ASSIGNMENT SET 1

MB0035
LEGAL ASPECTS OF BUSINESS

1. Explain the essential of contract and acceptance.

Ans: All contracts are agreements but all agreements need not be
contracts. The agreements that create legal obligations only are
contracts. The validity of an enforceable agreement depends upon
whether the agreement satisfies the essential requirements laid down
in the Act. Section 10 lays down that ‘all the agreements are contracts
if they are made by the free consent of the parties competent to
contract for a lawful object and are not hereby expressly declared to
be void’.

The following are the essentials:

a) Agreement: An agreement which is preliminary to every

contract is the outcome of offer and acceptance. An offer to do or not
to do a particular act is made by one party and is accepted by the
other to whom the offer is made. Then we say that there is a meeting
of the minds of the parties. Such a position is known as consensus ad
idem.

b) Free consent: The parties should agree upon the same thing in
the same sense and their consent should be free from all sorts of
pressure. In other words it should not be caused by coercion, undue
influence, misrepresentation, fraud or mistake.

c) Contractual capacity: The parties entering into an agreement

must have legal competence. In other words, they must have attained
the age of majority, should be of sound mind and should not be
disqualified under the law of the land. A contract entered into between
the parties having no legal capacity is nullity in the eyes of law.

d) Lawful consideration: There must be consideration supporting

every contract. Consideration means something in return for
something. It is the price for the promise. An agreement not supported
by consideration becomes a ‘nudum pactum’ i.e., naked agreement.
The consideration should be lawful and adequate. However, there are
certain exceptions to this rule.

e) Lawful object: The object or purpose of an agreement must be

lawful. It should not be forbidden by law, should not be fraudulent,
should not cause injury to the person or property of another, should
not be immoral or against public policy.
f) Not expressly declared void: The statute should not declare
an agreement void. The Act itself has declared certain types of
agreements as void. E.g., agreements in restraint of marriage, trade,
legal proceedings. In such cases, the aggrieved party can’t seek any
relief from the court of law.

g) Possibility of performance: The agreement should be capable

of being performed. e.g., Mr. A agrees with Mr. B to discover treasure
by magic. Mr. B can’t seek redressal of the grievance if Mr. A fails to
perform the promise.

h) Certainty of terms: The terms of the agreement should be

certain. E.g., Mr. A. agrees to sell 100 tons of oil. The agreement is
vague as it does not mention the types of oil agreed to be sold.

i) Intention to create legal obligation: Though Sec. 10 is silent

about this, under English law this happens to be an important
ingredient. Therefore, Indian courts also recognize this ingredient. An
agreement creating social obligation can’t be enforced.

j) Legal formalities: Indian Contract Act deals with a simple

contract supported by consideration. Agreements made in India may
be oral or written. However, Sec. 10 states that where the statute
states that the contract should be in writing and should be witnessed
or should be registered, the same must be observed. Otherwise, the
agreement can’t be enforced e.g., Under Indian Companies Act, the
Memorandum of Association and Articles of Association must be
registered.

Acceptance

According to Sec. 2 (b) “When the person to whom the proposal is

made signifies his willingness thereto the proposal is said to be
accepted. A proposal, when accepted, becomes a promise.”

By accepting the offer, the acceptor expresses his willingness to be

bound by the terms and conditions of the offer. Regarding an offer and
its acceptance, Anson has given an analogy of a lighted match stick.
“Acceptance is to an offer what a lighted match is to a train of
gunpowder. It produces something which can’t be recalled or undone.”
An acceptance turns the offer into a binding obligation.

Rules Regarding Acceptance:

a) An offer can be accepted only by the person to whom it is

made: The offeree only has to accept the offer. In case it is accepted
by any other person no agreement is formed. However, in case
authority is given to another person to accept the offer on behalf of the
person to whom it is made, it is a valid acceptance.

b) Acceptance should be unconditional and absolute: Sec. 7

(I) states that the acceptance should be absolute and unconditional.
The acceptor should accept the offer in toto. If it is qualified or
conditional, it ceases to be valid. In fact, a qualified or conditional
acceptance is nothing but a counter-offer.

c) Acceptance should be communicated: The party accepting

the offer must communicate his acceptance to the offeror. Acceptance
is not a mental resolve but some external manifestation. The
acceptance can be communicated in writing or word of mouth or also
by conduct. An agreement does not result from a mere state of mind.

