184153242 Adl 12 Business Law With Change 2013 Docx

Subject: Business Laws

Assignment A

Attempt any three:

Question1: The fundamental attribute of corporate personality is that company is a legal

entity distinct from the members. Elucidate the statement. Also specify the important

features of a company.

Answer: In the Eye of Court, Company is an independent identity. It is an artificial person. There

is no body, soul or brain but it works like a human being. It can buy and sell on its own name.

No members have right on company except their invested share capital. So, no share holder

sells or buy the companys property. They can only sell their bought share at its current market

value. It is not just association of persons like partnership. It has full independent legal entity.

Death or birth of new shareholder will not affect the existence of a company. Shareholders are

not also the agent of company. Company will not die with the death of any shareholder. When

any shareholder will die, his shares will transfer to other authorize party.

There are some exceptions when this rule will not apply. For example, when any company

starts acting like an agent of shareholders. At that time, company and its shareholders will not

different. At that time, its liability will be unlimited.

The following are the main characteristics and distinctive features of a company form of

enterprise:

1. An Association of Persons:

At least two persons or seven persons must come together to form a private or a public

company respectively. A single individual cannot constitute a company. This is the reason why a

company is called on Association of Persons.

2. Incorporated Association: A company comes into existence only after a certificate of

incorporation has been obtained from the Registrar of Joint Stock Companies. Without

incorporation, it has no legal existence.

3. Artificial Legal Person: A company is an artificial person created by law to achieve the

objectives for which it is formed. A company exists only in the contemplation of law. It is

artificial person in the sense that it is created by a process other than natural birth and does not

possess the physical attributes of a natural person.

It is invisible, intangible, immortal and exists only in the eyes of law. It has no body, no soul and

no conscience; it is regarded as an artificial person.

4. Distinct Legal Entity: A company is a legal person having a juristic personality entirely distinct

and independent of the individual persons who are its members. It enjoys in many respects the

right of a natural person in the eyes of law.

It can own property, conduct a lawful business, enter into contracts with others, buy, sell and

hold property, all in its own name under its own seal. It can file a suit against others and can be

sued against.

5. Perpetual Succession: A company has perpetual existence i.e. its existence is not affected by

the death or lunacy or insolvency or retirement of its member.

Members may come and go, but the company continues its operations so long as it fulfils the

requirements of the law under which it has been formed. Thus, a company has a perpetual

succession irrespective of its membership.

6. Limited Liability: Liability of members of a limited company is limited to the face value of the

shares subscribed by each of them. Members cannot be asked to pay anything more than what

is due or unpaid on the shares of the company held by them.

In no case the personal property of the members of a company can be attached to satisfy the

claims of creditors of a company.

7. Transferability of Shares: Members of a public limited company are free to transfer the

shares held by them to any one members for either to purchase or sell the shares.

8. Diffused Ownership: Ownership of a company is in the hands of a large number of people. In

case of Private Ltd. Company, the upper limit is up to 50. In case of a public Ltd. Company there

is upper limit to the number of members.

Any individual is free to acquire the share of any company and become to the owner to that

extent only. As such ownership is spread among a number of share holders.

9. Separation of ownership and management: Share holders are the owners of the company.

Companys share holders are widely scattered. It is physically impossible for all of them to take

patty in the management of the company.

Being a share holder of a company does not give him the right to manage the affairs of a

company. The management is vested with the directors, who are the legal representatives of

the shareholders. Thus owners of the company have no direct control over the management of

the company.

10. Common Seal: A company being an artificial person cannot sign documents for itself

whereas a natural person can do. The law has provided for the use of a common seal, with the

name of the company engraved on it, as substitute for its signature.

The common seal of the company is approved in the first Board Meeting held immediately after

the incorporation. Common seal has to be affixed on all important documents and contracts.

Any document bearing the common seal of the company duly signed by at least two directors

will be legally binding on the company.

11. Corporate Finance: A company generally raises large amount of funds in form of issuing

shares, debentures, bonds and incurring loans and advances from financial institutions. The

total share capital of a company is divided into a number of shares which are held by individual

members and institutions.

12. Object clause of Business: A company can conduct only such business as stated in its first

Memorandum of Association. In order to bring any charges in its activity, the object clause must

be changed.

13. Publication of Accounts: A joint stock company is required to file annual audited

statements with the Registrar of Companies at the end of each financial year. The annual

statements are available for inspection in the office of the Registrar.

Question2: Discuss the essential elements of a valid contract.

Answer: A contract has been defined in Section 2(h) as an agreement enforceable by law. To

be enforceable by law, an agreement must possess the essential elements of a valid contract as

contained in Sections 10, 29 and 56.

According to Section 10, all agreements are contracts if they are made by the free consent of

the parties, competent to contract, for a lawful consideration, with a lawful object, are not

expressly declared by the Act to be void, and, where necessary, satisfy the requirements of any

law as to writing or attestation 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 may be summed up as follows:

1. Offer and acceptance: There must be a lawful offer and a lawful acceptance of the offer,

thus resulting in an agreement. The adjective lawful implies that the offer and acceptance

must satisfy the requirements of the Contract Act in relation thereto.

