Kiran Kothare: Legal Aspects of Business and Taxation

Legal Aspects of Business
and Taxation
Kiran Kothare
Syllabus
1 Basic Concepts of Law (Definition of Law, Classification, Writs
U/Article 226 & 32), Jurisdiction of Courts (Civil & Criminal
prevailing within Mumbai)
Basics of Evidence (Oral, documentary, burden of proof,
Examination in Chief, Cross Examination, re examination)
Principles of Natural Justice (Audi Alterem Partem, Rule
Against Bias, Speaking Order) --1 Session
2 Indian Contract Act 1872 Principles of Contract, sections 2
30, 56, quasi contracts, damages s/73 74. Special
contracts (Indemnity, Guarantee, bailment, pledge, agency)
--2 Sessions
3 Indian Companies Act 2013 Salient Features of the New Act
--3 Sessions
4 Competition Act 2002 Definition & S/3. S/4 and S/5 --1
Session
Syllabus
5 Negotiable Instruments Act 1881, Concept of N.I
(Promissory Note, Bill of Exchange & Cheque),
Negotiation & dishonor of cheque U/S 138 -- 1 Session
6 Income Tax Act 1961 Income, Residence, Heads of
Income --2 Sessions
7 Central Excise Act 1944, Principles of Liability for
payment of Excise duty / CENVAT --1 Session
8 Service Tax General Review of Service Tax Liability -1 Session
9 Central Sales Tax and Maharashtra VAT Act -- 1 Session
10 Case Studies and Presentations --2 Sessions
Reference Text
Bare Acts Legal Aspects of Business David Albquerque
(Oxford University Press)
Business Law N.D.Kapoor
Business Law Bulchandani
Company Law Avtar Singh
Income Tax Dr. Singhania
Indirect Taxes V.S.Datey S. S. Gulshan:
Mercantile Law (Excel Books) A. K. Majumdar & G.K.
Kapoor:
Students guide to Company Law(Taxmann) S. K. Tuteja:
Business Law for Managers (Sultan Chand)
Definition of Law, Classification,

Writs, Jurisdiction of Courts
Introduction
What is law?
Lawis a system of rules that are enforced through social
institutionsto govern behaviour.
The rules that govern and guide actions and relations among
and between persons, organizations, and governments is the
short and easily understandable definition of law.
The law has crept and clawed its way into our daily lives.
Law, in one form or another, permeates modern society,
including the business environment, which is subject to
numerous laws and regulations at all levels of government.
The law serves many purposes and functions in society and
shapespolitics, economics andsocietyin various ways and
serves as a mediator of relations betweenpeople.
Therefore businesspersons benefit themselves and their
organizations by developing a basic, working knowledge of
the law.
Functions / Purpose of law

Four principal purposes and functions are
1. Establishing Standards - The law is a guidepost
for minimally acceptable behavior in society. Some
activities are crimes because society has
determined that it will not tolerate certain
behaviors that injure or damage persons or their
property.
2. Maintaining Order - This is an offshoot of
establishing standards. Some semblance of order is
necessary in a civil society and is therefore
reflected in the law.
3. Resolving Disputes - Disputes are unavoidable in
a society made of persons with different needs,
wants, values and views. Law provides a formal
means for resolving disputes
Adjudication Based Classification

The adjudication of the law is generally divided into
two main areas referred to as
(i) Criminal law It deals with conduct that is
considered harmful to social order and in which
theguiltyparty may be imprisoned or fined. it is
the law that creates and controls wrongs
committed against the whole community. Criminal
law violations are called crimes.
(ii) Civil law It is the law of private rights and duties
and deals with the resolution of lawsuits or
disputes between individuals or organizations.
These resolutions seek to provide a legal remedy
generally in terms of monetary damages to the
winning litigant.
Differentiating Features
1. Concerns - Civil law is concerned with private rights
and remedies, i.e. the duties that exist among and
between persons, organizations, and governments
Conversely, criminal law is concerned with public
rights and remedies, i.e. with wrongs committed
against the public or whole community.
2. Party bringing the case.In a civil case, the party
bringing the case (i.e., suing) is the plaintiff. The
plaintiff is a party who claims to have been injured by
the wrongful conduct of the defendant. The plaintiff
can be a person, a business or government entity or
agency. In a criminal case, the party bringing the
case (i.e., prosecuting), is the government
3. Burdens of proof - A burden of proof is a partys duty to
prove a claim or defense to a certain standard.
In a typical civil case, the burden of proof is on the plaintiff.
If the plaintiff does not satisfy its burden during trial, the factfinder ( judge ) will decide the case in favor of the defendant.
In a criminal case, the burden of proof that the prosecution
must satisfy is beyond a reasonable doubt.
The defendant is presumed to be not guilty unless the
prosecution proves the defendants guilt to the reasonable
doubt standard.
This standard is impossible to quantify in mathematical
terms (unlike in civil law). The judge would find the
defendant guilty only if firmly persuaded of the defendants
guilt based on a fair and full consideration of the evidence
presented.
This difference can best be explained by scales of justice.
In a civil case, the plaintiff will satisfy the
preponderance of the evidence burden by
placing just enough weightthat is, evidence or
proofon an arm of the scale to tip the scale
slightly in the plaintiffs favor;
that is all the weight needed to obtain
a civil judgment against a defendant.
In a criminal case, however, the
government will need to place enough
weight on the arm of the scale to make that
arm almost touch bottomthat is, enough to
satisfy beyond a reasonable doubt. Therefore,
much more evidentiary weight is needed to
obtain a criminal conviction against a defendant.
4. Goals -In civil law, the primary goal is to make an
injured party compensate him for the damage done to
him.
This is accomplished by awarding compensatory
damages, which is money.
Most plaintiffs bring civil cases seeking money to
compensate them for the injury and damage caused
by a defendant.
The primary goal of criminal law is to punish the
wrongdoer i.e. the defendant.
Depending on the level and severity of the crime,
this may be accomplished by the death penalty,
imprisonment, probation or fines.
Writs
Awritis a formal written order issued by a body
with administrative or judicialjurisdiction i.e.
generally acourt.
Article 32(3) of our constitution confers the power to
parliament to make law empowering any court to
issue the writs. But this power has not been used
and only Supreme Court by Article 32 (2) and High
Courts (Article 226) can issue writs to enforce the
fundamental rights of Indian citizens, guaranteed by
the constitution.
They issue 5 types of writs. They are Latin words
with English meaning given in bracket .
1. Writ of Habeas Corpus(meaning - you may have
the body)
. It is issued against authorities of states or
Writs
By Habeas corpus writ the Supreme Court or High
Court can cause any person who has been detained
or imprisoned in violation of his fundamental right to
liberty to be physically brought before the court.
The court then examines the reason of his detention
and if there is no legal justification of his detention,
he can be set free.
The writ of Habeas corpus is issued when the person
is
- detained and not produced before the magistrate
within 24 hours
- arrested without any violation of a law.
- arrested under a law which is unconstitutional
- detained to cause harm to him or is malafide.
Writs
2. Writ of Mandamus(meaning we order or
command) - The Supreme Court or High Court orders to
a person, corporation, lower court, public authority or
state authority to do something which they fail to do on
their own
Its a command or directive to perform something or
some ministerial acts or public duty.
It is also called a wakening call which awakes the
sleeping authority to perform their duty.
It demands an activity and sets the authority in action
to secure the performance of public duties by a lower
court, tribunal or public authority,
Writs
3. Writ of Certiorari (meaning - to be certified)
Certiorari means a writ that orders to move a suit from a
inferior court to superior court or to quash an order
already passed by a lower court, tribunal or quasi-judicial
authority.
4. Writ of Prohibition - To prohibit an inferior court from
continuing the proceedings in a case when it is outside
their jurisdiction .
The writ of prohibition means that the supreme court and
High Courts may prohibit the lower courts such as special
tribunals, magistrates, commissions, and other judiciary
officers who are doing something which exceeds to their
jurisdiction or acting contrary to the rule of natural justice.
This implies that if a judicial officer has personal interest
in a case, it may hamper the decision and the course of
natural justice.
Writ
5. Quo Warranto (meaning - what is your authority) To
restrain a person from holding a public office to which he
is not entitled.
Quo warranto means by what warrant? This means
that Supreme Court and High Court may issue the writ
which restrains the person or authority to act in an office
which he / she is not entitled to.
This writ is applicable to the public offices only.
Thus the power of higher courts to issue writs is a
provision under "Right to Constitutional Remedies".
Legal System
India maintains a common Lawlegal system inherited from
the colonial era and various legislations first introduced by
the British are still in effect in modified forms today.
Indianpersonal lawis fairly complex, with each religion
adhering to its own specific laws. Separate laws govern
Hindus, Muslims, Christians and followers of other religions.
Our constitution came into effect on the 26th of January,
1950 and is the lengthiest written constitution in the world.
It provides details of the administration of both the Union
and the States, and codifies the relations between the
Central Governmentand the State Governments.
Laws passed by our parliament on subjects classified as
central subjects are binding on all citizens.
Each State Government has the freedom to draft it own
laws on subjects classified as state subjects.
Legal System
The Indian Contract Act popularly known as
mercantile law of India came into effect on
1 September 1872.
It governs entrance into contract, and
effects of breach of contract.
It is the main andmost used act of legal
agreements in India.
The currentIndian Company Lawwas
updated and recodified in theCompanies
Act 2013.
Taxation System
The Constitution of India allocates the power to levy
various taxes between the Centre and the State.
An important restriction on this power is Article 265 of
the Constitution which states that "No tax shall be levied
or collected except by the authority of law.
Therefore each tax levied or collected has to be backed
by an accompanying law, passed either by
theParliament or theState Legislature. Indian tax law
involves several different taxes levied by different
governments.
Income Tax is levied by the Central Government under
theIncome Tax Act 1961. However, this Act may soon be
repealed and be replaced with a new Act consolidating
the law relating to Income Tax and Wealth Tax, which is
called the Direct Tax Code.
Taxation System
Customs and excise duties are also levied by the
Central government.
Sales tax is levied under VAT legislation at the state
level.
TheCentral Board of Direct Taxes(CBDT) is a part of
the Department of Revenue in the Ministry of Finance,
Government of India. It provides essential inputs for
policy and planning of Direct Taxes and is responsible
for administration of the direct tax laws.
However, when the administration of taxes became too
unwieldy for one Board to handle, the Board was split
up into two, namely the Central Board of Direct Taxes (
CBDT )and Central Board of Excise and Customs
( CBES) with effect from 1 January 1964.
Income Tax Act of 1961

