Allama Iqbal Open University Islamabad

(Department of Business Administration)

“Select any small scale business organization

and discuss various steps taken by the
company in formation of the sale contract”

Study of “ ”

Assignment No.2

Submitted by: HINA IMTIAZ

AD513637

Submitted to: MR. AHMED

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)

ACKNOWLEDGEMENT

All acclamation to Allah who has empowered and enabled

me to accomplish the task.

Successfully first of all I would like to thank our Allah

Almighty who really helps me in every problem during the
project. I would like to express my sincere and humble
gratitude to Almighty who’s Blessings, help and guidance
has been a real source of all my achievements in my life.

I would like to admit that I completed this project due to

parents who pray for my success.

I also wish to express my appreciation to my supervisor Sir

Asif who helps me a lot and introduce me to new
dimension of knowledge.

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)

DEDICATION

My project is dedicated to my beloved Parents,

teachers,

brothers, sister and all of my well wishers

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)

Outlines

 Introduction and discussion of Sale of

Goods Act, 1930
 Essential for formation of a sale contract

Case Study
Practical Study Ahmed Fine Textile Mills
Limited

Introduction of the organization

Vision and Mission Statement
Purchase department overview
Discussion regarding sale of contract
SWOT Analysis
 Suggestions Recommendations
Conclusion

Sale of Goods Act, 1930 (Pakistan)

Introduction

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)

Initially the law governing the sale of goods was part of the contract
act 1872 and it was contained from sections 76 to 123. On 1 st July,
1930 it was enacted as a separate law and renamed as sale of good
act. The number of sections also increased from 48 to 66. The purpose
of this law is to define and amend the law relating to the sale of goods.

FORMATION OF THE CONTRACT, CONTRACT OF SALE [Sec. 4(1)]

Contract of Sale [sec.4(1)]

According to Sec.4(1) of contract of sale of goods act 1930, “ A

contract whereby the seller transfer or agrees to transfer the property
in goods to the buyer for a price”. A contract of sale of goods may be
in writing or oral. The contract of sale includes:-

Sale

When under a contract of sale, property in goods is transferred from

the seller to the buyer, the contract is called a “sale”. If there is no
price for the goods, which are agreed to be transferred, it will be
known a gift and not a sale of goods.

Agreement to sell [Sec.5(2)]

1. Where under a contract of sale the property in the goods

is transferred from the seller to the buyer, the contract is called
a sale, but where the transfer of the property in the goods is to
take place at a future time or subject to some condition
thereafter to be fulfilled, the contract is called in agreement to
sell.

2. An agreement to sell becomes a sale when the time elapses or

the conditions are fulfilled subject to which the property in the
goods is to be transferred.

Essentials of contract of sale

Following are the essentials of contract of sale of goods:-

1. Buyer and Seller:

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)
There must be two different parties namely the buyer and the
seller of goods because a person cannot buy his own goods. A
contract without the existence of these two parties cannot be
formed. Infect the contract of sale of goods define the rights and
obligations of buyer and seller.

Contract of sale how made

A contract of sale is made by an offer to buy or sell goods for a

price and the acceptance of such offer. The contract may provide
for the immediate delivery of the goods or immediate payment
of the price or both, or for the delivery or payment by
installments, or that the delivery or payment or both shall be
postponed.

2. Transfer of Property

Transfer of property is an essential element of a valid contract of

sale. There must be a transfer of property or an agreement to
transfer the property from seller to the buyer. It means that
ownership of property must be transfer by the seller to the
buyer. Mere transfer of goods does not consider a valid contract
of sale. So title of goods must be transfer in order to form a
contract of sale.

3. Goods 2(7)

According to Sec.7, of the act “Goods means every kind of

moveable property including stock, shares, growing crops, grass.
Moveable property is that which is not permanently attached to
the earth and can easily moved and taken from one place to the
other. But action claims or money are not included in goods. The
goods which from the subject matter of the contract of sale must
be moveable and not immovable. There are four kinds of goods.
• Future goods
• Specific goods
• Unascertained goods
• Contingent goods

4. Price
It is define as money consideration for sale of goods. A
transaction in which price is missing cannot be regarded a sale of
goods. The price always in money and not other things. The
direct exchange of goods with other goods is termed as barter

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)
and not sale of goods. So transfer of goods must be in exchange
of money and not goods.