2. Intention to create legal relations: There must be an intention among the parties that the

agreement should be attached by legal consequences and create legal obligations. Agreements

of a social or domestic nature do not contemplate legal relations, and as such they do not give

rise to a contract.

3. Lawful consideration: The third essential element of a valid contract is the presence of

consideration. Consideration has been defined as the price paid by one party for the promise

of the other. An agreement is legally enforceable only when each of the parties to it gives

something and gets something. The consideration may be an act (doing something) or

forbearance (not doing something) or a promise to do or not to do something. It may be past,

present or future. But only those considerations are valid which are lawful.

4. Capacity of parties: The parties to an agreement must be competent to contract; otherwise

it cannot be enforced by a court of law. In order to be competent to contract the parties must

be of the age of majority and of sound mind and must not be disqualified from contracting by

any law to which they are subject (Sec. 11).

5. Free consent: Free consent of all the parties to an agreement is another essential element of

a valid contract. Consent means that the parties must have agreed upon the same thing in the

same sense (Sec. 13). There is absence of free consent if the agreement is induced by (ii)

coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake (Sec. 14). If the

agreement is vitiated by any of the first four factors, the contract would be voidable and cannot

be enforced by the party guilty of coercion, undue influence etc.

6. Lawful object: For the formation of a valid contract it is also necessary that the parties to an

agreement must agree for a lawful object. The object for which the agreement has been

entered into must not be fraudulent or illegal or immoral or opposed to public policy or must

not imply injury to the person or property of another (Sec. 23). If the object is unlawful for one

or the other of the reasons mentioned above the agreement is void. Thus, when a landlord

knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent

through a court of law.

7. Writing and registration: According to the Indian Contract Act, a contract may be oral or in

writing. But in certain special cases it lays down that the agreement, to be valid, must be in

writing or/and registered. For example, it requires that an agreement to pay a time barred debt

must be in writing and an agreement to make a gift for natural love and affection must be in

writing and registered (Sec. 25). Similarly, certain other Acts also require writing or and

registration to make the agreement enforceable by law which must be observed. Thus, (i) an

arbitration agreement must be in writing as per the Arbitration and Conciliation Act, 1996; (ii)

an agreement for a sale of immovable property must be in writing and registered under the

Transfer of Property Act, 1882 before they can be legally enforced.

8. Certainty: Section 29 of the Contract Act provides that Agreements, the meaning of which is

not certain or capable of being made certain, are void. In order to give rise to a valid contract

the terms of the agreement must not be vague or uncertain. It must be possible to ascertain

the meaning of the agreement, for otherwise, it cannot be enforced.

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

capable of performance. Section 56 lays down that An agreement to do an act impossible in

itself is void. If the act is impossible in itself, physically or legally, the agreement cannot be

enforced at law.

10. Not expressly declared void: The agreement must not have been expressly declared to be

void under the Act. Sections 24-30 specify certain types of agreements which have been

expressly declared to be void.

3 . Explain - different modes of crossing of a cheque and section 138 as per the provisions of the Negotiable Instrument Act, 1881.

Different modes of crossing of a cheque

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Crossing are of the following types:

(1) General crossing;

(2) Special crossing;

(3) However, there is yet another type of crossing which is recognized by usage and custom,

called restrictive crossing:

(4) Not negotiable crossing.

1. General Crossing:

In a general crossing, simply two parallel transverse lines, with or without the words 'not

negotiable' in between, may be drawn. Such a cheque is crossed generally.

The effect of general crossing is that the payment of the cheque will not be made at the

counter, it can be collected only through a banker.

2. Special Crossing:

In a special crossing, the name of a banker with or without the words 'not negotiable' is

written on the cheque. Such a cheque is crossed specially to that banker.

It should be noted that two transverse parallel lines are necessary for a general crossing,

whereas for a special crossing, no such lines are necessary.

The effect to special crossing is that the paying banker will be the amount of the cheque only

through the bank named in the cheque.

3. Restrictive crossing:

Besides the two statutory types of crossing discussed above, there is one more type of

crossing namely, restrictive crossing. This type of crossing has been recognised by usage and

custom of the trade.

In a restrictive crossing the words 'Account Payee' or Account Payee Only' are added to the

general or special crossing.

The effect of restrictive crossing is that the payment of the cheque will be made by the bank

to the collecting banker only for the account payee named. If the collecting banker collects

the amount for any other person, he will be liable for wrongful conversion of funds.

It should be noted that the duty of the paying banker is only to ensure that the payment is

made through the named bank, if there is any. He is not liable, in case the collecting banker

collects the cheque for any other person than the account payee. In that case collecting

banker will be liable to the true owner.

4. Not negotiable Crossing (Sec. 130):

A person taking is cheque crossed generally or specially, bearing in either case the words 'not

negotiable' shall not be able to give a better title to the holder than that of the transferor.

The effect of a not negotiable crossing is that the cheque can be transferred but the

transferee will not acquire a better title to the cheque. Thus a cheque is deprived of its

essential feature of negotiability.

The objects of "not negotiable" crossing is to protect the drawer against loss or theft in the

course of transit.