The major tax enactment in India is theIncome
Tax Actof 1961 passed by the Parliament, which
establishes and governs the taxation of incomes
of individuals and corporations.
This Act imposes a tax on income under the
following five heads:
Income from house and property,
Income from business and profession,
Income from salaries,
Income in the form of Capital gains, and
Income from other sources
Service Tax
Service tax is a part of Central Excise in India. It is a

tax levied on services provided in India, except in the
State ofJammu and Kashmir.
The responsibility of collecting the tax lies with
theCBEC.
The government's intent is to merg all taxes like
Service Tax, Excise and VAT into a common Goods
and Service Tax .
To achieve this objective, the rate of Central Excise
and Service Tax will be progressively altered and
brought to a common rate.
All Small service providers whose turnover does not
exceedRs. 1,000,000 need not pay service tax.
Jurisdiction
The term jurisdiction is really synonymous with the word
"power".
One of the most fundamental questions of law is whether
a given court has jurisdiction to preside over a given case.
Jurisdictionin a wide sense means the extent of the power
of the court to entertain suits, appeals and applications, to
adjudicate casesand issue orders.
In its technical sense jurisdiction means the extent of the
authority of a court to administer Justice with reference to
the - subject-matter of the suit
- local territory
- pecuniary limits
within which a court or government agency may properly
exercise its power.
Jurisdiction
Thus a jurisdictional question may be broken down
into three components or classified into three
categories, , viz.,
(1) jurisdiction over the subject-matter;
(2) territorial jurisdiction; and
(3) pecuniary jurisdiction
Any court possesses jurisdiction over matters only to
the extent granted to it by the Constitution, or
legislation on behalf of which it functions.
The question of whether a given court has the power
to determine a jurisdictional question is itself a
jurisdictional question.
1. Jurisdiction over the subjectmatter

Certain courts are precluded from entertaining
suits of particular classes by status.
Thus, a small cause court can try only such
suits as a suit for money due on account of an
oral loan or under a bond or promissory note,
a suit for price of work done, etc.,
But it has no jurisdiction to try suits for
specific performance of contracts for a
dissolution of partnership, for an injunction or
suits relating to immovable property.
2.Territorial Jurisdiction
Every court has its own limits, fixed by the

State Government, beyond which it cannot
exercise its jurisdiction.
Thus, the District Judge is in charge of the
district and cannot exercise his power
beyond that district.
The Munsif West and Munsif East are in
charge of the areas assigned to them.
The High Court has jurisdiction over the
whole territory of the State.
3.Pecuniary Jurisdiction
Throughout India there are a large number of civil courts of
different grades having jurisdiction to try suits or hear
appeals of different amounts or value.
Some of these courts have unlimited pecuniary jurisdiction.
Thus the High Court, the District Judge and the Civil Judge
have unlimited pecuniary jurisdiction.
Other courts have only a limited pecuniary jurisdiction.
The jurisdiction of the Munsifs in Uttar Pradesh is limited.
Further, on the small cause courts side the Civil Judges
jurisdiction is limited.
A small Cause Court Judge also exercises a limited
pecuniary jurisdiction.
4.Original or Appellate Jurisdiction

The jurisdiction of a court may again be Original or
Appellate. In the exercise of its original jurisdiction a court
entertains original suits, while in the exercise of its
appellate jurisdiction it entertains appeals.
The Munsifs court and the court of small causes have only
original jurisdiction; the District Judges court and the
various High Courts have both original and appellate
jurisdiction.
The High Court of Allahabad has limited original
jurisdiction. In the first place, it has original jurisdiction
with regard to matrimonial, testamentary, probate and
company matters.
And, in the second place, it can exercise extraordinary
original jurisdiction in any suit or trial, as it has the power
to remove a suit from a subordinate court to itself for trial
and determination.
Basics of Evidence
(Oral, documentary, burden of
proof, Examination in
Chief, Cross Examination, re
examination)
Introduction
All judicial systems have two fundamental principles
of trial.
1. It must ensure that parties to the case are given full
opportunity to prove their case.
2. Every dispute must come to an end.
. These two rules which are contra to each other
must be balanced and this is done by the blending
of procedural law and rules of evidence.
. Indian Evidence Act (IEA) makes provisions about
rules regarding evidence and applies to all judicial
proceedings in or before any court.
. The enactment and adoption of the Indian Evidence
Act was a path-breaking judicial measure
introduced in India, which changed the entire
Basics of Evidence
All the Provisions of the Evidence Act can be divided
in to two Categories
(1) Taking the Evidence (By Court)
(2) Evaluation
() In taking the evidence, court takes the Evidence for
the Facts
() The Facts means the things which are said before
the court in connection with the matter.
() Main Issues in the case are known as "Issue of
Facts", and the other facts which are relevant to it
are called "Relevant Facts
() During trial parties are allowed to prove either facts
in issue or relevant facts but they are not allowed
to prove anything which is neither.
Basics of Evidence
For those Facts ("Issue of Facts" or "Relevant Facts), evidence
is given to the court by two ways.
1. Orally - Oral evidence means and includes all statements
which the Court requires, or permits, to be made before it, by
witnesses in relation to matters of fact under inquiry.
Oral evidence is essentially a statement of witnesses who is
said to be a living proof. It must be direct and not hearsay.
It mostly suggests the Verbal deposition before the Court
which includes oral statement regarding materials too.
2. Documentary - Documentary evidence means and includes
all documents including records produced for the inspection of
the Court. Documents are denominated as dead proof.
Documentary evidence is superior to oral evidence in many
respects viz. in permanence and in trustworthiness.
In many cases, the existence of documentary evidence
excludes the production of oral evidence.
Oral and Documentary

