Feb 2011

Master of Business Administration - MBA Semester III

MB0051– Legal Aspects of Business - 4 Credits
(Book ID: B0764)
Assignment Set- 2 (60 Marks)
Note: Each question carries 10 Marks. Answer all the questions.

Q.1 Distinguish between fraud and misrepresentation.

Ans : Meaning of fraud (Secs.17 and 19)

Fraud means and includes any of the following acts committed by a party to a contract
with an intent to deceive the other party thereto or to induce him to enter into a contract:

(i) the suggestion as a fact of that which is not true by one who does not believe it
to be true;

(ii) active concealment of a fact by one having knowledge or belief of the fact;

(iii) promise made without any intention of performing it; (iv) any other act fitted
to deceive;

(v) any such act or omission as the law specifically declares to be fraudulent.

Meaning of misrepresentation (Secs.18-19)

Misrepresentation is also known as simple misrepresentation whereas fraud is known as

fraudulent misrepresentation. Like fraud, misrepresentation is an incorrect or false
statement but the falsity or inaccuracy is not due to any desire to deceive or defraud the
other party. Such a statement is made innocently. The party making it believes it to be
true. In this way, fraud is different from misrepresentation.

Difference between Fraud and Misrepresentation:-

The main difference in fraud and misrepresentation are,

1) In misrepresentation the person making the false statement believes it to be true.

In fraud the false statement is person who knows that it is false or he does not care
to know whether it is true or false.
2) There is no intention to deceive the other party when there is misrepresentation of
fact. The very purpose of the fraud is to deceive the other party to the contract.
3) Misrepresentation renders the contract voidable at the option of the party whose
consent was obtained by misrepresentation. In the case of fraud the contract is
voidable It also gives rise to an independent action in tort for damages.
 4) Misrepresentation is not an offence under Indian penal code and hence not
punishable. Fraud, in certain cases is a punishable offence under Indian penal
code.
5) Generally, silence is not fraud except where there is a duty to speak or the
relations between parties is fiduciary. Under no circumstances can silence be
considered as misrepresentation.

6) The party complaining of misrepresentation can’t avoid the contract if he had the
means to discover the truth with ordinary deligance. But in the case of fraud, the
party making a false statement cannot say that the other party had the means to
discover the truth with ordinary deligance.

Q.2 What are the remedies for breach of contract.

Ans : Remedies for Breach of Contract

When someone breaches a contract, the other party is no longer obligated to keep its end
of the bargain. From there, that party may proceed in several ways:

(i) the other party may urge the breaching party to reconsider the breach;

(ii) if it is a contract with a merchant, the other party may get help from
consumers’ associations;

(iii) the other party may bring the breaching party to an agency for alternative
dispute resolution;

(iv) the other party may sue for damages; or

(v) the other party may sue for other remedies.

Rescission of the contract: When a breach of contract is committed by one party, the
other party may treat the contract as rescinded. In such a case the aggrieved party is freed
from all his obligations under the contract.

Damages (Sec.75): Another relief or remedy available to the promisee in the event of a
breach of promise by the promisor is to claim damages or loss arising to him therefrom.
Damages under Sec.75 are awarded according to certain rules as laid down in Secs.73-74.
Sec.73 contains three important rules:

(i) Compensation as general damages will be awarded only for those losses that
directly and naturally result from the breach of the contract.
 (ii) Compensation for losses indirectly caused by breach may be paid as special
damages if the party in breach had knowledge that such losses would also follow
from such act of breach.

(iii) The aggrieved party is required to take reasonable steps to keep his losses to
the minimum.

The most common remedy for breach of contracts: The usual remedy for breach of
contracts is suit for damages. The main kinds of damages awarded in a contract suit are
ordinary damages. This is the amount of money it would take to put the aggrieved party
in as good a position as if there had not been a breach of contract. The idea is to
compensate the aggrieved party for the loss he has suffered as a result of the breach of the
contract.