As regards unilateral contracts (e.g., offer of reward) it is impossible to

the offeree to communicate his acceptance otherwise than by
performing the contract. In the case of bilateral contracts acceptance
must be communicated. The offeror can’t force a contract on offeree
by fixing the mode of refusal. Further, acceptance should be
communicated only to the offeror and not to somebody else.

d) Acceptance should be according to the prescribed form:

Unless specified in the offer the acceptance must be in some usual and
reasonable manner. The proposer has the right to prescribe the
manner of acceptance. He may require it to be oral or in writing or to
be communicated to him by phone or telephone etc. He can also waive
his right or may ask the offeree to express acceptance by some
gesture. Once he prescribes the mode of communication later he can’t
say that it was insufficient.

If the offeree does not signify his assent to the offeror according to the
mode prescribed it becomes ‘deviated acceptance’ and strictly
speaking it is no acceptance at all. However, such a regid rule is not
followed in India. In the case of deviated acceptance the proposer may
insist for the acceptance in the prescribed manner. He then has to do
this within a reasonable time after communication of acceptance to
him. Otherwise it will be presumed that the proposer has accepted the
deviated acceptance. Sec. 7 of the Act does not tell that deviated
acceptance is no acceptance.

e) Acceptance must be provoked by offer: The acceptor must

be aware of the offer. Even if he fulfills the conditions mentioned in the
offer, if he is ignorant of the offer itself, he can’t give a valid
acceptance. [Lalmann Shukla V, Gouridutt].

f) Acceptance must be given before the offer lapses or is

revoked: Where a time limit has been fixed the acceptor has to
accept the offer within such time. Where no time limit is prescribed the
acceptance has to be within the reasonable time. An offer once dead
can’t be accepted unless there is a fresh offer.

g) Provisional acceptance is no acceptance: A provisional

acceptance does not make a binding agreement unless final approval
is given. The offer may be withdrawn before giving final approval.
However, whether an agreement is provisional or final depends upon
the intention of the parties.

2. Explain the provisions relating to the methods of discharging a contract by

mutual agreement.

Ans: Since a contract is created by means of an agreement, it may

also be discharged by another agreement between the same parties.
Sections 62 and 63 provide for the following methods of discharging a
contract by mutual agreement:

1. Novation: “Novation occurs when a new contract is substituted

for an existing contract, either between the same parties or
between different parties, the consideration mutually being the
discharge of the old contract.” When the parties to a contract
agree for “novation,” the original contract is discharged and
need not be performed. The following points are also worth-
notng in connection with novation:
1. Novation cannot be compulsory; it can only be with the
mutual consent of all the parties.
2. The new contract must be valid and enforceable. If it
suffers from any legal flaw on account of which it becomes
unenforceable, then the original contract revives.

2. Alteration: Alteration of a contract means change in one or

more of the material terms of a contract. If a material alteration
in a written contract is done by mutual consent, the original
contract is discharged by alteration and the new contract in its
altered form takes its place. A material alteration made in a
written contract by one party without the consent of the other,
will, make the whole contract void and no person can maintain
an action upon it.
 3. Rescission: A contract may be discharged, before the date of
performance, by agreement between the parties to the effect
that it shall no longer bind them. Such an agreement amounts to
“rescission” or cancellation of the contract, the consideration for
mutual promises being the abandonment by the respective
parties of their rights under the contract. An agreement of
rescission releases the parties from their obligations arising out
of the contract. There may also be an implied rescission of a
contract e.g., where there is non-performance of a contract by
both the parties for a long period, without complaint, it amounts
to an implied rescission.

4. Remission: Remission may be defined “As the acceptance of a

lesser sum than what was contracted for or a lesser fulfilment of
the promise made.” Section 63 lays down that a promisee may
give up wholly or in part, the performance of the promise made
to him and a promise to do so is binding even though there is no
consideration for it. An agreement to extend the time for the
performance of a promise also does not require consideration to
support it on the ground that it is a partial remission of
performance.

5. Waiver: Waiver means the deliberate abandonment or giving up

of a right which a party is entitled to under a contract,
whereupon the other party to the contract is released from his
obligation.