Example:

A cheque was drawn in favour of a firm B & Co. The cheque was crossed 'not negotiable'; one

of the partners, A in fraud of his Co-partner B, endorsed the cheque to P who encashed it.

Held that B, who under the terms of the partnership agreement was entitled to the cheque

could recover the amount from P as A could not transfer better title than he himself had

[Fisher v. Roberst]

Who may cross a cheque? As a rule, it is the drawer who can cross a cheque. However, Sec.

125 provides that even a holder can cross the cheque. It further provides that a banker

can cross the cheque specially for collecting to another banker as his agent for collection.

Section 138 in The Negotiable Instruments Act, 1881

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138. Dishonour of cheque for insufficiency, etc., of funds in the account. 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 account is insufficient to honour the cheque

or that it exceeds the amount arranged to be paid from that account by an agreement made

with that bank, such person shall be deemed to have committed an offence and shall,

without prejudice. to any other provision of this Act, be punished with imprisonment for a

term which may extend to one year, or with fine which may extend to twice the amount of

the cheque, or with both: Provided that nothing contained in this section shall apply unless-

(a) the cheque has been, presented to the bank within a period of six months from the date

on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course. of the cheque as the case may be, makes a demand

for the payment of the said amount of money by giving a notice, in writing, to the drawer of

the cheque, within fifteen days of the receipt of information by him from the bank regarding

the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the

payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of

the receipt of the said notice. Explanation.- For the purposes of this section," debt or other

liability" means a legally enforceable debt or other liability.

Question4: What are the characteristics of negotiable instrument? Discuss the privileges of

holder in due course as per the provision of the Negotiable Instrument Act.

Answer: A Negotiable instrument means a promissory note, bill of exchange or cheque either to

order or bearer." Justice K. C. Wills defines negotiable instrument as "ONE THE PROPERTY IN

WHICH IS ACQUIRED BY ANY ONE WHO TAKES IT BONAFIED FOR VALUE, NOT WITHSTANDING

ANY DEFECT OF TITLE IN THE PERSON FROM WHOM HE TOOK IT". Transferability A Negotiable

instrument as a document of title to money is transferable either by the application of the law

or by the custom of the trade concerned. Special feature of N.I The special feature of such an

instrument is the privilege it confers to the person who receives it bonafide and for value, to

possess good title thereto, even if the transferor has no title or had defective title to the

instrument. Distinctive features of Negotiable Instruments - Easily transferable from one person

to another - Confers absolute and good title on the transferee - The holder of a Negotiable

Instrument (P.N./B.E./Cheque) is called as the holder in due course and possesses the right to

sue upon the instrument in his own name. Types of Negotiable Instruments Negotiable

instruments by Statue are of three types, cheques, bills of exchange and promissory note.

Negotiable instruments by custom or usage :- Some other instruments have acquired the

character of negotiability by the the custom or usage of trade. Section 137 of Transfer of

Property Act 1882 also recognizes that an instrument may be negotiable by Law or Custom.

Thus in India Govt. Promissory notes, Shah Jog Hundis, Delivery Orders, Railway Receipts, Bill of

Lading etc. have been held negotiable by usage or custom. These can be said as quasi statutory

Negotiable Instruments. Exceptions Sometimes the Drawer and Holder can take away the

negotiability of an instrument by expression such as "Not Negotiable", Pay to "A" only. Here "A"

(the holder) cannot transfer a better title to the transferee. Promissory Note 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." Bill of Exchange

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." According to Section 7, the

maker/creator of the instrument is known as 'Drawer'. The person to whom payment may be

made is known as "Payee". The person who is directed to pay the amount is known as Drawee.

He accepts to pay the amount mentioned in the instrument. In case of a promissory note

Drawer and Drawee are same. In case of a cheque the Drawee is always a Banker. Cheque As

per Section 6 "A cheque is a bill of exchange drawn on a specified banker and not expressed to

be payable otherwise than on demand." After 2002 amendment cheque includes " the

electronic image of a truncated cheque and a cheque in the electronic form." In terms of

Explanation I, (a) " '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 (with or without

biometrics signature) and asymmetric crypto system; (b) 'a truncated cheque' means a

cheque which is truncated during the course of a clearing cycle, either by 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."

M.I.C.R.Cheques/Drafts In MICR (Magnetic Ink Character Recognition) cheques: First six number

indicate the cheque number Next three numbers indicate city code Next three numbers

indicate Bank code Next three numbers indicate Branch code Characteristics of Cheque, Bill of

Exchange and Promissory Note 1) Instrument in writing: Pencil writing is not forbidden by the

law but to prevent alternation, etc. the custom and usage do not allow this. (2) Unconditional

order/promise: Cheque and bill of exchange are orders of creditors (Drawers) to the debtors

(Drawee) to pay money. Instruments with expressions such as "I.O.U. Rs.500/-" is not a bill of

exchange. On the other hand a promise with following narration duly signed, dated and

accepted by a drawee is a Bill of Exchange B/E "I promise to pay B or order Rs.5,000/-" (3)

