Mb0051-Legal Aspects of Business Final

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Fall /August 2012, MBA-3rd Semester

MB0051: Legal Aspects of Business Roll No. : 541110058 Page 1

Master of Business Administration (MBA)

Semester – 3

MB0051 – Legal Aspects of Business

(4 Credits)

(Book ID: B1207)

Assignment Set- 2





1. Discuss the nature and significance of business law?

The term Business law is used in many senses you may speak of the law of physics,

mathematics, science, or the laws of the football or health. In its widest sense, law

means any rule of conduct, standard or pattern, to which actions are required to

conform; if not conformed, sanctions are imposed. When we speak of the law of a State,

we use the term Business law in a special and strict sense.

The nature and significance of business law are classified as follows:

1. Law is a body of rules:- These rules prescribe the conduct, standard or pattern towhich actions of the persons in the state are required to conform. However, allrules of conduct do not become law in the strict sense. We resort to various kindsof rules to guide our lives. For example, our conduct may be guided by a rule suchas “do not be arrogant” or “do not be disrespectful to elders or women”. Theseare ethical or moral rules by which our daily lives are guided. If we do not followthem, we may lose our friends and their respect, but no legal action can be taken

against us.

2. Law is for the guidance or conduct of persons : – both human and artificial. Thelaw is not made just for the sake of making it. The rules embodied in the law aremade, so as to ensure that actions of the persons in the society conform to somepredetermined standard or pattern. This is necessary so as to ensure continuanceof the society. No doubt, if citizens are „self -enlightened ‟ or „self -controlled ‟ ,disputes may be minimized, but will not be eliminated. Rules are, therefore,drawn up to ensure that members of the society may live and work together inan orderly manner. Therefore, if the rules embodied in the law are broken, isused to enforce obedience, and certain consequences ensue.





3. Law is imposed :- Law is imposed on the members to bring about an order in thegroup, enabling it to continue and prosper. It is not something which may or maynot be obeyed at the sweet will of the members of society. If you cannot imposea rule it is better not to have it. Thus, law is made obligatory on the members of the society.

4. Law is enforced by the executive :- Obviously, unless a law is enforced it ceasesto be a law and those persons subject to it will regard it as dead. For example , if A steals B ‟ s bicycle, he may be prosecuted by a court and may be punished. Also,the court may order the restitution of the bicycle to its rightful owner i.e., B. If the government passes many laws but does not attempt to enforce them, the

citizens lose their respect for government and law, and society is greatlyweakened. The force used is known as sanction which the state administers tosecure obedience to its laws.

5. The state :- A state is a territorial division, with people therein subject to auniform system of law administered by some authority of the state. Thus, lawpresupposes a state.

6. Content of law :- The law is a living thing and changes throughout the course of history. Law responds to public opinion and changes accordingly. Law can never

be static. Therefore, amendments are made in different laws from time to time.For example, the Monopolistic and Restrictive Trade Practices Act, 1969, hasbeen subjected to many amendments since its inception in 1969.

7. Two basic ideas involved in law :- The two basic ideas involved in any law are: (i)to maintain some form of social order in a group and (ii) to compel members of the group to be within that order. These basic ideas underlie formulation of anyrules for the members of a group. A group is created because first, there is asocial instinct in the people to live together and secondly, it helps them in self-preservation. Rules are made by the members of the group, so that the groupdoesn ‟ t whither away.





8. Law is made to serve some purpose which may be social, economic or political:- Some examples of „law

‟ in the widest sense of the term. „Law‟ in its widest

sense may include:

(i) Moral rules or etiquettes, the non-observance of which may lead to publicridicule,

(ii) Law of the Land the non-observance of which may lead to arrest,imprisonment, fines, etc.,

(iii) Rules of international law, the non-observance of which may lead to social

boycott, trade-sanctions, cold war, hot war, proxy war, etc.

2. Define contract of indemnity. Describe the rights of the indemnifier and theindemnity holder.

Contract of Indemnity - Secs.124 and 125 provide for a contract of indemnity. Sec.124

provides that a contract of indemnity is a contract whereby one party promises to save

the other from loss caused to him (the promisee) by the conduct of the promisor

himself or by the conduct of any other person. A contract of insurance is a glaring

example of such type of contracts. A contract of indemnity may arise either by (i) an

express promise or (ii) operation of law, e.g., the duty of a principal to indemnify anagent from consequences of all lawful acts done by him as an agent.

The contract of indemnity, like any other contract, must have all the essentials of a valid

contract. These are two parties in a contraction of identity indemnifier and indemnified.





The indemnifier promises to make good the loss of the indemnified (i.e., the promisee).

Example: A contracts to indemnify B against the consequences of any preceding which C

may take against B in respect of a certain sum of Rs 200. This is a contract of indemnity.

Rights of the indemnified / the indemnity holder

He is entitled to recover from the promisor:

(i) All damages which he may be compelled to pay in any suit in respect of any

matter to which the promise to indemnify applies(ii) All costs of suit which he may have to pay to such third party, provided in

bringing or defending the suit (a) he acted under the authority of the

indemnifier or (b) if he did not act in contravention of orders of the

indemnifier and in such a way as a prudent man would act in his own case

(iii) All sums which may have been paid under the terms of any compromise of

any such suit, if the compromise was not contrary to the orders of the

indemnifier and was one which it would have been prudent for the promisee

to make.