3. Discuss the rights of surety against the creditor ant the principal debtor.

Ans: Rights of Surety

Rights of Surety
A. Rights of Surety against the Creditor

1. Ask the creditor to sue the debtor: On the guaranteed debt having fallen due for
payment, the surety may ask the creditor to sue the debtor to collect the due
amount, but he cannot compel him to do so. But he must then indemnify the
creditor against any risk or delay arising as a consequence.

2. Require the creditor to terminate the debtor’s services: In the case of the
fidelity guarantee, if the principal debtor’s dishonesty comes to light, the surety
can require the creditor to terminate the principal debtor’s services so as to save
him from further loss.

3. Claim to any set off: The surety on being called upon to pay, can claim any set-
off to which the principal debtor is entitled from the creditor.

4. Access to the securities of the debtor with the creditor: The surety can, after
paying the guaranteed debt, compel the creditor to assign to him all the securities
taken by the creditor either before or at the time of the contract of guarantee,
whether the surety was aware of them or not.

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

the proportionate reduction of his liability by the amount of dividend claimed by
the creditor (from the Official Receiver of the Principal debtor). Similarly,
debtor’s debt obligation is scaled down by subsequent legislation; the creditor is
entitled to claim proportionate reduction in his liability.

B. Against the Principal Debtor

6. Right of subrogation: After paying the guaranteed debt, the surety steps into the
shoes of the creditor and acquires all the rights which the latter had against the
principal debtor (i.e., he gets subrogated to all the rights and remedies available to
the creditor) (Sec. 140). If the creditor has the right to stop goods in transit or has
a lien, the surety, on payment of all he is liable for, will be entitled to exercise
these rights.

7. Right as to securities with the creditor: The surety has the right to proceed
against such securities of the principal debtor, as the creditor could himself
proceed.
 8. Right of indemnity: The surety is entitled to be indemnified by the principal
debtor for all payments rightfully made by him (Sec. 145).

9. Compel the principal debtor to perform the promise: The surety has also the
right to insist the principal debtor to perform the promise. The surety can, before
making payment, compel the debtor to relieve him from liability by paying of the
debt, provided that liability is an ascertained and subsisting one.

10. Prove the debt in case of bankruptcy of the debtor: In case of the bankruptcy
of the principal debtor, the surety may prove the debt in respect of contingent
ability even if he has not been called upon to pay a definite amount.

4. Discuss the rights and liabilities of co-sureties.

Ans: Rights of Co-sureties among themselves

1. Co-sureties have liabilities among themselves under Sec. 132: Where two
persons contract with a third person to undertake a certain liability, and also contract with
each other that one of them shall be liable only on the default of the other, the third party
not being a party to such a contract, the liability of each of such two persons to the third
person under the first contract is not affected by the existence of the second contract,
although such third person may have been aware of its existence.

2. Release: Where there are co-sureties, a release by the creditor of one of them does
not discharge the other neither does it free surety so released from responsibility to other
sureties (Sec.138).

3. Contribution: Co-sureties are liable to contribute equally if there is more than

one surety in respect of one debt, though contracted on different dates unless contracted
otherwise (Sec. 146).

4. Equality: Where the sureties are bound in different sum, they are bound to pay
equally as far as the limits of their respective obligations permit (Sec. 147).

Liabilities of Co-sureties

Co-sureties are jointly and severally liable in India. The discharge of one co-surety from
his liability does not release the other co-sureties from their liability. They are liable to
bear the loss equally, subject to the limit of the debt guaranteed by him. As mentioned
earlier, if one of them has paid more than his share, he can claim contribution from
others. Where the co-sureties have limited their liabilities to different sums, they should
contribute equally and not exceeding their respective limits.

Illustration: A, B and C are sureties for D guaranteeing different sums namely, A

Rs.10,000, B Rs.20,000 and C Rs.20,000. In case of default by D the liabilities of the co-
sureties would be as under:

i) D makes default in payment to the extent to of Rs.30,000. Liabilities of A, B and

C is Rs.10,000 each.

ii) D makes default to the extent to Rs.40,000. Liability shall be as of A’s 10,000
(maximum obligation), as of B and C, Rs.15,000 each being equal contribution.

D makes default of Rs.70,000 A, B and C will pay the full amount of guarantee.

5.a. A endorsed a cheque in blank in favour of B who becomes its holder. He

negotiates it in favour of C and C transferred this to D without endorsement. In the
event of dishonor, explain the position of D.