5. Essentials of Contract
Contract of sale must have all the essentials of a valid contract. If
any element of contract is missing or any provision of law is not
followed during the performance of contract, it declare void .

Types of Goods

1. Existing Goods Sec. 6(1)

The goods which from the subject matter of a contract of sale are
owned or possessed by the seller at the time when contract of
sale is made the goods are termed as existing goods. Existing
goods include specific goods, ascertained goods and
unascertained goods. The existing goods have three kinds:-

i. Specific goods
ii. Ascertained goods
iii. Unascertained goods

Subject-matter of Contract

Existing or future goods or possessed by the seller, or future goods.

1. The goods which form the subject of a contract of sale may be

either existing goods, owned

2. There may be a contract for the sale of goods the acquisition

of which by the seller depends upon a contingency which may or
may not happen.

3. Where by a contract of sale the seller purports to affect a present

sale of future goods, the contract operates as an agreement to
sell the goods.

Conditions and Warranties

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 Allama Iqbal Open University Islamabad
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Stipulation as to time

Unless a different intention appears from the terms of the contract,

stipulations as to time of payment are not deemed to be of the
essence of a contract of sale. Whether any other stipulation as to time
is of the essence of the contract or not depends on the terms of the
contract.

Condition and warranty

1. A stipulation in a contract of sale with reference to goods which

are the subject thereof may be a condition of a warranty.

2. A condition is a stipulation essential to the main purpose of the

contract, the breach of which gives rise to a right to treat the
contact as repudiated.

3. A warranty is a stipulation collateral to the main purpose of the

contract, the breach of which gives rise to claim for damages but
not to a right to reject the goods and treat the contract as
repudiated.

4. Whether a stipulation in contract of sale is a condition or a

warranty depends in each cease on the construction of the
contract. A stipulation may be a condition, though called a
warranty in the contract.

When condition to be treated as warranty

1. Where a contract of sale is subject to any condition to be

fulfilled by the seller, the buyer may waive the condition or
elect to treat the breach of the condition as a breach of
warranty and not as a ground for treating the contract as
repudiated.
2. Where a contract of sale is not severable and the buyer has
accepted the goods are part there of 5 the breach of any
condition to be fulfilled by the seller can only be treated as a
breach of warranty and not as a ground for rejecting the goods
and treating the contract as repudiated, unless there is a term
of the contract, express or implied, to that effect.
3. Nothing in this section shall affect the case of any condition or
warranty fulfillment of which is excused by law by reason of
impossibility or otherwise.

Implied undertaking, as to title, etc

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)

In a contract of sale, unless the circumstances of the contract are such

as to show a different intention there is

An implied condition on the part of the seller that, in the case of sale,
he has a right to sell the goods and that, in the case of an agreement
to sell, he will have a right to sell the goods at the time when the
property is to pass;

The words and comma "or where the contract is for specific goods the
property in which has passed to the buyer," omitted by the Sale of
Goods (Amendment) Ordinance, 1962 (47 of 1962), S.3 (with effect
from the 7th June, 1962).

(b) An implied warranty that the buyer shall have and enjoy quiet
possession of the goods;

(c) An implied warranty that the goods shall be free from any charge or
encumbrance in favor of any third party not declared or known to the
buyer before or at the time when the contract is made.

Sale by description

Where there is a contract for the sale of goods by description there is

an implied condition that the goods shall correspond with the
description; and, if the sale is by sample as well as by description, it is
not sufficient that the bulk of the goods corresponds with the sample if
the goods do not also correspond with the description.

Implied conditions as to quality or fitness.