Difference between cheque and bill of exchange: The main difference between a cheque and a

bill of exchange is that the former is always drawn on and is payable by a banker specified

therein. (4) Certainty of the sum: The amount of the instrument must be certain. (5)

Payable to order or bearer: The instrument must be payable either to order or to bearer as per

the provision of Section 13 of the Act. For example if a cheque is drawn with the expression "

Pay to Ram Lal" it indicates that it can be paid to Ram Lal or any person as per his order. But if it

is written pay to 'Ram Lal' only it must be paid to Ram Lal only. A bill of exchange and cheque

are payable to bearer if it is expressed to be so payable or if the only or the last endorsement is

an endorsement in blank. (6) Payee must be a certain person: The term 'person' includes

besides individuals, bodies corporate, local authorities, Co-operative Societies, etc. and it also

includes Registrar, Principal, director, Secretary, etc. of those institutions. Payee may be more

than one person (7) Term of payment: A cheque is always payable on demand, though words

to this effect are not mentioned therein. A bill may be payable at sight or after a period of time

specified therein. A promissory note or bill of exchange in which no time for payment is

specified is payable on demand (Section 19). If the bill is payable after a certain period it must

be accepted by a drawee. But no such acceptance is necessary in case of a cheque. (8) Signature

of the drawer/promisor: The negotiable instrument is valid only if it bears the signature of the

drawer/promisor. (9) Delivery of the instrument: The making, acceptance or endorsement of an

instrument is completed by delivery in terms of Section 46 of the Act. Stamping of promissory

notes and bill of exchange is necessary. The Indian Stamp Act 1899 requires that the promissory

note and the bill of exchange except cheques to be stamped. (11) Currency note: The currency

note is a promissory note payable to bearer on demand. Section 21 of RBI Act prohibits creation

of this type of promissory notes by others excepting the Reserve Bank of India. Holder and

holder in due-course A negotiable instrument is transferable from person to person. The

Negotiable Instrument Act confers upon the person who acquires it bonafide and for value, the

RIGHT TO POSSESS good title to the instrument. such a person is called HOLDER IN DUE

COURSE. Each and every person in possession of a cheque or bill cannot be its holder in due

course and cannot claim statutory protection available under the Act. In terms of 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 and recover the amount due thereon from

the parties thereto." Two fold entitlements He must be entitled to the possession of the

instrument in his own name and under legal title. Actual possession of the instrument is not

essential; the holder must have legal right to possess the instrument in his own name. He must

have lawfully derived the title as an endorsee or payee. He must be entitled to receive or

recover the amount from the parties concerned in his own name. In case of order instruments,

the name of the person must appear as its endorse or payee. Bearer/Order instrument In case

of a bearer instrument, the bearer may claim the money without having his name mentioned

on the cheque. In case a Bill, a Promissory note or a cheque is lost or destroyed its holder is the

person so entitled at the time of such loss or destruction. Holder in due course 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 payee or endorsee thereof

if payable to order before the amount mentioned in it became defect in the title of the person

from whom derived his title." Conditionalities A person becomes holder in due course if the

following conditions are satisfied:- The instrument must be in the possession of the holder in

due course and in case of an order instrument he must be its payee or endorsee. The

negotiable instrument must be regular and complete in all aspects. Alterations if any must be

authenticated. The instrument must have been obtained for valuable consideration i.e. by

paying its full value. Exceptions A person who receives a cheque (not being a gift cheque issued

by banks) as a gift will not be called its holder in due course for want of consideration. If a

cheque is given in respect of a debt incurred in gambling the consideration of the cheque is

unlawful and hence cheque received on such consideration cannot make the payee thereof a

holder in due course provided: The instrument must have been obtained before the amount

mentioned therein became payable. He must have received it without having sufficient cause

to believe that any defect existed in the title of the transferor. The title of a Negotiable

Instrument is deemed to be defective if it is acquired by unfair means, e.g. fraud, coercion,

undue influence or by any other illegal means. Section 9 thus lays heavy responsibility on the

person accepting a negotiable instrument. Rights of a Holder An endorsement in blank may be

converted by him into an endorsement in full. (2) He is entitled to cross a cheque either

generally or specially with the words Not Negotiable. (3) He can negotiate a cheque to a third

person. (4) He can obtain a duplicate of the lost instrument. Privileges of a Holder in Due

Course (1) He possesses a better title free from all defects, which is the greatest privilege of all.

Section 53 states that a holder of negotiable instrument who derives title from a holder in due

course has rights thereon of that of a holder in due course. (2) Every prior party to negotiable

instrument, i.e, maker or drawer, acceptor or endorser is liable thereon to a holder in due

course until the instrument is duly satisfied. (Section 36). (3) If a negotiable instrument was

originally inchoate (i.e. incomplete) instrument and a subsequent transfer completed the

instrument for a sum greater than what was the intention of the maker, the right of a holder in

due course to recover the money of the instrument is not affected at all. (4) Right in case of

fictitious instrument is unaffected. (5) Right in case the instrument was obtained by

unlawful means or for unlawful consideration is unaffected. (6) Estoppel against denying

original validity of the instrument. (7) Estoppel against denying capacity of payee to endorsee.