Rights of the indemnifier

The Act makes no mention of the rights of indemnifier. However, his rights, in such

cases, are similar to the rights of a surety under Sec.141, viz., he becomes entitled to the

benefit of all the securities which the creditor has against the principal debtor whetherhe was aware of them or not.





3. What is Partnership? Briefly state special features of a partnership on the basis of which its existence can be determined under the Indian Partnership Act?

Partnership is defined as “the relationship between persons who have agr eed to share

profits of a business carried on by all, or by any of them acting for all”. On analysis of the

definition, certain essential elements of partnership emerge. These elements must be

present so as to form a partnership and are discussed below.

Partnership is an association of two or more than two persons: - There must be at

least two persons who should join together to constitute a partnership, because one

person cannot become a partner with himself. These persons must be natural persons

having legal capacity to contract. Thus, a company (which is an artificial person) cannot

be a partner. Similarly, a partnership firm cannot be a partner of another partnership

firm. As regards maximum number of partners in a partnership firm, Sec.11 of the

Companies Act, 1956, puts the limit at 10 in case of banking business and 20 in case of

any other business.

Partnership must be the result of an agreement between two or more persons: - An

agreement presupposes a minimum number of two persons. As mentioned above, a

partnership to arise, at least two persons must make an agreement. Partnership is the

result of an agreement between two or more persons (who are known as partners after

the partnership comes into existence).

The agreement must be to carry on some business: - The term business includes every

trade, occupation or profession [Sec.2 (b)]. generally

conveys the idea of numerous transactions, a person may become a partner with





another even in a particular adventure or undertaking (Sec.8). Unless the person joins

for the purpose of carrying on a business, it will not amount to partnership.

The agreement must be to share profits of the business: - The joint carrying on of a

business alone is not enough; there must be an agreement to share profits arising from

the business. Unless otherwise so agreed, sharing of profits also involves sharing of

losses. But whereas the sharing of profits is an essential element of partnership, sharing

of losses is not.

Example: A, a trader, owed money to several creditors. He agreed to pay his creditors

out of the profits of his business (run under the creditors ‟ supervision) what he owed tothem. Held, the arrangement did not make creditors partners with A in business [Cox v.Hickman, (1860) 8 H.L.C., 268].

Formation of partnerships

All the essential elements of a valid contract must be present in a partnership as it is

based on an agreement. Therefore, while constituting a partnership. The following

points must be kept in mind

(i) The Act provides that a minor may be admitted to be benefits of

partnership.2.

(ii) No consideration is required to create partnership. A partnerships an

extension of agency for which no consideration is necessary.3.

(iii) The partnership agreement may be express (i.e., oral or writing) or implied

and the latter may be inferred from the conduct or the course of dealings

of the parties or from the circumstances of the case. However, it is always

advisable to have the partnership agreement in writing.4.

(iv) An alien friend can enter into partnership, an alien enemy cannot.5.

(v) A person of unsound mind is not competent to enter into a partnership.6.





(vi) A company, incorporated under the Companies Act, 1956 can enter into a

contract of partnership

Duration of partnership

The duration of partnership may or may not be fixed. It may be constituted even for aparticular adventure.

Partnership at will

In accordance with Sec.7, a partnership is called a partnership at will where;(i) it is not constituted for a fixed period of time and(ii) there is no provision made as to the determination of partnership in any other

way.Therefore such a partnership has no fixed or definite date of termination.Accordingly death or retirement of a partner does not affect the continuance of sucha partnership.

Particular partnership - In accordance with Sec.8 a particular partnership is one which

is formed for a particular adventure or a particular undertaking. Such a partnership is

usually dissolved on the completion of the adventure or undertaking

Limited partnership - In this type of partnership, the liability of certain partners is

limited to the amount of capital which they have agreed to contribute to the business.

In a limited partnership, there will be at least one general partner whose liability is

unlimited and one or more special partners whose liability is limited.





4. What remedies are available to a seller for breach of contract of sale?

Remedies for Breach of a Contract

In addition to the rights of a seller against goods provided in Secs.47 to54, the seller has

the following remedies against the buyer personally. (i) Suit for price (Sec.55); (ii)

damages for non-acceptance of goods(Sec.56); (iii) suit for interest (Sec.56).

1. Suit for price (Sec.55)

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 the price, the seller can sue the buyer

for the price of the goods. Where the property in goods has not passed to the buyer, as

a rule, the seller cannot file a suit for the price; his only remedy is to claim damages.

Example: A sold certain goods to B for Rs 5,000 and the price was agreed to be paid

before the expiry of ten days of the contract. B fails to pay the price within the

stipulated time. A can file a suit for price against B even though the goods have not been

delivered or the property in goods has not been passed to B.