Evidence
Documentary evidence is a statement of documents as
distinguished from oral evidence which is a statement of

witnesses.
There are more ways of verifying the genuineness of
documentary evidence than there can be of disproving oral
evidence.
Court by going through those Oral and Documentary Evidence
decide whether particular fact and all facts are proved or not,
or whether the fact or facts can be presumed to be proved.
The next point in the law of evidence is on whom the Burden
to Prove Facts or "Onus of proof" lies to prove whole case.
Burden of proof is a duty placed upon a civil or criminal
defendant to prove or disprove a disputed fact.
The main thing (or facts pertain to ) in
Criminal law is crime
Civil law is Right
Burden of Proof
It is the obligation to offer evidence that the court

could reasonably believe, in support of a
contention, failing which the case will be lost.
It is thedutyplaced uponapartytoprove/
establish ordisprove / refute a
disputedfact( factual issue)
Incivilcases,theplaintiffisnormallycharged with
the burden of proof, i.e. the "burden of proof"
requires the plaintiff to convince the judge of the
plaintiff's entitlement to the relief sought.
This means that the plaintiff must prove each
element of the claim, or cause of action, in order to
recover.
Burden of Proof
Incriminalcases,the burden of proof is placed on

the prosecution whomust
provethedefendant'sguiltbeyond a reasonable
doubt and demonstratethatthe
defendantisguiltybeforeajudgemayconvicthim.
Thus it is a plaintiffs or the prosecutions
obligationto prove a fact with admissible
evidence .
Burden of proof may shift to the defendant if a
prima facie case is established.
Evidence
Intrials, each party calls witnesses.
Each party may also question the others witness(es).
The presentation of evidence begins when the attorney
for the plaintiff (the person suing) begins calling
witnesses.
The plaintiff's attorney does the initial questioning of
the witness, which is called direct examination.
Hence direct examination involves primary questioning
of a witness during a trial that is conducted by the side
for which thatpersonisactingasawitness.
The purpose of direct examination is to get the witness
to testify about facts that support the plaintiff's case.
There are rules of evidence, which govern the
admissibility of testimony.
Direct Examination
Direct examination or Examination in Chief
is questioning of a witness by the party who called
him or her, in a trial.
It is performed to elicit evidence in support of facts
which will satisfy a required element of a party's
claim or defense.
Duringthecourseofadirectexamination,theattor
neywhoisconductingthe interrogation generally
asks specific
questionsthatprovidethefoundationofthe case.
In direct examination, one is generally prohibited
from askingleading questions. An attorney may not
ask his/her own witness a leading question which
implies, suggests or prompts the witness to give a
Examination in Chief
The judge has some control over an attorney's
examination of witnesses and can dictate the
form of the questions presented to the witness.
The judge has discretion to stop repetitive or
annoying questioning.
A witness can be asked to identify demonstrative
evidence such as documents and photographs.
Generally, a witness cannot give an opinion or
draw a conclusion from the evidence unless
he/she has been qualified as an expert witness.
The attorney for the defendant (the person being
sued) can make objections to the witness's
testimony.
The judge either sustains (grants) the objection or
Examination in Chief
Each direct examination is integrated with the overall
case strategy through either a theme and theory
The same procedure is followed as in the plaintiff's
presentation of witnesses. Once the plaintiff's
attorney has called all of the witness's on behalf of
the plaintiff, the defendant's attorney begins calling
his/her witnesses.
When you ask questions of the other partys
witness(es), it is called a "cross-examination". After
the plaintiff's attorney has finished questioning the
witness, the defendant's attorney gets to crossexamine the witness, i.e. i.e. After
awitnessisdirectlyexamined,theopposingsidecon
ductsacross examination, the purpose of which is
Cross Examination
The defendant's attorney conducts direct
examination of the witnesses, and the plaintiff's
attorney cross-examines the witnesses. Cross
examination is the interrogation of a witness by the
party opposed to the one who called the witness
upon a subject raised during direct examination.
It involves
questioningofawitnessorpartyduringatrial,
hearing or depositionbytheparty opposing the one
who asked the person totestify
inordertoevaluatethetruthofhis testimony.
Thescopeofcross - examination is generally
restricted to matters coveredduring
directexamination of witness. But the
attorneymayaskleadingquestions in which he is
Cross Examination
The attorney attempts to show that the witness is not
reliable or is biased or prejudiced toward a party in the
case.
Another way to undermine the witness's credibility is to
show that the witness has a stake in the outcome of the
case, which might influence his/her testimony.
Thus cross examination is the examination of a witness
who has already testified, in order to check or discredit
his testimony, knowledge, or credibility and involves
questioning of an accusedorwitnessin acourt to
(1)test his knowledgeor memory,
(2) Extract information favourable to one party and
damaging to the other,
(3) Demonstrate bias, or
(4) prove his previous statements as contradictory.
Cross Examination
Astrong cross-examinationcanforce contradictions,
expressionsofdoubts,orevencompleteobliterationofa
witness'prior carefully-rehearsedtestimony.
Ontheotherhand,repetitionofawitness'story,
vehementlydefended,canstrengthenhis/hercredibility.
A litigant (or theirlawyer) is allowed considerably more
latitude in cross-examination then when you question
your own witnesses in an examination in - chief"
For example, you are not allowed to ask leading
questions to your own witness whereas you can in crossexamination.
Just as on direct examination, the opposing party's
attorney can raise objections to the questions posed to
the witness. The judge then rules on the objection.
Re - Examination
Re- examinationis thetrialprocess by which the party
who offered the witness has a chance to explain or
otherwise qualify any damaging or accusing testimony
brought out by the opponent during cross examination.
Re- examination may question only those areas brought
out on cross-examination and may not stray beyond that
boundary.
When a witness is presented for testimony, the order is
"direct" testimony, then the opposing attorney does
"cross" and then "re" from the attorney first offering the
witness.
"Re-cross" may be allowed, but usually the opposing
attorney must ask for permission from the judge before
proceeding with this additional round of questioning.
Principles of Natural Justice

(Audi Alteram Partem, Rule
Against Bias, Speaking Order)
Audi Alteram Partem

This is aLatin phrase meaning "listen to the other
side", or "let the other side be heard as well".
Itembodiestheconceptin Criminal Law
thatnoperson shouldbecondemnedunheard.
It is the principle of natural justice in most legal
systems that no person should be judged without a
fair hearing in which each party is given the
opportunity to respond to the evidence against
them.
This is one of the most cherished and sacrosanct
principles of law which directs that in fair hearing ,
any individual whose life, liberty or property are in
legal jeopardy,hasthe right to
confronttheevidence against him.
Audi Alteram Partem

In many jurisdictions, this principle is enshrined into
constitution of the state and includes the rights of a party or
his lawyers to
i. confront the witnesses against him,
ii. have a fair opportunity to challenge the evidence
presented by the other party,
iii. summon one's own witnesses and present evidence,
iv. have counsel, if necessary at public expense, in order to
make one's case properly.
. Thus no person shall be condemned, punished or have any
property or legal right compromised by a court of law
without having heard that person.
. In TheConstitution of India, nowhere the expression Natural
Justice is used. However, golden thread of natural justice is
sagaciously passed through the body of Indian constitution.
Rule Against Bias