Ans:

A is the drawer of the cheque (account holder)

B is the payee and holder. Since B negotiates in favour of C..
C is also holder in due course. Since C has transferred this without endorsement D is not
holder in due course.
In the event of dishonour of cheque, D cannot claim from A, B, or C.

5.b. A is holder of a cheque who endorses sans recourse to B and B to C and C to

D who endorses to E. Cheque is dishonored. Explain the position of E as holder in
due course and mention the parties against whom he can claim the money.

Ans:
A is the holder. A endorses without any recourse or liability to B.
The cheque is transferred from B to C. From C to D. From D with endorsement to E.
E can claim the money from D, C, or B since they have transferred without condition.

They have transferred without saying sans recourse. E or D or C or B cannot claim

money from A.

6. Explain different types of Preference Shares.

Ans: The types of Preference Shares are:

1) Cumulative Preference Shares: These shares are entitled to dividend at a

fixed rate whether there are profits or not. The company pays dividend if it has
sufficient profits. In case the company does not have sufficient profits, dividend on
cumulative preference shares will go on accumulating till it is fully paid off. Such
arrears are carried forward to the next year and are actually paid out of the subsequent
years profits. All preference shares are presumed to be cumulative unless expressly
stated in the articles to be non-cumulative.

2) Non-cumulative Preference Shares: Non-cumulative Preference Shares are

those on which the arrears of dividend do not accumulate. If in a particular year there
are no profits or profits are inadequate, the shareholders shall not get anything or
receive a partial dividend and they cannot claim the arrears of dividends in the
subsequent year.

3) Participating Preference Shares: The holders of such shares are entitled to

receive dividend at a fixed rate and in addition, they have a right to participate in the
surplus profits along with equity shareholders after dividend at a certain rate has been
paid to equity shareholders. In the event of winding up, if after paying back both the
preference and equity shareholders, there are surplus assets, then the holders of such
shares shall be entitled to share in the surplus assets as well.

4) Non-Participating Preference Shares: The holders of such shares are

entitled to only a fixed rate of dividend and do not participate further in the surplus
profits. If the articles are silent, all preference shares are deemed to be non-
participating.

5) Convertible Preference Shares: The holders of such shares have a right

to convert these shares into equity shares within a certain period.

6) Non-convertible Preference Shares: The preference shares where the

holders have no right to convert their shares into equity shares are known as non-
convertible preference shares. Unless otherwise stated preference shares are assumed
to be non-convertible.
 7) Redeemable Preference Shares: Ordinarily, the amount received by the
company on shares is not returned except on the winding up of the company. A
company limited by shares, if authorized by its article may issue preference shares
which are to be redeemed or repaid after a certain fixed period. Thus, the amount
received on such shares can be returned during the life-time of the company. Such
shares are termed as ‘redeemable preference shares’.

ASSIGNMENT SET 2
MB0035
LEGAL ASPECTS OF BUSINESS

1. Explain the process of formation of a company.

Ans: The process of formation of a company can be discussed and divided in
following four stages:

1) Promotion,
2) Incorporation or Registration,
3) Capital Subscription,
4) Commencement of Business

Of these stages only two are necessary for the formation of a private company and of a
public company not having any share capital. They may commence business immediately
after they have received a certificate of incorporation. But a public company having a
share capital has to pass through all the above mentioned four stages before it can
commence business or exercising any borrowing powers.

1. Promotion: Before a company can be formed, there must be some persons who
intend to form a company and who take the necessary steps to carry that intention into
operation. Such persons are called promoters. The promoter is a person “who The
promotion is the first stage in the formation of the company. Promotion may be defined
as “the discovery of business opportunities and the subsequent organization of funds,
property and managerial ability into a business concern for the purpose of making profits
therefrom.”

2. Incorporation of a Company: Any seven or more persons or where the company

to be formed will be a private company, any two or more persons, associated for any
lawful purpose may, by subscribing their name to a memorandum of associations and
otherwise complying with the requirement of this Act in respect of registration, form an
incorporated company, with or without limited liability.

a. Documents to be filed for registration: After ascertaining the availability of

name, the promoter should prepare the following documents and file with the registrar of
companies:

I. Memorandum of Association: The memorandum of association is the charter of

the company. This includes its objectives, its name, the address of its registered office,
the capital which the company is authorized by law, the nature of members as well as the
names, addresses and agreement of people who agree to form a company.