2. Suit for damages for non-acceptance (Sec.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. Where the property in the goods

has not passed to the buyer and the price was not payable without passing of property,the seller can only sue for damages and not for the price. The amount of damages is to

be determined in accordance with the provisions laid down in Sec.73 of the Indian

Contract Act, 1872. Thus, where there is an available market for the goods prima facie,

the difference between the market price and the contract price can be recovered.





3. Suit for interest (Sec.61)

When under a contract of sale, the seller tenders the goods to the buyer and the buyer

wrongfully refuses or neglects to accept and pay the price, the seller has a further right

to claim interest on the amount of the price. In the absence of a contract to the

contrary, the court may award interest at such rate as it thinks fit on the amount of the

price. The interest may be calculated from the date of the tender of the goods or from

the date on which the price was payable. It is obvious that the unpaid seller can claim

interest only when he can recover the price, i.e., if the seller’s remedy is to claim

damages only, then he cannot claim interest.

4. Buyers remedies against seller

The buyer has the following rights against the seller for breach of contract:

(i) Damages for non-delivery (Sec.57)

(ii) Right of recovery of the price(iii) Specific performance (Sec.58)

(iv) Suit for breach of condition

(v) Suit for breach of warranty (Sec.59)

(vi) Anticipatory breach (Sec.60)

(vii) recovery of interest (Sec.61).





5. Examine the rights of a consumer enshrined under the Consumer Protection Act,1986.

Rights of Consumers

For the first time in the history of consumer legislation in India, the Consumer

Protection Act, 1986 extended a statutory recognition to the rights of consumers. Sec.6

of the Act recognizes the following six rights of consumers:

1. Right to safety - The right to be protected against the marketing of goods and

services which are hazardous to life and property.

2. Right to be informed - The right to be informed about the quality, quantity,

potency, purity, standard and price of goods or services, as the case may be, so as

to protect the consumer against unfair trade practices.

3. Right to choose - It means right to be assured, wherever possible, access to a

variety of goods and services at competitive prices. In case of monopolies, say,

railways, telephones, etc., it means right to be assured of satisfactory quality and

service at a fair price.

4. Right to be heard - The consumers interests will receive due consideration at

appropriate forums. It also includes right to be represented in various forums

formed to consider the consumers welfare.

5. Right to seek redressal - It means the right to seek redressal against unfair

practices or restrictive trade practices or unscrupulous exploitation of consumers.

It also includes right to fair settlement of the genuine grievances of the

consumers.





6. Right to consumer education - It means the right to acquire the knowledge and

skill to be an informed consumer.

6. Write short notes on the following:

a. Copy right

b. License

a) Copy right

.Meaning of copyright - The term copyright means the exclusive right, by virtue of, and

subject to the provision of the Act:

(a) in the case of literary, dramatic or musical work, not being a computer program.e

(i) to reproduce the work in any material form including the storing of it in

any medium by electronic means (ii) to issue copies of the work to the

public not being copies already in circulation; (iii) to perform the work in

public, or communicate it to the public; (iv) to make any cinematograph

film or sound recording in respect of the work; (v) to make any translation

of the work; (vi) to make any adaptation of the work;(vii) to do, in relation

to a translation or an adaptation of the work, any of the acts specified in

relation to the work in (i) to (vi)





(b) in the case of computer programme - (i) to do any of the acts specified in clause

(a) above; (ii) to sell or give on hire, or offer for sale or hire any copy of the

computer programme, regardless of whether such copy has been sold or given on

hire on earlier occasions

(c) in the case of an artistic work (i) to reproduce the work in any material form

including depiction in three dimensions of a two dimensional work or in two

dimensions of a three dimensional work; (ii) to communicate the work to the

public; (iii) to issue copies of the work to the public not being copies already in

circulation; (iv) to include the work in any cinematograph film; (v)to make any

adaptation of the work; (vi) to do in relation to an adaptation of the work any of

the acts specified in relation to the work in (i) to (iv) above

(d) in the case of a cinematograph film - (i) to make a copy of the film, including a

photograph of any image forming part thereof;(ii) to sell or give on hire; or offer

for sale or hire, any copy of the film, regardless of whether such copy has been

sold or given on hire on earlier occasions; (iii) to communicate the film to the

public.

(e) In the case of a sound recording – (i) to make any other sound recording

embodying it; (ii) to sell or give on hire, or offer for sale or hire, any copy of the

sound recording regardless of whether such copy has been sold or given on hire

on earlier occasions; (iii) to communicate the sound recording to the public.





b) License

License by owners of copyright

Sec.30 provides that the owner of the copyright in any existing work or the

prospective owner of the copyright in any future work may grant any interest in

the right by license in writing signed by him or by his duly authorized agent. But

in the case of a license relating to copyright in any future work, the license shall

take effect only when the work comes into existence.

Compulsory license in works withheld from public

Sec.31 provides that at any time during the term of copyright in any Indian workwhich has been published or performed in public a complaint may be made to theCopyright Board that the owner of copyright in the work(a) has refused to re-publish or allow the republication of the work or has refused to

allow the performance in public of the work and by reason of such refusal thework is withheld from the public; or

(b) has refused to allow communication to the public by broadcast of such work or

in the case of a sound recording the work recorded in such sound recording, onterms which the complainant considers reasonable.