It is the minimal requirement of the natural justice
that the authority giving decision must be
composed of impartial persons acting fairly, without
prejudice and bias.
It is known as the rule against bias and is based on
the premises that it is against the human
psychology to decide a case against his own
interest, i.e. no one should be made a judge in his
own cause.
Bias means an operative prejudice (partiality or
preference), whether conscious or unconscious, as
result of some preconceived opinion or
predisposition, in relation to a party or an issue.
The rule against bias strikes against those factors
which may improperly influence a judge against
Rule Against Bias

The basic objective of this rule is to ensure public
confidence in the impartiality of the administrative
adjudicatory process, for justice should not only be
done, but also manifestly and undoubtedly seen to
be done.
A decision which is a result of bias is a nullity
There are 6 types of bias.
1. Personal bias It occurs when there exists some
relationship between the deciding authority and
the parties which incline him favorably or
unfavorably on the side of one of the parties before
him. Relationship with the parties could occur by
way of hostility or friendship.
2. Pecuniary bias It is a bias in which any financial
interest, however small, with or related to the
Rule Against Bias

3. Subject-matter bias - The deciding officer is
directly or indirectly related to the subjectmatter of the case.
4. Departmental bias / Institutional bias - When
the Department / Institution itself becomes the
adjudicating authority, it would negate the
concept of fairness in the administrative
proceeding.
5. Preconceived notion bias When the deciding
officer has a per-conceived notion, feeling, liking
or disliking in regard to the subject matter which
forces him to give a specific judgment.
6. Bias on account of obstinacy / Doctrine of
Speaking Order
Aspeaking orderis an order that speaks for itself.
It is an order given, generally by a court, that gives an
explanation or a reason or a basis upon which a
conclusion or a verdict is arrived.
It mentions the fact, reason, finding of the case and also
reasons on basis of which such final order is passed. It is
are written after applying one's mind to the issues
involved and setting out the reasons for arriving at the
decision/order based on the principles of law.
Mostly court orders are speaking orders, except perhaps
when the appeal is dismissed as the court agrees with
the lower court.
The order should stand the test of legality, fairness and
reason at all the higher appellate forums.
It should contain all the details of the issue, clear
findings and a reasoned order.
Indian Contract Act 1872

Principles of Contract,
sections 2 30, 56,
quasi contracts,
damages s/73 74.
Special contracts (Indemnity, Guarantee, bailment, pledge,
agency)
Introduction
All of us enter into a number of contracts
everyday knowingly or unknowingly. Each
contract creates some rights and duties on the
contracting parties.
A contract is essential for any business
transaction, ensuring that both parties to the
contract abide by the commonly established
terms and conditions.
Entering into an agreement or transaction
without a formal contract can be disastrous
because it could result in one or both parties
escaping their obligations.
To protect the interests of both parties, the Indian
Contract Act was established in 1872. Its purpose
Introduction
Indian Contract Act of 1872, passed in British India
determines the circumstances in which promises
made by the parties to a contract shall be legally
binding on them.
It establishes the general principles for forming,
executing and enforcing contracts.
This legislation which is of skeletal nature deals
with the enforcement of these rights and duties on
the parties in India.
Various subsections of section 2 cover definitions.
1. Contract - Section 2(h) of the act defines the
term contract as an agreement legally enforceable
by law.
Therefore for the formation of a contract, there
Basic Principles
An "agreement" is basically a promise or a set of
promises that consists of the following components:
An offer: This is the starting point of an agreement;
wherein one party (offeror) communicates his
intentions to sell something or provide a service to
the other.
An acceptance: This is the act of manifestation by
the other party (offeree) of his consent to the terms
and conditions of the offer.
Thus for an agreement to result, there must be a
"lawful offer" and a "lawful acceptance" of the offer.
Offer must be given with an intention to create a
legal relationship , it must be definite and it must be
communicated.
Basic Principles
A contract comes into existence only when all the
terms and conditions have been finalised.
Also, a contract is considered valid if it is made
with the free consent of both parties, for a lawful
consideration and with a lawful object.
The parties must also be competent and have the
legal capacity to make a contract.
According to the Indian contract law, a person is
competent to contact if s/he has attained majority
and is of a sound mind.
2. Offer ( 2a) - when a person made a proposal,
when he signifies to another his willingness to do
or to abstain from doing something.
Agreement
Legal Obligation
Contract
Definitions and Explanations

3. Acceptance 2(b):- When the person to whom the
proposal is made, signifies his assent there to, the
proposal is said to be accepted.
Acceptance must be absolute and unqualified. If the
parties are not in ad idem on all matters concerning the
offer and acceptance, there is no valid contract. For
example "A" says to "B" "I offer to sell my car for
Rs.50,000/-. "B" replies "I will purchase it for
Rs.45,000/-". This is not acceptance and hence it
amounts to a counter offer.
Acceptance must be communicated, i.e. mental
acceptance is no acceptance or acceptance must not be
derived from silence.
Mere silence is no acceptance.Silence does not per-se
amounts to communication
To conclude a contract between parties, the acceptance
Acceptance must be in the mode prescribed.

If the acceptance is not according to the mode
prescribed or some usual and reasonable
mode(where no mode is prescribed) the offeror
may intimate to the offeree within a reasonable
time that acceptance is not according to the
mode prescribed and may insist that the offer be
accepted in the prescribed mode only.
If he does not inform the offeree, he is deemed
to have accepted the offer.
For example "A" makes an offer to "B" says to
"B" that "if you accept the offer, reply by voice.
"B" sends reply by post. It will be a valid
acceptance, unless "A" informs "B" that the

Acceptance must be unambiguous and definite.
Acceptance must not be precedent to offer and acceptance must be
unconditional. If the acceptance precedes an offer it is not a valid
acceptance and does not result in contract.
For example in a company shares were allotted to a person who had
not applied for them. Subsequently when he applied for shares, he
was un aware of the previous allotment. The allotment of share
previous to the application is not valid.
Acceptance must be given within a reasonable time before the offer
lapses. If any time limit is specified, the acceptance must be given
within the time, if no time limit is specified it must be given within a
reasonable time.
Agreement = Offer + Acceptance
Contract = Agreement + Enforceability before law
Therefore All contracts are agreements but all agreements are not
contracts

When one person signifies to another his willingness to do
or to abstain from doing anything, with a view to obtaining
the assent of that other to such act or abstinence, he is said
to make a proposal;
The proposal when accepted gives rise to an agreement.
It is at this stage that the agreement is reduced into writing
and a formal document is executed on which parties affix
their signature or thumb impression so as to be bound by
the terms of the agreement set out in that document.
Such an agreement has to be lawful.
4.Promise 2(b):- A Proposal when accepted becomes a
promise. In simple words, when an offer is accepted it
becomes promise.
A promise founded on motive of generosity, prudence and
natural duty is a promise without consideration.

Every promise and every set of promises, forming the
consideration for each other, is an agreement.
The person making the 'proposal' or 'offer' is called the
'promisor'or 'offeror',
5.Promisor and promisee 2(c):- When the proposal
is accepted, the person making the proposal or offer
is called as promisor or offeror, the person to whom
the offer is made is called the 'offeree and the person
accepting the proposal is called as promisee.
6.Consideration 2(d):- When at the desire of the

promisor, the promisee or any other person has done
or abstained from doing something or does or abstains
from doing something , such act or abstinence or
promise is called a consideration for the promise.