In addition to the rights of a seller against goods provided in Secs.47 to 54, the seller has
the following remedies against the buyer personally.

(i) suit for price (Sec.55);

(ii) damages for non-acceptance of goods (Sec.56);

(iii) suit for interest (Sec.56).

Suit for price (Sec.55)

Where under a contract of sale the property in the goods has passed to the buyer and the
buyer wrongfully neglects or refuses to pay the price, the seller can sue the buyer for the
price of the goods. Where the property in goods has not passed to the buyer, as a rule, the
seller cannot file a suit for the price; his only remedy is to claim damages.

Suit for damages for non-acceptance (Sec.56)

Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller
may sue him for damages for non-acceptance. Where the property in the goods has not
passed to the buyer and the price was not payable without passing of property, the seller
can only sue for damages and not for the price. The amount of damages is to be
determined in accordance with the provisions laid down in Sec.73 of the Indian Contract
Act, 1872. Thus, where there is an available market for the goods prima facie, the
difference between the market price and the contract price can be recovered.

Suit for interest (Sec.61)

When under a contract of sale, the seller tenders the goods to the buyer and the buyer
wrongfully refuses or neglects to accept and pay the price, the seller has a further right to
claim interest on the amount of the price. In the absence of a contract to the contrary, the
court may award interest at such rate as it thinks fit on the amount of the price. The
interest may be calculated from the date of the tender of the goods or from the date on
which the price was payable. It is obvious that the unpaid seller can claim interest only
when he can recover the price, i.e., if the seller’s remedy is to claim damages only, then
he cannot claim interest.

Buyer’s remedies against seller

The buyer has the following rights against the seller for breach of contract: (i) damages
for non-delivery (Sec.57); (ii) right of recovery of the price; (iii) specific performance
(Sec.58); (iv) suit for breach of condition; (v) suit for breach of warranty (Sec.59); (vi)
anticipatory breach (Sec.60); (vii) recovery of interest (Sec.61).)

Q.3 Distinguish between indemnity and guarantee.

Ans:

Indemnity:-

Sec. 124, and 125, for a contract of indemnity. Sec. 124 provides that a contract of
indemnity is a contract whereby one party promises to save the other from loss caused to
him (the promisee) by the conduct of the promisor himself or by the conduct of any other
person. A contract of insurance is a glaring example of such type of contracts.
A contract of indemnity may arise either by (i) an express promise or (ii) operation of
law, e.g. the duty of a principal to indemnify an agent from consequences of all lawful
acts done by him as an agent. The contract of indemnity, like any other contract, must
have all the essentials of a valid contract. These are two parties in a contraction of
indemnifier and indemnified. The indemnifier promises to make good the loss of the
indemnified (i.e. the promisee).

Guarantee:-
In law and common usage: A promise to answer for the payment of some debt, or the
performance of some duty, in case of the failure of another person, who is, in the first
instance, liable to such payment or performance, an engagement which secure or insures
another against a contingency, a warranty, a security. Same as guaranty.

Difference between indemnity and guarantee:-

There are distinguishing differences between Indemnity and Guarantee in the Indian
Contract Act.
 Section 124 of the Indian Contract Act, 1872 defines the "Contract of Indemnity".
It is a contract by which one party promises to save the other from loss caused to
him by the contract of the promissory himself, or by the conduct of any other
person. 'A' contracts to indemnify B against the consequences of any proceedings
which C may take against B in respect of a certain sum of 20000 rupees. This is a
contract of indemnity.
  A contract of guarantee is defined in Section 126 of the Act. It is a contract to
perform the promise, or discharge the liability, of a third person in case of his
default. The person who gives the guarantee is called the surety; the person in
respect of whose default the guarantee is given is called the principal debtor and
the person to whom the guarantee is given is called the creditor.
 In contract of indemnity there are only two parties viz the indemnifier or
provisory and the indemnity holder or promise. In contract of guarantee there are
three parties viz the creditor, principal debtor and surety.
 In indemnity, there is primary and independent liability. In guarantee the surety
has collateral liability.
 There is no existing debt generally in the case of contract of indemnity where
there is existing debt in the case of guarantee.