ASSIGNMENT SET 2

1. “All agreement are not contracts but all contacts are agreements”. Comment.

Ans:-- A contract is a legally binding agreement or relationship that exists between twoor more parties to do or abstain from performing certain acts. A contract can also bedefined as a legally binding exchange of promises between two or more parties that thelaw will enforce. For a contract to be formed an offer made must backed acceptance of

which there must be consideration. Both parties involved must intend to create legalrelation on a lawful matter which must be entered into freely and should be possible toperform. An agreement is a form of cross reference between different parties, whichmay be written, oral and lies upon the honor of the parties for its fulfillment rather thanbeing in any way enforceable. All contracts are agreement because there must bemutual understanding between two parties for a contract to be formed. All partiesshould agree and adhere to the terms and conditions of an offer. The following casesillustrate ways in which all contracts are agreements; In the case of invitation to treat,where an invitation to treat is merely an invitation to make an offer. When a firm's offeris accepted it results into a contract provided other elements of contracts are accepted.Considering person A buying a radio on hire purchase from person B who deals withelectronics and its appliances. Both parties must come to an agreement on payment of monthly installment within specified period of time. Such an agreement result tospecialty contract which a contract under seal. All contracts are agreement until avoidedfor example, avoidable contract where one of the parties can withdraw from it if s/hewishes. This occurs due to minor agreement and misrepresentation or undue influence.Considering a case where person A make contract with person B but during the contract

period B realizes that he was engaged to perform an agreement under undue influence.

Definition of contract According to section 2(h) of the Indian Contract Act: “An

agreement enforceable by law is a contract." A contract therefore, is an agreement the





object of which is to create a legal obligation i.e., a duty enforceable by law. From theabove definition, we find that a contract essentially consists of two elements:

(1) An agreement and(2) Legal obligation

i.e., a duty enforceable by law. We shall now examine these elements detail.

1. Agreement As per section 2 (e): " Every promise and every set of promises, forming theconsideration for each other, is an agreement." Thus it is clear from this definition that a

'promise' is an agreement. What is a 'promise'? The answer to this question is containedin section 2 (b) which defines the term." When the person to whom the proposal ismade signifies his assent there to the proposal is said to be accepted. A proposal, whenaccepted, becomes a promise." An agreement, therefore, comes into existence only when one party makes a proposalor offer to the other party and that other party signifies his assent (i.e., gives hisacceptance) thereto.

In short, an agreement is the sum total of 'offer' and 'acceptance'.On analyzing the above definition the following characteristics of an agreement become

evident:

(a) At least two persons. There must be two or more persons to make an agreementbecause one person cannot inter into an agreement with himself.(b) Consensus-ad-idem. Both the parties to an agreement must agree about the subjectmatter of the agreement in the same sense and at the same time.

2. Legal obligation.

As stated above, an agreement to become a contract must give rise to a legal obligationi.e., a duty enforceable by law. If an agreement is incapable of creating a dutyenforceable by law. It is not a contract. Thus an agreement is a wider term than acontract.

"All contracts are agreements but all agreements are not contracts,"





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

Essential Elements of a Valid Contract

A contract has been defined in section 2(h) as "an agreement enforceable by law." To beenforceable by law, an agreement must possess the essential elements of a validcontract as contained in sections 10, 29 and 56. According to section 10, all agreementsare contracts if they are made by the free consent of the parties, competent to contract,for a lawful consideration, with a lawful object, are not expressly declared by the Act tobe void, and where necessary, satisfy the requirements of any law as to writing or

attention or registration. As the details of these essentials form the subject matter of our subsequent chapters, we propose to discuss them in brief here.

The essential elements of a valid contract are as follows.

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

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

Agreements of a social or domestic nature do not contemplate legal relations, and assuch they do not give rise to a contract. An agreement to dine at a friend's house in notan agreement intended to create legal relations and therefore is not a contract.Agreements between husband and wife also lack the intention to create legalrelationship and thus do not result in contracts. Try to work out the solution in thefollowing cases and then go to the answer.





3. Lawful consideration. The third essential element of a valid contract is thepresence of 'consideration'. Consideration has been defined as the price paid byone party for the promise of the other. An agreement is legally enforceable onlywhen each of the parties to it gives something and gets something. Thesomething given or obtained is the price for the promise and is called'consideration' subject to certain exceptions; gratuitous promises are notenforceable at law. The 'consideration' may be an act (doing something) orforbearance (not doing something) or a promise to do or not to do something. Itmay be past, present or future. But only those considerations are valid which are'lawful'. The consideration is 'lawful'. unless it is forbidden by law; or is of such anature that, if permitted it would defeat The provisions of any law; or is

fraudulent; or involves or implies injury to the person or property of another; oris immoral; or is opposed to public policy (sec.23).

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

of goods is entitled to be reimbursed from their estate (sec 68).

