1) order communicated to the applicant or the holder, as the case may be, giving the reasons in writing for such refusal or revocation.Any person aggrieved by an order made under sub-section (1) may, within thirty days of the service on him (2) of the order, appeal to the prescribed authority which shall decide the appeal after giving such person and the authority which made the order an opportunity of being heard and the decision of the appellate authority shall be binding on the authority which made the order.

97/JNU OLE

Section 34: Power of licensing authority to disqualifyIf any licensing authority is of opinion that it is necessary to disqualify the holder of a conductor's licence for (1) holding or obtaining such a licence on account of his previous conduct as a conductor, it may, for reasons to be recorded,makeanorderdisqualifyingthatpersonforaspecifiedperiod,notexceedingoneyear,forholdingor obtaining a conductor's licence: Provided that before disqualifying the holder of a licence, the licensing authority shall give the person holding such licence a reasonable opportunity of being heard.Upon the issue of any such order, the holder of the conductor's licence shall forthwith surrender the licence (2) to the authority making the order, if the licence has not already been surrendered, and the authority shall keep thelicenceuntilthedisqualificationhasexpiredorhasbeenremoved.Where the authority disqualifying the holder of a conductor's licence under this Section is not the authority (3) whichissuedthelicence,itshallintimatethefactofsuchdisqualificationtotheauthoritywhichissuedthesame.Any person aggrieved by an order made under sub-section (1) may, within thirty days of the service on him (4) of the order, appeal to the prescribed authority which shall decide the appeal after giving such person and the authority which made the order an opportunity of being heard and the decision of the appellate authority shall be binding on the authority which made the order.

Section 35: Power of Court to disqualifyWhere any person holding a conductor's licence is convicted of an offence under this Act, the Court by which (1) such person is convicted may, in addition to imposing any other punishment authorised by law, declare the personsoconvictedtobedisqualifiedforsuchperiodastheCourtmayspecifyforholdingaconductor'slicence.The Court to which an appeal lies from any conviction of an offence under this Act may set aside or vary any (2) orderofdisqualificationmadebytheCourtbelow,andtheCourttowhichappealsordinarilyliefromsuchCourt,maysetasideorvaryanyorderofdisqualificationmadebythatCourt,notwithstandingthatnoappeallies against the conviction in connection with which such order was made.

Section 36: Certain provisions of Chapter II (The Motor Vehicles Act, 1988) to apply to conductor's licenceThe provisions of sub-section (2) of Section 6, Sections 14, 15 and 23, sub-section (1) of Section 24 and Section 25 shall, so far as may be, apply in relation to a conductor's licence, as they apply in relation to a driving licence.

Section 37: SavingsIf any licence to act as a conductor of a stage carriage (by whatever name called) has been issued in any State and is effective immediately before the commencement of this Act, it shall continue to be effective, notwithstanding such commencement, for the period for which it would have been effective, if this Act had not been passed, and every such licence shall be deemed to be a licence issued under this 600 Chapter as if this Chapter had been in force on the date on which that licence was granted.

Section 38: Power of State Government to make rulesA State Government may make rules for the purpose of carrying into effect the provisions of this Chapter.(1) Without prejudice to the generality of the foregoing power, such rules may provide for—(2)

the appointment, jurisdiction, control and functions of licensing authorities and other prescribed (a) authorities under this Chapter;the conditions subject to which drivers of stage carriages performing the functions of a conductor and (b) persons temporarily employed to act as conductors may be exempted from the provisions of sub-section (1) of Section 29;theminimumeducationalqualificationsofconductors;theirdutiesandfunctionsandtheconductof(c) persons to whom conductor's licences are issued;the form of application for conductor's licences or for renewal of such licences and the particulars it (d) may contain;the form in which conductor's licences may be issued or renewed and the particulars it may contain;(e) the issue of duplicate licences to replace licences lost, destroyed or mutilated, the replacement of (f) photographs which have become obsolete and the fees to be charged there for;the conduct and hearing of appeals that may be preferred under this Chapter, the fees to be paid in (g) respect of such appeals and the refund of such fees: Providedthatnofeesofixedshallexceedtwenty-fiverupees;


98/JNU OLE

the badges and uniform to be worn by conductors of stage carriages and the fees to be paid in respect (h) of such badges;thegrantofthecertificatesreferredtoinsub-section(3)ofSection30byregisteredmedicalpractitioners(i) andtheformofsuchcertificates;the conditions subject to which, and the extent to which, a conductor's licence issued in another State (j) shall be effective in the State;the communication of particulars of conductor's licences from one authority to other authorities; and(k) any other matter which is to be, or may be, prescribed.(l)

6.6 Registration of Motor VehiclesChapter IV (The Motor Vehicles Act, 1988)

Section 39: Necessity for registrationNo person shall drive any motor vehicle and no owner of a motor vehicle shall cause or permit the vehicle to be driven in any public place or in any other place unless the vehicle is registered in accordance with this Chapter and thecertificateofregistrationofthevehiclehasnotbeensuspendedorcancelledandthevehiclecarriesaregistrationmark displayed in the prescribed manner: Provided that nothing in this Section shall apply to a motor vehicle in possession of a dealer subject to such conditions as may be prescribed by the Central Government.

Section 40: Registration, where to be madeSubject to the provisions of Section 42, Section 43 and Section 60, every owner of a motor vehicle shall cause the vehicle to be registered by a registering authority in whose jurisdiction he has the residence or place of business where the vehicle is normally kept.

Section 41: Registration, how to be madeAn application by or on behalf of the owner of a motor vehicle for registration shall be in such form and shall (1) be accompanied by such documents, particulars and information and shall be made within such period as may be prescribed by the Central Government: Provided that where a motor vehicle is jointly owned by more persons than one, the application shall be made by one of them on behalf of all the owners and such applicant shall be deemed to be the owner of the motor vehicle for the purposes of this Act.An application referred to in sub-section (1) shall be accompanied by such fee as may be prescribed by the (2) Central Government.Theregisteringauthorityshallissuetotheownerofamotorvehicleregisteredbyitacertificateofregistration(3) in such form and containing such particulars and information and in such manner as may be prescribed by the Central Government.Inadditiontotheotherparticularsrequiredtobeincludedinthecertificateofregistration,itshallalsospecify(4) the type of the motor vehicle, being a type as the Central Government may, having regard to the design, constructionanduseofthemotorvehicle,bynotificationintheOfficialGazette,specify.Theregisteringauthorityshallentertheparticularsofthecertificatereferredtoinsub-section(3)inaregister(5) to be maintained in such form and manner as may be prescribed by the Central Government.The registering authority shall assign to the vehicle, for display thereon, a distinguishing mark (in this Act (6) referred to as the registration mark) consisting of one of the groups of such of those letters and followed by suchlettersandfiguresasareallottedtotheStatebytheCentralGovernmentfromtimetotimebynotificationintheOfficialGazette,anddisplayedandshownonthemotorvehicleinsuchformandinsuchmannerasmaybe prescribed by the Central Government.Acertificateofregistrationissuedundersub-section(3),whetherbeforeorafterthecommencementofthisAct,(7) in respect of a motor vehicle, other than a transport vehicle, shall, subject to the provisions contained in this Act, bevalidonlyforaperiodoffifteenyearsfromthedateofissueofsuchcertificateandshallberenewable.An application by or on behalf of the owner of a motor vehicle, other than a transport vehicle, for the renewal (8) ofacertificateofregistrationshallbemadewithinsuchperiodandinsuchform,containingsuchparticularsand information as may be prescribed by the Central Government.An application referred to in sub-section (8) shall be accompanied by such fee as may be prescribed by the (9) Central Government.

99/JNU OLE

Subject to the provisions of Section 56, the registering authority may, on receipt of an application under sub-(10) section(8),renewthecertificateofregistrationforaperiodoffiveyearsandintimatethefacttotheoriginalregistering authority, if it is not the original registering authority.If the owner fails to make an application under sub-section (1), or, as the case may be, under sub-section (8) (11) within the period prescribed, the registering authority may, having regard to the circumstances of the case, require the owner to pay, in lieu of any action that may be taken against him under Section 177, such amount not exceeding one hundred rupees as may be prescribed under sub- Section (13): Provided that action under Section 177, shall be taken against the owner where the owner fails to pay the said amount.Where the owner has paid the amount under sub-section (11), no action shall be taken against him under (12) Section 177.For the purposes of sub-section (11), the State Government may prescribe different amounts having regard to the (13) period of delay on the part of the owner in making an application under sub-section (1) or sub-section (8).Anapplicationfortheissueofaduplicatecertificateofregistrationshallbemadetotheoriginalregistering(14) authority in such form, containing such particulars and information along with such fee as may be prescribed by the Central Government.

Section 42: Special provision for registration of motor vehicles of diplomatic officers, etcWhere an application for registration of a motor vehicle is made under sub-section (1) of Section 41 by or on (1) behalfofanydiplomaticofficerorconsularofficer,then,notwithstandinganythingcontainedinsub-section(3) or sub-section (6) of that Section, the registering authority shall register the vehicle in such manner and in accordance with such procedure as may be provided by rules made in this behalf by the Central Government under sub-section (3) and shall assign to the vehicle for display thereon a special registration markinaccordancewiththeprovisionscontainedinthoserulesandshallissueacertificate(hereafterinthisSection referred toas thecertificateof registration) that thevehiclehasbeenregisteredunder thisSection;andanyvehiclesoregisteredshallnot,solongasitremainsthepropertyofanydiplomaticofficerorconsularofficer,requiretoberegisteredotherwiseunderthisAct.IfanyvehicleregisteredunderthisSectionceasestobethepropertyofanydiplomaticofficerorconsular(2) officer, the certificateof registration issuedunder thisSection shall alsocease tobeeffective, and theprovisions of Sections 39 and 40 shall thereupon apply.The Central Government may make rules for the registration of motor vehicles belonging to diplomatic (3) officers and consular officers regarding the procedure to be followedby the registering authority forregisteringsuchvehicles,theforminwhichthecertificatesofregistrationofsuchvehiclesaretobeissued,themannerinwhichsuchcertificatesofregistrationaretobesenttotheownersofthevehiclesandthespecial registration marks to be assigned to such vehicles.ForthepurposesofthisSection,"diplomaticofficer"or"consularofficer"meansanypersonwhoisrecognised(4) as such by the Central Government and if any question arises as to whether a person is or is not such an officer,thedecisionoftheCentralGovernmentthereonshallbefinal.

Section 43: Temporary registrationNotwithstanding anything contained in Section 40 the owner of a motor vehicle may apply to any registering (1) authority or other prescribed authority to have the vehicle temporarily registered in the prescribed manner and fortheissueintheprescribedmannerofatemporarycertificateofregistrationandatemporaryregistrationmark.A registration made under this Section shall be valid only for a period not exceeding one month, and shall not (2) be renewable: Provided that where a motor vehicle so registered is a chassis to which a body has not been attachedandthesameisdetainedinaworkshopbeyondthesaidperiodofonemonthforbeingfittedwitha body, the period may, on payment of such fees, if any, as may be prescribed, be extended by such further period or periods as the registering authority or other prescribed authority, as the case may be, may allow.

Section 44: Production of vehicle at the time of registrationTheregisteringauthorityshallbeforeproceedingtoregisteramotorvehicleorrenewthecertificateofregistrationinrespect of a motor vehicle, other than a transport vehicle, require the person applying for registration of the vehicle or,asthecasemaybe,forrenewingthecertificateofregistrationtoproducethevehicleeitherbeforeitselforsuchauthority as the State Government may by order appoint in order that the registering authority may satisfy itself that


100/JNU OLE

the particulars contained in the application are true and that the vehicle complies with the requirements of this Act and of the rules made there under.

Section 45: Refusal of registration or renewal of the certificate of registrationTheregisteringauthoritymay,byorder,refusetoregisteranymotorvehicle,orrenewthecertificateofregistrationin respect of a motor vehicle (other than a transport vehicle), if in either case, the registering authority has reason to believe that it is a stolen motor vehicle or the vehicle is mechanically defective or fails to comply with the requirements of this Act or of the rules made there under, or if the applicant fails to furnish particulars of any previous registration of the vehicle or furnishes inaccurate particulars in the application for registration of the vehicle or, as thecasemaybe,forrenewalofthecertificateorregistrationthereofandtheregisteringauthorityshallfurnishtheapplicantwhosevehicleisrefusedregistration,orwhoseapplicationforrenewalofthecertificateofregistrationisrefused, a copy of such order, together with the reasons for such refusal.

Section 46: Effectiveness in India of registrationSubject to the provisions of Section 47, a motor vehicle registered in accordance with this Chapter in any State shall notrequiretoberegisteredelsewhereinIndiaandacertificateofregistrationissuedorinforceunderthisActinrespect of such vehicle shall be effective throughout India.

Section 47: Assignment of new registration mark on removal to another StateWhen a motor vehicle registered in one State has been kept in another State, for a period exceeding twelve (1) months, the owner of the vehicle shall, within such period and in such form containing such particulars as may be prescribed by the Central Government, apply to the registering authority, within whose jurisdiction the vehiclethenis,fortheassignmentofanewregistrationmarkandshallpresentthecertificateofregistrationtothat registering authority: Provided that an application under this sub-section shall be accompanied:

bythenoobjectioncertificateobtainedunderSection48,or(i) inacasewherenosuchcertificatehasbeenobtained,by—(ii)

the receipt obtained under sub-section (2) of Section 48; or(a) the postal acknowledgement received by the owner of the vehicle if he has sent an application in this (b) behalf by registered post acknowledgement due to the registering authority referred to in Section 48, together with a declaration that he has not received any communication from such authority refusing tograntsuchcertificateorrequiringhimtocomplywithanydirectionsubjecttowhichsuchcertificatemay be granted: Provided further that, in a case where a motor vehicle is held under a hire-purchase, lease or hypothecation agreement, an application under this sub-section shall be accompanied by a noobjectioncertificatefromthepersonwithwhomsuchagreementhasbeenenteredinto,andtheprovisionsofSection51,sofarasmaybe,regardingobtainingofsuchcertificatefromthepersonwithwhom such agreement has been entered into, shall apply.

Theregisteringauthority,towhichapplicationismadeundersub-section(1),shallaftermakingsuchverification,(2) asitthinksfit,ofthereturns,ifany,receivedunderSection62,assignthevehiclearegistrationmarkasspecifiedin sub-section (6) of Section 41 to be displayed and shown thereafter on the vehicle and shall enter the mark uponthecertificateofregistrationbeforereturningittotheapplicantandshall, incommunicationwiththeregistering authority by whom the vehicle was previously registered, arrange for the transfer of the registration of the vehicle from the records of that registering authority to its own records.Where a motor vehicle is held under a hire-purchase or lease or hypothecation agreement, the registering authority (3) shall, after assigning the vehicle a registration mark under sub-section (2), inform the person whose name has beenspecifiedinthecertificateofregistrationasthepersonwithwhomtheregisteredownerhasenteredintothe hire-purchase or lease or hypothecation agreement (by sending to such person a notice by registered post acknowledgementdueattheaddressofsuchpersonenteredinthecertificateofregistrationthefactofassignmentof the said registration mark).A State Government may make rules under Section 65 requiring the owner of a motor vehicle not registered (4) within the State, which is brought into or is for the time being in the State, to furnish to the prescribed authority in the State such information with respect to the motor vehicle and its registration as may be prescribed.

101/JNU OLE

If the owner fails to make an application under sub-section (1) within the period prescribed, the registering (5) authority may, having regard to the circumstances of the case, require the owner to pay, in lieu of any action that may be taken against him under Section 177, such amount not exceeding one hundred rupees as may be prescribed under sub-section (7): Provided that action under Section 177, shall be taken against the owner where the owner fails to pay the said amount.Where the owner has paid the amount under sub-section (5), no action shall be taken against him under Section (6) 177.For the purposes of sub-section (5), the State Government may prescribe different amounts having regard to the (7) period of delay on the part of the owner in making an application under sub-section (1).

Section 48: No objection certificateThe owner of a motor vehicle when applying for the assignment of a new registration mark under sub- Section (1) (1) of Section 47, or where the transfer of a motor vehicle is to be effected in a State other than the State of its registration, the transferor of such vehicle when reporting the transfer under sub- Section (1) of Section 50, shall make an application in such form and in such manner as may be prescribed by the Central Government totheregisteringauthoritybywhichthevehiclewasregisteredfortheissueofacertificate(hereafterinthisSectionreferredtoasthenoobjectioncertificate),totheeffectthattheregisteringauthorityhasnoobjectionfor assigning a new registration mark to the vehicle or, as the case may be, for entering the particulars of the transferofownershipinthecertificateofregistration.The registering authority shall, on receipt of an application under sub-section (1), issue a receipt in such form (2) as may be prescribed by the Central Government.On receipt of an application under sub-section (1), the registering authority may, after making such inquiry (3) andrequiringtheapplicanttocomplywithsuchdirectionsasitdeemsfitandwithinthirtydaysofthereceiptthereof, by order in writing, communicate to the applicant that it has granted or refused to grant the no objection certificate:Providedthataregisteringauthorityshallnotrefusetograntthenoobjectioncertificateunlessithasrecorded in writing the reasons for doing so and a copy of the same has been communicated to the applicant.Where within a period of thirty days referred to in sub- Section (3), the registering authority does not refuse (4) tograntthenoobjectioncertificateordoesnotcommunicatetherefusaltotheapplicant,andtheregisteringauthorityshallbedeemedtohavegrantedthenoobjectioncertificate.Beforegrantingorrefusingtograntthenoobjectioncertificate,theregisteringauthorityshallobtainareportin(5) writing from the police that no case relating to the theft of the motor vehicle concerned has been reported or is pending, verify whether all the amounts due to Government including road tax in respect of that motor vehicle have been paid and take into account such other factors as may be prescribed by the Central Government.