 There are two contracts in a contract of indemnity where there are three contracts
in the case of guarantee.
 In Indemnity the promissory is discharged by payment. In guarantee the surety is
discharged by payment made by principal debtor.
 Indemnifier may have some interest in the transaction where the surety will not
have any connection with the transaction.

Q.4 What is the distinction between cheque and bill of exchange.

Ans:

Bill of exchange

A ‘bill of exchange’ is defined by Sec.5 as ‘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’.

Cheques

A cheque is the usual method of withdrawing money from a current account with a
banker. Savings bank accounts are also permitted to be operated by cheques provided
certain minimum balance is maintained. A cheque, in essence, is an order by the
customer of the bank directing his banker to pay on demand, the specified amount, to or
to the order of the person named therein or to the bearer. Sec.6 defines a cheque. The
Amendment Act 2002 has substituted new section for Sec.6. It provides that a ‘cheque’ is
a bill of exchange drawn on a specified banker and not expressed to be payable otherwise
than on demand and it includes the electronic image of a truncated cheque and a cheque
in the electronic from.
 Cheque
It is drawn on a banker
It has three parties - the drawer, the
drawee, and payee.
It is seldom drawn in sets
It does not require acceptance by the
drawee.
Days of grace are not allowed to a
banker
No stamp duty is payable on checks
It is usually drawn on the printed
Bill of Exchange
It may be drawn on any party or
individual.
There are three parties - the drawer, the
drawee, and the payee.
Foreign bills are drawn in sets
It must be accepted by the drawee
before he can be made liable to pay the
bill
Three days of grace are always allowed
to the drawee.
Stamp duty has to be paid on bill of
exchange.
It may be drawn in any paper and need
not necessarily be printed.

Q.5 Distinguish between companies limited by shares and companies limited by

guarantee.

Ans :

A company limited by guarantee is normally incorporated for non-profit making

functions. The company has no share capital. A company limited by guarantee has
members rather than shareholders. The members of the company guarantee/undertake to
contribute a predetermined sum to the liabilities of the company which becomes due in
the event of the company being wound up. The Memorandum normally includes a non-
profit distribution clause and these companies are usually formed by clubs, professional,
trade or research associations.
The main difference between a company limited by guarantee and a company limited by
shares is that the company has no share capital.

A Company limited by guarantee is a lesser known type of business entity which is

generally formed by non-profit purposes and has members instead of shareholders.
There are both some similarities and differences between the two groups.
Members and shareholders enjoy limited liability, however in cases where a share based
company is liquidated; the latter might be required to pay all amounts of unpaid monies
relating to the shares they hold.
For example, if an individual shareholder holds 100 shares of Rs.100 each, all of which
remains unpaid at the time of dissolution, then they would be required to pay Rs.10000
to the company.
Most companies limited by guarantee have a constitution which states that each member
is only required to pay Rs.100 should it be dissolved.
Assuming that an average shareholder holds more than one share in a company, members
in a business limited by guarantee do appear to have less risk attached to their positions.

Q.6 what is the definition of cyber crime.

Ans:

Computer crime, or cyber crime, refers to any crime that involves a computer and a
network. The computer may have been used in the commission of a crime, or it may be
the target. Net crime refers, more precisely, to criminal exploitation of the Internet.
Issues surrounding this type of crime have become high-profile, particularly those
surrounding hacking, copyright infringement, child pornography, and child grooming.
There are also problems of privacy when confidential information is lost or intercepted,
lawfully or otherwise.

Cyber crime includes anything from downloading illegal music files to stealing millions
of dollars from online bank accounts. Cyber crime also includes non-monetary offences,
such as creating and distributing viruses on other computers or posting confidential
business information on the Internet.