The consideration should be something which not only the
parties regard but the law can also regard as having some
value. It must be real and not illusory, whether adequate
or not;
An agreement must be supported by a lawful
consideration on both sides. When a party to an
agreement promises to do something he must get
something in return .This something is defined as
consideration.
In short, Consideration means to do something in return
or price paid by one party for the promise of the other.
Technical word for this is quid pro quoi.e. something in
return.
Contract without consideration is void or no
consideration means no contract ( Contract for bailment
is exception)

Essentials of valid considerations are
It must move at the desire of the promisor. An act
constituting consideration must have been done at
the desire or request of the promiser. If it is done at
the instance of a third party or without the desire of
the promisor, it will not be good consideration. For
example "A" saves "B"'s goods from fire without
being ask him to do so. "A" cannot demand
payment for his service.
Consideration may move from the promisee or any
other person. Under Indian law, consideration may
be from the promisee of any other person i.e., even
a stranger. This means that as long as there is
consideration for the promisee, it is immaterial, who

Consideration may be past, present or future.
Past consideration is not consideration according to
English law. However it is consideration as per
Indian law. Example of past consideration is, "A"
renders some service to "B" at latter's desire. After a
month "B" promises to compensate "A" for service
rendered to him earlier.
When consideration is given simultaneously with
promise, it is said to be present consideration .. For
example "A" receives Rs.50/- in return for which he
promises to deliver certain goods to "B The money
"A" receives is the present consideration.
When consideration to one party to other is to pass
subsequently to the maker of the contract, is said to

Consideration must be real. Consideration must be real,
competent and having some value in the eyes of law. For
example "A" promises to put life to "B"'s dead wife, if "B" pay
him Rs.1000/-. "A"'s promise is physically impossible of
performance hence there is no real consideration.
Consideration must be something which the promiser is not
already bound to do. A promise to do something what one is
already bound to do, either by law, is not a good
consideration., since it adds nothing to the previous existing
legal consideration.
Consideration need not be adequate. Consideration need not
be necessarily be equal to value to something given. So long
as consideration exists, the courts are not concerned as to
adequacy, provided it is for some value.

The consideration or object of an agreement is lawful,
unless and until it is:
1. forbidden by law: If the object or the consideration of an
agreement is for doing an act forbidden by law, such
agreement are void. for example,"A" promises "B" to
obtain an employment in public service and "B"
promises to pay Rs one lakh to "A". The agreement is
void as the procuring government job through unlawful
means is prohibited.
2. If it involves injury to a person or property of another:
For example, "A" borrowed rs.100/- from"B" and
executed a bond to work for "B" without pay for a period
of 2 years. In case of default, "A" owes to pay the
principal sum at once and huge amount of interest. This
contract was held void as it involved injury to the
person.

4. Is of such nature that, if permitted, it would defeat the
provisions of any law:
5. is fraudulent, or involves or implies injury to the person
or property of another, or
6. Is opposed to public policy. An agreement which tends
to be injurious to the public or against the public good is
void. For example, agreements of trading with foreign
enemy, agreement to commit crime, agreements which
interfere with the administration of justice, agreements
which interfere with the course of justice, stifling
prosecution, maintenance and champerty.
7. Agreements in restrained of legal proceedings: This
deals with two category. One is, agreements restraining
enforcement of rights and the other deals with
agreements curtailing period of limitation.

8. Trafficking in public offices and titles:agreements
for sale or transfer of public offices and title or for
procurement of a public recognition like padma
vibhushanor padma sree etc. for monetary
consideration is unlawful, being opposed to public
policy.
9. Agreements restricting personal liberty:
agreements which unduly restricts the personal
liberty of parties to it are void as being opposed
by public policy.
10. Marriage brokerage contract: Agreements to
procure marriages for rewards are void under the
ground that marriage ought to proceed with free
and voluntary decisions of parties.

11. Agreements interfering marital duties:
Any agreement which interfere with
performance of marital duty is void being
opposed to public policy.
An agreement between husband and wife
that the wife will never leave her parental
house.
12. consideration may take in any form
-money, goods, services, a promise to
marry, a promise to forbear etc.

7.Agreement2(e):- Every promise and set of
promises forming the consideration for each other.
8.Void agreement 2(g):- An agreement not
enforceable by law is said to be void.
9.Voidable contract 2(i):- An agreement is a
voidable contract if it is enforceable by Law at the
option of one or more of the parties there to (i.e. the
aggrieved party), and it is not enforceable by Law at
the option of the other or others.
10.Void contract 2(j):- A contract which ceases to
be enforceable by Law becomes void when it ceases
to be enforceable.
Void contract , Voidable contract, Illegal contract,
Unenforceable contract are all invalid contracts.
Essential Conditions
Following are the conditions for a person to enter into
contract
i. He must be major
ii. He must be of sound mind
iii. He must not be disqualified by any other law.
. Therefore a minor , Persons of unsound mind ( i.e. Lunatic
Idiot , Drunken or intoxicated person ) , an insolvent
person or a convict are disqualified from entering into
contract.
. Two or more persons are said to consent when they agree
upon the same thing in the same sense.
. Consent is said to be free when it is not caused by coercion
or undue influence or fraud or misrepresentation or mistake.
Free Consent is one of the essentials of a valid contract.
Essential Elements of a Valid

Contract
1.Offer & acceptance.

2.Intention to create legal relationship.
3.Consensus - ad idem.
4. Lawful Consideration.
5.Capacity to contract.
6.Free consent to contract
7.Legality of object/ Certainity
8.Possibility of performance.
9. Legal formalities like Writing & registration.
All the above ingredients must be satisfied in every
valid contract.
Wager Contract is not a valid contract
Wager Contract
As per Sec 30, a wager contract is a contract in which
one person promises to another to pay money or
moneys worth by the happening of an uncertain future
event in consideration for other persons promise to pay
if the event does not happen.
Essential Elements of Wagering are
i. There are two persons.
ii. There must be an uncertain future event.
iii. No control over the event by both the parties.
iv. There must be a reciprocal promise.
v. Others are not interested in the contract.
.
Example - In a wrestling bout, A tells B that wrestler
no.1 will win. B challenges the statement of A. They bet
with each other over the result of the bout. This is a
wagering agreement.
Wager Contract
Agreements by way of wager are void;
and no suit shall be brought for recovering
anything alleged to be won on any wager.
The law treats an agreement by way of
wager as void, because it discourages
people to enter into games of chance and
make earning by trying their luck instead
of spending their time, energy and labour
for more fruitful and useful work for
themselves, their family and the society.
Agreement to do Impossible
Act
Section 56 deals with agreements to do Impossible Act.
An agreement to do an act impossible in itself is void.
A contract to do an act which, after the contract is made,
becomes impossible or unlawful, by reason of some event
which the promisor could not prevent, becomes void.
Hence if A agrees with B to discover treasure by magic.
The agreement is void.
Similarly A and B contract to marry each other. Before the
time fixed for the marriage, A goes mad. The contract
becomes void.
A contracts to take delivery of cargo for B at a foreign
port. As Government afterwards declares war against the
country in which the port is situated. The contract
becomes void when war is declared.
Breach of Contract
Sections 73and 74deal with the consequences of breach
of a contract.
When a contract is broken, the party who suffers by such
breach is entitled to receive compensation for any loss or
damage caused to him from the party who has broken
the contract ( Section 73)
In estimating the loss or damage arising from a breach of
contract, the means which existed of remedying the
inconvenience caused by non-performance of the
contract must be taken into account.
A contracts to buy Bs car for Rs. 60,000, but breaks his
promise. A must pay to B, by way of compensation, the
excess, if any, of the contract price over the price which
B can obtain for the car at the time of the breach of
promise.
Breach of Contract
Section 74 deals with Compensation of breach of
contract where penalty is stipulated.
When a contract is broken, if a sum is named in the
contract as the amount to be paid in case of such
breach, or if the contract contains any other
stipulation by way of penalty, the party complaining
of the breach is entitled, whether or not actual
damage or loss is proved to have been caused
thereby, to receive from the party who has broken
the contract reasonable compensation not
exceeding the amount so named or, as the case
may be, the penalty stipulated for.
A contracts with B to pay B Rs. 1,000 if he fails to
pay B Rs. 500 on a given day. A fails to pay B Rs.
Breach of Contract
A remedy is a means given by law for the
enforcement of a right
When a contract is breached, the injured or
aggrieved party is entitled to one or more of
the following remedies from the other party.
1. Rescission of the contract
2. Suit for damages
3. Suit upon quantum merit
4. Suit for specific performance of the contract
5. Suit for injunction
Remedies for Breach of