Subject to the provisions of this Act and of any other law for the time
being in force, thee is no implied warranty or condition as to the
quality or fitness for any particular purpose of goods supplied under a
contract of sale, except as follows:-

1. Where the buyer, expressly or by implication, makes known to

the seller the particular purpose for which the goods are
required, so as to show that the buyer relies on the seller's skill
or judgment, and the goods are of a description which it is in the
course of the seller's business to supply (whether he is the

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)
manufacturer or products or not), there is an implied condition
that the goods shall be reasonably fit for such purposes:

Provided that, in the case of a contract for the sale of a specified

article under its patent or other trade name, there is no implied
condition as to its fitness for any particular purpose

2. Where goods are bought by description from a seller who deals

in goods of that description (whether he is the manufacturer or
producer or not), there is an implied condition that the goods
shall be of merchantable quality:

Provided that, if the buyer has examined the goods, there shall
be no implied condition as regards defects which such
examination ought to have revealed.

3. An implied warranty or condition as to quality or fitness for a

particular purpose may be annexed by the usage of trade.
4. An express warranty or condition does not negative a warranty
or condition implied by this Act unless inconsistent therewith.

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)

Status
The Company is limited by shares incorporated in Pakistan on
December 13, 1989 under the Companies Ordinance, 1984 with an
Authorized Capital of 10000000 Ordinary Shares of Rs. 10/- each i.e.,
Rs. 100000000/-. The Issued, Subscribed and Paid up Capital of the
Company is 3800000 Ordinary Shares of Rs. 10/- each full paid in cash
i.e., Rs. 38000000/-

Nature of Business
The Principal Business of the Company is Manufacture and Sale of Yarn
and Cloth.

Manufacturing Units
The Company has two manufacturing units, one is spinning unit and
the other is Weaving unit.
The Spinning Unit is located at District Rahim Yar Khan and the
Weaving Unit is located at District Multan in the Province of Punjab.

Offices
Head Office of the Company is located at Ist
Floor, International Plaza, Bohra Street, Multan Cantt. Sub Office is
located at 35-KM, Multan-Bahawalpur Road, Near Adda

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)
Basira, Multan. Another sub office is located in the Spinning Unit at
Rahim Yar Khan. is currently ranked as the sixth largest mobile phone
operator in the world, with more than 172 million subscribers. In
addition, it has extensive broadband and TV distribution operations in
four Nordic Countries.

MISSION STATEMENT

To produce superior quality of Yarn by focusing on customer demand in

order to face the competition in international market and at the same
time taking care of its employees, suppliers, shareholders and society.

Purchase Department
The purchase department is divided into to two sections, cotton
purchase department and store purchase department.

Cotton Purchase Department

Cotton purchase department is most important department in textile
industry. Quality of yarn depends upon cotton that has been
purchased. It becomes most important when there is business of
export. There is no question of compromise on quality. Because your
minor mistake may result in huge losses. Moreover you will loss your
credibility. From director to cotton selectors all are involved in cotton
purchase process.

Purchase Process
The following steps are involved in the purchase of raw material i.e.
cotton.

Visit Of Cotton Selectors

The cotton selectors of AFT visit the cotton ginning factories. Cotton
selectors may visit the factories on their own behalf and some times

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(Department of Business Administration)
the cotton factories call them. Their visits are very important because
purchase process starts from here.

Selection of sample
Samples are selected from huge amounts of cotton. Samples are taken
from different suppliers. These samples are then tested. The most
suitable sample at lowest price is selected for Purchase of cotton.
As there is centralized management system so the Director himself
takes the decision of selection and purchase of cotton. In other words
Director is final authority in making decision.

Store Purchase Department

The store purchase department is headed by Stores In charge. The
setup of purchase department is as under:
• Director
• Purchase Officer
• Assistant Purchase Officer
• Purchase Clerk
The store purchase department is responsible for the purchase of
items like Spare parts of machinery, store and Packing material
spares, electric items, oil and lubricants, Stationery items, Building
Material, and General Store,

DOCUMENTS
• Demand Requisition.
• Invoice of Purchase
• Delivery Order
• In Gate Pass

PROCEDURE
The following is the procedure for local purchase department.