Perhaps the most prominent form of cyber crime is identity theft, in which criminals use
the Internet to steal personal information from other users. Two of the most common
ways this is done is through phishing and pharming. Both of these methods lure users to
fake websites, where they are asked to enter personal information. This includes login
information, such as usernames and passwords, phone numbers, addresses, credit card
numbers, bank account numbers, and other information criminals can use to "steal"
another person's identity. For this reason, it is smart to always check the URL or Web
address of a site to make sure it is legitimate before entering your personal information.

CYBERCRIME
Cybercrime is defined as crimes committed on the internet using the computer as either a
tool or a targeted victim. It is very difficult to classify crimes in general into distinct
groups as many crimes evolve on a daily basis. Even in the real world, crimes like rape,
murder or theft need not necessarily be separate. However, all cybercrimes involve both
the computer and the person behind it as victims, it just depends on which of the two is
the main target.
Hence, the computer will be looked at as either a target or tool for simplicity’s sake. For
example, hacking involves attacking the computer’s information and other resources. It is
important to take note that overlapping occurs in many cases and it is impossible to have
a perfect classification system.

• Computer as a tool

When the individual is the main target of Cybercrime, the computer can be considered as
the tool rather than the target. These crimes generally involve less technical expertise as
the damage done manifests itself in the real world. Human weaknesses are generally
exploited. The damage dealt is largely psychological and intangible, making legal action
against the variants more difficult. These are the crimes which have existed for centuries
in the offline. Scams, theft, and the likes have existed even before the development in
high-tech equipment. The same criminal has simply been given a tool which increases his
potential pool of victims and makes him all the harder to trace and apprehend.

• Computer as a target
These crimes are committed by a selected group of criminals. Unlike crimes using he
computer as a tool, these crimes requires the technical knowledge of the perpetrators.
These crimes are relatively new, having been in existence for only as long as computers
have - which explains how unprepared society and the world in general is towards
combating these crimes. There are numerous crimes of this nature committed daily on the
internet. But it is worth knowing that Africans and indeed Nigerians are yet to develop
their technical knowledge to accommodate and perpetrate this kind of crime.

Cyber crime encompasses any criminal act dealing with computers and networks (called hacking).
Additionally, cyber crime also includes traditional crimes conducted through the Internet. For example; hate
crimes, telemarketing and Internet fraud, identity theft, and credit card account thefts are considered to be
cyber crimes when the illegal activities are committed through the use of a computer and the Internet.

crime committed using a computer and the internet to steal a person's identity or sell contraband
or stalk victims or disrupt operations with malevolent programs

Q. 5 a. What is a cyber crime? What are the categories of cyber crime?

Ans.: Cyber crime

It refers to all the activities done with criminal intent in cyberspace or using the medium of Internet. These
could be either the criminal activities in the conventional sense or activities, newly evolved with the growth of
the new medium. Any activity, which basically offends human sensibilities, can be included in the ambit of
Cyber crimes.

Because of the anonymous nature of Internet, it is possible to engage in a variety of criminal activities with
impunity, and people with intelligence, have been grossly misusing this aspect of the Internet to commit
criminal activities in cyberspace. The field of cyber crime is just emerging and new forms of criminal
activities in cyberspace are coming to the forefront each day. For example, child pornography on Internet
constitutes one serious cyber crime. Similarly, online pedophiles, using Internet to induce minor children into
sex, are as much cyber crimes as any others.
Categories of cyber crimes:

Cyber crimes can be basically divided in to three major categories:

1. Cyber crimes against persons;

2. Cyber crimes against property; and

3. Cyber crimes against government.

1. Cyber crimes against persons: Cyber crimes committed against persons include various crimes like
transmission of child-pornography, harassment of any one with the use of a computer and cyber stalking.
The trafficking, distribution, posting, and dissemination of obscene material including pornography, indecent
exposure, and child pornography constitute the most important cyber crimes known today. These threaten to
undermine the growth of the younger generation and also leave irreparable scars on the minds of the
younger generation, if not controlled.