Section 49: Change of residence or place of businessIf the owner of a motor vehicle ceases to reside or have his place of business at the address recorded in the (1) certificateofregistrationofthevehicle,heshall,withinthirtydaysofanysuchchangeofaddress,intimateinsuch form accompanied by such documents as may be prescribed by the Central Government, his new address, totheregisteringauthoritybywhichthecertificateofregistrationwasissued,or,ifthenewaddressiswithinthe jurisdiction of another registering authority, to that other registering authority, and shall at the same time forwardthecertificateofregistrationtotheregisteringauthorityor,asthecasemaybe,totheotherregisteringauthority in order that the new address may be entered therein.If the owner of a motor vehicle fails to intimate his new address to the concerned registering authority within (2) theperiodspecifiedinsub-section(1), theregisteringauthoritymay,havingregardtothecircumstancesofthe case, require the owner to pay, in lieu of any action that may be taken against him under Section 177 such amount not exceeding one hundred rupees as may be prescribed under sub-section (4): Provided that action under Section 177, shall be taken against the owner where he fails to pay the said amount.Where a person has paid the amount under sub-section (2), no action shall be taken against him under Section (3) 177.For the purposes of sub-section (2), a State Government may prescribe different amounts having regard to the (4) period of delay in intimating his new address.Onreceiptofintimationundersub-section(1),theregisteringauthoritymay,aftermakingsuchverificationas(5) itmaythinkfit,causethenewaddresstobeenteredinthecertificateofregistration.A registering authority other than the original registering authority making any such entry shall communicate (6) the altered address to the original registering authority.


102/JNU OLE

Nothinginsub-section(1)shallapplywherethechangeoftheaddressrecordedinthecertificateofregistration(7) is due to a temporary absence not intended to exceed six months in duration or where the motor vehicle is neither usednorremovedfromtheaddressrecordedinthecertificateofregistration.

Section 50: Transfer of ownershipWhere the ownership of any motor vehicle registered under this Chapter is transferred,--(1)

the transferor shall,--(a) in the case of a vehicle registered within the same State, within fourteen days of the transfer, report the (i) fact of transfer, in such form with such documents and in such manner, as may be prescribed by the Central Government to the registering authority within whose jurisdiction the transfer is to be effected and shall simultaneously send a copy of the said report to the transferee; andinthecaseofavehicleregisteredoutsidetheState,withinforty-fivedaysofthetransfer,forwardtothe(ii) registering authority referred to in sub-clause (i)—

thenoobjectioncertificateobtainedunderSection48;or(A) inacasewherenosuchcertificatehasbeenobtained,--(B)

the receipt obtained under sub-section (2) of Section 48; or(I) the postal acknowledgement received by the transferred if he has sent an application in (II) this behalf by registered post acknowledgement due to the registering authority referred to in Section 48, together with a declaration that he has not received any communication fromsuchauthorityrefusingtograntsuchcertificateorrequiringhimtocomplywithanydirectionsubjecttowhichsuchcertificatemaybegranted;

the transferee shall, within thirty days of the transfer, report the transfer to the registering authority within (b) whose jurisdiction he has the residence or place of business where the vehicle is normally kept, as the casemaybe,andshallforwardthecertificateofregistrationtothatregisteringauthoritytogetherwiththeprescribed fee and a copy of the report received by him from the transferor in order that particulars of the transferofownershipmaybeenteredinthecertificateofregistration.

Where;(2) the person in whose name a motor vehicle stands registered dies, or(a) a motor vehicle has been purchased or acquired at a public auction conducted by, or on behalf of, Government, (b) the person succeeding to the possession of the vehicle or, as the case may be, who has purchased or acquired the motor vehicle, shall make an application for the purpose of transferring the ownership of the vehicle in his name, to the registering authority in whose jurisdiction he has the residence or place of business where the vehicle is normally kept, as the case may be, in such manner, accompanied with such fee, and within such period as may be prescribed by the Central Government.

If the transferor or the transferee fails to report to the registering authority the fact of transfer within the period (3) specifiedinclause(a)orclause(b)ofsub-section(1),asthecasemaybe,orifthepersonwhoisrequiredtomake an application under sub-section (2) (hereafter in this Section referred to as the other person) fails to make such application within the period prescribed, the registering authority may, having regard to the circumstances of the case, require the transferor or the transferee, or the other person, as the case may be, to pay, in lieu of any action that may be taken against him under Section 177 such amount not exceeding one hundred rupees as may be prescribed under sub-section (5): Provided that action under Section 177, shall be taken against the transferor or the transferee or the other person, as the case may be, where he fails to pay the said amount.Where a person has paid the amount under sub-section (3), no action shall be taken against him under Section (4) 177.For the purposes of sub-section (3), a State Government may prescribe different amounts having regard to the (5) period of delay on the part of the transferor or the transferee in reporting the fact of transfer of ownership of the motor vehicle or of the other person in making the application under sub-section (2).On receipt of a report under sub-section (1), or an application under sub-section (2), the registering authority (6) maycausethetransferofownershiptobeenteredinthecertificateofregistration.A registering authority making any such entry shall communicate the transfer of ownership to the transferor (7) and to the original registering authority, if it is not the original registering authority.

103/JNU OLE

6.7 Few Terms in Motor Vehicles Act, 1988

Articulated Vehicle A motor vehicle to which a semi-trailer is attached.

Axle WeightIn relation to an axle of a vehicle the total weight transmitted by the several wheels attached to that axle to the surface on which the vehicle rests.

CertificateOfRegistration

Thecertificateissuedbyacompetentauthoritytotheeffectthatamotorvehicle has been duly registered.

Conductor A person engaged in collecting fares from passengers, regulating their entrance into, or exit from, the stage carriage.

Conductor’s Licence The licence issued by a competent authority authorising the person specifiedthereintoactasaconductor.

Contract Carriage A motor vehicle which carries a passenger for hire and is engaged under a contract, for the use of such vehicle as a whole.

Driver The person who acts as a steersman of the drawn vehicle.

Driving Licence The licence issued by a competent authority authorising the person specifiedthereintodriveamotorvehicleofanyspecifiedclass.

Goods

Anything (other than equipment ordinarily used with the vehicle) carried by a vehicle except living persons, but does not include luggage or personal effects carried in a motor car or the personal luggage of passengers and includes livestock.


104/JNU OLE

Goods Carriage Any motor vehicle constructed or adapted for use solely for the carriage of goods.

Gross Vehicle Weight Thetotalweightofthevehicleandloadcertifiedandregisteredbytheregistering authority as permissible for that vehicle.

Heavy Goods VehicleAny goods carriage the gross vehicle weight of which, or a tractor or a road-roller the un-laden weight of either of which, exceeds 12,000 kilograms.

Heavy Passenger Motor Vehicle

Any public service vehicle or private service vehicle or educational institution bus or omnibus the gross vehicle weight of any of which, or a motor car the un-laden weight of which, exceeds 12,000 kilograms.

Learner’s LicenceThe licence issued by a competent authority authorising the person specifiedthereintodriveasalearner,amotorvehicleofanyspecifiedclass.

Licensing Authority An authority empowered to issue licences.

Light Motor VehicleA transport vehicle or omnibus the gross vehicle weight of either of which or a motor car or tractor or road-roller the un-laden weight of any of which, does not exceed 6,000 kilograms.

Motor Vehicle Any mechanically propelled vehicle adapted for use upon roads and includes a chassis to which a body has not been attached and a trailer.

Owner

A person in whose name a motor vehicle stands registered, and where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire-purchase, agreement, or an agreement of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement.

105/JNU OLE

Permit A permit issued by a State or Regional Transport Authority authorising the use of a motor vehicle as a transport vehicle.

Private Service Vehicle

A motor vehicle constructed or adapted to carry more than six persons excluding the driving and ordinarily used by or on behalf of the owner of such vehicle for the purpose of carrying persons for, or in connection with, his trade or business otherwise than for hire or reward.

Public PlaceA road, street, way or other place, whether a thoroughfare or not, to which the public have a right of access, and includes any place or stand at which passengers are picked up or set down by a stage carriage.

Public Service VehicleAny motor vehicle used or adapted to be used for the carriage of passengers for hire or reward, and includes a maxicab, a motorcab, contract carriage, and stage carriage.

Registered Axle Weight The axleweight certified and registered by the registering authority aspermissible for that axle.

Registering Authority An authority empowered to register motor vehicles.

Route Alineoftravelwhichspecifiesthehighwaywhichwaybetraversedbyamotor vehicle between one terminus and another.

TrafficSignsIncludes all signals, warning sign posts, direction posts, markings on the road or other devices for the information, guidance or direction of driving of motor vehicles.

Trailer Any vehicle, other than a semi-trailer and a side-car, drawn or intended to be drawn by a motor vehicle.

Transport Vehicle A public service vehicle, a goods carriage, an educational institution bus or a private service vehicle.


106/JNU OLE

Un-laden WeightThe weight of a vehicle or trailer including all equipment ordinarily used with the vehicle or trailer when working, but excluding the weight of a driver or attendant.

Weight The total weigh transmitted for the time being by wheels of a vehicle to the surface on which the vehicle rests.

Table 6.3 Few terms in Motor Vehicles Act, 1988

107/JNU OLE

SummaryThe Motor Vehicles Act, 1939 (4 of 1939), consolidates and amends the law relating to motor vehicles. This •has been amended several times to keep it up-to-date.Road transport is frequently used by the people engaged in Supply Chain Management. It is essential for the •people in Supply Chain Management to under stand the main provisions of Motor Vehicles Act, 1988."Driver" includes, in relation to a motor vehicle which is drawn by another motor vehicle, the person who acts •as a steersman of the drawn vehicle."Drivinglicence"meansthelicenceissuedbyacompetentauthorityauthorisingthepersonspecifiedtherein•to drive."Licensing authority" means an authority empowered to issue licences.•"Permit" means a permit issued by a State or Regional Transport Authority or an authority prescribed in this •behalf under this Act authorising the use of a motor vehicle as a transport vehicle."Trafficsigns"includesallsignals,warningsignposts,anddirectionposts,markingsontheroadorotherdevices•for the information, guidance or direction of drivers of motor vehicles.No person under the age of eighteen years shall drive a motor vehicle in any public place: Provided that a motor •cycle without gear may be driven in a public place by a person after attaining the age of sixteen years.There is age limit in connection with driving of motor vehicles. At the same time there are restrictions on the •granting of learner's licences for certain vehicles like to drive heavy goods vehicles unless he has held a driving licence for at least two years to drive a light motor vehicle etcThe Bill also seeks to provide for more deterrent punishment in the cases of certain offences.•

ReferencesThe Motor Vehicles Act 1988. Available at: <http://indiacode.nic.in/fullact1.asp?tfnm=198859> Accessed on •14th March, 2011.The Motor Vehicles Act 1988. Available at: <http://morth.nic.in/writereaddata/sublinkimages/•Introduction692234863.pdf> Accessed on 16th March, 2011.The Motor Vehicles Act 1988. Available at: <http://www.feeleminds.com/indialaws/view/2773/the-motor-•vehicle-act-1988/preliminary> Accessed on 14th March, 2011.The Motor Vehicles Act 1988. Available at: <http://www.vakilno1.com/bareacts/MotorVehiclesAct/Motor-•Vehicles-Act.htm> Accessed on 15th March, 2011.

Recommended ReadingThe Motor Vehicles Act 1988. Available at: <http://www.netlawman.co.in/acts/motor-vehicles-act-1988.php> •Accessed on 16th March, 2011.The Motor Vehicles Act, 1988. Available at: <http://hartrans.gov.in/docs/mva1988.pdf> Accessed on 16th •March, 2011.


108/JNU OLE

Self Assessment

Which statement is false?1. A person aged 17 years can drive a motor cycle with gear.a. A person aged 19 years can drive a motor cycle with gear.b. A person aged 20 years can drive a motor cycle with gear.c. A person aged 21 years can drive a motor cycle with gear.d.

"__________" means any motor vehicle constructed or adapted to carry more than six persons excluding the 2. driver.

Lorrya. Omnibusb. Truckc. Omni-fariousd.

Adrivinglicencecanbesuspendedforaperiodof_____________ifacaseisregisteredbyapoliceofficeron3. the allegation that such person has, by such dangerous driving.

six monthsa. two monthsb. four monthsc. eight monthsd.

In relation to a stage carriage, means a person engaged in collecting fares from passengers, regulating their 4. entrance into, or exit from, the stage carriage and performing such other functions as may be prescribed is called __________.

Drivera. Dealerb. Passengerc. Conductord.

No person under the age of ____________ shall hold, or be granted, a conductor's licence.5. eighteen yearsa. seventeen yearsb. sixteen yearsc. fifteenyearsd.

109/JNU OLE


"Goods" includes1. An authority empowered to register motor vehicles.A.

"Fares" includes 2. Any vehicle, other than a semi-trailer and a side-car, B. drawn or intended to be drawn by a motor vehicle.

"Trailer" means 3. It includes livestock, and anything carried by a vehicle C. except living persons.

"Registering authority" 4. means

It includes sums payable for a season ticket or in respect D. of the hire of a contract carriage

1-D, 2-C, 3-A, 4-Ba. 1-C, 2-D, 3-B, 4-Ab. 1-D, 2-A, 3-C, 4-Bc. 1-A, 2-C, 3-D, 4-Cd.

__________ means a motor vehicle to which a semi-trailer is attached.7. Lorry a. Truckb. Articulated vehiclec. Tractord.

The licensing authority may refuse to issue a conductor's licence if any previous conductor's licence held by 8. the application was______________.

rewardeda. revokedb. qualifiedc. disqualifiedd.

Which statement is true?9. The State Register of Driving Licences shall be maintained in such manner as may be prescribed by the a. State Government.The State Register of Driving Licences shall be maintained in such manner as may be prescribed by the b. Central Government.The State Register of Driving Licences shall be maintained in such manner as may be prescribed by the c. Gram Panchayats.The State Register of Driving Licences shall be maintained in such manner as may be prescribed by the d. District Council.

Any licensing authority may, on application made to it, renew a driving licence issued under the provisions of 10. Renewal of driving licences Act with effect from the date of its __________.

renewala. detentionb. expiryc. custodyd.


110/JNU OLE

Chapter VII

Insurance Laws

Aim


explain in brief about Indian insurance industry•

explore types of insurance•

describe marine cargo insurance policy•

Objectives


explain the• connotation of life insurance policy

highlight the importance of motor vehicle insurance•

understand the importance of insured declared value•

Learning outcome


understand the Indian insurance industry•

recognise the importance of insured declared value •

understand the marine cargo insurance policy•

111/JNU OLE

7.1 IntroductionThe business of insurance is related to the protection of the economic values of assets. Assets generate income or benefitstotheirowners.Anaccidentornaturalcalamityorsomeotherunfortunateeventmaydestroyitormakeitnon functional. Insurance is a mechanism that helps to reduce the effect of such adverse situations for a small price called premium.

Thefirst insurancepolicywas issued in 1583 inEngland. In India insurancebegan in 1870.BombaymutualassurancesocietyltdwasthefirstIndianinsurancecompany.In1956LifeinsurancebusinesswasnationalisedandLIC (Life Insurance Corporation) was found. In 1999, the monopoly of LIC was ended and insurance sector was open to private sector.

Insurance is a tool to manage the risk and it is considered as a social security tool. Risk means uncertainty. It means what you get may be different from what you expect. Risk means the possibility of loss or damage to the asset. Insurance does not prevent loss. It compensates the loss. People who are exposed to risk come together and contribute certain sums called premium which is used to compensate the losses suffered by any of them. The risk is spread among the community. The likely big loss for any one is reduced to manageable small losses for all.

7.2 Indian Insurance IndustryIn simple words, insurance means 'managing risk.' The insurance company works in a manner by collecting premiums from policy holders, investing the money (usually in low risk investments), and then reimbursing this same money once the person passes away or the policy matures. The greater the probability for a person to have a shorter life span than the average mark, the higher premium that person has to pay. The case is the same for all other types of insurance, including automobile, health and property.There are two types of ownership of insurance companies:

Shareholder ownership•Policyholder ownership•

7.2.1 Types of Insurance

Life insurance:• Insuranceguaranteeingaspecificsumofmoneytoadesignatedbeneficiaryuponthedeathofthe insured, or to the insured if he or she lives beyond a certain age.Health insurance:• Insurance against expenses incurred through illness of the insured.Liability insurance:• This insures property such as automobiles, property and professional/business mishaps.

7.3 Motor Vehicle InsuranceThis policy covers all types of vehicles plying on public roads such as:

scooters and motorcycles•private cars•all types of commercial vehicles•motor trade (vehicles in show rooms and garages)•

As per the Motor Vehicles Act, 1988, it is mandatory for every owner of a vehicle plying on public roads, to take an insurance policy, to cover the amount, which the owner becomes legally liable to pay as damages to third parties as aresultofaccidentaldeath,bodilyinjuryordamagetoproperty.ACertificateofInsurancemustbecarriedinthevehicle as a proof of such insurance.

Two types of insurance covers are available:Liability only policy:1. This covers third party liability for bodily injury liability and /or death and property damage. Personal acident cover for owner-driver is also included.Package policy:2. This cover loss or damage to the vehicle insured in addition to (1) above.

No claim discounts are available on renewal of policy, ranging from 20% to 50%, depending upon the type of vehicle and the number of years for which no claim has been made.


112/JNU OLE

7.3.1 Liability Only PoliciesThe policy covers the vehicle owner's legal liability to pay compensation for:

Death or bodily injury to a third party person1. Damage to third party property2.

Liability is covered for an unlimited amount in respect of death or injury and damage to third party property for Rs.7.5 lacs under Commercial vehicle and private and Rs. 1 lakh for scooters/motor cycles.

7.3.2 Package PolicyIn addition to the coverage under liability only, this policy covers loss or damage to the insured vehicle and its accessories due to:

Fire, explosion, self-ignition or lightning1. Burglary, housebreaking or theft2. Riot and strike3. Malicious act4. Terrorist act5. Earthquake(fireandshock)damage6. Flood, typhoon, hurricane, storm, tempest, inundation, cyclone and hailstorm7. Accidental external means8. Whilst in transit by road, inland waterway, lift, elevator or air9. By landslide/rockslide10.

The policy also pays for towing charges from the place of accident to the workshop up to a maximum limit of Rs.300/- for scooters/motorcycles and Rs.1500/- for cars and commercial vehicles. It is also permissible to opt for higher towing charges subject to payment of extra premium. A restricted cover is also available covering the risk of fireand/ortheftonly,inadditiontothecompulsorycovergrantedunder"LiabilityOnlyPolicy".Howeverthesameis not available in case of vehicle ratable under Class D, Tariff for Miscellaneous and special types of vehicles.The important exclusions under the policies are:

wear and tear, breakdowns1. consequential loss2. losswhendrivingwithinvaliddrivinglicenseorundertheinfluenceofalcohol3. loss due to war, civil war, etc.4. claims arising out of contractual liability5. use of vehicle otherwise than in accordance with 'limitations as to use' (e.g. private car being used as a taxi)6.