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 Allama Iqbal Open University Islamabad
(Department of Business Administration)
• The purchase department receives the demand requisition from
store in charge at store at mills this is in fact an intention or
requirement of commodities at mill
• The purchase demand requisition contains a full detail of quality
and quantity of commodities required. It also contains price detail of
goods purchased previously

• The purchase department on the basis of indent does an inquiry for

rate from at least two suppliers from approved suppliers list. After
inquiry Purchase Manager discusses with Director for approval of
rate and other necessary requirement.
• After the approval the Purchase Department purchases the items
from suppliers and sent them to the mill with three copies of
delivery orders
• In case of no rejection of items store in charge send one copy of
delivery order back to the purchase department along with one
copy of In Gate Pass. Store in charge also keeps a copy of delivery
order and in Gate Pass for his own record.
• In case of rejection of items store in charge sends all copies of
Delivery Orders with items back to the purchase department at
Multan Office of AFT

EXPORT DEPARTMENT
Export department plays a vital role in any organization. AFT export
department is headed by the export manager. The export manager
supervises all the marketing & export activities. Export manager is also
responsible for the exploration of local and foreign markets. He is also
making efforts for the development and the progress of the company.

OBJECTIVES
1) To increase the Export of the Grey Fabric and yarn.
2) To maximize the company profit by increasing exports.
3) Exploration of the new markets.
4) Market research making the better information system

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5) Adopting the new technological a developmental changes in the
field of
textile.

FUNCTIONS
Following are the main functions of the export department.
• Export department is responsible for the production planning and
the production follow up with the mill.
• Customer correspondence as well
• Export department also follow-up the local sale and purchase of
the yarn and the Grey fabric.
• The important function of the export department is to make
shipment schedule and the planning.
• Visiting to the existing and new customer.
• Providing timely information about the production of the
products to the customers which is also providing a service to its
customers and promoting the company image.
• Improving the quality of the products with a collaboration with
the buyer and the production department.
• Bank documents preparation and the follow-up.
• Preparing the custom documents
• Dealing with the agents and providing timely information to the
parties.

EXPORT DOCUMENTATION
Export procedure is a very lengthy process. It involves a number of
documents required by the importer from the exporter. AFT export
department carefully handle all the steps involve in it. Because a little
bit of mistake can cause a great loss to the exporter and the importer.

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1. Indent
2. Sales contract
3. Letter of Credit
4. Custom documents
5. Packing list
6. Bill of lading
7. Bill of exchange
8. Certificate of origin
9. Inspection certificate
10. Form E
11. Form M
12. Shipping bill

INDENT
Indent is the first export document which is send by the agents to
export department. After the careful analysis of all the terms and
conditions such as the quality description the selvedge, shipment date,
piece length, price per unit, the packing and payments terms. It also
contains the buyer name and the reference number of buyer or agent.

SALES CONTRACT
The export department after the careful analysis of indent issues the
sales contract. As they have the products and in the sales contract
they confirm the terms and conditions of the indent, such as the
quality, packing, payment terms, commission, shipment date and the
price of the product. Issuing sales contract is the confirming the sale of
the products to the buyer on the specified price. If there is changing
made by the buyer or agent, so the later revised sales contract is
issued by the export department. In which they can revised any thing,
the
shipment schedule, the price & the product specification. Export
department handle carefully the steps of that procedure. Also the
contract copies are sent to the agent, the buyer, the accounts and the
audit department of the AFT for their record purpose.

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LETTER OF CREDIT
Letter of credit is very important documents in the whole export
procedure. Because without this the process could not be complete.
L/C is a written instruction issued by buyer’s bank, authorizing the
exports to draw in accordance with the terms and stimulate legal forms
that bill will be honored.
In the L/C all the term and the conditions are given by the buyer. What
documents he needs. In the L/c there are important things mentioned
there.
1. The Buyer name is there in the L/C
2. The bank of the importer is also mentioned.
3. The importer name and address is also given.
4. L/C number is mentioned on the top or the L/C
5. Issuing date of the L/c, the expiry date of the L/C, the amount of L/C,
the quantity of the products.
6. The complete description of the products and the rate.
7. The terms, either CNF or CFR,
8. The shipment date is also mentioned.
9. The port is given there in L/C.