Contract
1. Rescission orrevocation of contract - When a contract
is broken by one party, the other party may sue to treat the
contract as rescinded and refuse further performance.
. This entails halting further performance on a contract.
. In such a case, he is absolved of all his contractual
obligations under the contract.
2. Suit for Damages - Damages are a monetary
compensation allowed to the injured party by the court for
the loss or injury suffered by him by the breach of the
contract.
. The objective of awarding damages for the breech of
contract is to put the injured party in the same position as if
he had not been injured. This is called the doctrine of
restitution.
. The fundamental basis for awarding damages is the
pecuniary loss.
Remedies for Breach of Contract

3. Suit upon quantum meruit - The phrase
quantum meruit literally means as much as
earned or as much as he deserves.
Aquantum meruitsuit is basically a claim against
the value of the material supplied or used under a
contract, which becomes void on account of breach
of contract.
A right to sue on a quantum meruit arises when a
contract, partly performed by one party, has been
discharged by breach of contract by the other
party.
This right is performed not on original contract but
on implied promise by other party for what has
been done.
Suit Upon quantum meruit

Suppose B did some unpaid work on a farm
belonging to A because he promised to give B a
part of the farm land.
Both of them execute an agreement of sale for that
part of the land that A promised B.
However because the property fell under the
classification of reserved agricultural land, it could
not be sub-divided as agreed between A and B and
the agreement could not be executed.
Naturally, B would feel cheated and would claim
underquantum meruitfor the unpaid farm work
that he did.
In such a case, the court will inquire whether
unpaid work of B enriched A and deprived B
Remedies for Breach of

Contract
4. Suit for specific performance of the contract - In
certain cases of breach of contract damages are not an
adequate remedy (when there is no standard for
ascertaining the actual damage)
The court may, in such cases, direct the party in breach to
carry out his promise according to terms of the contract.
This is a direction by the court for specific performance of
the contract at the suit of the party not in breach.
5. Suit for injunction - When a party is in breach of a
negative term of contract the court may, by issuing an
order, restrain him by doing what he promised him not to
do. Such an order of the court is called injunction
Quasi Contract Introduction

In contracts, it is the consent of the contracting
parties which produces the obligation.

In quasi-contracts no consent is required, and the
obligation arises from the law or natural equity,
based on the facts of the case.
A quasi-contract is not really a contract at all in the
normal meaning of a contract, but rather is an
obligation imposed on a party to make things fair.
Aquasicontractisan obligation created by the order
of a court and not by agreementoftheparties.
Courtscreatequasicontractsor invoke an obligation
toavoidthe unjust enrichment of a party in a
dispute over payment for a good or service.
Quasi Contracts
There are certain situations wherein certain persons are
required to perform an obligation despite the fact that he
hasnt broken any contract nor committed any
tort(wrongful act, whether intentional or accidental, from
which injury occurs to another)
For instance, a person is obligated to restore the goods
left at his home, by mistake, and keep it in good condition.
Such obligations are called quasi-contracts.
Under special circumstances, obligations resembling those
created by a contract are imposed by law although there is
no contract between the parties.
Such contracts are calledQuasi-Contracts. Hence
aquasi-contractis not an actualcontract, but is a legal
substitute formed to impose equity between two parties.
Quasi Contract
Insomecasesapartywhohassufferedalossinabusiness
relationship may not be able to recover the loss without
evidence of a contract or some legally recognized agreement.
Toavoidthisunjust result , courts create a fictitious
agreement where no legally enforceableagreementexists.
Aquasicontract is createdonlytotheextentnecessaryto
prevent unjustenrichment.
Unjust enrichment occurs when a person retains money or
benefits thatinallfairnessbelongtoanother,
withoutjudicialrelief.
Suppose a pizza delivery person wrongly delivers pizza
ordered by some one else to you. By accepting a free pizza
that is not intended for you, you have been what the court
callsunjustly enriched, meaning you profited at the
expense of another without making an effort to make
restitution.
Quasi Contract
For quasi contracts there are some elements that

must exist as in this example.
The plaintiff must have provided the defendant with
something of value with the expectation of being
paid.
The defendant accepted or acknowledged receipt of
the thing of value.
And the plaintiff must demonstrate that it would be
unjust or unfair for the defendant to receive the item
without paying for it - mostly financial fairness.
In this case, the pizza shop owner has every right to
sue, and if this case were to make it to a courtroom,
the judge would require aquasi-contract and
would force the unjustly enriched party to make
Quasi contract
Suppose a builder builds a house for A on As
property after signing a contract with B who claimed
to be As agent but in fact he was not.
AlthoughthereisnobindingcontractbetweenA
andthe builder, the court would allow the builder
to recover the cost of the services and materials
from A to avoid an unjust result.
The courtwouldaccomplish this by creating a
fictitious agreement betweenthe builder and A and
holding A responsible
forthecostofthebuilder'sservices andmaterial.
It is merely a remedy granted by the court to
enforce an equitable or moral obligations inspite of
the lack of assent of the partyto becharged.
Quasi Contract
Quasi-contract is an obligation of one party to
another imposed by law independently of an
agreement between the parties.
Strictly speaking, a quasi-contract is not a
contract at all.
While a contract is intentionally entered into, a
quasi -contract ,on the other hand , is created by
law.
A quasicontract is based on the principle of
unjust enrichment which does not allow a person
to draw benefit at the cost of someone else.
Hence , the principle of unjust enrichment
requires:
1. the defendant has been 'enriched' by the receipt
Quasi Contracts
Sections 68 to 72 deal with different types of QuasiContractual Obligations. They cover cases where the
obligation to pay arises neither on the basis of a
contract nor a tort, but a person has obtained an
unjust benefit at the cost of another.
1. Claim for Necessaries supplied to a person
incapable of contracting or on his account (Sec 68)
2. Reimbursement of person paying money due by
another, in payment of which he is interested (Sec
69)
3. Obligation of person enjoying benefit of nongratuitous act (Sec 70)
4. Responsibility of finder of goods (Sec 71)
5. Liability of person to whom money is paid, or thing
delivered by mistake or under coercion. (Sec 72)
Types of Quasi Contracts

1. Supply Of Necessaries - A person, who supplies
another person, who is inept to enter into a
contract, with necessaries of life is entitled to get a
share from the property of the latter. Therefore a
minor is liable to pay out of his property for
necessaries supplied to him or to anyone whom he
is legally bound to support.
The minor is not personally liable and necessaries
include food, clothing as well as education. It also
includes watch, bicycle etc.
2. Payment By An Interested Person - A person,
who is interested in payment of money which was
supposed to be paid by another but pays it, is
entitled for reimbursement from the said person. L.
Suppose you were on a holiday and your tenant

The essential elements center around three
parameters of payment
a. It should be bona fide of ones interest
b. It should not be a voluntary one
c. It must be such that the other is bound by law to pay
3. Obligation To Pay For Non Gratuitous Acts When a person lawfully does or delivers anything for
the other, not intending to do so gratuitously, and the
person derives any benefit from it, he is liable to
compensate, or restore the thing so done or delivered.
if a person has received lawful services from another
person, which the former had not asked for but
needed at that moment, the other person is entitled to
be compensated for the services that were rendered.

Here three conditions must be satisfied a. The thing must have been done lawfully
b. The person intending to do it must not have done it
gratuitously
c. The person must have derived benefit from the act
4. Responsibility Of The Finder Of Goods - A
person who finds goods belonging to another and
takes them into his custody is subject to the same
responsibility as the bailee is bound to take as
much care of the goods as a man of ordinary
prudence would i.e. a person who finds goods
belonging to another person and takes the custody
of the goods is subjected to the responsibilities of
having the possession of the property under
bailment and cannot use it for his own good. By
implication, the finer has to safeguard it.