Rating factors Rating depends upon the following factors:IDV1. Cubic capacity2. Geographical zone3. Age of the vehicle4. GVW of in case of commercial vehicles5. Add on covers6.

The policy can be extended to cover the following risks on payment of additional premium:Lossordamagetoaccessoriesfittedinthevehiclesuchasstereos,fans,air-conditionersetc.1. Personal accident cover under private car policies for:2. passengers �paid driver �

Legal liability to employees3. Legal liability to non-fare paying passengers in commercial vehicles4.

Who can take the policy?Any vehicle owner whose vehicle is registered in his/her name with the Regional Transport Authority in India.

113/JNU OLE

How to select the sum insured?The sum insured of a vehicle in a Motor Policy is referred to as the I.D.V (Insured's Declared Value). In case of theft of vehicle or if the vehicle is totally damaged and beyond repairs in an accident, the claim amount payable willbedeterminedonthebasisoftheInsured'sdeclaredValue(IDV).TheIDVofthevehicleistobefixedonthe basis of manufacturer's listed selling price of the brand and model of the vehicle proposed for insurance at the commencement of insurance/renewal and adjusted for depreciation as per schedule.

IDV of vehicle which is beyond 5 years of age and of obsolete models of the vehicles (i.e. models which the manufacturers have discontinued to manufacture) is to be determined on the basis of an understanding between insurer and insured.

How to claim?In the event of an incident giving rise to a claim under the policy, the following steps should be taken:

In case of accidental damage to the vehicle• Immediateintimationtothenearestoffice,whichwillissueaClaimForm.1. ClaimFormdulyfilledintobesubmittedalongwithcopyofRegistrationCertificateanddrivinglicense2. of the driver of the vehicle at the time of accident as also estimate of repairs.Vehicle will be surveyed by a Surveyor, appointed by the insurance company, who shall submit his report 3. to the company. In case of a major damage to the vehicle, a spot survey, at the site of accident, would also be arranged by the company.Final bills/cash memos are to be submitted duly signed by the insured.4. Salvage of the damaged parts may be required to be deposited with the insurance company after approval 5. of the claim.

In case of theft of the vehicle• Lodge an F.I.R. (First Information Report) with the police immediately.1. InformthepolicyissuingofficewithacopyofFIR.2. Submit the Final Police Report as soon as it is received.3. Extend full cooperation to the surveyor and/or investigator appointed by the company.4. Afterapprovaloftheclaimbythecompany,gettheRegistrationCertificatetransferredinthenameofthe5. company, hand over the keys of the vehicle, and submit a letter of Subrogation and Indemnity on stamp paper duly notarised.

In case of liability claim• Inform insurance company immediately of any incident likely to give rise to liability claim.1. On receipt of summons from Court, the same should be sent to the company immediately.2. ClaimFormdulyfilledinalong-withcopiesofRegistrationCertificate,DivingLicense,FIRaretobe3. submitted.

7.4 Marine Cargo PolicyThis policy covers goods, freight and other interests against loss or damage to goods whilst being transported by rail, road, sea and/or air. Different policies are available depending on the type of coverage required ranging from an ALL RISK cover to a restricted FIRE RISK ONLY cover. This policy is freely assignable and is basically an agreed value policy.Transportationofgoodscanbebroadlyclassifiedintothreecategories:

Inland Transport1. Import2. Export3.


114/JNU OLE

The types of policies issued to cover these transits are:For inland transit

Specific Policy:1. Forcoveringaspecificsingletransit.Open Policy:2. For covering transit of regular consignments over the same route .The policy can be taken for an amount equivalent to three months despatches and premium paid in advance .As each consignment is despatched, a declaration giving details of the despatch including GR/RR No. is to be sent to the insurer and the sum insured gets reduced by the amount of the declared despatch. The sum insured can be increased any number of times during the policy period of one year; but care should be taken to ensure that adequate sum insured is available to cover the consignment to be despatched.Special Declaration Policy:3. For covering inland transit of goods wherein the value of goods transported during one year exceeds Rs.2 Crores. Although the premium for the estimated annual turnover [i.e. the estimated value of goods likely to be transported during the year] has to be paid in advance, attractive discounts in premium are available.Multi-transit Policy:4. For covering multiple transits of the same consignment including intermediate storage and processing.

For import/exportSpecific Policy:1. Forcoveringaspecificimport/exportconsignment.Open Cover:2. This policy which is issued for a policy period of one year indicates the rates, terms and conditions agreed upon by the insured and insurer to cover the consignments to be imported or exported. A declaration is to be made to the insurance company as and when a consignment is to be sent along withthepremiumattheagreedrate.Theinsuranceco.willthenissueacertificatecoveringthedeclaredconsignment.Custom Duty Cover:3. This policy covers loss of custom duty paid in case goods arrive in damaged Condition. This policy can be taken even if the overseas transit has been covered by an insurance company abroad, but it has to be taken before the goods arrive in India.

Inland transit policies can be extended to cover the following perils on payment of additional premium:SRCC:1. Strike, riot and civil commotion (including terrorist act).FOB:2. Where the inland transit is required to be extended to cover the goods till they are loaded on board the vessel, this extension can be taken.

Export/Import policies can be extended to cover War and/or SRCC perils on payment of an additional premium.

Who can take the policyThe contract of sale would determine who buys the policy. The most common contracts are:

FOB (Free on Board)•C & F (Cost & Freight)•CIF (Cost, Insurance & Freight)•

In FOB and C&F contracts, the buyer is responsible for insurance. Whereas, in CIF contracts the seller is responsible for insurance from his own premises to that of the purchaser

How to select the sum insuredThe sum insured or value of the policy would depend upon the type of contract. Usually, in addition to the contract value 10/15% is added to take care of incidental cost.

How to claimThe following steps should be taken in event of a loss or damage to goods insured:

Take immediate steps to minimise loss.i. Informnearestofficeoftheinsurancecompanyorclaimsettlingagentmentionedonthepolicy.ii. In case of damage to goods whilst on ship or port, arrange for joint ship survey or port survey.iii. Lodge monetary claim with carrier within stipulated time period.iv. Submit duly assigned insurancepolicy/certificate alongwith theoriginal invoice andother documentsv. required to substantiate the claim such as:

115/JNU OLE

Bill of Lading/AWB/GRa. Packing listb. Copies of correspondence exchanged with carriers.c. Copy of notice served on carriers along with acknowledgment/receipt.d. Shortage/DamageCertificateissuedbycarriers.e.

A survey fee is to be paid to the surveyor appointed by the insurance company. This fee will be reimbursed vi. along with the claim if the claim is otherwise admissible.

7.5 Few Terms in Insurance Laws

Accident Any Unforeseen and unexpected event is considered an accident. For insurance purposes it has to be due to external, physical and violent means.

Accidental Bodily Injury

Injury to the body as the result of an accident.

Accident, Hit and Run Accidental death or injury arising out of the use of a motor vehicle(s) the identity whereof cannot be ascertained in spite of reasonable efforts for the purpose.

Accidental Death Benefit

A monetary compensation in addition to the face amount of a life insurance policy, payable if the insured dies as the result of an accident. Sometimes referred to as "double indemnity".

Act of God Any accidental act which could not have been prevented by any amount of human care and forethought.

Actual Total Loss It is a loss where the goods are completely lost and become irrecoverable.

Additional Cover An insurance policy extended to cover additional risk perils such as strikes. Riots and civil commotion etc. on payment of extra premium.

Agreed Value Policy Policywhichundertakestopayaspecifiedamountincaseoftotalloss.Under this case the policy does not take into account the current market value.

All-risks Policy Coverage by an insurance contract that promises to cover all losses except thoselossesspecificallyexcludedinthepolicy.Alsoknownasopenperilcoverage.

Assured Partyindemnifiedorpromisedtobeindemnifiedagainstlossbymeansofinsurance.


116/JNU OLE

Basic Limit Usually refers to liability of insurer indicating the lowest amount for which a policy can be written. This amount is either prescribed by law or company policy.

Basic Rate The standard charge for a given type of risk for basic limit.

Beneficiary An individual designated in a will to receive an inheritance, or the individual designated to receive the proceeds of an insurance policy, retirement account, trust, or other asset.

Cargo Insurance Type of insurance that protects the shipper/owner of the goods against financiallossifthegoodsaredamagedorlostwhileintransitinbetweenplace of commencement and destination.

CertificateofInsurance A document issued to a member of a group insurance plan, describing the insurancebenefitsandprincipalprovisionsofthepolicyinbrief.

Claim Itisanotificationtoaninsurancecompanythatpaymentofanamountisdue under the terms of a policy by the insured.

Claim Amount It is the amount payable by the insurer under a policy on a claim arising.

Claims Cohort A group of claims with a common period of origin. The period is usually a calendaryear,butmaybeshorter.Theoriginmaybedefinedbythedateofthe occurrence of claim or alternatively by the date of reporting.

Co-Insurers Two or more insurers jointly covering the same risk.

Comprehensive A loosely used term signifying broad or extensive coverage of insurance.

Compulsory Insurance Any form of insurance which is required by law. e.g. Motor third party insurance, Public Liability Act Insurance.

117/JNU OLE

Contract of Insurance An agreement between the insurer and one or more parties, called the insured, whereby the insurer undertakes in return for the payment of a certain consideration, called the premium, to pay to the insured a certain sum of money or to grant certain compensation on the happening of a specifiedevent.

Contributory negligence The lack of ordinary care on the part of an insured person, which combined with the defendant’s negligence and contributed the injury as a proximate cause. In some jurisdictions, contributory negligence on the part of an injured party will defeat his or her claim.

Cover Note A cover note is a document issued in advance pending the issue of the policy, and is normally required if the policy cannot for some reason or other be issued straight away. Cover notes can also be issued during the course of negotiations to provide cover on a provisional basis. A cover note is not a stamped document but is honoured, all the same, by all parties concerned.

Coverage The scope of protection provided under a contract of insurance; any of several risks covered by a policy.

Effective Date The date upon which the policy is put in force, the inception date.

Fidelity Bond A form of protection which reimburses an employer for losses caused by dishonest or fraudulent, acts of employees.

Fire Acombustionaccompaniedbyaflameorglow,whichescapesitsnormallimits to cause damage.

Fire Insurance Coverage for lossescausedbyfireand lightning,aswellas the resultantdamage caused by smoke and water


118/JNU OLE

Flood Overflowofwaterfromitsnaturalboundaries.Morespecificallydefinedbythe National Flood Act of 1968 as 'a general and temporary condition of partial orcompleteinundationofnormallydrylandareasfrom(1)theoverflowofinland or tidal waters or (2) the unusual and rapid accumulation or runoff of surface waters from any source'.

General Damages Damages awarded to an injured persons for intangible loss which cannot be measured directly by rupees. Popularly known as "pain and suffering". General damages are distinguished from special damages which are awarded from actual economic loss, such as medical costs, loss of income, etc.

Gross Negligence Intentional failure to perform a duty, reckless disregard of the consequences as affecting the life or property of another.

Group Insurance Any insurance plan under which a number of employees and their dependants are insured under a single policy, issued to their employer, with individual certificatesgiventoeachinsuredemployee;themostcommonlywrittenlinesare life and accident and health.

Hazard A condition that creates or increases the probability of a loss.

Health Insurance A generic term applying to all types of insurance indemnifying or reimbursing for losses caused by bodily accident or sickness or for expenses of medical treatment necessitated by sickness or accidental bodily injury.

Hurricane A tropical storm marked by extremely low barometric pressure and circular winds with a velocity of 120 miles an hour or more.

Insurable Interest An interest which might be damaged if the peril insured against occurs: the possibilityofafinanciallosstoanindividualwhichcanbeprotectedagainstthrough insurance.

119/JNU OLE

Insurance An economic device whereby the individual substitutes a small certain cost (thepremium)foralargeuncertainfinancialloss(thecontingencyinsuredagainst) which would exist if it were not for the insurance contract: an economic device for reducing and eliminating risk through the process of combiningasufficientnumberofhomogeneousexposuresintoagroupinorder to make the losses predictable for the group as a whole.

Insurance Company An organization chartered to operate as an insurer.1. Any corporation primarily engaged in the business of furnishing insurance 2. protection to the public.

Insurance Entities Any corporate body or individual which is operating as an insurer, reinsurer or insurance intermediary and which is subject to insurance regulation.

Insurance Product Aninsuranceproductisdefinedasaproductthatisprovidedbyaninsurancecompany.

Insurance Policy Legal document issued to the insured setting out the terms of the contract of insurance.

Insured Theperson towhomor onwhose behalf benefits are payable under thepolicy.

Insurer A licensed legal entity, which underwrites insurance, including a mutual insurance company (but note the exemption of pure reinsurers).


120/JNU OLE

Lapse Termination of a policy due to failure by the insured to pay the premium as required.

Liability Insurance Insurance covering the policyholder’s legal liability resulting from injuries to other persons or damage to their property. Liability Insurance. Provides protection for the insured against loss arising out of legal liability to third parties.

Marine Pertaining to the sea or to transportation: usually divided as to 'ocean marine' and 'inland marine'; the insurance covering transportation risks.

Marine Insurance A form of insurance primarily concerned with means of transportation and communication, and with goods in transit.

Market Value The price for which something would sell, especially the value of certain types of assets, such as stocks and bonds. It is based on what they would sell for under current market conditions. For example, common stock market value wouldbethepriceofthestockasofaspecifieddate.

No Claims Bonus A reduction in the price of an insurance policy because no claims have been made on it.

Nominee Nominee is the person who is nominated to receive the amount under a policy and to give a valid discharge to the insurer on settlement of claim under a life insurance policy.

Package Policy A combination of two or more individual polices into a single policy. A householder's policy, for example, is a package policy.

121/JNU OLE

Partial Disability The result of an illness or injury which prevents an insured from performing on or more of the functions of his/her regular job.

Personal Injury In law, a term used to embrace a broad range of torts that includes bodily injury, libel, slander, discrimination and similar offences. Also a standard insurance coverage that protects against a more limited group of torts (false arrest, detention or imprisonment, malicious prosecution, wrongful entry or eviction, and libel, slander, or defamation).

Policyholder Theperson(orpersons)whoseriskoffinanciallossfromaninsuredperilisprotected by the policy.

Premium The sum paid by a policyholder to keep an insurance policy in force. It is the amount paid to secure an insurance policy.

Proposal A person interested in taking out insurance has to make an offer by means of a proposal. This is an application for the cover required, or for obtaining quotations of the premium chargeable.

Proposal Form It is a form which is to be completed for securing an insurance policy.

Proposer Proposer is a person who proposes the insurance policy.

Pure Risk A condition in which there is the possibility of loss or no loss only.

Reinsurance Insurance placed by an underwriter in another company to cut down the amount of the risk assumed under the original insurance.

Renewal Continuance of coverage under a policy beyond its original term by the insurer’s acceptance of the premium for a new policy term.


122/JNU OLE

Renewal Notice The notice sent to the policyholder to remind him that insurance is due for renewal by insurers.

Risk It can be a potential source of loss or the subject matter of insurance itself.

Settlement Apolicybenefitofclaimpayment.

Sum Insured The limit of liability of the insurers under a policy.

Surrender Value Surrender value is the amount payable to the policy holder on his surrendering his right under a policy and terminating the contract of insurance.

Third Party Someone other than the insured and insurance company.

Third Party Claim A demand made by a person against a policyholder and any payment that will be made by that company.

Third Party Liability Liability incurred by the insured to another party but excluding contractual liability.

Total Disability An illness or injury which prevents an insured person from continuously performing every duty pertaining to his/her occupation or engaging in any other type of work.

Under-insurance The situation where the Sum Insured is less than the total value of property at risk.

Underwriter The company receiving premiums and accepting to cover the risk. Also, the person employed by the company who decides whether the company should accept a particular proposal for insurance or application for revival.

123/JNU OLE

Underwriting The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk.

Uninsurable Risk Risks not acceptable for insurance due to excessive risk.

Table 7.1 Few terms in Insurance Laws


124/JNU OLE

Summary

Thefirstinsurancepolicywasissuedin1583inEngland.InIndiainsurancebeganin1870.Bombaymutual•assurancesocietyltdwasthefirstIndianinsurancecompany.In 1956 Life insurance business was nationalised and LIC (Life Insurance Corporation) was found. In 1999, •the monopoly of LIC was ended and insurance sector was open to private sector.In the words of a layman, insurance means 'managing risk'.•Life insurance, health insurance and liability insurance are the basic types of insurance.•Motor vehicle insurance policy covers all types of vehicles plying on public roads.•MotorVehicleinsuranceiscompulsory.ACertificateofInsurancemustbecarriedinthevehicleasaproofof•insurance.Liability only policy covers third party liability for bodily injury liability and / or death and property damage. •Personal Accident cover for Owner-driver is also included.Package policy• cover loss or damage to the vehicle insured in addition to liability only policy.The policy can be taken by any vehicle owner whose vehicle is registered in his/her name with the Regional •Transport Authority in India.Marine cargo insurance policy covers goods, freight and other interests against loss or damage to goods whilst •being transported by rail, road, sea and/or air.Transportationofgoodscanbebroadlyclassifiedintothreecategories:inlandtransport,importandexport.•The types of policies issued to cover these transits are: for inland transit and for import/export are explained •withspecificpolicy,openpolicy,specialdeclarationpolicyetc.

ReferencesInsuranceLaws.Availableat:<http://business.mapsofindia.com/insurance/>[Accessedon16• th March, 2011].Insurance Laws. Available at: <http://www.newindia.co.in/comm-cargo.asp> [Accessed on 16• th March, 2011].

Recommended Reading

C. L. Tyagi & Madhu Tyagi, 2007. • Insurance Law and Practice. Atlantic Publishers & Dist. 400 pages.K. S. N. Murthy, 1991. • Modern Law of Insurance in India. 2nd ed. N. M. Tripathi. 332 pages.R. M. Ray, 2007. • Life Insurance in India - Its History, Law, Practice and Problems. Morrison Press. 320 pages.

125/JNU OLE

Self Assessment

InwhichyearthefirstinsurancepolicywasissuedinEngland?1. 1583a. 1835b. 1358c. 1538d.

In which year life insurance business was nationalised and LIC was found?2. 1569a. 1956b. 1870c. 1965d.

What is known as the sum insured of a vehicle in a Motor Policy?3. CIFa. LICb. FIRc. IDVd.

What term is used to describe any accidental act which could not have been prevented by any amount of human 4. care and forethought?