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





6. Lawful object. For the formation of a valid contract it is also necessary that theparties to an agreement must agree for a lawful object. The object for which the

agreement has been entered into must not be fraudulent or illegal or immoral oropposed to public policy or must not imply injury to the person or the other of the reasons mentioned above the agreement is void. Thus, when a landlordknowingly lets a house to a prostitute to carry on prostitution, he cannot recoverthe rent through a court of law or a contract for committing a murder is a voidcontract and unenforceable by law.

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

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

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

9. Possibility of performance . Yet another essential feature of a valid contract isthat it must be capable of performance. Section 56 lays down that "Anagreement to do an act impossible in itself is void". If the act is impossible initself, physically or legally, the agreement cannot be enforced at law.

Illustration.

A agrees with B, to discover treasure by magic. The agreement is not enforceable.

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





agreement by way of wager have been expressly declared void under sections 26,27 and 30 respectively.

2. What do you mean by bailment? What are the requisites of a contract of bailment? Explain.

Bailment is defined as the “delivery of goods by one to another person 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 person delivering

them”. The per son delivering the goods is called the bailor and the person to whom the

goods are delivered is called the bailee. The explanation to the above Section points out

that delivery of possession is not necessary, where one person, already in possession of

goods contracts to hold them as bailee.

The bailee is under an obligation to re-deliver the goods, in their original or altered

form, as soon as the time of use for, or condition on which they were bailed, has

elapsed or been performed”.

Let ‟ s illustrate,

(i) A delivers some clothes to B, a dry cleaner, for dry cleaning.(ii) A delivers a wrist watch to B for repairs.(iii) A lends his book to B for reading.

(iv) A delivers a suit-length to a tailor for stitching.(v) A delivers some gold biscuits to B, a jeweller, for making jewellery.(vi) Delivery of goods to a carrier for the purpose of carrying them from one place to

another.(vii) Delivery of goods as security for the repayment of loan and interest thereon, i.e.,

pledge.





From the definition of bailment, the following characteristics should be noted:

1. Delivery of goods - The essence of bailment is delivery of goods by one person to

another for some temporary purpose. Delivery of goods may, however, be actual

or constructive. Actual delivery may be made by handing over goods to the

bailee. Constructive delivery may be made by doing something which has the

effect of putting the goods in the possession of the intended bailee or any person

authorized to hold them on his behalf (Sec.149).

Example: A holding goods on behalf of B, agrees to hold them on behalf of C, there isa constructive transfer of possession from C to A.

2. Bailment is based on a contract - In bailment, the delivery of goods is upon a

contract that when the purpose is accomplished, they shall be returned to the

bailor. For example, where a watch is delivered to a watch repairer for repair, it is

agreed that it will be returned, after repair, on the receipt of the agreed orreasonable charges.

3. Return of goods in specie - The goods is delivered for some purpose and it is

agreed that the specific goods shall be returned. Return of specific goods (in

specie) is an essential characteristic of bailment. Thus, where an equivalent and

not the same is agreed to be returned, there is no bailment.

4. Ownership of goods - In a bailment, it is only the possession of goods which is

transferred and not the ownership thereof, therefore the person delivering the

possession of goods need not be the owner; his business is to transfer possession

and not ownership.





3. What do you mean by del credere agent?

A mercantile or commercial agent may assume any of the following forms: broker,

factor, commission agent, del credere agent, auctioneer, banker, Pakka and Katcha

Adatias and indentor. A broker is a mercantile agent engaged to buy and/or sell

property or to make bargains and contracts between the engager and third party for a

commission (called brokerage). A broker has no possession of goods or property. He is

merely a connecting link between the engager and a third party. The usual method of

dealing by a broker is to make entries of the terms of contract in a book, called the

memorandum book and to sign them. He then sends the particulars of the same to both

parties. The document sent to the seller is called the sold note and the one sent buyer is

called the bought note. A factor is a mercantile agent who is entrusted with the

possession of goods with an authority to sell the same. He can even sell the goods on

credit and in his own name. He is also authorized to raise money on their security. A

factor has a general lien on the goods in his possession. A factor, however, cannotbarter the goods, unless expressly authorized to do. Also, he cannot delegate his

authority.

A commission agent is agent who is employed to buy or sell goods or transact business.

The remuneration that he gets for the purpose is called the commission. A commission

agent is not liable in case the third party fails to carry out the agreed obligation. A

commission agent may have possession of the goods or not. His lien in case of goods inhis possession is a particular lien. A del credere agent is one who, inconsideration of an

extra remuneration, called a del crederecommission, guarantees the performance of the

contract by the other party.





4. What do you mean by Memorandum of Association? What does it contain?

Meaning and purpose - The Memorandum of Association of a company is its charter

which contains the fundamental conditions upon which alone the company cans be

incorporated. It tells us the obj ects of the Company’s formation and the utmost possible

scope of its operations beyond which its actions cannot go. Thus, it defines as well as

confines the powers of the company. If anything is done beyond these powers, that will

be ultra vires (beyond powers of) the company and so void. The memorandum serves a

two-fold purpose. It enables shareholders, creditors and all those who deal with the

company to know what its powers are and what is the range of its activities. Thus, the

intending shareholder can find out the field in, or the purpose for which his money is

going to bused by the company and what risk he is taking in making the investment.