II. Articles of Association: The other important document is the articles of

association which contains the rules and regulations relating to the internal management
of the company. However, it is not necessary for a public company limited by shares to
file the Articles of Association. If such public company does not file Articles of
Association, it is deemed to have adopted “Table A” of schedule I of the Act.

III. Copy of proposed agreement: If a company purposes to enter into an agreement

with any individual for appointment as a Managing Director, or a whole-time director or
manager, a copy of such an agreement should also be filed with the Registrar of
companies.
IV. Consent of Directors: According to Section 266, in the case of a public limited
company having share capital, a person cannot be appointed as a Director by the Articles
of Association unless, he has, before the registration of the articles, either himself or
through his agent, signed and filed, with the registrar his consent in writing to act as
Director.

3. Certificate of Commencement of Business: A private company can commence

business immediately after incorporation. However, in the case of companies other than
the private company and a company having no share capital, further requirement is to be
compiled with, namely, obtaining ‘a certificate of commencement of business’ before it
can commence its business.

2.a. X issues a cheque in favour of Y and puts a condition that the payment is to
be made only when Y fulfills a condition. Y obtains the payment from the bank
without compliance of this condition. X demands damages from the bank for not
ensuring the compliance. What is conditional endorsement and how is it effective
between the parties mentioned above?

Ans: When drawer/holder of cheque puts a condition while endorsing in favour of other
person or persons, that the endorsee should fulfill a condition mentioned in order to get
the payment of the cheque. If condition is not fulfilled the endorsee is not entitled for
payment of cheque. Such endorsement is conditional endorsement.

In the example given above,

X is the account holder/drawer of cheque.
Y is a conditional holder, has to fulfill the condition in order to get payment.
Y will become holder in due course if he fulfills the condition.
Hence bank who has made payment to Y, without complying or not ensuring compliance
of condition by Y, has to pay damages or compensates to X. Bank in turn can
claim/recover amount of cheque from Y.

In other words Y is not entitled for payment of cheque since he has not fulfilled the
condition put by X.

2.b. Explain the objectives of statutory meeting as per companies Act.

Ans: A meeting may be generally defined as a gathering or assembly or getting

together of a number of persons for transacting any lawful business. For proper working
of the company, it is necessary that the shareholders meet as often as possible and discuss
matters of mutual interest and take important decisions, there must be at least two persons
to constitute a meeting.
Every public company limited by shares or limited by guarantee and having a share
capital must hold a general meeting of the members of the company which may be called
the statutory meeting. It is to be convened after not less than one month but within six
months from the date at which the company is entitled to commence business.

A meeting held prior to the statutory period of one month from the date of entitlement of
a company to commence business cannot be called the statutory meeting. The statutory
meeting is held only once in the lifetime of a company.

Objectives of Statutory Meeting are:

The statutory meeting is held to inform the shareholders about matters relating to
incorporation, allotment of shares, the details of the contracts concluded by the company,
etc. Statutory meeting is convened in order to afford the shareholders an opportunity for
seeing what degree of success has attained the floatation of the company and in order that
any special matters requiring their approval may be laid before them.

3. Discuss the significance of cyber laws with particular reference to India.

Ans: In the 49th year of Indian independence, Internet was commercially introduced in
India. The beginnings of Internet were small and the growth of subscribers painfully
slow.

However, as internet has grown, the need has been felt to enact the relevant Cyber laws,
which are necessary to regulate Internet in India. This need for Cyber laws was propelled
by numerous factors.

Firstly, India has an extremely detailed and well-defined legal system in place. Numerous
laws have been enacted and implemented and the paramount among them is The
Constitution of India. We have various laws like Indian Penal Code, 1860, The Indian
Evidence Act, 1872, The Banker’s Book Evidence Act, 1891, The Reserve Bank of India
Act, 1934, The Companies Act, 1956 and so on. However, the arrival of Internet signaled
the beginning of the rise of new and complex legal issues. It may be pertinent to mention
that all the existing laws in place in India were enacted keeping in mind the relevant
political, social, economic, and cultural scenario of that time. Nobody then could really
visualize the emergence of the Internet. Despite the brilliant acumen of our master
draftsmen, the requirements of cyberspace could hardly be anticipated. The advancement
led to the emergence of numerous ticklish legal issues and problems, which necessitated
the enactment of Cyber Laws.