Act of Naturea. Act of Environmentb. Act of Deityc. Act of Godd.

Which statement is true?5. Transportationofgoodsisclassifiedintothreecategories.a. Transportationofgoodsisclassifiedintofourcategories.b. Transportationofgoodsisclassifiedintofivecategories.c. Transportationofgoodsisclassifiedintosixcategories.d.

The sum insured or value of the policy would depend upon the type of_________.6. licensea. contractb. situationc. vehicled.

_________ is a group of claims with a common period of origin.7. Claim amounta. Claims cohortb. Cover notec. Insuranced.


126/JNU OLE

Which statement is true?8. ACertificateofInsurancemustbecarriedinthevehicleasaproofofpolicyholderownership.a. ACertificateofInsurancemustbecarriedinthevehicleasaproofofshareholderownership.b. ACertificateofInsurancemustbecarriedinthevehicleasaproofofpropertydamage.c. ACertificateofInsurancemustbecarriedinthevehicleasaproofofinsurance.d.

_____________ of insurance companies are of two types.9. Ownershipa. Policyb. Uncertaintyc. Certaintyd.

What does LIC stand for?10. Life Insurance Communitya. Life Insurance Corporationb. Life Insurance Companyc. LifeInsuranceCertificated.

127/JNU OLE

Chapter VIII

Taxation Laws Relevant to SCM

Aim


defineofthetaxationlaws•

describe the important provisions of Income Tax Act•

illustrate about tax deduction at source•

Objectives


explain the liability for payment of advance tax•

display the format of income from business•

describe the important provisions of Central Excise Act•

Learning outcome


identifythesignificanceofIncomeTaxAct•

undestand the concept of exemption from service tax•

understand the importance of tax•


128/JNU OLE

8.1 IntroductionManager of supply chain management unit has to employ staff to run his business. He pays salary to them. On such payments, he has to deduct tax at source. He also pays service charges to various service providers and rent to premises owners. He also provides service to others on which he has to collect tax from his customers. Other wise, he will be liable to pay the tax from his own pocket. He purchases several goods on which he has to pay excise duty and sales tax. Therefore, it is essential that management of every educational institute should know the provisions of Income Tax Act and other relevant taxation laws.

8.2 Income From SalaryEverypersonshallfileareturnofincomeonorbeforetherelevantduedateifhistotalincomeexceedsthemaximumamount not chargeable to tax. Tax rate for assessment year (AY) 2010-11 are as under:

Sl No. Tax rate Individuals Women Senior Citizen

1 Nill Up to 1,60,000 Up to 1,90,000 Up to 2,40,000

2 10% 1,60,001 to 3,00,000 1,90,001 to 3,00,000 2,40,001 to 3,00,000

3 20% 3,00,001 to 5,00,000 3,00,001 to 5,00,000 3,00,001 to 5,00,000

4 30% Above 5,00,000 Above 5,00,000 Above 5,00,000

Table 8.1 Tax rate for AY 2010-11

Surcharge of 10% on tax only if taxable income exceeds Rs.10, 00,000/-•Education cess on Tax + surcharge at 3% in all cases.•Firmsandcompanieshavetoflatrateof30%taxontheirtaxableincome.+10%surcharge+3%education•cess.PermanentAccountNumber is a number allotted to a personby theAssessingOfficer for the purpose of•identification.QuotingPANNumberiscompulsoryincaseofmanytransactions.An employer has to deduct income tax at source from the salary payable to employees. Therefore it is important •to know whether there is Employer-employee relationship. The nature and extent of control which is the basis requisite to establish employer-employee relationship would vary from business to business. The test which is uniformly applied in order to determine the relationship is the existence of a "right to control" in respect of the manner in which the work is to be done.Salary is the remuneration received by or accruing to an individual, periodically, for service rendered as a •result of an express or implied contract. The actual receipt of salary in the previous year is not material as far as its taxability is concerned. The existence of employer-employee relationship is the sine-quanon for taxing a particular receipt under the head "salaries."

What does "salary" includeSection 17(1) of the Income taxAct gives an inclusive and not exhaustive definition of "Salaries" includingtherein;

Wages(i) Annuity or pension(ii) Gratuity(iii) Anyfees,commission,perquisitesorprofitsinlieuoforinadditiontoanysalaryorwages(iv) Any advance of Salary(v) Receipt from Provident Fund(vi) Contribution of employer to a Recognised Provident Fund in excess of the prescribed limit(vii)

129/JNU OLE

Leave Encashment(viii) Compensation as a result of variation in Service contract etc(ix)

Deduction from salary incomeThe following two deductions from salary income are admissible as per section 16 of the Income-tax Act.

Professional/Employment tax• levied by the State GovtEntertainment Allowance:• Deduction in respect of this is available to a government employee to the extent of Rs. 5000/- or 20% of his salary, whichever is less.

Perquisites"Perquisite"maybedefinedasanycasualemolumentorbenefitattachedtoanofficeorpositioninadditiontosalary or wages."Perquisite"isdefinedinthesection17(2)oftheIncomeTaxActasincluding:

The value of rent-free/concessional rent accommodation provided by the employer;(i) The value of any concession in the matter of rent respecting any accommodation provided to the (ii) assessee by his employer;Thevalueofanybenefit/amenitygrantedorprovidedfreeofcostoratconcessionalrateinanyofthe(iii) following cases:

By a company to an employee who i a director thereof;(a) By a company to an employee being a person who has a substantial interest in the company;(b) By any employer (including a company) to an employee to whom the provisions of paragraphs (c) (a) and (b) of this sub-clause do not apply and whose income under the head "Salaries" (whether duefrom,orpaidorallowedby,oneormoreemployers),exclusiveofthevalueofallbenefitsoramenities not provided for by way of monetary payment, exceeds twenty-four thousand rupees.Explanation: For the removal of doubts, it is hereby declared that the use of any vehicle provided byacompanyoranemployerforjourneybytheassesseefromhisresidencetohisofficeorotherplaceofwork,orfromsuchofficeorplacetohisresidence,shallnotberegardedasabenefitoramenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause.

Thevalueofanyspecifiedsecurityallottedortransferred,directlyorindirectly,byanypersonfree(iiia) of cost or at concessional rate, to an individual; who is or has been in employment of that person: Providedthatinacasewhereallotmentortransferofspecifiedsecuritiesismadeinpursuanceofanoptionexercisedbyanindividual,thevalueofthespecifiedsecuritiesshallbetaxableinthepreviousyear in which such option is exercised by such individual.

"Specified security"means the securities as defined in clause (h) of section2 of theSecurities(b) Contracts (Regulation) Act, 1956 (42 of 1956) and includes employees' stock option and sweat equity shares;"Sweat equity shares" means equity shares issued by a company to its employees or directors at a (c) discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called; and"Value"means thedifferencebetweenthefairmarketvalueandthecost foracquiringspecified(d) securities.

Any sum paid by the employer in respect of any obligation which but for such payment, would have (iv) been payable by the assessee;Any sum payable by the employer, whether directly or through a fund, other than a recognised provident (v) fund or an approved superannuation fund or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees'.

Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), to effect an assurance on the life of the assessee or to effect a contract for an annuity: Provided that nothing in this clause shall apply to,


130/JNU OLE

The value of any medical treatment provided to an employee or any member of his family in any (i) hospital maintained by the employer;Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his (ii) medical treatment or treatment of any member of his family:

In any hospital maintained by the Government or any local authority or any other hospital approved (a) by the Government for the purposes of medical treatment of its employees;In respect of the prescribed diseases or ailments in any hospital approved by the Chief Commissioner (b) having regard to the prescribed guidelines: Provided that, in a case falling in sub-clause (b), the employeeshallattachwithhisreturnofincomeacertificatefromthehospitalspecifyingthediseaseor ailment for which medical treatment was required and the receipt for the amount paid to the hospital;

Any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force (iii) an insurance on the health of such employee under any scheme approved by the Central Government for the purposes of clause (ib) of sub-section (1) of section 36;Any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in (iv) force an insurance on his health or the health of any member of his family under any scheme approved by the Central Government for the purposes of section 80D;Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his (v) medical treatment or treatment of any member of his family [other than the treatment referred to in clauses(i)and(ii)];so,however,thatsuchsumdoesnotexceedfivethousandrupees,inthepreviousyear,inthecaseoftheemployeeandfurtherfivethousandrupeesinthecaseofhisfamily;Any expenditure incurred by the employer on - (1) medical treatment of the employee, or any member (vi) of the family of such employee, outside India;

Travel and stay abroad of the employee or any member of the family of such employee for medical (2) treatment;Travel and stay abroad of one attendant who accompanies the patient in connection with such treatment, subject (3) to the condition that-

(a) The expenditure on medical treatment and stay abroad shall be excluded from perquisite only to the extent permitted by the Reserve Bank of India; and

(b) The expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed two lakhs rupees;

Any sum paid by the employer in respect of any expenditure actually incurred by the employee for any (vii) ofthepurposesspecifiedinclause(vi)subjecttotheconditionsspecifiedinorunderthatclause.

Explanation: For the purposes of clause (2):"Hospital" includes a dispensary or a clinic or a nursing home;(i) "Family", in relation to an individual, shall have the same meaning as in clause (5) of section 10; (ii) and"Gross total income" shall have the same meaning as in clause (5) of section 80B;(iii)

"Profitsinlieuofsalary"includes-(4) The amount of any compensation due to or received by an assessee from his employer or former employer (i) atorinconnectionwiththeterminationofhisemploymentthemodificationofthetermsandconditionsrelating thereto; Any payment other than any payment referred to in clause (10), clause (10A), clause (10B), clause (ii) (11), clause (12), clause (13) or clause (13A) of section (10), due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.Explanation: For the purposes of this sub-clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in clause (10D) of section 10.

As a general rule, the taxable value of perquisites in the hands of the employees is its cost to the employer. (5) However,specificrulesforvaluationofcertainperquisiteshavebeenlaiddowninRule3oftheI.T.Rules.There is no Perquisite Value for motor car provided by the employer.

131/JNU OLE

AllowancesAllowanceisdefinedasafixedquantityofmoneyorothersubstancegivenregularlyinadditiontosalaryformeetingspecificrequirementsoftheemployees.

House Rent AllowanceProvided that expenditure on rent is actually incurred, exemption available shall be the least of the following:

HRA received.(a) Rent paid less 10% of salary.(b) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi).(c)

Salary here meansBasic + dearness Allowance, if dearness allowance is provided by the terms of employment.

The following allowances are exempt, subject to the condition that the expenses are actually incurred:Allowance granted to meet cost of travel on tour or transfer.•Allowance granted on tour or journey in connection with transfer to meet the daily charges incurred by the •employee.Allowance granted to meet conveyance expenses incurred in performance of duty, provided no free conveyance •is provided.Allowancegrantedtomeetexpenseincurredonahelperengagedforperformanceofofficialduty.•Academic, research or training allowance granted in educational or research institutions.•Allowance granted to meet expenditure on purchase/maintenance of uniform•

Deduction allowed

Section Nature of Deduction

80CC Payment of premium for annuity plan of LIC or any other insurer Deduction is available up to a maximum of Rs.10,000/-

80CCD Deposit made by a Central government servant in his pension account to the extent of 10% of his salary.

80D Payment of medical insurance premium. Deduction is available up to Rs.15, 000/.

80DD

Deduction of Rs.50, 000/- in respect ofExpenditure incurred on medical treatment, (including nursing), (a) training and rehabilitation of handicapped dependant relative.Paymentordeposittospecifiedschemeformaintenanceof(b) dependant handicapped relative.

Further, if the dependant is a person with severe disability a deduction of Rs.75, 000/ - shall be available under this section.


132/JNU OLE

80DDB Deduction up to Rs.40, 000 in respect of medical expenditure incurred.

80E Deduction in respect of repayment of loan or interest on such loan taken for higher studies up to Rs.40, 000 per year.

80G Donation to certain funds, charitable institutions etc.

80GG

Deduction available is the least ofRent paid less 10% of total income(i) Rs.2000 per month(ii) 25% of total income(iii)

80UDeduction of Rs.50, 000/- to an individual who suffers from a physical disability (including blindness) or mental retardation. Further, if the individual is a person with severe disability, deduction of Rs.75, 000/- shall be available u/s 80U.

Table 8.2 Nature of deduction

Salary and allowances which are fully taxableBasic Pay, Dearness Allowance, City Compensatory Allowance, Bonus, Overtime, Commission etc.Allowances which are fully exempt from taxReimbursement of travelling, and boarding expenses, Meals, withdrawal of Provident Fund etc.

Salary and allowances which are taxable subject to certain conditionsHouse Rent Allowance, Gratuity, Employer’s contribution to Provident Fund, Perquisites like Rent free/concessional accommodation, Encashment of Leave etc.

Property income exempt from taxIncome from farm house (Sec.2 (1A) (C) read with sec. 10(1).One self occupied property (sec.23 (2)).House property held for charitable purposes (sec.11).

Tax deduction at source from salaryIt is the responsibility of the employer to deduct the tax from the salary of the employee at source and remit it to Government. For this purpose he should estimate the total annual salary, income from other sources and expected investments made by the employee and the exemptions available. Then the employer has to calculate the tax liability for the whole year. Divide it by 12 to decide the monthly tax to be deducted. As and when the year proceeds, the employer should keep a watch on the actual income and the estimated income and increase or decrease the tax to be deducted from the salary. Increase in Dearness Allowance, Increments, wage revisions etc should be taken into account while estimating the gross income for the whole year. The employer may obtain a declaration from the employees in the month of April of every year regarding their other income viz. income from house property etc., and the eligible investments they are going to make in the forthcoming year. If an employee does not give declaration, then the tax should be deducted on the basis of estimated annual gross salary and the investments made through salary.

8.3 Income From BusinessAbusinessmanprepareshisprofit&lossstatementasperthestandardaccountingprincipals.UnderIncomeTaxAct,certain expenses are not allowed. Also, there is ceiling on certain expenses. Therefore, there is a necessity to make

133/JNU OLE

adjustmentstotheprofitasshownintheprofitandlossaccount.Theformatforthesameissuggestedbelow.

Income from business of M/s XYZ for the year Amount

A Profit as per the P&L statement

B Additions

B1 Expenses not allowed as per IT Act

B2 Expenses beyond limit under IT Act

B3 Income not taken into account

Sub Total B (total additions)

C Deductions

C1 Expenses allowed but not debited in P/L account

C2 Non business income included in P/L account

Sub Total C (total deductions)

D Taxable income from business (D=A+B+C)

Table 8.3 Format of income from business

Expenses which are allowed:(1) Section 30: Rents, Rates, Taxes, Repairs and insurance for building.(2) Section 31: Insurance of machinery, plant and furniture.(3) Section 32: Depreciation as per rates under Income Tax Act.(4) Section 35:ExpenditureonScientificResearch,CopyRights,Patents&KnowHow(5) Section 35 D:AmmortisationofPreliminaryExpensesinfiveyears.(6) Section 35 DD:AmmortisationofexpenditureunderVRSinfiveyears.(7) Donations for Rural development, conservation of natural resources.(8) Section 36: Salary, bonus, commission to employees. Contribution to Recognised Provident Fund,

Superannuation Fund, Gratuity Fund, Staff Welfare Schemes and insurance of health of employees etc.(9) Section 36 (1): Interest on borrowed capital(10) Bad Debts(11) Advertisement(12) Banking Cash Transaction tax(13) Family Planning Expenditure


134/JNU OLE

Expenses which are not allowed:Incometax,FringeBenefitTax,WealthTax,SecurityTransactionTax.(1) Expenditure above Rs.20, 000/- made otherwise than by crossed cheque or demand draft.(2) Provision for Bad Debts.(3)

8.4 Income From Capital GainCapital gainsProfitorgainsarisingfromthetransferofacapitalassetduringthepreviousyearistaxableas"CapitalGains"undersection 45(1) of the Income Tax Act, the taxability of capital gains is in the year of transfer of the capital asset.

Types of capital gainsWhen a capital asset is transferred by an assessee after having held it for at least 36 months, the capital gains •arising from this transfer is known as Long Term Capital Gains.In case of shares of a company or unit of UTI or a unit of a Mutual Fund, the minimum period of holding for •long term capital gains to arise is 12 months.If the period of holding is less than above, the capital gains arising there from are known as Short Term Capital •Gains.ItmaybementionedherethatLongTermCapitalGainsafterthebenefitofindexingthecostofacquisition,•aretaxedataflatrateof20%.In case of shares of a company or units of a Mutual Fund, there is no tax on Long Term Capital Gain and tax •on Short Term Capital Gain is 15%.Anumberofexemptionsarealsoavailable,specifiedinSection54tosection54GoftheIncomeTaxAct.•If old machinery or a transport vehicle or old furniture is sold for a sum higher than the written down value, the •difference will be deemed as Short Term Capital Gain.If the sale proceeds are used for purchase of same class of asset, then there will be no tax on capital gain.•

Capital assetAsdefinedinsection2(14)oftheIncomeTaxAct,itmeanspropertyofanykindheldbytheassesseeexcept:

Stock in trade, consumable stores or raw materials held for the purpose of business or profession.(a) Personal effects, being moveable property (excluding Jewellery) held for personal use.(b) Agricultural land, except land situated within or in area up to 8 kms, from a municipality, Municipal (c) Corporation,notifiedareacommittee,towncommitteeoracantonmentboardwithpopulationofatleast10,000.Six and half percent Gold Bonds, National Defence Bonds and Special Bearer Bonds.(d)

8.5 Tax Deduction at SourceThe Government wants to increase its revenue to meet increase demand for development expenses. There are some persons who may not pay the tax either deliberately or due to ignorance of knowledge. Therefore, has come with an idea of collecting tax at source of income. It has made it mandatory for a person giving income to another person to deduct tax from such payment and deposit with the Government. If the tax is not deducted there will be penalty andfines.The following are the important areas of tax deduction at source:

135/JNU OLE

Sl. No. Particulars Criteria

Rate of TDS. % Non

corporate

Rate of TDS. % Domestic Companies

Form no. for annual return

& due date

1Payment of Salary to Employees

Case to case Case to case N.A 2431st May

2Payment to a contractor (advertising)

Payment more than 20, 000/- on time or more than 50, 000/- p.a.

1.03 1.133 26C30th June

3 Payment to a contractor. -Do- 2.06 2.266 26C

30th June

4 Payment to a sub contractor -Do- 1.03 1.133 26 C

30th June

5 Commission or Brokerage

Payment more than 2, 500/- p.a.