Also, any one dealing with the company, say, a supplier of goods or money will know

whether the transaction he intends to make with the company is within the objects of

the company and not ultra-virus its objects.

Form and contents Sec .14

Requires that the memorandum of a company shall be in such one of the Forms inTables B, C,D and E in Schedule I to the Act, as may be applicable in the case of thecompany, or in Forms as near thereto as circumstances admit. Sec.15 requires thememorandum to be printed, divided into paragraphs, numbered consecutively andsigned by at least seven persons (two in the case of a private company) in the presenceof at least one witness, who will attest the signature. Each of the members must take atleast one share and write opposite his name the number of shares he takes.Sec.13requires the memorandum of a limited company to contain:

(i) the name of the company, with ‘limited’ as the last word of the namein the case of a public company and ‘private limited’ as the last wordsin the case of a private company;

(ii) The name of the State, in which the registered officer of the companyis to be situated;





(iii) The objects of the company, stating separately ‘Main objects’ and‘other objects’;

(iv) The declaration that the liability of the members is limited; and(v) The amount of the authorized share capital, divided into shares of fixed

amounts. These contents of the memorandum are called compulsoryclauses and are explained below:

The name clause - The promoters are free to choose any suitable name for the company

provided :( a) the last word in the name of the company, if limited by shares or

guarantee is limited ‟ unless the company is registered under Sec.25 as an „association

not for profit ‟ [Sec.13 (1) (a) & Sec.25]. (b) In the opinion of the Central Government,

the name chosen is not undesirable [Sec.20 (1)].

Too similar name - In case of too similar names, the resemblance between the two

names must be such as to be calculated to deceive. A name shall be said to be

calculated to deceive where it suggests some connection or association with the existing

company.

Publication of name (Sec.147) - Every company shall: (a) paint or affix its name and the

address of its registered office and keep the same painted or affixed, on the outside of

every office or place of business in a conspicuous position in letters easily legible and in

the language in general use in the locality.

Alteration of memorandum - Provides that the company cannot alter the conditions

contained in memorandum except in the cases and in the mode and to the extent

express provision has been made in the Act. These provisions are explained herein

below:





Change of name - Provides that the name of a company may be changed at any time by

passing a special resolution at a general meeting of the company and with the written

approval of the Central Government. However, no approval of the Central Government

is necessary if the change of the name involves only the addition or deletion of the word

private (i.e., when public company is converted into a private company or vice

versa).The change of name must be communicated to the Registrar of Companies within

30 days of the change. The Registrar shall then enter the new name on the register in

the place of the old name and shall issue a fresh certificate of incorporation with

necessary alterations [Sec.23 (1)]. The change of name becomes effective on the issue of

fresh certificate of incorporation.

Change of registered office.- The procedure depends on whether the change is withinthe jurisdiction of same registrar of companies (Sec.146) or whether the shifting is tothe jurisdiction of another registrar of companies in the same state (Sec.146 andSec.17A). This may include :

( a)Change of registered office from one premises to another premises in the samecity, town or village.The company may do so anytime. Are solution passed by the Board of directors shall besufficient. However, notice of the change should, within 30 days after the date of thechange, be given to the Registrar who shall record the same (Sec.146).

(b)Change of registered office from one town or city or village to another town or cityor village in the same State (Sec.146). In this case, the procedure is:(i) a specialresolution is required to be passed at a general meeting of the shareholders;(ii) a copyof it is to be filed with the Registrar within 30 days.(iii) Within 30 days of the removal of the registered office, notice of the new location has to be given to the Registrar whoshall record the same.





(c)Shifting of the registered office from one place to another within the same state(Sec.17A):The shifting of the registered office by a company from the jurisdiction of one registrarof companies to the jurisdiction of another registrar of companies within the same stateshall (in addition to requirements under Sec.146) also require confirmation by theRegional Director. For this purpose, an application is to be made in the prescribed Formand the confirmation shall be communicated within four weeks. Such confirmation isrequired to be filed within two months with the registrar of companies who shallregister and certify the same within one month.Such certificate shall be conclusive evidence of the compliance of all requirementsunder the Act.

5. Name the instruments which are recognized as negotiable instruments by theNegotiable Instruments Act, 1881.

An Instrument as referred to in the Act is a legally recognized written document,

whereby rights are created in favor of one and obligations are created on the part of

another. The word negotiable means transferable from one person to another either by

mere delivery or by endorsement and delivery, to enable the transferee to get a title in

the instrument. An instrument may possess the characteristics of negotiability either by

statute or by usage. Promissory note, bill of exchange and cheque are negotiable

instruments by statute as they are so recognized by Sec.13. There are certain

instruments which are recognized as negotiable instruments by usage. Thus, bank notes,

bank drafts, share warrants, bearer debentures, dividend warrants, scripts and treasury

bills are negotiable by usage. An instrument is called negotiable if it possesses the

following features.





1. Freely transferable - Transferability may be by (a) delivery, or (b) by

endorsement and delivery.