In addition to that he must make efforts to trace
the owner.
If he does not, he will be guilty of wrong
conversation, and till the owner is found out, the
property will vest with the finder which he can
sell in case of a. goods are of perishable nature
b. owner cannot be found out
c. when owner refuses to pay for the lawful
charges
d. when the lawful charges amount to two thirds of
thing
5. Payment of Money by Mistake
. Under section 72 of the Act, a person who
Special Contracts
Special contracts include
1. Indemnity,
2. Guarantee,
3. Bailment,
4. Pledge,
5. Agency
Contract of Indemnity
Indemnity is compensation for damages or

protection from a future loss. It also refers to an
exemptionfrom liabilityfor damages.
A contract by which one party promises to save the
other from loss caused to him by the conduct of the
promisor himself or by the conduct of any other
person is a "contract of Indemnity,
The concept of indemnity is based on a contractual
agreement made between two parties, in which one
party agrees to pay for potential losses or damages
caused by the other party.
A typical example is an insurance contract,
whereby one party (the insurer, or the indemnitor)
agrees to compensate the other (the insured, or the
indemnitee) for any damages or losses, in return
An indemnity clause is standard in most

insurance agreements, and exactly what is
covered and to what extent depends on the
specific agreement.
Any given indemnity agreement has what is
called a period of indemnity or a specific length of
time for which the indemnity is valid.
The definition provides the followingessential
elements-
i. There are two persons , the indemnifier and the
indemnified or the indemnity holder
ii. There must be loss either by the promisors
conduct or by any other persons conduct
iii. Indemnifier is liable only for the loss.
iv. It is a contingent contract by nature
The interpretation of these elements means 1. The promisee in a contract of indemnity, acting
within the scope of his authority, is entitled to
recover from the promisor .
2. It is clear that this contract is contingent in nature
and is enforceable only when the loss occurs.
3. Indemnifiers liability commences when the event
causing the loss occurs or when the event saving
the indemnified from the loss becomes impossible
Contract of Guarantee
A contract of guarantee is a contract to perform the
promise, or discharge the liability, of a third person in case
of his default.
A guarantee may be either oral or written.
The person who gives the guarantee is known as the
surety, the person in respect of whom the guarantee is
given is known as the principal debtor, and the person to
whom the guarantee is given is called the creditor.
For example, when A promises to a shopkeeper C that A will
pay for the items being bought by B if B does not pay, this is
a contract of guarantee.
In this case, if B (principal debtor) fails to pay, C (creditor)
can sue A (surety) to recover the balance
A contract of guarantee is a tripartite agreement between
the creditor, the principal debtor, and the surety.
Its essential elements are given in the next slide -
1. Existence of Creditor, Surety, andPrincipal
Debtor- The economic function of a guarantee is
to enable a credit-less person to get a loan or
employment or something else from a creditor.
There must exist a principal debtor for a
recoverable debt for which the surety is liable in
case of default of the principal debtor
2. Distinct promise of surety- There must be a
distinct promise by the surety to be answerable for
the liability of Principal Debtor
3. Liability must be legally enforceable- Only if
the liability of the principal debtor is legally
enforceable, the surety can be made liable.
4. Consideration- As with any valid contract, the
contract of guarantee also must have a
Differences
Contract of
Indemnity
It is a bipartite
agreement between the
indemnifier and
indemnity-holder
Liability of the
indemnifier is
contingent upon the
loss.
Liability of the
indemnifier is primary
to the contract.
It is a tripartite agreement
between the Creditor, Principal
Debtor, and Surety.
Liability of the surety is not
contingent upon any loss.
Liability of the surety iscoextensive with that of the

principal debtor although it
remains in suspended
animation until the principal
Differences
The undertaking in
indemnity is original.
The undertaking in a
guarantee is collateral to the
original contract between the
creditor and the principal
debtor.
There is only one
There are three contracts in
contract in a contract of a contract of guarantee - an
indemnity - between the original contract between
indemnifier and the
Creditor and Principal Debtor,
indemnity holder.
a contract of guarantee
between creditor and surety,
and an implied contract of
indemnity between the
Differences
The reason for a contract

of indemnity is to make
good on a loss if there is
any.
The reason for a contract

of guarantee is to enable a
third person get credit.
Once the indemnifier

fulfills his liability, he does
not get any right over any
third party. He can only
sue the indemnity-holder
in his own name
Once the guarantor fulfills

his liabilty by paying any
debt to the creditor, he
steps into the shoes of the
creditor and gets all the
rights that the creditor had
over the principal debtor.
Bailment
Bailment means delivery of goods by one person to
another for some purpose ,upon a contract ,that
they shall ,when the purpose is accomplished ,be
returned or otherwise disposed of according to the
instructions of the person delivering them.
The person delivering the goods is called the
bailor and the person to whom they are
delivered is called the bailee.
Bailmentdescribes a legal relationship in
common law where physical possession
ofpersonal property is transferred from one
person, the 'bailor to another person the 'bailee
Abailmentinvolvesonlyatransferofpossessionor
custody, not ofownership and arises when a
Bailment
Bailment contracts are acommonoccurrence in
everyday life: giving clothes to a launderer, leaving
car with an auto mechanic, handing over cashor
other valuable to abank, etc.
Bailment is distinguished from acontract of sale or a
gift of property, as it only involves the transfer of
possession and not itsownership. Such transfer is
made under an express orimplied contract called
the contract of bailment that theproperty will be
redelivered to the bailor oncompletion of that
purpose, provided the bailee has nolien on
thegoods (such as for non-payment of itscharges).
Their must be purpose for which bailor parts with the
possession of goods and goods must be returned or
disposed off by bailee after the purpose is
Bailment
In addition, unlike a lease or rental, where ownership
remains with the lessor but the lessee is allowed to
use the property, the bailee is generally not entitled
to the use of the property while it is in his possession.
The bailee is under an obligation to take reasonable
care of the property placed under its possession.
A bailee is responsible only when the goods entrusted
to him are lost or damaged due to his fault or
negligence.
Bailor should disclose known faults in goods to bailee
and should receive back the goods after
accomplishment of purpose.
Pledge
The bailment of goods as security for payment of a
debt or performance of a promise is called
Pledge.
Pledgesareaformofsecuritytoassurethatapers
onwillrepayadebtor perform
anactundercontract and are typically
usedinsecuringloans,pawningproperty for cash
and guaranteeing
thatcontractedworkwillbedone.
Ina pledge , one person temporarily gives
possession of property to another party.
The bailor in this case is called the pledger or
pawnor and the bailee is called the pledgee or
pawnee
It involves the transfer or delivery of property to
Pledge
Everypledgehasthreeparts:
I. twoseparateparties,
II. adebtorobligation,and
III. a contractofpledge.
. Acontractofpledgespecifieswhatisowed,thep
ropertythatshallbeusedasapledge,andcondit
ionsforsatisfyingthedebtorobligation
. Deposit of personal property to a creditor is also
called a pawn. The pawnor has a right to redeem
debt and get back goods. The pawnee has right of
retainer for subsequent advances.
. He may retain the goods pledged, not only for
payment of the debt or the performance of the
promise, but for the interests of the debt, and all
Pledge
Inpledgesbothpartieshavecertainrightsandliabili
ties.
Thecontractofpledgerepresentsonlyonesetofth
ese:thetermsunderwhichthe
obligationwillbefulfilledandthepledged
propertyreturned.
Ononehand,thepledgor'srightsextendtothesaf
ekeepingand
protectionofhispropertywhileitisinpossessionof
thepledgee.
Thepropertycannotbeusedwithoutpermission.
Unauthorizeduseofthepropertyiscalledconversio
nandmaymakethepledgeeliable fordamages;.
Forthepledgee,ontheotherhand,thereismoreth
antheduty tocareforthepledgor'sproperty.
Agency
Sec 182 defines an agent as a person employed to do any
act for another, or to represent another in dealings with
third persons.
The person for whom such act is done is called the
principal.
It refers to the relationship that exists when one person or
party (the principal) engages another (the agent) to act for
him, e.g. to do his work, to sell his goods, to manage his
business.
Anagency agreementis a legal contractcreating a
fiduciary relationship ( i.e. relationship of trust and
confidence to manage and protect property or money )
whereby the first party ("the principal ") agrees that the
actions of a second party ("the agent") binds the principal
to later agreements made by the agent as if the principal
had himself personally made the later agreements.
Agency
The power of the agent to bind the principal is
usually legally referred to as authority. The
competent agent is legally capable of acting for this
principal vis--vis the third party.
Manufacturers and suppliers of goods frequently
appoint agents to act on their behalf in promoting
sales, both in the home country of the manufacturer
as well as overseas.
A formal agreement is usually signed setting out
the commission agent will receive, the territory,
duration and other terms on which the principal and
agent will do business together.
Hence, the process of concluding a contract through
an agent involves a twofold relationship.
On one hand, the law of agency is concerned with
Agency
On the other hand, it rules the internal relationship
between principal and agent as well, thereby
imposing certain duties on the representative
(diligence, accounting, good faith, etc.).
The law of agency thus governs the legal
relationship in which the agent deals with a third
party on behalf of the principal.
Essentials of relationship of Agency are
i. Agreement between principal & agent
ii. Intention of agent to act on behalf of the principal
iii. Anyone can be an agent
iv. Anyone can employ an agent.
. A sub agent is a person employed and acting
under the control of the agent in the business of
Indian Companies Act 2013