(8) Estoppel against denying signature or capacity of prior party. Payment in due course

Section 10 defines payment in due course as Payment in due course means payment in

accordance with the apparent tenor of the instrument in good faith and without negligence to

any person in possession thereof under circumstances which do not afford a reasonable ground

for believing that he is not entitled to receive payment of amount mentioned therein. The

other important provisions relating to payment in due course are the following. i. The payment

should be made in accordance with the apparent tenor of the instrument i.e. according to the

true intentions of the parties. ii. The payment should be made in good faith and without

negligence. iii. The payment should be made to the person in possession of the instrument in

circumstances, which do not arouse suspicion about his title to possess the instrument and to

receive payment thereof.

5 . Elaborately explain the essential features of the consumer protection act 1986. Also briefly discuss unfair trade practice and restrictive trade practice as discussed under consumer protection Act?

(i)

Features of Consumer Protection Act 1986

1. This Act is applicable on both goods and services. Goods are manufactured by the

manufacturer and consumer buys them from manufacturer or seller. Services include transport,

electricity, water; roads, etc. are under this Act.

2. Consumer Redressal Forum-Under Consumer Protection Act, the three judicial systems has

been set up to provide relief to consumers. In this system, consumer forums have been set up

at various levels which are functioning to safeguard the interests of consumers. Under this

system, many forums and commissions have been set up at various levels where consumers can

lodge their complaints.

I. At district level there is District Consu-mer Dispute Redressal Forum. It is headed by a judicial

officer equivalent to Session Judge. He is assisted by two members. Cases involve compensation

up to 20 lakhs are entertained in this forum.

II. At state level there is State Consumer Dispute Redressal Commission. It is headed by a

judicial officer equivalent to High Court Judge. He is also assisted by two members. Here cases

involve compensation of 20 lakhs to one crore are entertained.

III. At national level there is National Consumer Dispute Redressal Commission. It is headed by a

Judge of Supreme Court. He is assisted by four members. Here cases involve compensation

above one crore are entertained. National Commission has jurisdiction for appeals coming up

against orders of State Commission. Supreme Court is the final deciding authority.

3. Under this Act there is provision to settle the complaint within three months of filing it. If the

complaint needs laboratory testing, the period is extended to five months.

4. In Consumer Protection Act, clause VI defines the rights of the consumer which have been

already discussed in the previous chapter.

5. There is no fee for lodging a complaint. Even poor people can get justice.

6. The clause II of this Act has defined some terms used by Consumer Protection Act like:

I. Defect-it is any fault or shortcoming in quality, quantity, purity, potency, or standard fixed by

the government.

II. Deficiency-it is any fault, shortcoming or imperfection in quality or performance.

III. Unfair Trade Practice-it is unfair and deceptive procedure used to promote sale or supply of

goods and services like lottery, chit fund, conducting competitions, etc.

IV. Restricted trade practices.

(ii)

Unfair Trade Practice and Restrictive Trade Practice

According to the provisions of the Consumer Protection Act, 1986 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

the practice of making any statement, whether orally or in writing or by visible representation

which falsely represents that the goods are of a particular standard, quality, quantity, grade,

composition, style or model; falsely represents that the services are of a particular standard,

quality or grade; falsely represents any re-built, second-hand, reno-vated, reconditioned or old

goods as new goods; makes a false or misleading representation concern-ing the need for, or

the usefulness of, any goods or services etc. permits the publication of any advertisement

whether in any news-paper or otherwise, for the sale or supply at a bargain price, of goods or

services that are not intended to be offered for sale or supply at the bargain price. Bargaining

price has been defined as a price that is stated in any advertisement to be a bargain price, by

reference to an ordinary price or otherwise, or a price that a person who reads, hears or sees

the advertisement, would reasonably understand to be a bargain price having regard to the

prices at which the product advertised or like products are ordinarily sold.

The Act defines restrictive trade practice as a trade practice which tends to bring about

manipulation of price or conditions of delivery or to affect flow of supplies in the market

relating to goods or services in such a manner as to impose on the consumers unjustified costs

or restrictions and shall include delay beyond the period agreed to by a trader in supply of such

goods or in providing the services which has led or is likely to lead to rise in the price; any trade

practice which requires a consumer to buy, hire or avail of any goods or services as condition to

buying, hiring or availing of other goods or services.

Assignment B

Read the case study given below and answer the questions given at the end

Case Study

Aditya Mass Communication Private Limited

Vs

A.P. state Road Transport Corporation

A.P. State Road Transport Corporation, Hyderabad advertised tender notice on calling for

tenders for display of advertisements on the buses owned by it. According to the condition of

the Tender Notice, each tender form had to be accompanied by a demand draft for Rs 20

lakhs and tender forms completed in all respects had to be put in the tender box. The

accompanying sum of money was the Earnest Money Deposit (E.M.D). Clause (10) of the

terms provided that the tender will be opened at 3:00 p.m. on October 31, 1996, in presence

of the tenderers or their authorized agents. Clause (14) provided that tenderers will not be

permitted to withdraw their tender after the tenders were opened .Clause (15) provided that

if the highest tenderer backs out from taking up the agency , for whatsoever reason, the

E.M.D. paid by him will be forfeited.