2. Holder’s title free from defects - The term negotiability means that not only is the

instrument transferable by endorsement and/or delivery, but that its holder in

due course acquires a good title notwithstanding any defects in a previous

holders title. A holder in due course is one who receives the instrument for value

and without any notice as to the defect in the title of the transferor.

3. The holder can sue in his own name - Another feature of a negotiable instrument

is that its holder in due course can sue on the instrument in his own name.

4. A negotiable instrument can be transferred infinitum, i.e., can be transferred any

number of times, till its maturity

5. A negotiable instrument is subject to certain presumptions – An instrument,

which does not have these characteristics, is not negotiable, but is assignable,

i.e., the transferee takes it subject to all equities and liabilities of the transferor

Promissory note

A promissory note is an instrument in writing (not being a bank or a currency note)

containing an unconditional undertaking, signed by the maker to pay a certain sum of

money to, or to the order of, a certain person or to the bearer of the instrument.

A promissory note is an instrument in writing (not being a bank or a currency note)

containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of, a certain person or to the bearer of the instrument (Sec.4).The following are two illustrations of promissory notes.Where A signs instruments in the following terms:

(i) “I promise to pay B or order Rs 500.”(ii) “I acknowledge myself to be indebted to B in Rs 1000, to be paid on demand,

for value received.”





But, the following are NOT promissory notes:(i) “Mr B, I.O.U. (I owe you) Rs 1000.”(ii) “I am liable to pay you Rs 500”.(iii) “I promise to pay B Rs 500 and all other sums which shall be due to him.”(iv) “I promise to pay B Rs 500, first deducting there out any money which he may

owe me.” (v) “I promise to pay B Rs 1500 on D

‟ s death, provided he leaves me enough topay that sum.”

(vi) “I promise to pay B Rs 500 seven days after my marriage with C.”(vii) “I promise to pay B Rs 500 and to deliver to him my white Maruti Car 1

January next.” (viii) Specimen of a promissory note

(ix) Rs 10,000 New Delhi – 1100 01(x) Jan. 10, 2006(xi) On demand [or six months after date] I promise to pay X or order the sum of

rupees ten thousand with interest at 12 per cent per annum only for valuereceived.

(xii) To X Sd/-A(xiii) Address ____________________________ Stamp(xiv) ____________________________

Parties to a promissory note

1. The maker – the person who makes the note promising to pay the amount stated

therein.

2. The payee – the person to whom the amount of the note is payable.

3. The holder – is either the original payee or any other person in whose favour the

note has been endorsed.

4. The endorser - the person who endorses the note in favour of another person.

5. The endorsee – the person in whose favour the note is negotiated by

endorsement.





Bill of exchange -

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.

Specimen of a bill of exchangeRs 10, 000New Delhi – 110 016Jan. 13, 2006

Six months after date pay to A or order/bearer the sum of ten thousand rupees only forvalue received.To X Sd/-YAddress _______________________________ Stamp

_______________________________

Here Y is the drawer, A is the payee and X is the drawee. X will express his willingness topay „accepting

‟ the bill by writing words somewhat as below across the face of the bill:ACCEPTEDSd-X Jan. 16, 2006.The specimen given above is of a usance bill, payable after a specified period of time. A

bill of exchange may be drawn payable „at sight‟

, i.e., on demand or payable „aftercertain time after sight ‟ also.

Parties to a bill of exchange The parties of bill of exchange are: The drawer: The person to whom the amount of the bill is payable. The drawee: The person on whom the bill is drawn. Thus, drawee is the person

responsible for acceptance and payment of the bill. In certain cases however astranger may accept the bill on behalf of the drawee.

The payee: The person to whom amount of the bill is payable. It may be thedrawer himself or any other person.

The holder: It is the original payee but where the bill has been endorsed, theendorsee. In case of a bearer bill, the bearer or possessor is the holder.

The endorser: It is the person who endorses a bill. The endorsee: It is the person to whom the bill is negotiated by endorsement.





Drawee in case of need. Acceptor for honour.

Cheques - A cheque is the usual method of withdrawing money from a current account

with a banker. Savings bank accounts are also permitted to be operated by Cheques

provided certain minimum balance is maintained. A cheque, in essence, is an order by

the customer of the bank directing his banker to pay on demand, the specified amount,

to or to the order of the person named therein or to the bearer. Sec.6 defines a cheque.

The Amendment Act 2002 has substituted new section for Sec.6. It provides that acheque is a bill of exchange drawn on a specified banker and not expressed to be

payable otherwise than on demand and not expressed to be payable otherwise than on

demand and it includes the electronic image of a truncated cheque and a cheque in the

electronic form.

Specimen of a cheque





A cheque in the electronic form means a cheque which contains the exact mirror image

of a paper cheque, and is generated, written and signed in a secure system ensuring the

minimum safety standards with the use of digital signature and asymmetric crypto

system.

Every bank has its own printed cheque forms which are supplied to the account holdersat the time of opening the account as well as subsequently whenever needed. Theseforms are printed on special security paper which is sensitive to chemicals and makesany chemical alterations noticeable. Although, legally, a customer may withdraw his

money even by writing his directions to the banker on a plain paper but in practicebankers honour only those orders which are issued on the printed forms of cheques.