5.15 5.65 26 I30th June

6 RentPayment more than 1,20, 000/- p.a.

15.45 22.66 26 J30th June

7 Interest on deposits

Interest more than Rs. 5,000/- p.a.

10.30 22.66 26 A30th June

8

Fees for Professional or Technical Services

Payment more than 20,000/- p.a.

5.15 5.65 26 K30th June

Table 8.4 The important areas of tax deduction at source

8.5.1 General Guidelines Regarding TDSEvery person liable for deduction of Tax at Source should apply for TAN No.•Every person deducting Tax at Source should quote TAN number on all relevant forms.•Tax deducted at source should be credited to the account of Central Board of Direct Taxes (CBDT) •within 7th of the succeeding month.Every person deduction Tax at Source should issue F.16 for salaries and F.16 A in other cases, to the •persons from whom he deducted tax within 30 days from the date of deducting tax.Annual return should be submitted to Income Tax Authorities in Form No.24 or 25 or 26 as the case •may be before the due dates.If an eligible person gives declaration in form 15G/15H, the tax should not be deducted at source. •


136/JNU OLE

But a copy of the declaration form should be sent to Income Tax Authorities within 7th of succeeding month.Form15G/15Hshouldbecollectedforeveryfinancialyear.

8.6 Payment of Advance TaxAs per section 208, the liability for payment of advance tax arises where the amount of tax payable by the assessee for the year is Rs. 5,000/- or more. The due dates for various instalments of advance tax are given below for Non corporate Assessees:

Due Date Amount Payable

On or before 15th September.i. Amount not less than 30% of such i. advance tax.

On or before 15 December.ii. Amount not less than 60% of such ii. advance tax.

On or before 15th March.iii. Entire amount of 100% of such iii. advance tax.

Table 8.5 Due dates for various instalments of advance tax for non corporate assessees

The due dates for various instalments of advance tax are given below for Corporate Assessees

Due Date Amount Payable

On or before 15th i. September.

Amount not less than 15% of i. such advance tax.

On or before 15th ii. September.

Amount not less than 45% of ii. such advance tax.

On or before 15 December.iii. Amount not less than 75% or iii. such advance tax.

On or before 15th Marchiv. Entire amount of 100% such iv. advance tax.

Table 8.6 Due dates for various instalments of advance tax for corporate assessees

Due dates for filing the tax returnsA company and other assessees where audit is compulsory:1. 31st October of the A.YAll other cases:2. 31st July of the Assessment Year (AY)

Calculation of InterestThe Income Tax Act provides for charging of interest for non-payment/short payment/deferment in payment of advance tax which is calculated as below:

Interest U/S 234A: • For late or non furnishing of return, simple interest @ 1 % for every month or part there of fromtheduedateoffilingofreturntothedateoffurnishingofreturn,onthetaxdeterminedu/s143(1)ornonregular assessment as reduced by TDS/advance tax paid.

137/JNU OLE

Interest U/S 234B: • For short fall in payment of advance tax by more than 10%, simple interest @ 1 % per month or part thereof is chargeable from 1st April of the assessment year to the date of processing u/s 143(1) or regular assessment, on the tax determined u/s 143(1) or on regular assessment less advance tax paid/TDS.Interest U/S 234C: • For deferment of advance tax. If advance tax paid by 15th September is less than 30% of tax payable on returned income less TDS, simple interest @ 1% per month to be charged for 3 months. Similarly, if amount of tax paid on or before 15th December is less than 60% of tax due on returned income, interest @ 1% per month is to be charged. Again, if the advance tax paid by 15th March is less than tax due on returned income, interest @ 1 % on the shortfall is to be charged.

8.7 Service TaxSection 66 of Finance Act, 1994 (which is a charging section) states that there shall be levied a tax (hereinafter referred to as the service tax) at the rate of 10% of value of taxable services referred in section 65(105) of Finance Act, 1994 [In addition, education cess @ 3% is payable].

Thistaxwasfirsttimeintroducedwitheffectfrom1-7-1994onthreeservices.Theratewas5%.Itwassubsequentlyincreased to 8% w.e.f (with effect from). 14-5-2003. It was enhanced to 10% w.e.f. 10-9-2004. It was enhanced to 12% w.e.f. w.e.f. 18-4-2006. An education cess of 2% of service tax has been imposed vide section 95 of Finance (No. 2) Act, 2004, w.e.f. 10-9-2004. Presently, service tax rate is 10% plus education cess of 3% (total 10.30%) serviceproviderisonewhoprovidestaxableserviceasdefinedundersection65(105)ofFinanceAct,1994.

In most of the cases, service provider, i.e. person who is providing taxable service is liable to pay service tax. However, in few cases, exceptions have been made and other person is made liable to pay service tax.

The major exceptions are as follows:When service provider is non resident, service receiver is liable;(a) In case of service of Goods Transport Agency (GTA), consignor/consignee who is paying freight is (b) liable;In case of insurance agents and mutual fund agents, insurance company and mutual fund are liable;(c) Incaseofsponsorshipserviceprovidedtoabodycorporateorfirm,thebodycorporateorfirmreceiving(d) such sponsorship service will be liable.

New section 67, introduced w.e.f. 18th April, 2006 makes elaborate provisions for valuation for purpose of levy of service tax.

Value of 'taxable service' plus service tax payable is equal to 'gross amount charged' [section 67(2)].

Rule 3 of Valuation Rules makes it clear that value of taxable service shall be determined by service provider. Thus, responsibilityofvaluationhasbeencastonserviceprovider.However,rule4authorisesCentralExciseOfficertoreject the value as determined by service provider and determine the 'value', after following principles of natural justice.

Section 67(3) provides that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after the provision of such service. Service tax will be payable on advance received also w.e.f. 13th May 2005

Service tax is payable only on 'value of taxable service' actually 'received', and not on amount 'billed'. If the service receiver does not pay full amount of Bill and pays less amount, reasonable interpretation is that proportionately less tax is payable.

The service provider is required to show service tax separately in his invoice/ bill, since provisions of section 12A of Central Excise have been made applicable to service tax. This is also required as per Rule 5(1) of Service Tax Credit Rules. This is also required to enable the service recipient to claim credit of service tax paid by the service provider


138/JNU OLE

Insomecases,abatementhasbeenprovidedfromgrossvalueofcontractbywayofanexemptionnotification,e.g.in case of construction services, service tax is payable on 33% of value of gross amount including of material, in caseofoutdoorcateringcontracts,servicetaxispayableon50%ofamountetc.Thus,exemptionnotificationshavebeen used as 'valuation provisions'. Abatement is provided of certain percentage, probably on the presumption that the abated amount represents value of material.

Service tax payable by Goods Transport Agency (GTA)As per circular No. 1/2006-ST dated 1-3-2006, Service Tax only on 25% amount of the invoice is payable. [Payment will be made by consignor/consignee who is actually paying freight]. Service tax payable by Transport of goods in container by rail Tax payable on 30% of gross amount charged

Credit of duty paid on input and input services and capital goodsThe Cenvat (Central Value Added Tax) scheme is principally based on system of granting credit of duty paid on inputs, input services and capital goods. A provider of taxable output services has to charge service tax in his invoice as per normal procedure. However, he gets credit of

duty paid on inputs and capital goods and(a) service tax paid on input services.(b)

This is termed as Cenvat Credit. This Cenvat Credit can be used for payment of service tax on his output services.

Input services eligible for creditAn output service provider will be entitled to credit of service tax paid by him on input services, which are used by him directly or indirectly in or in relation to provision of output services. Even input services relating to setting upaofficepremiseswillbeeligible.Inadditiontothis,serviceslikeadvertising,activitiesrelatingtobusinesslikeaccounting, auditing, storage, transport etc., which are only indirectly related to provision of output services would also be permitted for credit. In fact, all input services relating to all activities relating to business are eligible for Cenvat credit.

Inputs goods eligible for Cenvat to service providerCredit will be available of excise paid on inputs used for providing output services, except high speed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol).

Cenvat on Capital GoodsCapital goods used for providing output taxable service will be available. Credit of duty paid on machinery, plant, spare parts of machinery, tools, dies, etc., is available. However, up to 50% credit is available in current year and balanceinsubsequentfinancialyearoryears.Aserviceprovidercantakeoutcapitalgoodsfromhispremises,providedthat he brings them back within 180 days. This period can be extended by Assistant/Deputy Commissioner.

Credit on motor vehicles used to provide output serviceMotor vehicles are not ‘capital goods’ for purpose of ‘manufacture’, but credit on motor vehicles would be allowed as ‘capital goods’ only to the service providers of courier, tour operator, rent-a-cab scheme operator, cargo handling agency, outdoor caterer, pandal and shamiana operator and goods transport agency. Motor vehicle will not be treated as ‘capital goods’ for manufacturers or other service providers.

No Cenvat credit if output ser vice exempt from service taxNo credit is available if output service is exempt from service tax.

If the service provider uses common inputs both for exempted as well as un-exempted services, he should maintain separate records for input services used for exempted output services and should not avail Cenvat on such inputs/input services. However, if he does not maintain separate records and inventories of inputs/input services used in exempted output services, he can utilise Cenvat credit only upto 20% of service tax payable on output service.

A service provider may incur expenditure on behalf of service receiver and recovers the amount from him. Such expenditure is not part of service provided by him to service receiver, but is incurred by him as per business practice or convenience. Following illustrations may clarify the provisions –

139/JNU OLE

Octroi/entry tax amount paid by Clearing & Forwarding Agent, CHA or Transporter on behalf of owner of 1) goods/Principal.Customs duty, dock dues, demurrage, transport charges etc. paid by Customs House Agent on behalf of 2) client.Advertisement charges paid by Advertising Agency to newspaper on behalf of clients.3) Ticket charges paid by Travel Agent and recovered from his customer.4)

Exemption from service taxCentralGovernmentcangrantpartialortotalexemption,byissuingan'exemptionnotification'u/s93ofFinanceAct,1994. Such exemption may be partial or total. Exemption may be conditional or unconditional. The only limitation is that exemption cannot be granted by Central Government with retrospective effect. There are following general exemptions:

Small service providers:• Small units whose turnover less than Rs. Four lakhs per annum are exempt from service tax.Export of Services:• There is no service tax on export of services, if service is exported as per ‘Export of Service Rules’.Services to UN Agencies/SEZ:• Services provided to UN and International Agencies and supplies to SEZ ordeveloperareexempt [NotificationNo.16/2002-STdated2-8-2002 in respectofUNand InternationalAgenciesandNotificationNo.4/2004-STdated31-3-2004inrespectofSEZ-earlierNo.17/2002-STdated21-11-2002].

Service provider has to collect the service tax at the rate of 10.3% on the value of service from the service receiver.Presently, service tax rate is 10% plus education cess of 3% (total 10.30%). The small service providers whose turnover of taxable services from one or more premises did not exceed Rs. four lakhs in previous year will be exemptfromservicetaxinnextfinancialyearuptotheturnoverofRs.4lakhs.TheprovisionsareprescribedinNotificationNo.6/2005-STdated1-3-2005.Iftheinvoiceisgivenforaconsolidatedamountthentheservicetaxwill be calculated as per the formula:

Service Tax = (Invoice price X Rate)/ (1+ Rate)

8.8 Sales TaxCentral Sales Tax is levied by Central Government while State Sales Tax is levied by individual State Governments. Though Central Sales Tax is levied by Central Government, it is administered by State Governments and tax collected in each State is retained by that State Government itself. Tax on Inter-State sale is levied by Union (i.e. Central) Government while tax on Intra-State sale is levied by State Government of the State in which sale takes place. Normally, sales tax is treated as indirect tax as it can be and is usually recovered from buyer. However, the liability to pay tax is on the dealer, whether or not he collects if from buyer.

Sale where both buyer and seller are from same State is Intra-State sale e.g. from * Mumbai to Pune or Ahmedabad to Surat. These are Intra-state sales. However, when buyer and seller are in different States, it is Inter-state sales. For instance, Chennai (Tamil Nadu) to Trivandrum (Kerala) Allahabad (UP) to Hyderabad (Andhra Pradesh).

8.9 Central Excise ActThe organisations purchase many goods required by them from manufacturer. That time the manufacturer issues an invoice which invariably contains an item called excise duty. The organisations think that the manufacturer might have charged the excise duty correctly. Since the burden of excise duty is borne by the organisations, the manufacturer may not bother about the correctness about the excise duty levied. To be on safer side he may levy more excise duty. Therefore, every organization must have basic knowledge about the excise duty.

An indirect tax levied by government on the goods manufactured in India is called as Excise duty. Excise duty is leviable on the excisable goods manufactured in India. If a new and different article having distinct name, character


140/JNU OLE

and use emerges after a process, it is called as Manufacture. The goods should be movable and marketable. Basic duty and special duty are levied under the act. Basic duty is also called as CENVAT.

The "Value" on which the excise duty is payable as a percentage is called as Assessable Value. The price actually paid or payable for the goods when sold is called as Transaction Value. Transaction value includes the price of the goods, selling expenses and outward handling charges. Transaction value does not include duty of excise, sales tax and trade discount.

Valuation based on Retail Sale PriceThe maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes local or otherwise is called as Retail sale price. Section 4A of CEA empowers Central Government to specify goods on which duty will be payable based on 'retail sale price'.

The provisions for valuation on MRP basis are as follows:The goods should be covered under provisions of Standards of Weights and Measures Act or Rules [section (a) 4A (1)].CentralGovernmenthastoissueanotificationinOfficialGazettespecifyingthecommoditiestowhich(b) the provision is applicable and the abatements permissible. Central Government can permit reasonable abatement (deductions) from the 'retail sale price' [section 4A (2)].While allowing such abatement, Central Government shall take into account excise duty, sales tax and other (c) taxes payable on the goods [section 4A(3)].The 'retail sale price' should be the maximum price at which excisable goods in packaged forms are sold (d) to ultimate consumer. It includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges etc. If under certain law, MRP is required to be without taxes and duties, that price can be the 'retail sale price' [Explanation 1 section 4A].If more than one 'retail sale price' is printed on the same packing, the maximum of such retail price will be (e) considered [Explanation 2(a) to section 4A]. If different MRP are printed on different packages for different areas, each such price will be 'retail sale price' for purpose of valuation [Explanation 2(c) to section 4A].Removing excisable goods without MRP or wrong MRP or tampering, altering or removing MRP declared (f) onapackageisanoffenceandgoodsareliabletoconfiscation[section4A(4)]Ifpriceisaltered,suchincreased price will be the ‘retail sale price’ for purpose of valuation [Explanation 2(b) to section 4A].

Excise duty is payable on the goods given as free samples and held as stock. Persons shall be deemed to be "related" if they are inter-connected undertakings or they are relatives or the buyer is a relative and a distributor of the assessee. "Place of removal" means factory premises of production or warehouse premises wherein the excisable goods have been stored. Refund of excise duty can be made to the applicant if such amount is relatable to rebate of duty of excise on excisable goods exported out of India or unspent advance deposits lying in balance in the applicant’s account current or refund of credit of duty paid on excisable goods used as inputs. "Relevant date" in the case of goods exported out of India means the date on which the ship or the aircraft in which such goods are loaded, leaves India orthedateofdispatchofgoodsbythePostOfficeorthedateonwhichsuchgoodspassthefrontier.Thepenaltyfor short payment or non payment of excise duty is 100% of the duty unpaid.

Ware house owner is liable for excise duty if the goods are removed from his ware house without payment of excise duty. If a person has collected any amount in excess of the duty assessed or determined from the buyer of such goods, he must pay the amount so collected to the credit of the Central Government. A person liable to pay excise duty should prominently indicate in all the related documents the amount of such duty which will form part of the price at which such goods are to be sold. Every person who has paid the duty of excise is deemed to have passed on the full incidence of such duty to the buyer of such goods.

By-products are also liable for excise duty since they have distinct character and use. Cutting, Sizing, Labelling, Washing, Polishing, Painting Printing of logo or name of the company etc are not liable for excise duty. A plant & machinery assembled and erected at a site and embedded to earth is not liable for excise duty.

141/JNU OLE

8.10 Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000Following are the important rules of Central Excise Valuation Rules, 2000:

In exercise of the powers conferred by section 37 of the Central Excise Act, 1944 (1 of 1944), and in supersession of the Central Excise (Valuation) Rules, 1975 except as respect things done or omitted to the done before such supersession, the Central Government hereby makes the following rules, namely:

Rule 1These rules may be called the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, (1) 2000.They shall come into force on and from the 1st day of July, 2000.(2)

Chapter I - PreliminaryRule 2: In these rules, unless the context otherwise requires,-

"Act" means the Central Excise Act, 1944 (1 of 1944);(a) "Normal transaction value" means the transaction value at which the greatest aggregate quantity of goods are (b) sold;"Value" means the value referred to in section 4 of the Act;(c) Wordsandexpressionsused in these rulesandnotdefinedbutdefined in theAct shallhave themeanings(d) respectively assigned to them in the Act.

Chapter II - Determination of valueRule 3: The value of any excisable goods shall, for the purposes of clause (b) of sub-section (1) of section 4 of the Act, be determined in accordance with these rules.

Rule 4: The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable.

Rule 5:Whereanyexcisablegoodsaresoldinthecircumstancesspecifiedinclause(a)ofsub-section(1)ofsection4 of the Act except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal up to the place of delivery of such excisable goods.

Rule 6:Wheretheexcisablegoodsaresoldinthecircumstancesspecifiedinclause(a)ofsubsection(1)ofsection4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional considerationflowingdirectlyorindirectlyfromthebuyertotheassessee.

Rule 7: Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment agent or any other place or premises (hereinafter referred to as "such other place") from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment.

Rule 8: Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be (one hundred and ten per cent), of the cost of production or manufacture of such goods.


142/JNU OLE

Rule 9: When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a personwhoisrelatedinthemannerspecifiedineitherofsub-clauses(ii),(iii)or(iv)ofclause(b)ofsub-section(3) of section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail: Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, thevalueshallbedeterminedinthemannerspecifiedinrule8.

Rule 10: When the assessee so arranges that the excisable goods are not sold by him except to or through an inter-connected undertaking, the value of goods shall be determined in the following manner, namely :-

If the undertakings are so connected that they are also related in terms of sub-clause (ii) or (iii) or (iv) of (a) clause (b) of sub-section (3) of section 4 of the Act or the buyer is a holding company or subsidiary company of the assessee, then the value shall be determined in the manner prescribed in rule 9.in any other case, the value shall be determined as if they are not related persons for the purpose of sub-section (b) (1) of section 4.