Similarly, cyber harassment is a distinct cyber crime. Various kinds of harassments can and do occur in
cyberspace, or through the use of cyberspace. Harassment can be sexual, racial, religious, or of any other
nature. Cyber harassment as a crime also brings us to another related area of violation of privacy of citizens.
Violation of privacy of online citizens is a cyber crime of a grave nature.

Cyber stalking: The Internet is a wonderful place to work, play and study. The net is merely a mirror of the
real world, and that means it also contains electronic versions of real life problems. Stalking and harassment
are problems that many persons especially women, are familiar within real life. These problems also occur
on the Internet, in the form of “cyber stalking” or “online harassment”.

2. Cyber crimes against property: The second category of Cyber crimes is Cyber crimes against all forms
of property. These crimes include unauthorized computer trespassing through cyberspace, computer
vandalism, and transmission of harmful programs and unauthorized possession of computerized
information.

3. Cyber crimes against Government: The third category of Cyber crimes is Cyber crimes against
Government. Cyber Terrorism is one distinct kind of crime in this category. The growth of Internet has shown
that individuals and groups to threaten international governments as also to terrorize the citizens of a
country are using the medium of cyberspace. This crime manifests itself into Cyber Terrorism when an
individual “cracks” into a government or military maintained website, for the purpose of perpetuating terror.

Since Cyber crime is a newly emerging field, a great deal of development has to take place in terms of
putting into place the relevant legal mechanism for controlling and preventing cyber crime. The courts in
United States of America have already begun taking cognizance of various kinds of fraud and cyber crimes
being perpetrated in cyberspace. However, much work has to be done in this field. Just as the human mind
is ingenious enough to devise new ways for perpetrating crime, similarly, human ingenuity needs to be
canalized into developing effective legal and regulatory mechanisms to control and prevent cyber crimes. A
criminal mind can assume very powerful manifestations if it is used on a network, given the reachability and
size of the network.

Legal recognition granted to Electronic Records and Digital Signatures would certainly boost E – Commerce
in the country. It will help in conclusion of contracts and creation of rights and obligations through electronic
medium. In order to guard against the misuse and fraudulent activities over the electronic medium, punitive
measures are provided in the Act. The Act has recognized certain offences, which are punishable. They are:
-

Tampering with computer source documents (Sec 65)

Any person, who knowingly or intentionally conceals, destroys or alters or intentionally or knowingly causes
another person to conceal, destroy or alter any -

i. Computer source code when the computer source code is required to be kept by
law for the time being in force,
ii. Computer programme,
iii. Computer system and
iv. Computer network.

- Is punishable with imprisonment up to three years, or with fine, which may extend up to two lakh rupees, or
with both.

Hacking with computer system (Sec 66):

Hacking with computer system is a punishable offence under the Act. It means any person intentionally or
knowingly causes wrongful loss or damage to the public or destroys or deletes or alters any information
residing in the computer resources or diminishes its value or utility or affects it injuriously by any means,
commits hacking.

Such offenses will be punished with three years imprisonment or with fine of two lakh rupees or with both.

Publishing of information which is obscene in electronic form (Sec 67): Whoever publishes or
transmits or causes to be published in the electronic form, any material which is lascivious or appeals to
prurient interest or if its effect is such as to tend to deprave and corrupt persons who are likely, having
regard to all relevant circumstances, to read, see or hear the matter contained or embodied in it shall be
punished on first conviction with imprisonment for a term extending up to 5 years and with fine which may
extend to one lakh rupees. In case of second and subsequent conviction imprisonment may extend to ten
years and also with fine which may extend up to two lakh rupees.

Failure to comply with orders of the controller by a Certifying Authority or any employee of such
authority (Sec 68):