Secondly, the existing laws of India could not be interpreted in the light of the emerging
cyberspace, to include all aspects relating to different activities in cyberspace.
Thirdly, none of the existing laws gave any legal validity or sanction to the activities in
Cyberspace. For example, the Net is used by a large majority of users for email purposes.
Yet, e-mail was not “legal” in our country. There was no law in the country, which
accorded legal sanctity to e-mail and the electronic format. The judiciary in our country
had been reluctant to grant judicial recognition to the legality of e-mail in the absence of
any specific law having been enacted by Parliament on the subject. Thus the need arose
for enacting Cyber Law in our country.

Fourthly, Internet requires an enabling and supportive legal infrastructure in time with the
times. This legal infrastructure can only be given by the enactment of the relevant Cyber
Laws as the traditional laws have failed to provide it. E-commerce, the biggest future of
Internet, can only be possible if necessary legal infrastructure complements the same to
enable its vibrant growth. As such, an urgent need was felt for enacting Cyber Law in our
country.

4. Explain UNICTRAL model Law and essential Arbitration Agreement.

Ans: The present Act is based on model law drafted by United Nations Commission on
International Trade Laws (UNICTRAL), both on domestic arbitration as well as
international commercial arbitration, to provide uniformity and certainty to both
categories of cases.

Certain matters which are not arbitrable are:

1. Suits for divorce or restitution of conjugal rights

2. Taxation
3. Non-payment of admitted liability
4. Criminal matters

Arbitration (The Arbitrator Decides):

Arbitration is a dispute resolution process where the opposing parties select or appoint an
individual called an Arbitrator. Upon appointment, the Arbitrator will arrange the process
to hear and consider the evidence, review arguments and afterwards will publish an
award in which the items of dispute are decided. In some cases the Arbitrator can conduct
the arbitration on documents evidence only. When published the Arbitrator’s decisions
are final and binding on the parties. It is rare for an arbitration to be appealed to the
courts. Arbitration may compromise a sole Arbitrator, or may be a panel of Arbitrators.

The essential of Arbitration Agreement are:

1. It must be in Writing (Section 7(3)): Like the old law, the new law also
requires the arbitration agreement to be in writing. It also provides in section 7(4)
that an exchange of letters, telex, telegrams, or other means of telecommunication
can also provide a record of such an agreement. It is not necessary that such
 written agreement should be signed by parties. No particular form of formal
document is necessary.
2. It must have all the essentials of a valid contract : An arbitration agreement
stands on the same footing as any other agreement. Every person capable of
entering into a contract may be a party to an arbitration agreement. The terms of
the agreement must be definite and certain; if the terms are vague it is bad for
indefiniteness.
3. The agreement must be to refer a dispute, present or future, between the
parties to arbitration: If there is no dispute, there can be no right to demand
arbitration. A dispute means an assertion of a right by one party and repudiation
thereof by another. A point as to which there is no dispute cannot be referred to
arbitration. The dispute may relate to an act of commission or omission, for
example with holding a certificate to which a person is entitled or refusal to
register a transfer of shares. Under the present law, certain disputes such as
matrimonial disputes, criminal prosecution, questions relating to guardianship,
question about validity of a will etc. are treated as not suitable for arbitration.
4. An arbitration agreement maybe in the form of an arbitration clause in a
contract or in the form of a separate agreement (Section 7(2)).

5. Consumer redressal agencies are provided for under the consumer

protection Act. Comment.

Ans: For the purpose of speedy and simple settlement of ‘Consumers disputes’ section
9 of the Act, 1986 provides for the establishment of the following three Consumer
Disputes Redressal Agencies.

A “Consumer Disputes Redressal Forum” to be known as the District Forum established

by the State Government in each district of the State of notification.

A “Consumer Disputes Redressal Commission” to be known as State Commission

established by the State Government, with the prior approval of the Central Government,
in the state by notification and

A “National Consumer Disputes Redressal Commission” to be known as National

Commission established by the Central Government by notification.

Thus, the Act envisages a hierarchy of three Redressal Forums:

1. District Forums
2. State Commission and
3. National Commission.

These are quasi-judicial bodies.