Aditya mass Communication Private Limited submitted its duly filled tender along with

demand draft of Rs. 20 lakhs. In relation to this tender, another person approached the High

Court and got an order restraining the Transport Corporation from proceeding further with

the tender. Following the order, the A.P. State Road Transport Corporation opened the

tender box at 3 p.m. and found six sealed covers. In view of the directions of the High Court,

the covers were again placed back in the tender box without opening the seals. The signature

of the tenderers and their agents was taken to this effect .The tenders were not opened to

find out the highest bidder. Aditya Mass Communication Private Limited wrote a letter on

November 11, 1996 stating that no reasons were given to him for non-opening of the tenders

and that he could not keep the huge amount of Rs 20 lakhs locked in with all the uncertainty

associated with the tender. It, thus, requested for return of the Earnest Money Deposit. A.P.

State Road Transport Corporation replied on November 14, 1996 that the Aditya Mass

communication had signed on the note recording the proceedings of opening the tender box

and putting back sealed covers. Thus, it could not put up the argument that no reasons for

non-opening of the tender was given on it. The letter notified that the tenders would be

opened on November 16, 1996 at 11:30 hrs. Aditya Mass Communication once again wrote a

letter on November 15, 1996 that the question of their participation in the opening of tenders

did not arise as they asked for the return of E.M.D. The A.P. State Road Transport Corporation

went ahead with the opening of the tender, found Aditya Mass Communication to be the

highest bidder and awarded the tender to it. Aditya Mass Communication was informed of

this but it demanded refund of Earnest Money Deposit. The A.P. State Road Transport

Corporation following the terms of tender forfeited the earnest money deposit of Aditya

Mass Communication.

Question1: Elaborately state the important legal issue/s covered under this case.

Answer: The point in this case is whether the petitioner has withdrawn the tender before it was

opened in accordance with the conditions of the tender notice. According to the tender notice,

the tenders were to be opened at 3 pm by opening the tender box. But mere opening of the

box was not sufficient. The tender forms were to be scrutinized as to whether they were valid

tenders and successful bidder was to be found out. That process admittedly, was not gone

through and even according to the respondent the sealed covers were not opened on the given

date and were kept back in the box. The opening of the tenders by removing the salts was

postponed because of the interim order of this court. Before the actual process starts, the

petitioner had asked for the return of earnest money. Hence, it is not possible to accede to the

contention of the learned counsel for the respondent. Though the request of the petitioner did

not specifically refer to withdrawal of the tender, still no one would ask for return of the

earnest money unless there is an intention not to participate in the tender. The respondent had

also understood this because of the later reply where the respondent had clearly stated that

the petitioner should participate in the opening of the tenders on the date to which it was

postponed and expressed the inability to return the earnest money. But that clause comes into

operation after the tenders are opened and the highest bidder is declared and such a

declaration can come only after scrutinizing the tenders. In the present case, that did not take

place and the petitioner had asked for return of earnest money stating that he had no interest

in participating in the opening of the tenders.

Ques 2: What are the essential features of a tender?

Ans. As tender would amount to complete performance, if the offer were carried out, the

requisites of a valid tender are indicated by the requisites of valid performance. There must be

an un-conditional offer to perform, coupled with a manifested ability to carry out the offer, and

a production of the subject-matter of the tender;66 the amount tendered must not be less than

what is due; and if greater, there must be no demand for a return of the excess.68 The medium

of payment must be that which the contract specifies or in the absence of contractual definition

that which the law has made legal tender;69 the time must be that fixed by the contract or by

law;70 it must not be before maturity; and the hour of the day must be reasonable. But at the

present time in case of a liquidated debt a valid tender may be made subsequent to the day of

maturity by adding legal interest to the amount of the debt.

Question 3: Give your reasons in support of your decision for the issue discussed in this case.

Ans. According to the tender notice, the tenders were to be opened at 3 pm by opening the

tender box. But mere opening of the box was not sufficient. The tender forms were to be

scrutinized as to whether they were valid tenders and successful bidder was to be found out.

That process admittedly, was not gone through and even according to the respondent the

sealed covers were not opened on the given date and were kept back in the box. The opening

of the tenders by removing the salts was postponed because of the interim order of this court.

Before the actual process starts, the petitioner had asked for the return of earnest money.

Hence, it is not possible to accede to the contention of the learned counsel for the respondent.

Though the request of the petitioner did not specifically refer to withdrawal of the tender, still

no one would ask for return of the earnest money unless there is an intention not to participate

in the tender.