Requisites of a cheque

The requisites of a cheques are:

1. Written instrument. A cheque must be an instrument in writing. Regarding thewriting materials to be used, law does not lay down any restrictions and

therefore cheque may be written either with (a) pen (b) type writer or may be (c)printed.

2. Unconditional order. A cheque must contain an unconditional order. It is,however, not necessary that the word order or its equivalent must be used tomake the document a cheque., Generally, the order to bank is expressed by theword “pay”. If the word “please” precedes “pay” the document will not beregarded as invalid merely on this account.

3. On a specified banker only. A cheque must be drawn on a specified banker. Toavoid any mistake, the name and address of the banker should be specified.

4. A certain sum of money. The order must be only for the payment of money andthat too must be specified. Thus, orders asking the banker to deliver securities orcertain other things cannot be regarded as cheques. Similarly, an order asking the





banker to pay a specified amount with interest, the rate of interest not specified,is not a cheque as the sum payable is not certain.

5. Payee to be certain. A cheque to be valid must be payable to a certain person.„Person

‟ should not be understood in a limited sense including only humanbeings. The term in fact includes „legal persons

‟ also. Thus, instruments drawn infavour of a body corporate, local authorities, clubs, institutions, etc., are validinstruments being payable to legal persons.

6. Payable on demand. A cheque to be valid must be payable on demand and nototherwise. Use of the words „on demand

‟ or their equivalent is not necessary.When the drawer asks the banker to pay and does not specify the time for itspayment, the instrument is payable on demand (Sec.19).

7. Dating of cheques. The drawer of a cheque is expected to date it before it leaveshis hands. A cheque without a date is considered incomplete and is returnedunpaid by the banks. The drawer can date a cheque with the date earlier or laterthan the date on which it is drawn. A cheque bearing an earlier date is antedatedand the one bearing the later date is called post-dated. A post-dated chequecannot be honoured, except at the personal risk of the bank ‟ s manager, till the

date mentioned. A post-dated cheque is as much negotiable as a cheque forwhich payment is due, i.e., the transferee of a post-dated cheque, like that of thecheque on which payment is due, acquires a better title than its transferor, if heis a holder in due course. A cheque that bears a date earlier than six months is astale cheque and cannot be claimed for.





6. Write short notes on the following:

a. Digital Signature

b. Information Technology Act

a) Digital Signature

Authentication is a process used to confirm the identity of a person or to prove theintegrity of information. The authentication of message involves determining its source

and verifying that it has not been modified or replaced in transit. Subject to the

provisions of section 3 any subscriber may authenticate an electronic record by affixing

his digital signature.

The “hash function” means an algorithm mapping or translation of one sequence of bits

into another, generally smaller set known as “hash result” such that an electronic recordyields the same hash result every time the algorithm is executed with the same

electronic record as its input making it computationally infeasible(a) to derive or

reconstruct the original electronic record from the hash result produced by the

algorithm;(b) that two electronic records can produce the same hash result using the

algorithm.





b) Information Technology Act

In May 2000, at the height of the dot-com boom, India enacted the IT Act and became

part of a select group of countries to have put in place cyber laws. In all these years,

despite the growing crime rate in the cyber world, only less than 25 cases have been

registered under the IT Act 2000 and no final verdict has been passed in any of these

cases as they are now pending with various courts in the country.

Although the law came into operation on October 17, 2000, it still has an element of

mystery around it. Not only from the perception of the common man, but also from the

perception of lawyers, law enforcing agencies and even the judiciary.

The prime reason for this is the fact that the IT Act is a set of technical laws. Another

major hurdle is the reluctance on the part of companies to report the instances of

cyber-crimes, as they don't want to get negative publicity or worse get entangled in

legal proceedings. A major hurdle in cracking down on the perpetrators of cyber-crimes

such as hacking is the fact that most of them are not in India. The IT Act does give extra-

territorial jurisdiction to law enforcement agencies, but such powers are largely

inefficient. This is because India does not have reciprocity and extradition treaties with a

large number of countries.

The Indian IT Act also needs to evolve with the rapidly changing technologyenvironment that breeds new forms of crimes and criminals. We are now beginning to

see new categories and varieties of cyber-crimes, which have not been addressed in theIT Act. This includes cyber stalking, cyber nuisance, cyber harassment, cyber defamationand the like. Though Section 67 of the Information Technology Act, 2000 provides forpunishment to whoever transmits or publishes or causes to be published or transmitted,any material which is obscene in electronic form with imprisonment for a term whichmay extend to two years and with fine which may extend to twenty five thousandrupees on first convection and in the event of second may extend to five years and also




with fine which may extend to fifty thousand rupees, it does not expressly talk of cyberdefamation. The above provision chiefly aim at curbing the increasing number of childpornography cases and does not encompass other crimes which could have beenexpressly brought within its ambit such as cyber defamation.

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Mb0051-Legal Aspects of Business Final

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