1. District Forum:

District Forum means a Consumer Disputes Redressal Forum, established under Section
9 (2) of the Consumer Protection Act, 1986. This is established by the State Government
in each district of the state by means of a notification. If reasonable and necessary, the
State Government can establish more than one district forum in a district. As per the
amended Act, 1993, permission of the Central Government is not necessary for
establishing a district forum.

Composition of District Forum: According to section 10 of the Act, each district forum
shall consist of: (i) a person who is, or has been or is qualified to be a District Judge shall
be nominated by the State Government and shall be the President of the Forum, (ii) a
person of eminence in the field of education, trade, or commerce, law etc., and (iii) a lady
social worker.

2. State Commission:

State Commission is a “Consumer Disputes Redressal Commission” established by the

State Government with the prior approval of the Central Government, in the State
notification under Section 9(b) of the Consumer Protection Act.

Composition of the State Commission: According to section 16(1) of the Act, each State
Commission shall consist of the following: (i) a person who is or has been a judge of
High court shall be appointed, on the recommendation of a Selection Committee, by the
State Government and shall be its president. (ii) Two other members, who shall be
persons of ability, integrity, and standing. They shall have adequate knowledge or
experience of or have shown capacity in dealing with, problems relating to economics,
law, commerce, accountancy, industry, public affairs or administration. One of such
members shall be a woman.

3. National Commission:

In exercise of the powers conferred under sec 9(c) of the Consumers Protection Act, the
Central Government established a “National Consumer Disputes Redressal Commission”
to be known as a ‘National Commission’ by notification.

Composition of National Commission: According to section 20(1) of the Act, the

National Commission shall consist of the following: (i) A person who is or has been
judge of the Supreme Court shall be appointed by the Central Government in consultation
with the Chief Justice of India. He shall be its president. (ii) Four other members shall be
person of ability, integrity and standing. They shall have adequate experience of or have
shown capacity in dealing with problems relating to economics, law, commerce,
accountancy, industry, public affairs or administration. One of them shall be a woman.
The Selection Committee shall consist of a Judge of the Supreme Court to be nominated
by the Chief Justice of India, the secretary in the Department of Legal Affairs and the
Secretary incharge of consumers affairs in the Government of India. A sitting judge of
the Supreme Court can be appointed only after consulting the Chief Justice of the
Supreme Court. Every member of the National Commission shall hold office for a term
of 5 years of upto 70 years of age whichever is earlier and shall not be eligible for
appointment.

6. Explain the provisions relating to payment of wages and deductions as

discussed in the ‘Shops and Establishments Act’.

Ans: In case any unauthorized deduction has been made from the wages of an
employee, or any payment of wages has been delayed, of any sum is otherwise due from
the employer, the employee or any legal practitioner or any authorized agent or any
office-bearer of a registered trade union or an inspecting officer may make an application
to the prescribed authority for a direction. The prescribed authority is required to hear the
application and he may direct the refund of the amount deducted or payment of the
delayed wages or any other sum to the employee together with the payment of
compensation not exceeding ten times the amount of unauthorized deduction from wages,
and not exceeding Rs. 10 in other cases. No direction for compensation is, however, to be
made in the case of delayed wages if the authority is satisfied that the delay was due to:
(i) a bona fide dispute as to the amount payable to the employee; or error or bona fide
dispute as to the amount payable to the employee; or (ii) occurrence of an emergency or
existence of exceptional circumstances, on account of which, the person responsible for
the payment of wages was unable, though exercising reasonable diligence to make
prompt payment; or (iii) failure of the employed person to apply for or accept payment. If
the authority is satisfied that it was either malicious or vexatious, he may direct that a
penalty not exceeding Rs. 25 be paid to the employer or other person responsible for the
payment of wages by the person presenting the application. The authority may deal with
any numbers of separate pending applications as a single application.

An appeal against the order of the authority or a direction given by him may be preferred
to the prescribed appellate authority, whose decision will be final.

The authorities have the power of a civil court under the Code of Civil Procedure for the
purpose of taking evidence, enforcing the attendance of witnesses and compelling the
production of documents. They are also deemed to be civil for the purpose of the Code of
Criminal Procedure, (Sec. 28).

A legal practitioner may appear, plead or act on behalf of any party in proceedings under
the Act to prescribed conditions. (Sec. 28).