Question No. 2 Marks - 10

Annual general Meeting is required to be held---

Options

By a private company only

By a public company only

By a company limited by guarantee only

By all kinds of companies

Ans. By all kinds of companies


An acceptance is complete and effective only when it has been---

Options

Communicated to the offerer

Merely mentally accepted

Externally manifested

Kept in the drawer

Ans. Communicated to the offerer


Name of a company can be changed by passing a special resolution and with the approval of--

Options

The company law tribunal

The Central Government

The Registrar of Companies

none of the above

Ans. The Central Government


A contract becomes voidable if it has been caused by---

Options

Coercion

Fraud

Undue Influence

All of them

Ans. All of Them


If the goods have perished, the contract of sale of such specific goods, will become---

Options

voidable

void

illegal

None of these

Ans. voidable


Articles can be altered by---

Options

Ordinary resolution

Special Resolution

Resolution requiring special notice

Unanimous resolution

Ans. Resolution requiring special notice


A contract entered into between the parties by words is called---

Options

An express contract

An implied contract

A quasi Contract

An excited contract

Ans. Implied Contract


A prospectus is issued---

Options

By a Private LImited Company

By a Public Limited Company

By a Company limited by Guarantee

None of these

Ans. By a Private LImited Company


When, before the contract becomes due for performance, the promisor declares his intention of not performing his promise, it is called---

Options

Remission

Waiver

Alteration

Anticipatory breach

Ans. Remission


A bailment cannot be made about---

Options

Car

Furniture

Money

Television

Ans. Money


The damages which arise in the usual course of things happening from the breach of contract, are called---

Options

Remote Damages

Ordinary damages

Special damages

Nominal Damages

Ans. Ordinary damages


When a person is employed to represent another in dealings with third person, it is a contract of---

Options

Bailment

Guarantee

Agency

Pledge

Ans. Agency


Which of the following is not an essential element of a contract of sale---

Options

Goods as subject matter

Transfer of property in goods

Price

Railway receipts

Ans. Railway receipts


Which of the following does not relate to termination of agency by operation of law---

Options

Death of principal

Insolvency of principal

Destruction of subject-matter

Revocation of authority by the principal

Ans. Destruction of subject-matter


Limited liability means liability of its---

Options

Debtors is limited

Creditors is limited

Members is limited

Debenture holders is limited

Ans. Debtors is limited


In a contract of sale, property means---

Options

Raw Materials

Movable goods

Ownership

Immovable property

Ans. Immovable property


The goods which are yet to be acquired by the seller, are called---

Options

Existing Goods

Contingent Goods

Unascertained goods

Future goods

Ans. Future Goods


Acceptance of an offer is complete as against the offeror as soon as---

Options

The offerer knows about it

The letter of acceptance is posted

The letter f acceptance is signed by offeree

The letter is handed over to a delivery person

Ans. The letter of acceptance is posted


If a company fails to pay its debts suit can be filed against the---

Options

Directors

Members

Officers

Company

Ans. Directors


A contract with a minor is---

Options

Illegal

Valid

Void

Voidable

Ans. Void


Who is liable for the supply of necessaries to a minor---

Options

His guardian

His Manager

His property

He himself

Ans. His guardian


In return for a new television, Raju agrees to give his old television valued at Rs. 3,000 and an amount of cash worth Rs. 5,000 to Ganesh.

This is a---

Options

Barter

Exchange

Contract of sale of goods

Sale of approval

Ans. Contract of sale of goods


Which of the following rights is held by an unpaid seller---

Options

Right of lien

Right of stoppage in transit

Right of resale

All of these

Ans. All of these


Which of the following is not a remedy for breach of contract---

Options

Rescission of the contract

Restitution of benefit

Suit for damages

Alteration of the contract

Ans. Suit for damages


A contract by which one party promises to save the other from loss is called---

Options

Contract of guarantee

Contract of indemnity

Quasi contract

None of these

Ans. Contract of guarantee


Suretys liability is---

Options

Primary

Secondary

Absolute

None of these

Ans. Primary


Crossed cheques payable to bearer are negotiated by---

Options

Endorsement & delivery

Delivery

Assignment

None of these

Ans. Delivery


In a contract of sale, which of the following is treated as implied condition---

Options

That the seller has title to goods

That goods are similar to description

That goods are according to sample shown

All of these

Ans. That the seller has title to goods


Consideration must move at the desire of---

Options

The Promisor

The promisee

A third party

None of them

Ans. The Promisor


Which of the following sentence is a valid promissory note---

Options

I promise to pay Mohan or order Rs. 1,000.

I promise to pay Hari Rs. 2,000 worth of shares..

I promise to pay Naraynan in East India Bonds

I promise to pay Rakesh Rs. 5,000 and to deliver 50 kg of sugar.

Ans. I promise to pay Mohan or order Rs. 1,000.