Rule 10A: Where the excisable goods are produced or manufactured by a job-worker, on behalf of a person (hereinafter referred to as principal manufacturer), then, -

in a case where the goods are sold by the principal manufacturer for delivery at the time of removal (i) of goods from the factory of job-worker, where the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer;in a case where the goods are not sold by the principal manufacturer at the time of removal of goods (ii) from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory of job-worker;in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable, (iii) shall mutatis mutandis apply for determination of the value of the excisable goods: Provided that the cost of transportation, if any, from the premises, wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods.

Rule 11: If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of section 4 of the Act.

143/JNU OLE

8.11 Few terms in Taxation Laws Relevant to SCM

Allowance Afixedquantityofmoneyorothersubstancegivenregularlyinadditiontosalaryformeetingspecificrequirementsoftheemployees.

Annual Value N.A.V. less the deductions available u/s 24.

Assessable Value The "Value" on which the excise duty is payable as a percentage.

Assessee A person who is liable to pay income tax.

Assessment Year The year in which the income of the previous year is to be assessed.

Capital Asset Property of any kind held by the assessee except certain assets.

Capital Gain Profitorgainsarisingfromthetransferofacapitalasset.

CENVAT Central Value Added Tax.

Cum Duty Price Price inclusive of excise duty.

Excisable Goods GoodsspecifiedintheFirstScheduleandSecondScheduletotheCentral Excise Tariff Act, 1985 (5 of 1986).

Excise Duty Tax on manufacture of excisable goods.

Financial Year 1st April to 31st March.

Gross Annual Value The highest of a) Rent received or receivable b) Fair Market Value c) Municipal valuation.

Long Term Capital Gain Profitorgainsarisingfromthetransferofaequityinvestmentafter12months or from the transfer of other capital asset after 36 months.

Manufacture A new and different article having distinct name, character and use emerges after a process.

Net Annual Value GAV less the municipal taxes paid.


144/JNU OLE

Permanent Account Number AnumberallottedtoapersonbytheAssessingOfficerforthepurposeofidentification.

Perquisite Valueofanybenefit/amenitygrantedfreeoratconcessionalratetospecifiedemployees.

Previous Year Year preceding the Assessment Year.

Retail Sale Price The maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes local or otherwise.

Salary The remuneration received by or accruing to an employee.

Short Term Capital Gain Profitorgainsarisingfromthetransferofaequityinvestmentwithin12 months or from the transfer of other capital asset within 36 months.

Transaction Value The price actually paid or payable for the goods when sold.

Table 8.7 Few terms Taxation Laws Relevant to SCM

145/JNU OLE

SummaryAn employer has to deduct income tax at source from the salary payable to employees. Manager of supply •chain management unit has to employ staff to run his business. He pays salary to them. On such payment he has to deduct tax at source.Salary is the remuneration received by or accruing to an individual, periodically, for service rendered as a result •of an express or implied contract.IncometaxActgivesaninclusiveandnotexhaustivedefinitionof"Salaries":wages,annuityorpension,gratuity,•anyfees,commission,perquisitesorprofitsinlieuoforinadditiontoanysalaryorwages,etc."Perquisite"maybedefinedasanycasualemolumentorbenefitattachedtoanofficeorpositioninadditionto•salary or wages.Allowanceisdefinedasafixedquantityofmoneyorothersubstancegivenregularlyinadditiontosalaryfor•meetingspecificrequirementsoftheemployees.It is the responsibility of the employer to deduct the tax from the salary of the employee at source and remit it •to Government.Profit or gains arising from the transfer of a capital asset during the previous year is taxable as "Capital•Gains".It has made it mandatory for a person giving income to another person to deduct tax from such payment and •depositwiththeGovernment.Ifthetaxisnotdeductedtherewillbepenaltyandfines.The Income Tax Act provides for charging of interest for non-payment/short payment/deferment in payment •of advance tax which is calculated.The Cenvat (Central Value Added Tax) scheme is principally based on system of granting credit of duty paid •on inputs, input services and capital goods.Exemption may be conditional or unconditional. The only limitation is that exemption cannot be granted by •Central Government with retrospective effect.

ReferencesCentral Excise Valuation• (determination of price of excisable goods) Rules, 2000. Available at: <http://www.cbec.gov.in/excise/cx-rules-valuation2000.htm> [Accessed on 21st March, 2011].Income Tax Act, 1961.• Available at: <http://www.vakilno1.com/bareacts/incometaxact/s17.htm> [Accessed on 18th March, 2011].

Recommendation ReadingSalary Income.• Available at: <http://www.dateyvs.com/salary_income.htm> [Accessed on 21st March, 2011].Income-Tax Act, 1961 as amended by Finance Act.• Available at: <http://law.incometaxindia.gov.in/DIT/Income-tax-acts.aspx#> [Accessed on 21st March, 2011].Income Tax Act - Sections.• Available at: <http://mytaxes.in/index.php/topic,175.0.html> [Accessed on 21st March, 2011].


146/JNU OLE

Self Assessment

Service provider has to collect the service tax at the rate of ____________ on the value of service from the 1. service receiver.

10.3%a. 10.4%b. 10.5%c. 10.6%d.

By whom the inter-state sale is levied?2. District Councila. Central or Union Governmentb. State Governmentc. Gram Panchayatsd.

By whom the intra-state sale is levied?3. District Councila. Central or Union Governmentb. State Governmentc. Gram Panchayatsd.

Which statement is true?4. Income tax is treated as indirect tax as it can be and is usually recovered from customer.a. Sales tax is treated as indirect tax as it can be and is usually recovered from the consumer.b. Sales tax is treated as direct tax as it can be and is usually recovered from buyer.c. Sales tax is treated as indirect tax as it can be and is usually recovered from buyer.d.

Identifytheperiodoffinancialyear.5. 15a. th April to 31st March1b. st April to 31st March 1c. st March to 1st February31d. st April to 1st March

If old machinery or a transport vehicle or old furniture is sold for a sum higher than the written down value, the 6. difference will be deemed as_____________.

Long Term Capital Gain a. Short Term Capital Gainb. ShortTermProfitc. GrossProfitd.

__________isdefinedasafixedquantityofmoneyorothersubstancegivenregularlyinadditiontosalaryfor7. meetingspecificrequirementsoftheemployees.

Pensiona. Salaryb. Allowancec. Perquisited.

147/JNU OLE

PermanentAccountNumber is a number allotted to a person by theAssessingOfficer for the purpose8. of_______________.

clarificationa. recordb. censusc. identificationd.

A business prepares his ____________ statement as per the standard accounting principals.9. profit&lossa. financialb. profitc. accountingd.

A service provider can take out capital goods from his premises, provided that he brings them back 10. within__________.

160 daysa. 180 daysb. 200 daysc. 220 daysd.


148/JNU OLE

Chapter IX

Labour Laws

Aim


describe the main provisions of Child Labour Act•

explaintheimportantdefinitionsunderthisAct•

state the provisions of the Minimum Wages Act, 1948•

Objectives


describe the important provisions of Contract Labour Act•

explain Employee's State Insurance Act •

illustrate the main provisions of the Workmen's Compensation Act, 1923•

Learning outcome


understand Contract Labour Act•

understand the laws against for child labour •

recognise the important of the provisions of the Minimum Wages Act, 1948•

149/JNU OLE

9.1 IntroductionIndia is one of the developing countries. In 2004–2005, 27.5% of the population was living below the poverty line. People in this category cannot afford to send their children to school. On the contrary, they use their children for earning livelihood. A small income earned by children supplements the income of the poor family. Child labour is very cheap compared to adult labour. Children are more honest and sincere in discharging their duties. Hence, few businessmen prefer child labour to reduce their wage bill. It is the fundamental right of every child to have basic education. As a measure of Child Welfare, Government of India has banned child labour.

While running an organisation an entrepreneur has to employ labours to carry out his business. India is a labour welfare nation. To prevent the exploitation of labour by unscrupulous employers, the Government of India has enacted several acts. All the employers are expected to follow these regulations. In case of violation, there are provisionsforimprisonmentorfineorboth.Inthischapteryouwillbestudyingsomeoftheimportantprovisionsof labour laws.

9.2 DefinitionsSomeoftheimortantdefinitionsarementionedbelow.

Part ISection 2oftheActdefinesthefollowingterms:

"appropriate Government" means, in relation to an establishment under the control of the Central Government (i) orarailwayadministrationoramajorportoramineoroilfield,theCentralGovernment,andinallothercases, the State Government;"child" means a person who has not completed his fourteenth year of age;(ii) "day" means a period of twenty-four hours beginning at midnight;(iii) "establishment" includes a shop, commercial establishment, work-shop, farm, residential hotel, restaurant, (iv) eating-house, theatre or other place of public amusement or entertainment;"family" in relation to an occupier, means the individual, the wife or husband, as the case may be, of such (v) individual, and their children, brother or sister of such individual;"occupier", in relation to an establishment or a workshop, means the person who has the ultimate control (vi) over the affairs of the establishment or workshop;"port authority" means any authority administering a port;(vii) "prescribed" means prescribed by rules made under Section 18;(viii) "week" means a period of seven days beginning at midnight on Saturday night or such other night as may (ix) be approved in writing for a particular area by the Inspector;"workshop" means any premises (including the precincts thereof) wherein any industrial process in carried (x) on, but does not include any premises to which the provisions of Section 67 of the Factories Act, 1948 (63 of 1948), for the time being, apply.

Part IISection 3: Prohibition of employment of children in certain occupations and processesNo child shall be employed or permitted to work in any of the occupations set forth in Part A of the Schedule or in any workshop wherein any of the processes set forth in Part B of the Schedule is carried on: Provided that nothing in this section shall apply to any workshop wherein any process is carried on by the occupier with the aid of his family or to any school established by or receiving assistance or recognition from, Government.

Section 4: Power to amend the ScheduleTheCentralGovernment,aftergivingbynotificationintheofficialGazette,notlessthanthreemonthsnoticeofitsintentionsotodo,may,bylikenotification,addanyoccupationorprocesstotheScheduleandthereupontheSchedule shall be deemed to have been amended accordingly.

Section 5: Child Labour Technical Advisory CommitteeTheCentralGovernmentmay,bynotificationisinofficialGazette,constituteanadvisorycommitteeto(1) be called the Child Labour Technical Advisory Committee (hereinafter in this section referred to as the


150/JNU OLE

Committee) to advise the Central Government for the purpose of addition of occupations and processes to the Schedule.The Committee shall consist of a Chairman and such other members not exceeding ten, as may be appointed (2) by the Central Government.The Committee shall meet as often as it may consider necessary and shall have power to regulate its own (3) procedure.The Committee may, if it deems it necessary so to do, constitute one or more sub-committees and may (4) appoint to any such sub-committee, whether generally or for the consideration of any particular matter, any person who is not a member of the Committee.Thetermofofficeof,themanneroffillingcausalvacanciesintheofficeof,andtheallowances,ifany,(5) payable to, the Chairman and other members of the Committee, and the conditions and restrictions subject to which the Committee may appoint any person who is not a member of the Committee as a member of any of its sub-committees shall be such as may be prescribed.

Part III - Regulation of Conditions of Work of ChildrenSection 6: Application of PartThe provisions of this Part shall apply to an establishment or a class of establishments in which none of the occupations or processes referred to in Section 3 is carried on.

Section 7: Hours and period of workNo child shall be required or permitted to work in any establishment in excess of such number of hours as may (1) be prescribed for such establishment or class of establishments.Theperiodofworkoneachdayshallbesofixedthatnoperiodshallexceedthreehoursandthatnochildshall(2) work for more than three hours before he has had an interval for rest for at least one hour.The period of work of a child shall be so arranged that inclusive of his interval for rest, under sub-section(2), it (3) shall not be spread over more than six hours, including the time spent in waiting for work on any day.No child shall be permitted or required to work between 7 p.m. to 8 a.m.(4) No child shall be permitted or required to work overtime.(5) No child shall be permitted or required to work in any establishment on any day on which he has already been (6) working in another establishment.

Section 8: Weekly holidaysEvery child employed in an establishment shall be allowed in each week, a holiday or one whole day, which day shallbespecifiedbytheoccupierinanoticepermanentlyexhibitedinaconspicuousplaceintheestablishmentandthedaysospecifiedshallnotbealteredbytheoccupiermorethanonceinthreemonths.

Section 9: Notice to InspectorEvery occupier in relation to an establishment in which a child was employed or permitted to work immediately (1) before the date of commencement of this Act in relation to such establishment shall, within a period of thirty days from such commencement, send to the Inspector within whose local limits the establishment is situated, a written notice containing the following particulars, namely:

the name and situation of the establishment;a. the name of the person in actual management of the establishment;b. the address to which communications relating to the establishment should be sent; and,c. the nature of the occupation or process carried on in the establishment.d.

Every occupier, in relation to an establishment, who employs, or permits to work, any child after the date of (2) commencement of this Act in relation to such establishment, shall, within a period of thirty days from the date of such employment, send to the Inspector within whose local limits the establishment is situated, a written notice containing the following particulars as are mentioned in sub-section (1).Explanation: For the purposes of sub-sections (1) and (2), "date of commencement of this Act, in relation to an establishment" means the date of brining into force of this Act in relation to such establishment.Nothing in Sections 7,8and 9 shall apply to any establishment wherein any process is carried on by the (3) occupier with the aid of his family or to any schools established by, or receiving assistance or recognition from, Government.

151/JNU OLE

Section 10: Disputes as to ageIf any question arises between an Inspector and an occupier as to the age of any child who is employed or is permitted toworkbyhiminanestablishment,thequestionshall,intheabsenceofacertificateastotheageofsuchchildgranted by the prescribed authority, be referred by the Inspector for decision to the prescribed medical authority.

Section 11: Maintenance of registerThere shall be maintained by every occupier in respect of children employed or permitted to work in any establishment, a register to be available for inspection by an Inspector at all times during working hours or when work is being carried on in any such establishment showing:

the name and date of birth of every child so employed or permitted to work;(a) hours and periods of work of any such child and the intervals of rest to which he is entitled;(b) the nature of work of any such child; and(c) such other particulars as may be prescribed.(d)

Section 12: Display of notice containing abstract of Sections 3 and 14Every railway administration, every port authority and every occupier shall cause to be displayed in a conspicuous and accessible place at every station on its railway or within the limits of a port or at the place of work, as the case may be, a notice in the local language and in the English language containing an abstract of Sections 3 and 14.

Section 13: Health and safetyTheappropriateGovernmentmay,bynotificationintheofficialGazette,makerulesforthehealthandsafety(1) of the children employed or permitted to work in any establishment or class of establishments.Without prejudice to the generality of the foregoing provisions, the said rules may provide for all or any of the (2) following matters, namely:

cleanliness in the place of work and its freedom for nuisance;(a) disposalofwastesandeffluents;(b) ventilation and temperature;(c) dust and fume;(d) artificialhumidification;(e) lighting;(f) drinking water;(g) latrine and urinals;(h) spittoons;(i) fencing of machinery;(j) work at or near machinery in motion;(k) employment of children on dangerous machines;(l) instructions, training and supervision in relation to employment of children on dangerous machines;(m) device for cutting off power;(n) self-acting machinery;(o) easing of new machinery;(p) floor,stairsandmeansofaccess;(q) pits,sumps,openingsinfloors,etc.;(r) excessive weight;(s) protection of eyes;(t) explosiveorinflammabledust,gas,etc.;(u) precautionsincaseoffire;(v) maintenance of buildings; and(w) safety of buildings and machinery(x) .


152/JNU OLE

Part IVSection 14: Penalties

Whoever employs any child or permits any child to work in contravention of the provisions of Section 3 shall (1) be punishable with imprisonment for a term which shall not be less than three months but which may extend to oneyearorwithfinewhichshallnotbelessthantenthousandrupeesbutwhichmayextendtotwentythousandrupees or with both.Whoever, having been convicted of an offence under Section 3, commits a like offence afterwards, he shall be (2) punishable with imprisonment for a term which shall not be less than six months but which may extend to two years.Whoever –(3)

fails to give notice as required by Section 9, or(a) fails to maintain a register as required by Section 11 or makes any false entry in any such register; or(b) fails to display a notice containing an abstract of Section 3 and this section as required by Section 12; or(c) fails to comply with or contravenes any other provisions of this Act or the rules made there under, shall be (d) punishablewithsimpleimprisonmentwhichmayextendtoonemonthorwithfinewhichmayextendtoten thousand rupees or with both.

9.3 Important Provisions of Contract Labour ActSection 2: Definitions

In this Act, unless the context otherwise requires(1) "appropriate Government" means,--(a)

in relation to an establishment in respect of which the appropriate Government under the Industrial (i) Disputes Act, 1947 (14 of 1947), is the Central Government, the Central Government;in relation to any other establishment, the Government of the State in which that other establishment (ii) is situated;

a workman shall be deemed to be employed as "contract labour" in or in connection with the work of an (b) establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer;"contractor", in relation to an establishment, means a person who undertakes to produce a given result (c) for the establishment, other than a mere supply of goods of articles of manufacture to such establishment, through contract labour or who supplies contract labour for any work of the establishment and includes a sub-contractor;"controlled industry" means any industry the control of which by the Union has been declared by any Central (d) Act to be expedient in the public interest;"establishment" means--(e)

anyofficeordepartmentoftheGovernmentoralocalauthority,or(i) any place where any industry, trade, business, manufacture or occupation is carried on;(ii)

"prescribed" means prescribed by rules made under this Act;(f) "principal employer" means--(g)

inrelationtoanyofficeordepartmentoftheGovernmentoralocalauthority,theheadofthatoffice(i) ordepartmentorsuchotherofficerastheGovernmentorthelocalauthority,asthecasemaybe,mayspecify in this behalf,in a factory, the owner or occupier of the factory and where a person has been named as the manager (ii) of the factory under the Factories Act, 1948 (63 of 1948) the person so named,in a mine, the owner or agent of the mine and where a person has been named as the manager of the (iii) mine, the person so named,in any other establishment, any person responsible for the supervision and control of the (iv) establishment.Explanation: For the purpose of sub-clause (iii) of this clause, the expressions "mine", "owner" and "agent" shall have the meanings respectively assigned to them in clause (j), clause (l) and clause (c) of subsection (1) of section 2 of the Mines Act, 1952 (35 of 1952);

"wages" shall have the meaning assigned to it in clause (vi) of section 2 of the Payment of Wages Act, 1936 (h) (4 of 1936);"workman" means any person employed in or in connection with the work of any establishment to do any (i)

153/JNU OLE

skilled, semiskilled or un-skilled manual, supervisory, or clerical work for hire or reward, whether the terms of employment be express or implied, but does not include any such person--

who is employed mainly in a managerial or administrative capacity; or(A) who,beingemployedinasupervisorycapacitydrawswagesexceedingfivehundredrupeespermensem(B) orexercises,eitherbythenatureofthedutiesattachedtotheofficeorbyreasonofthepowersvestedin him, functions mainly of a managerial nature; orwho is an out-worker, that is to say, a person to whom any articles or materials are given out by or (C) onbehalfofthePrincipalemployertobemadeup,cleaned,washed,altered,ornamented,finished,repaired, adapted or otherwise processed for sale for the purposes of the trade or business of the principal employer and the process is to be carried out either in the home of the out-worker or in some other premises, not being premises under the control and management of the principal employer.