TRANSPORT DOCUMENTS
The transport documents are very important because it provide the
evidence that goods have been transported and it enables the
importer to receive the goods from the custom authorities. As the
order placed by the importer is ready on the due date, the export
department issues the dispatch order to the mill. That the following
quality should be dispatched on the containers specified on this L/C.
The goods are loaded on the specified containers and they are sent to
the Karachi port on the specified shipping line.
AFT mostly does its shipment through the shipping companies. The
shipping lines charge their freight and other charges are paid the
agents as well as for clearance of the goods from the port. The agents

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handover the documents which involve packing list and invoices to the
shipping lines.
As the trailer number, the container number E form number, quality
and the quantity is completely mentioned on this invoices.
Mode Document Carrier
By sea Bill of lading Shipping lines
By Rail Receipt Railway service
By Road Road way bill Transporters
By Air Air way bill Air lines

BILL OF LADING
Bill of lading is one of the most important documents in the whole
export documents. Because without this the importer cannot receive
their goods from the destination port.
AFT first of all draft the bill of lading and that is sent to the shipping
line. Bill of lading also contains the specifications related to the
importer and the exporter.

CERTIFICATE OF ORIGIN
Certificate of origin shows that the good which are being exported are
originate from a country form which importer is allowed. These are
required by the authorities in the importing countries. In order to
satisfy and support a claim for the import duty.
This certificate of origin may also be made by the consultants of the
importing country in the form of consoler invoice or legalize the
exporter’s commercial invoice. When explorer called for L/C, of is with
the other documents by reference to the invoice number, L/C number

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and by quoting shipping marks and numbers in order to identify the
goods.

PACKING LIST
Packing list is a document which involves all the complete list of the
goods packed in the particular shipment. It is very important.
Documents. It provides a convenience to the shipping and the
clearance authorities.

Features OF PACKING LIST

1. It usually shows the marks a number mentioned on the
packages.
2. It shows the weight also.
3. Each package is marked by a number.
4. It shows the contents of each package, what is nature, quality
and quantity of the package.
5. It provides a linkage with the other documents to reference to
the invoice number, date, letter of credit number, date and
vessel name.

BILL OF EXCHANGE
It is unconditional order in writing, addressed by a person to another,
signed by person giving it, requiring the person to when it is addressed
to pay on demand or at a fixed determinable future date. When the
L/C is opened the B/E must be strictly drawn according to the terms
and conditions of the creditor may be drown on the request of the
applicant or on the bank request through which the credit is opened.
B/E is also a important document of export.

SWOT ANALYSIS
STRENGTHS

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• Good know how about the textile business. Which is improving the
progress of the company.
• Cheap labor is available to AFT which is reducing the per unit cost.
• The products are at compatible prices.

OPPORTUNITIES
• AFT has opportunity to export to the U.S.A and the Europe markets.
• There is more scope of exporting to these markets.
• Govt. is also providing lot of incentives to the exporters.
• The AFT can move in horizontal and the forward integration.
• The decreasing interest rates on the loans

THREATS
• Quotas are lifting AFT will face the major threat.
• AFT has a threat from the domestic and the international
competitors.
• China, Thailand and Indonesia are the emerging giants in textile.

CONCLUSION & RECOMMENDATION

Taking in view the structured departments of purchase and sale of the

Mill I came to know that the mill has to do the following while forming a
binding sale agreement and contract.

• The mill should follow all the essentials given in the sale act 1930
so that the buyer and seller both can proceed for any violation of
the contract terms.

• Expert lawyers having technical skills of practical business and

company law should be hired for different purchase and sale
agreements.

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 Allama Iqbal Open University Islamabad
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• The internal documents of the mill should be complete in any
case for each and every agreement so that the mill would entitle
to sue for any negligence being made under contract or binding
agreement.

Conclusion

Following the given recommendation for the desired contracts and

agreements the mill would get competitive advantage over other
organization. Legal system of every organization is the stream line for
success and competitive edge for any organization. Stronger the legal
department stronger would be the position of the company in any
mishap or breach of contract.

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