A stipulation collateral to the main purpose of the contract, is called a---

Options

Condition

Warranty

Guarantee

None of these

Ans. Warranty


A person who receives a negotiable instrument for consideration, before maturity, and in good faith, is called---

Options

Holder for value

Holder

Holder in due course

None of these

Ans. Holder in due course


A director must vacate his office if he fails to obtain qualification shares within---

Options

1 week

two weeks

One month

two months

Ans. Two months


A private company has at least---

Options

7 members

3 members

3 directors

2 Members

Ans. 2 Members


A cheque payable to order may be negotiated---

Options

by delivery

By endorsement

By endorsement & delivery

None of these

Ans. By endorsement & delivery


Which of the following endorsements is invalid---

Options

Restrictive endorsement

Conditional endorsement

Special endorsement

Partial endorsement

Ans. Restrictive endorsement


When a cheque bears across its face an addition of the words & between two parallel transverse lines, it is called---

Options

Special crossing

Restrictive crossing

General crossing

Double crossing

Ans. Special Crossing


Which of the following is a mode of discharge of contract---

Options

By impossibility of performance

By lapsse of time

By breach of contract

All of the above

Ans. By Breach of Contract


Which of the following rights are available to a finder of goods---

Options

Right of lien

Right to file a suit for reward

Right of sale of goods

All of these

Ans. Right of Lien

4 . What are the characteristics of negotiable Instrument? Discuss the privileges of holder in due course as per the provisions of the Negotiable Instruments Act, 1881? Also state the important amendment to be incorporated under sec 138 of the act. Characteristics of negotiable Instrument ------------------------------------------------- 1. Property The possessor of the negotiable instrument is presumed to be the owner of the property contained therein. A negotiable instrument does not merely give possession of the instrument but right to property also. The property in a negotiable instrument can be transferred without any formality. In the case of a bearer instrument, the property passed by mere delivery to the transferee. In the case of an order instrument, endorsement and delivery are required for the transfer of property. 2. Title The transferee of a negotiable instrument is known as holder in due course. A bonafide transferee for value is not affected by any defect of title on the part of the transferor or of any of the previous holders of the instrument. This is the main distinction between a negotiable instrument and other subjects of ordinary transfer. The general rule of nemo dat quod non habet does not apply to negotiable instruments. 3. Rights The transferee of the negotiable instrument can sue in his own name, in case of dishonor. A negotiable instrument can be transferred any number of times till it is at maturity. The holder of the instrument need not give notice of transfer to the party liable on the instrument to pay. 4. Presumptions

Certain presumptions apply to all negotiable instruments e.g. a presumption that consideration has been paid under it. 5. Prompt Payment A negotiable instrument enables the holder to expect prompt payment because a dishonor means the ruin of the credit of all persons who are parties to the instrument. PRIVILEGES OF A HOLDER IN DUE COURSE: ---------------------------------------------------- Section 9 of the Act defines holder in due course as any person who (i) for valuable consideration, (ii) becomes the possessor of a negotiable instrument payable to bearer or the indorsee or payee thereof, (iii) before the amount mentioned in the document becomes payable, and (iv) without having sufficient cause to believe that any defect existed in the title of the person from whom he derives his title. (English law does not regard payee as a holder in due course). The essential qualification of a holder in due course may, therefore, be summed up as follows: 1. He must be a holder for valuable consideration. Consideration must not be void or illegal, e.g. a debt due on a wagering agreement. It may, however, be inadequate. A donee, who acquired title to the instrument by way of gift, is not a holder in due course, since there is no consideration to the contract. He cannot maintain any action against the debtor on the instrument. Similarly, money due on a promissory note executed in consideration of the balance of the security deposit for the lease of a house taken for immoral purposes cannot be recovered by a suit. 2. He must have become a holder (passessor) before the date of maturity of the negotiable instrument. Therefore, a person who takes a bill or promissory note on the day on which it becomes payable cannot claim rights of a holder in due course because he takes it after it becomes payable, as the bill or note can be discharged at any time on that day. 3. He must have become holder of the negotiable instrument in good faith. Good faith implies that he should not have accepted the negotiable instrument after knowing about any defect in the title to the instrument. But, notice of defect in the title received subsequent to the acquisition of the title will not affect the rights of a holder in due course. Besides good faith, the Indian Law also requires reasonable care on the part of the holder before he acquires title of the negotiable instrument. He should take the instrument without any negligence on his part. Reasonable care and due caution will be the proper test of his bona fides. It will not be enough to show that the holder acquired the instrument honestly, if in fact, he was negligent or careless. Under conditions of sufficient indications showing the existence of a defect in the title of the transferor, the holder will not become a holder in due course even though he might have taken the instrument without any suspicion or knowledge. Example: (i) A bill made out by pasting together pieces of a tom bill taken without enquiry will not make the holder, a holder in due . It was sufficient to show the intention to cancel the bill. A bill should not be taken without enquiry if suspicion has been aroused. (ii) A post-dated cheque is not irregular. It will not preclude a bonafide purchase instrument from claiming the rights of a holder in due course. It is to be noted that it is the notice of the defect in the title of his immediate transferor which deprives a person from claiming the right of a holder in due course. Notice of defect in the title of any prior party does not affect the title of the holder. 4.A holder in due course must take the negotiable instrument complete and regular on the face of it.

1988 Amendment to Section 138 --------------------------------------- o If a person issues a cheque and it got dishonored the person is said to have done an Criminal offence. o Whatever be the reason for the dishonor weather for insufficiency of funds or whatever, the same does not matter. Purpose of Amendment o These provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument. o The larger objective is to protect the interest of honest people dealing in cheques. o DRAWER BEWARE, Because, by the said amendment the DISHONOURED CHEQUE is being TREATED as a CRIMINAL OFFENCE.

184153242 Adl 12 Business Law With Change 2013 Docx

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