9.4 Registration of Establishments Employing Contract LabourSection 6: Appointment of registering officersTheappropriateGovernmentmay,byanordernotifiedintheOfficialGazette--

appointsuchpersons,beingGazettedOfficersofGovernment,asitthinksfittoberegisteringofficersfor(a) the purposes of this Chapter; anddefinethelimits,withinwhicharegisteringofficershallexercisethepowersconferredonhimbyorunder(b) this Act.

Section 7: Registration of certain establishmentsEvery principal employer of an establishment to which this Act applies shall, within such period as the appropriate (1) Governmentmay,bynotificationintheOfficialGazette,fixinthisbehalfwithrespecttoestablishmentsgenerallyorwithrespecttoanyclassofthem,makeanapplicationtotheregisteringofficerintheprescribedmannerforregistration of the establishment: Providedthattheregisteringofficermayentertainanysuchapplicationforregistrationafterexpiryoftheperiodfixedinthisbehalf,iftheregisteringofficerissatisfiedthattheapplicantwaspreventedbysufficientcausefrommakingtheapplicationintime.Iftheapplicationforregistrationiscompleteinallrespects,theregisteringofficershallregistertheestablishment(2) andissuetotheprincipalemployeroftheestablishmentacertificateofregistrationcontainingsuchparticularsas may be prescribed.

Section 8: Revocation of registration in certain casesIftheregisteringofficerissatisfied,eitheronareferencemadetohiminthisbehalforotherwise,thattheregistrationof any establishment has been obtained by misrepresentation or suppression of any material fact, or that for any other reason the registration has become useless or ineffective and, therefore, requires to be revoked, the registering officermay,aftergivinganopportunitytotheprincipalemployeroftheestablishmenttobeheardandwiththeprevious approval of the appropriate Government, revoke the registration.

Section 9: Effect of non-registrationNo principal employer of an establishment, to which this Act applies, shall--

in the case of an establishment required to be registered under section 7, but which has not been registered (a) withinthetimefixedforthepurposeunderthatsection,in the case of an establishment the registration in respect of which has been revoked under section 8, employ (b) contract labour in the establishment after the expiry of the period referred to in clause (a) or after the revocation of registration referred to in clause (b), as the case may be.

Section 10: Prohibition of employment of contract labourNotwithstanding anything contained in this Act, the appropriate Government may, after consultation with the (1) CentralBoardor,asthecasemaybe,aStateBoard,prohibit,bynotificationintheOfficialGazette,employmentof contract labour in any process, operation or other work in any establishment.Beforeissuinganynotificationundersub-section(1)inrelationtoanestablishment,theappropriateGovernment(2) shallhaveregardtotheconditionsofworkandbenefitsprovidedforthecontractlabourinthatestablishmentand other relevant factors, such as--

whether the process, operation or other work is incidental to, or necessary for the industry, trade, (a)


154/JNU OLE

business, manufacture or occupation that is carried on in the establishment:whetheritisofperennialnature,thatistosay,itisofsufficientdurationhavingregardtothenature(b) of industry, trade, business, manufacture or occupation carried on in that establishment;whether it is done ordinarily through regular workmen in that establishment or an establishment (c) similar thereto;whetheritissufficienttoemployconsiderablenumberofwhole-timeworkmen.(d)

Explanation: If a question arise whether any process or operation or other work is of perennial nature, thedecisionoftheappropriateGovernmentthereonshallbefinal.

9.5 Licensing of ContractorsSection 11: Appointment of licensing officersTheappropriateGovernmentmay,byanordernotifiedintheOfficialGazette,--

appointsuchpersons,beingGazettedOfficersofGovernment,asitthinksfittobelicensingofficersfor(a) the purposes of this Chapter; anddefinethelimits,withinwhichalicensingofficershallexercisethepowersconferredonlicensingofficers(b) by or under this Act.

Section 12: Licensing of contractorsWitheffectfromsuchdateastheappropriateGovernmentmay,bynotificationintheOfficialGazette,appoint,(1) no contractor to whom this Act applies, shall undertake or execute any work through contract labour except underandinaccordancewithalicenceissuedinthatbehalfbythelicensingofficer.Subject to the provisions of this Act, a licence under sub-section (1) may contain such conditions including, in (2) particular,conditionsastohoursofwork,fixationofwagesandotheressentialamenitiesinrespectofcontractlabourastheappropriateGovernmentmaydeemfittoimposeinaccordancewiththerules,ifany,madeundersection 35 and shall be issued on payment of such fees and on the deposit of such sum, if any, as security for the due performance of the conditions as may be prescribed.

Section 13: Grant of licencesEvery application for the grant of a licence under sub-section (1) of section 12 shall be made in the prescribed (1) form and shall contain the particulars regarding the location of the establishment, the nature of process, operation or work for which contract labour is to be employed and such other particulars as may be prescribed.Thelicensingofficermaymakesuchinvestigationinrespectoftheapplicationreceivedundersub-section(1)(2) andinmakinganysuchinvestigationthelicensingofficershallfollowsuchprocedureasmaybeprescribed.AlicencegrantedunderthisChaptershallbevalidfortheperiodspecifiedthereinandmayberenewedfrom(3) time to time for such period and on payment of such fees and on such conditions as may be prescribed.

Section 14: Revocation, suspension and amendment of licencesIfthelicensingofficerissatisfied,eitheronareferencemadetohiminthisbehalforotherwise,that--(1)

a licence granted under section 12 has been obtained by misrepresentation or suppression of any material (a) fact, orthe holder of a licence has, without reasonable cause, failed to comply with the conditions subject to which (b) the licence has been granted or has contravened any of the provisions of this Act or the rules made there under, then, without prejudice to any other penalty to which the holder of the licence may be liable under thisAct,thelicensingofficermay,aftergivingtheholderofthelicenceanopportunityofshowingcause,revoke or suspend the licence or forfeit the sum, if any, or any portion thereof deposited as security for the due performance of the conditions subject to which the licence has been granted.

Subjecttoanyrulesthatmaybemadeinthisbehalf,thelicensingofficermayvaryoramendalicencegranted(2) under section 12.

9.6 Welfare and Health of Contract LabourSection 16: Canteens

The appropriate Government may make rules requiring that in every establishment--(1) to which this Act applies,(a)

155/JNU OLE

wherein work requiring employment of contract labour is likely to continue for such period as may be (b) prescribed, andwherein contract labour numbering one hundred or more is ordinarily employed by a contractor, one or more (c) canteens shall be provided and maintained by the contractor for the use of such contract labour.

Without prejudice to the generality of the foregoing power, such rules may provide for--(2) the date by which the canteens shall be provided;(a) the number of canteens that shall be provided, and the standards in respect of construction, accommodation, (b) furniture and other equipment of the canteens; andthe foodstuffs which may be served therein and the charges which may be made thereof.(c)

Section 17: Rest-roomsIn every place wherein contract labour is required to halt at night in connection with the work of an (1) establishment--

to which this Act applies, and(a) in which work requiring employment of contract labour is likely to continue for such period as may be (b) prescribed, there shall be provided and maintained by the contractor for the use of the contract labour such number of rest-rooms or such other suitable alternative accommodation within such time as may be prescribed.

Therestroomsorthealternativeaccommodationtobeprovidedundersubsection(1)shallbesufficientlylighted(2) and ventilated and shall be maintained in a clean and comfortable condition.

Section 18: Other facilitiesIt shall be the duty of every contractor employing contract labour in connection with the work of an establishment to which this Act applies, to provide and maintain--

asufficientsupplyofwholesomedrinkingwaterforthecontractlabouratconvenientplaces;(a) asufficientnumberof latrinesandurinalsof theprescribed typessosituatedas tobeconvenientand(b) accessible to the contract labour in the establishment; andwashing facilities.(c)

Section 19: First-aid facilitiesThere shall be provided and maintained by the contractor so as to be readily accessible during all working hours a first-aidboxequippedwiththeprescribedcontentsateveryplacewherecontractlabourisemployedbyhim.

Section 20: Liability of principal employer in certain casesIfanyamenityrequiredtobeprovidedundersection16,section17,section18orsection19forthebenefitof(1) the contract labour employed in an establishment is not provided by the contractor within the time prescribed thereof, such amenity shall be provided by the principal employer within such time as may be prescribed.All expenses incurred by the principal employer in providing the amenity may be recovered by the principal (2) employer from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.

Section 21: Responsibility for payment of wagesA contractor shall be responsible for payment of wages to each worker employed by him as contract labour and (1) such wages shall be paid before the expiry of such period as may be prescribed.Every principal employer shall nominate a representative duly authorised by him to be present at the time of (2) disbursement of wages by the contractor and it shall be the duty of such representative to certify the amounts paid as wages in such manner as may be prescribed.It shall be the duty of the contractor to ensure the disbursement of wages in the presence of the authorised (3) representative of the principal employer.In case the contractor fails to make payment of wages within the prescribed period or makes short(4) payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.


156/JNU OLE

9.7 Penalties and ProcedureSection 23: Contravention of provisions regarding employment of contract labourWhoever contravenes any provision of this Act or of any rules made there under prohibiting, restricting or regulating the employment of contract labour, or contravenes any condition of a licence granted under this Act, shall be punishablewithimprisonmentforatermwhichmayextendtothreemonths,orwithfinewhichmayextendtoonethousandrupees,orwithboth,andinthecaseofacontinuingcontraventionwithanadditionalfinewhichmayextendtoonehundredrupeesforeverydayduringwhichsuchcontraventioncontinuesafterconvictionforthefirstsuch contravention.

Section 24: Other offencesIf any person contravenes any of the provisions of this Act or of any rules made there under for which no other penalty is elsewhere provided, he shall be punishable with imprisonment for a term which may extendtothreemonths,orwithfinewhichmayextendtoonethousandrupees,orwithboth.

9.8 The Minimum Wages Act, 1948The Minimum Wages Act was passed in 1948 and it came into force on 15th March, 1948. The Act provides for a fullfledgemachinerytodeterminetheminimumratesofwagesintheindustriesspecifiedinthescheduleattachedto the Act and therefore are called scheduled employment. The Minimum Wages Act, 1948 also gives effect to the obligations created by the Convention no. 26 of the International Labour Organisation (ILO) adopted in the year 1948,andRecommendationno.30relatingtominimumwagefixationmachinery.

Fixation of minimum rates of wagesTheActdoesnotdefinetheminimumwagesconcept.Accordingtothecommitteeoffairwages,minimumwagesmustprovidenotmerelyforthebaresustenanceoflifebutalsoforthepreservationofefficiencyoftheworker.For this purpose, the minimum wages must also provide some measure of education, medical requirements and amenities. The minimum wages have to be paid irrespective of the paying capacity of the industry. An employee is prohibited from relinquishing any of his rights under the Act.

Minimum rate of wagesAny minimum rate of wages may consist of –an all inclusive rate allowing for the basic Rate, the cost of living allowance and the cash value of the concessions, if any.

The Employee's State Insurance Act, 1948The Employees' state insurance Act, 1948 is social security & welfare legislation. Every establishment to which thisActappliesshallberegisteredwithinsuchtimeandinsuchmannerasmaybespecifiedintheregulationsmadein this behalf. The Employees' State Insurance Corporation, Standing Committee of the Corporation and Medical benefitcouncilhasbeenconstitutedtoadministerESIact.

Employer's Contribution to ESI fund: 4.75% of the wages payable to an employee. Employee's Contribution: 1.75% of the Wages payable to an employee.

Employer shall send a statement of contributions in quadruplicate in Form 6within 42 days of the termination of the contribution period to which it relates.a) within 21 days, of the date of permanent closure of the factory or establishment,b) within7daysofthedateofreceiptofrequisitionfromtheappropriateoffice.c)

An employer shall pay contributions within 21 days of the last day of the calendar month in which the contributions falldue.Ifhefailstopaycontributionwithintheperiodsspecifiedshallbeliabletopaysimpleinterestattherateof 15% per annum in respect of each day of default or delay in payment of contribution. In addition an employer has to pay damages on contributions or any other amount due but not paid in time.

157/JNU OLE

ThebenefitsunderESIaregroupedasunder:Sicknessbenefits,a) Maternitybenefits,b) Disablementbenefits,c) Dependentsbenefits,d) Medicalbenefits,e) Funeral expenses.f)

Example:

Particulars of the salary drawn by Mr. Sangmesh working in an industry are as under.Basic Pay: 2,200/-Dearness allowance: 2,000/-Other allowance: 1,300/-Gross salary: 5,500/-Employers' contribution: 4.75 X 55 = 261.25Employees' contribution: 1.75 X 55 = 96.25Total contribution = 357.50

Damages on contributions or any other amount due but not paid in time Anemployer,whofailstopaycontributionwithintheperiodspecified,oranyotheramountpayableundertheActshall be liable to pay damages as shown:

Period of delay Rate of damage in per cent p.a. of the Amount due

Up to 2 months1. 5%

2 months and above but less 2. than 4 months

10%

4 months and above but less 3. than 6 months

15%

6 months and above4. 25%

Table 9.1 Amount Payable

9.9 Workmen's Compensation Act, 1923TheWorkmen'sCompensationActisoneoftheearliestmeasuresadoptedtobenefitthelabourers.Itwaspassedin1923 and enforced on 1st July, 1924. Incapacity for work includes inability to get work.The liability of the employer to pay compensation is dependant upon the following four conditions:

Personal injury may have been caused to a workman,1) Such injury must have been caused by an accident,2) The accident must have arisen out of and in the course of employment and,3) The injury must have resulted either in death of the workman or in his total or partial disablement for a period 4) exceeding three days.

The expression "arising out of" suggests the cause of accident and the expression "in the course of" points out to the place and circumstances under which the accident takes place and the time when it occurred. A casual connection between the injury by accident and the employment is necessary. Notional extension of the premises includes an area which the workman passes and re-passes in going to and from the place of employment.

Total disablement:• A workman is incapacitated of doing any work.


158/JNU OLE

The permanent partial disablement:• The injury results in the reduction in the earning capacity in respect of employment which the workman was capable of undertaking at the time of accident.The temporary partial disablement:• The injury results in the reduction in the earning capacity in respect of employment he had been at the time of the accident.

The employer shall not be liable to pay compensation in the following cases:If the injury did not result in total or partial disablement of the workman for a period exceeding three a) days,In respect of any injury not resulting in death or permanent total disablement the employer can pleadb)

thattheworkmanwasatthetimeofaccidentundertheinfluenceofdrinksordrugsi) that the workman wilfully disobeyed an order expressly given or rules expressly framed for the ii) purpose of securing safety of workman andthat theworkmanhavingknown that certain safety guards or safety devices are specificallyiii) provided for the purpose of securing the safety of workman wilfully disregarded or removed the same.

9.9.1 Amount of CompensationSubject to the provisions of the Act, the amount of compensation shall be as follows namely:(1)

where the death is the result from the injury – an amount equal to 50% of the monthly wages of the deceased a) workman multiplied by the relevant factor or an amount of eighty thousand rupees, which ever is more,where permanent total disablement results from the injury – an amount equal to 60% of the monthly wages b) of the injured workman multiplied by the relevant factor or an amount of ninety thousand rupees whichever is more,where permanent partial disablement results from the injuryc)

InthecaseofaninjuryspecifiedinpartIIofScheduleIsuchpercentageofthecompensationwhichi) wouldhavebeenpayableinthecaseofpermanenttotaldisablementasisspecifiedthereinasbeingthe percentage of the loss of earning capacity caused by that injury andInthecaseofaninjurynotspecifiedinScheduleIsuchpercentageofthecompensationpayableii) in the case of permanent total disablement as is proportionate to the loss of earning capacity as assessedbythequalifiedmedicalpractitionerpermanentlycausedbytheinjury.

where temporary disablement whether total or partial results from the injury- a sum equivalent to 25% of d) the monthly wages of the workman to be paid.

An employer should pay the compensation due within one month from the date it fell due, other wise he has to pay simple interest at 12% or more. He may be liable for penalty up to 50% of the compensation payable.

9.10 Few Terms in Labour Laws

Child A person below 14 years of age.

Contractor A person who supplies contract labour for any work.

Contract Labour A workman hired by or through a contract.

Family The individual, the wife or husband, as the case may be, and their children, brother or sister of such individual.

Insurable employment An employment in a factory or establishment to which this Act applies.

159/JNU OLE

Occupier The person who has the ultimate control over the affairs of the establishment or workshop.

Permanent Partial Disablement The injury results in the reduction in the earning capacity in respect of employment which the workman was capable of undertaking at the time of accident.

Temporary Partial Disablement The injury results in the reduction in the earning capacity in respect of employment he had been at the time of the accident.

Workman A person employed to do any skilled, semi-skilled or unskilled manual, supervisory, technical or clerical work for hire or reward.

Table 9.2 Few terms in Labour Laws


160/JNU OLE

SummaryIn 2004–2005, 27.5% of the Indian population was living below the poverty line and cannot afford to send their •children to school and they use their children for earning livelihood. It is the fundamental right of every child to have basic education. As a measure of Child Welfare, Government of India has banned child labour.India is a labour welfare nation. To prevent the exploitation of labour by unscrupulous employers, the Government •of India has enacted several acts.No child shall be employed or permitted to work in any of the occupations set forth in Part A of the Schedule •or in any workshop wherein any of the processes set forth in Part B of the Schedule is carried on.Employing a child against rules shall be punished - with imprisonment for a term which shall not be less than •threemonthsbutwhichmayextendtooneyearorwithfinewhichshallnotbelessthantenthousandrupeesbut which may extend to twenty thousand rupees or with both.Every application for the grant of a licence shall be made in the prescribed form and shall contain the particulars •regarding the location of the establishment, the nature of process, operation or work for which contract labour is to be employed and such other particulars as may be prescribed.A contractor shall be responsible for payment of wages to each worker employed by him as contract labour and •such wages shall be paid before the expiry of such period as may be prescribed.Minimumwagesmustprovidenotmerelyforthebaresustenanceoflifebutalsoforthepreservationofefficiency•of the worker. The minimum wages have to be paid irrespective of the paying capacity of the industry. An employee is prohibited from relinquishing any of his rights under the Act.TheEmployees'StateInsuranceCorporation,StandingCommitteeoftheCorporationandMedicalbenefitcouncil•has been constituted to administer ESI act. Employer shall send a statement of contributions in quadruplicate in Form 6.Theworkmen'sCompensationActisoneoftheearliestmeasuresadoptedtobenefitthelabourers.Theliability•of the employer to pay compensation is dependant upon the four conditions.

ReferencesChild Labour (Prohibition and Regulation) Act• , 1986. Available at: <labour.nic.in/cwl/childlabouract.doc> Accessed on 21st March, 2011.Labour Laws.• Available at: <http://indiacode.nic.in/fullact1.asp?tfnm=194834> Accessed on 22nd March, 2011.The Contract Labour (Regulation and Abolition) Act, 1970• . Available at: <http://pblabour.gov.in/pdf/acts_rules/contract_labour_regulation_and_abolition_act_1970.pdf> Accessed on 22nd March, 2011.The Workmen's Compensation Act, 1923.• Available at: <http://indiacode.nic.in/fullact1.asp?tfnm=192308> Accessed on 22nd March, 2011.

Recommended ReadingDirectorate General Labour Welfare. • Available at: <http://labour.nic.in/dglw/welcome.html> [Accessed on 22nd March, 2011].Links to various acts.• Available at: <http://www.vakilno1.com/bareacts.htm> [Accessed on 22nd March, 2011].Workmen's Compensation Act, 1923.• Available at: <http://bokakhat.gov.in/pdf/workmen_compensation_act.pdf> [Accessed on 22nd March, 2011].

161/JNU OLE

Self Assessment

Theperiodofworkoneachdayshallbesofixedthatnoperiodshallexceed_______hours.1. threea. fourb. fivec. sixd.

Every child employed in an establishment shall be allowed in every _______ a holiday.2. montha. weekb. quarterc. two weeksd.

If any employer employs a child to work in contravention of the provisions shall be punishable with imprisonment 3. for a term not less than _______.

three monthsa. one yearb. six monthsc. 15 daysd.

A child shall not be allowed to work between ___________.4. 8 a.m. to 7 p.m.a. 7 a.m. to 8 p.m.b. 7 a.m. to 7 p.m.c. 7 p.m. to 8 a.md.

Ifanyemployeremploysachildtoworkincontraventionoftheprovisionsshallbepunishablewithfinewhich5. shall not ne less than _______________ rupees.

ten thousanda. fivethousandb. two thousandc. one thousandd.

Who shall be responsible for payment of wages to each worker employed by him as contract labour?6. Familya. Contractorb. Workmenc. Occupierd.

The ____________ have to be paid irrespective of the paying capacity of the industry.7. medical requirementa. minimum wagesb. maintenance of buildingsc. precautionsincaseoffired.


162/JNU OLE

Theworkmen'sCompensationActisoneoftheearliestmeasuresadoptedtobenefitthe_______________.8. familiesa. occupiersb. contractorsc. labourersd.

Which statement is true?9. According to the committee of fair wages, maximum wages must provide not merely for the bare sustenance a. oflifebutalsoforthepreservationofefficiencyoftheworker.According to the committee of fair wages, minimum wages must provide not merely for the bare sustenance b. oflifebutalsoforthepreservationofefficiencyoftheworker.According to the committee of fair wages, minimum wages must provide not merely for the bare sustenance c. oflifebutalsoforthepreservationofefficiencyofthecontractor.According to the committee of fair wages, minimum wages must provide for the bare sustenance of life but d. alsoforthepreservationofefficiencyofthefamily.

When did Minimum Wages Act come into force?10. 15a. th February, 194715b. th March, 194815c. th April, 194915d. th May, 1950

163/JNU OLE

Case Study I

Cheques

Cheque interception and manipulation frauds reported in Protecting the Public Purse fell by almost a half between 1997/98 and 1998/99 (from £1.1 million to £0.6 million). But in 1999/2000 the fall in value stopped and the number of cases began to climb to 272 cases compared to 231 in 1998/99.

There are two main types of cheque fraud; the theft of blank cheques which are then forged or the interception and alteration of completed cheques. The former can be minimised by ensuring that there are sound systems for ordering, storingand issuingblankchequesandadequate separationofdutiesbetweenofficers responsible forstoring, requisitioning and completing cheques. The latter is the major area of risk and is often highly organised and the fraudsters use sophisticated techniques and equipment to alter the cheques.

Usually more than one person is involved in interception and manipulation frauds. The cheques may be intercepted within the council, within the postal system or at the point of delivery. They are then likely to be passed to another person for alteration and to a third person for banking into accounts especially opened for the purpose.

Althoughthemethodsusedtoalterchequesaresophisticated,thejobcanbemademoredifficultbyensuringthatblank cheques incorporate the most up to date security features such as:

multi-coloured background inks;•inks which react to chemicals which might be used to alter original entries;•paper on which ‘void’ appears if it is photocopied;•watermarks;•holograms; and•encryption.•

Alterations in amounts should be picked up as part of the council’s bank reconciliation process and it is essential thatreconciliationsarecarriedoutpromptlyandareuptodate.Itisalsoimportantthattheofficerresponsibleforthereconciliationisawareofthesignificanceofdifferencesinamountsbetweenthecouncil’slistofchequesandthefiguresonthebankstatements.Itismoredifficulttospotchangesinjustthepayeesname,wheretheamounthasnot been altered. In some cases cheques have been found with alterations to the magnetic cheque numbers which will be an added problem when attempting the reconciliation process.

But the best defence against this type of fraud is to make as many payments as possible by electronic methods and councils should constantly review the need for making payments by cheque rather than by electronic methods. It is also important the council's banking arrangements are clear about where the liability lies if their bankers pay fraudulently altered cheques. The perpetrators of these frauds are rarely caught and the likelihood of recovery from them is remote. The sums involved can be considerable.

Questions

Explain two main types of cheque fraud1. AnswerThere are two main types of cheque fraud; the theft of blank cheques which are then forged or the interception and alteration of completed cheques. The former can be minimised by ensuring that there are sound systems for ordering,storingandissuingblankchequesandadequateseparationofdutiesbetweenofficersresponsibleforstoring, requisitioning and completing cheques. The latter is the major area of risk and is often highly organised and the fraudsters use sophisticated techniques and equipment to alter the cheques.


164/JNU OLE

What are the features of blank cheque?2. AnswersAlthoughthemethodsusedtoalterchequesaresophisticated,thejobcanbemademoredifficultbyensuringthat blank cheques incorporate the most up to date security features such as:

multi-coloured background inks;•inks which react to chemicals which might be used to alter original entries;•paper on which ‘void’ appears if it is photocopied;•watermarks;•holograms; and•encryption.•

What is the best strategy of defence against fraud cheques?3. AnswersThe best defence against the fraud of cheques is to make as many payments as possible by electronic methods and councils should constantly review the need for making payments by cheque rather than by electronic methods. It is also important the council's banking arrangements are clear about where the liability lies if their bankers pay fraudulently altered cheques. The perpetrators of these frauds are rarely caught and the likelihood of recovery from them is remote. The sums involved can be considerable.

165/JNU OLE

Case Study II

Child Labour in Production of Cotton Seeds on Bhiloda Plots of Gujarat

Bhilodaisclearlythemajorstakeholderandchiefbeneficiaryincottonseedproduction.Itthereforealsoneedstobeheld responsible for occurrence of child labour in the industry. Bhiloda has reacted in various ways to evidence of child labour in the industry. It has refused to acknowledge responsibility for occurrence of child labour on farms of Indian seed companies sub licensed by it. For its own farms, it has undertaken an anti child labour program, which, theyclaim,hasreducedchildlabour.Thisstudywasmountedtochecktheefficacyofthissecondclaim.

Thestudysoughttoobserve50cottonseedfarmswhereproductionwasundertakenbyBhilodatofindoutifindeedchild labour has been eradicated on Bhiloda farms. The study shows that there is extensive child labour on cottonseed plots of Bhiloda. If we consider children between the age group of 6 to 18 years, then child labour comprises of 52 percent of the total labour force. Of these, 28 percent are in the age group of less than 14 years while 24 percent are intheagegroupof15-18years.Everyplothadachildlabourifthechildrenaredefinedtobebelow18year.Ifwedefinechildrentobebetween6-14years,then74percentfarmshadchildrenworkingonthefarms.

The experiences during the study indicate that the production machinery has become very sensitive to entry of outsiders to cottonseed farms. At the slightest suspicion, the outsiders can be obstructed and harassed. The concern machinery employed by Bhiloda to detect and remove child labour is ineffective. The local inspectors have clear understanding that they must not be too enthusiastic about their task. The incentive offered by the Company has not proved effective to prevent child labour. Often it does not reach farmers and is instead pocketed by the middlemen agents.

The strategy adopted by the company to shift seed production to tribal areas has reduced child migration. But child labour persists. Majority of the children working on seed farms were tribal. Children working on the farms were enrolled in schools. However they were found working on seed farms during school hours.

Prayas Center for Labour Research & Action and Dakshini Rajasthan Majdoor Union (DRMU) has been working for thelastfiveyearstoeradicatechildlabourinproductionofcottonseedsinNorthGujarat.DRMUhasdocumentedchildlabourandtakenstepstostoptraffickingofchildren. Questions

How can Bhiloda claim that they have reduced child labour?1. How does the study prove Bhiloda’s claim as wrong?2. Describe the percentage of child labour on Bhiloda farm.3. Explain how documentation could help in prohibiting child labour.4.


166/JNU OLE

Case Study III

Dispute between Management and Workers at BMS

TheJamnagarplantofBMShadpeacefullabourrelationsforthefirstfewyearsafteritwassetupinJuly1995.Themanagement entered into labour contracts with individual labourers, which covered the basic wage structure and detailed parameters specifying the work conditions for workers. In October 2001, the workers at BMS's Jamnagar plant started demanding that the management increases their wages proportionate with the company's growth in the market.

The management and the workers traded allegations and counter allegations on what the root cause of the dispute was. They blamed each other for the situation that ultimately took a dreadful turn on March 2002. The management held the workers responsible for indiscipline and for slowing down production, while the workers insisted that there had been no indiscipline on their part and that the management was bringing up this issue only to prevent the formation of a trade union at BMS. Some analysts charged that the incident was fallout of the long-term domination and malpractices at the Jamnagar factory by the BMS management. They assumed that BMS's management had violated certain laws relating to the welfare of workers. It was reported that a worker had supposedly been kicked byamanagerontheshopfloorinAugust2001.Theservicesofthreeotherworkerswhohadcometohisrescuewere purportedly terminated.

Several factorscan lead toaconflictbetween theworkersand themanagementofanycompany,andas such,companies should be prepared to trace the root cause of the problem and solve it. Industry experts opined that with proper understanding of the industrial laws and causes of disputes, the management and the workers of any company could avoid incidents such as the one at BMS.

QuestionsWhat exactly caused the dispute between management and workers?1. On which points were management and workers blaming each other?2. As per some analyst, what was the root cause of this misunderstanding? 3. Which labour laws are applicable in such scenario?4. Suggest your views to avoid such type of misunderstandings.5.

167/JNU OLE

Bibliography

ReferencesArish, M., • Supply Chain. Available at: <http://www.slideshare.net/aarish9696/supply-chain\> [Accessed on 7th March, 2011].Bhadbhade, N., 2010. • Contract Law in India. Kluwer Law International. Pages 316.Bose, C., 2008. • Business Law. PHI Learning Pvt. Ltd. pp.107–123.Central Excise Valuation (determination of price of excisable goods) Rules, 2000.• Available at: <http://www.cbec.gov.in/excise/cx-rules-valuation2000.htm> [Accessed on 21st March, 2011].Dr. Sharma, A., 2007. • Business Regulatory Framework. FK Publications. 301 pages.Gulshan S. S., G. K. Kapoor, 2005. • Business Law Including Company Law. New Age International. pp. 206–269.Income Tax Act, 1961. • Available at: <http://www.vakilno1.com/bareacts/incometaxact/s17.htm> [Accessed on 18th March, 2011].Insurance Laws. • Available at: <http://business.mapsofindia.com/insurance/> [Accessed on 16thMarch,2011].Insurance Laws.• Available at: <http://www.newindia.co.in/comm-cargo.asp> [Accessed on 16th March, 2011].Negotiable Instruments Act, 1881. • Available at: <http://www.indianlawcds.com/banking/nia1881.htm> [Accessed on 10th March, 2011].Pathak, 2007. • Legal Aspects of Business. Tata McGraw-Hill. 573 pages.Prof. (Commodore) P. K. Goel, 2006. • Business Law for Managers. 2006–07 edition. Dreamtech Press. 340 pages.The Consumer Protection Act, 1986.• Available at: <http://admis.hp.nic.in/ehimapurti/cpa1986.htm> [Accessed on 15th March, 2011].The Motor Vehicles Act 1988.• [Online]. Available at: <http://www.feeleminds.com/indialaws/view/2773/the-motor-vehicle-act-1988/preliminary> [Accessed on 14th March, 2011].The Standards of Weights and Measures Act, 1976. • [Online]. [Available at: <http://admis.hp.nic.in/ehimapurti/wact1.htm> [Accessed on 11th March, 2011].

Recommended ReadingCampbell, D., 2008. • Remedies for International Sellers of Goods, Volume II. Yorkhill Law Publishing. pp.135–156.Chopra, S. and Meindl, P., • Supply Chain Management. [pdf]. Available at: <http://www.sbaer.uca.edu/publications/supply_chain_management/pdf/01.pdf> [Accessed on 7th March 2011].Gulshan, S., 2005. • Business and Corporate Laws For C. A. Professional Examination-2. New Age International.Income Tax Act - Sections. • [Online]. Available at: <http://mytaxes.in/index.php/topic,175.0.html> [Accessed on 21st March, 2011].Income-Tax Act, 1961• as amended by Finance Act. [Online]. Available at: <http://law.incometaxindia.gov.in/DIT/Income-tax-acts.aspx#> [Accessed on 21st March, 2011].Indian Contract Act, 1872,• [Online]. Available at: <http://www.lawzonline.com/bareacts/Indian-Contract-Act/Indian-Contract-Act.html> [Accessed on 8th March 2011].Iqbal S. and Adeel, K. • Contract of Sale of Goods.[pdf].Availableat:<http://www.financedoctors.net/Notes/60.pdf> [Accessed on 8th March, 2011].


168/JNU OLE

Negotiable Instruments Act, 1881• . [pdf]. Available at: <http://chddistrictcourts.gov.in/THE%20NEGOTIABLE%20INSTRUMENTS%20ACT.pdf> [Accessed on 10th March, 2011].Pathak, 2007. • Legal Aspects of Business. Tata McGraw-Hill Education. 573 pages.Pathak, 2007. • Legal Aspects of Business. Tata McGraw-Hill. 573 pages.Salary Income.• [Online]. Available at: <http://www.dateyvs.com/salary_income.htm> [Accessed on 21st March, 2011].Sudhakaran, E., 1996. • Doctor in Consumer Court: The Consumer Protection Act, 1986. D.C. Books. 199 pages.The Consumer Protection Act, 1986.• [Online]. Available at: <http://www.scribd.com/doc/19011650/2-Consumer-Protection-Act> Accessed on 15th March, 2011.The Motor Vehicles Act 1988.• [Online]. Available at: <http://www.netlawman.co.in/acts/motor-vehicles-act-1988.php> Accessed on 16th March, 2011.The Motor Vehicles Act, 1988. [pdf]. Available at: <http://hartrans.gov.in/docs/mva1988.pdf> Accessed on •16th March, 2011.The Sale of Goods Act, 1930.• [Online]. Available at: < http://www.docstoc.com/docs/17046550/6-Sale-of-Goods-Act-1930> [Accessed on 8th March, 2011].The Sale of Goods Act, 1930.• [Online]. Available at: <http://www.citeman.com/7017-agreement-to-sell-and-hire-purchase-agreement-distinguished/> [Accessed on 8th March, 2011].The Standards of Weights and Measures Act, 1976.• [Online]. Available at: <http://fcamin.nic.in/Events/EventDetails.asp?EventId=684&Section=Weight+and+Measures&ParentID=0&Parent=1&check=0> [Accessed on 14th March, 2011].The Standards of Weights and Measures Act, 1976.• [Online]. Available at: < http://www.advocatekhoj.com/library/bareacts/standardsofweights/index.php> [Accessed on 14th March, 2011].The Standards of Weights and Measures Act, 1976.• [Online]. Available at: <http://fcamin.nic.in/Events/EventDetails.asp?EventId=1690&Section=Weight+and+Measures&ParentID=0&Parent=1&check=0> [Accessed on 14th March, 2011].

169/JNU OLE

Self Assessment Answers

Chapter Ia1. b2. c3. c4. a5. b6. c7. d8. b9. c10.

Chapter IIa1. b2. c3. d4. a5. b6. c7. d8. a9. b10.

Chapter IIIa1. b2. c3. d4. a5. b6. c7. d8. a9. b10.

Chapter IVb1. a2. c3. a4. a5. b6. c7. d8. b9. a10.


170/JNU OLE

Chapter Va1. b2. c3. d4. a5. a6. c7. c8. a9. a10.

Chapter VIa1. b2. a3. d4. a5. b6. c7. b8. a9. c10.

Chapter VIIa1. b2. d3. d4. a5. b6. b7. d8. a9. b10.

Chapter VIIIa1. b2. c3. d4. b5. b6. c7. d8. a9. b10.

171/JNU OLE

Chapter IXa1. b2. a3. d4. a5. b6. b7. d8. b9. b10.

Legal Aspect of Supply Chain Managementjnujprdistance.com/assets/lms/LMS JNU/MBA/MBA... · VII/JNU OLE List of Tables Table 2.1 Examples negotiable instruments and non negotiable

Documents