Salient Features of the New Act
The Companies Act 1956

The Companies Act 1956was anAct of the
Parliament of India, enacted in1956, which enabled
companies to be formed by registration, and set out
the responsibilities of companies, their directors and
secretaries
The Act is administered by the Government of India
through the Ministry of Corporate Affairs (MCA)
and the Offices of Registrar of Companies ( RoC),
Official Liquidators, Public Trustee, Company Law
Board ( CLB), Director of Inspection, etc. The
Registrar of Companies (ROC) handles incorporation
of new companies and the administration of running
companies.
Since its commencement, it was amended many
times.
Basics
Once a company is formed and registered as per law, it is a
separate legal entity from its members.
A company is a quite distinct legal personality from the
persons who have formed it. This is the fundamental principle
of separate corporate personality
A company is not a citizen but it can have nationality and
residence. The birth place of the company, that is to say, the
country where it is incorporated is its nationality.
An important step in the formation of a company is to prepare
a document called the Memorandum of Association. It is a
document of great importance in relation to the proposed
company.
A Memorandum of Association is the primary document which
sets out the constitution of a company and as such, it is really
the foundation on which the structure of the company is
based.
Memorandum of Association
It is also called the charter of the company which defines its
relation with the outside world and the scope of its activities.
It is a life giving document of a company and must contain
following fundamental clauses
1. Name Clause
2. Registered Office Clause
3. Object Clause
4. Liability Clause
5. Capital Clause
6. Association/Subscription Clause
. The object clause is the most important clause of the company.
It specifies the activities which a company can carry on and
which activities it cannot carry on.
. The company cannot carry on any activity which is not
authorised by its Memorandum. The memorandum must state
the objects for which the proposed company is to be
established.
Articles of Association
An Article of association is the second document which
has, to be registered along with the memorandum.
This document contains rules, regulations and bye-laws for
the general administration of the company and includes
1. Powers, duties, rights and liabilities of members and
directors.
2. Rules for meetings of the company.
3. Dividends.
4. Borrowing powers of the company.
5. Calls on shares.
6. Transfer and transmission of shares.
7. Forfeiture of shares and
8. Voting powers of the members, etc.
Schedule I of the Companies Act, 1956, contains various
model forms of memorandum and articles.
Memorandum and Articles

Memorandum of Association and the Articles of
Association are required to be registered with the
Registrar as pre-requisite to the formation of a
company.
Both these documents are public documents and
are, therefore, open to inspection by any person.
Every person dealing with a company, having a right
to know the contents of the Memorandum and the
Articles, is deemed to have known them, or, in other
words, there is a presumption that the person
dealing with the company has the notice of the
contents of these documents.
Features Of Company
" Company " means a company formed and registered

under this Act or an existing company as defined in
clause (ii) of the act.
It has following main characteristic features 1. Company is a separate Legal Entity
2. It has perpetual succession
3. It can sue and be sued in its own name
4. The liability of the shareholders is limited to the extent
of their shareholdings (One Share One Vote Concept)
5. Company is separate from its Management
6. It can hold property in its own name
7. It has a common Seal
. There are different types of companies. Some of the
main types of companies are covered in next slides
123
Private Company
Indian Companies Act, 1956, differentiates between
a private company and a public company.
A " private company " means a company which has
a minimum paid-up capital of one lakh rupees or
such higher paid-up capital as may be prescribed,
and by its articles,
(a) restricts the right to transfer its shares, if any ;
(b) limits the number of its members to fifty not
including
(i) persons who are in the employment of the
company ; and
(ii) persons who, having been formerly in the
employment of the company, were members of the
company while in that employment and have
Private and Public Company

(c) prohibits any invitation to the public to subscribe
for any shares in, or debentures of, the company ;
(d) prohibits any invitation or acceptance of deposits
from persons other than its members, directors or
their relatives:
Only two or more persons may form a private
company.
Every private company shall have minimum two
directors.
A public company means a company which is not
a private company.
It has a minimum paid-up capital of five lakh
rupees or such higher paid-up capital, as may be
prescribed .
Private and Public Company

Public company needs to be registered with Registrar
of Companies and has to file the Memorandum and
the Articles of the company, with the Registrar. It is
not required in case of a private company.
Under the Companies Act, 1956, the name of a public
limited company must end with the word limited
and the name of a private limited company must end
with the words Private Limited.
However, under section 25, the Central Government
may allow companies to remove the word Limited /
Private Limited from the name if certain conditions
are satisfied.
Private & Public Company - Distinguishing

Features
Main differences between a public and a private
company are 1. The minimum number of persons required to form
a public company is seven whereas only two or
more persons may form a private company.
2. The maximum number of members in case of a
public company is not fixed whereas in case of a
private company the number of members is limited
to fifty.
3. There is no restriction of transfer of shares in case
of a public company, but a private company
having a share capital must have in its article,
restrictions on the rights of transfer.
4. A public company extends its invitation to public
Private & Public Company - Distinguishing

Features
5. Every public company and every private company
which is a subsidiary of a public company shall have
at least three Directors whereas every private
company which is not a subsidiary of a public
company shall have at least two Directors
6. A public company, on the application for
registration of the Memorandum and the Articles of
the company, should file with the Registrar a list of
the persons who have consented to be directors of
the company whereas it is not required in case of a
private company.
7. A public company is required to hold a statutory
meeting within a fixed time period after the
commencement of its business and to forward
Holding And Subsidiary Companies

Holding Company and Subsidiary Company are relative
terms.
Where two companies are under such terms that one
control the other, then the controlling company is called
the Holding Company and the company which is
controlled is called the Subsidiary Company.
As per section 4 of the Indian Companies Act, 1956, a
Holding Company is one which controls the composition
of the Board of Directors of another company or where it
holds more than half in nominal value of its equity share
capital. The later is treated as a subsidiary company.
Foreign company means a company incorporated in a
country outside India under the law of that other country
and has established the place of business in India.
Government Company
Government company means any company in which not
less than 51% of the paid up share capital is held by the
central government or any state government or partly by
the central government and partly by one or more state
governments and includes a company which is a subsidiary
of a government company.
Government companies are also governed by the
provisions of the Companies Act.
However, the central government may direct that certain
provisions of the Companies Act shall not apply or shall
apply only with such exceptions, modifications or adoptions
as may be specified to such government companies.
130
The Companies Act, 2013

The new Act consolidates and amends the law relating to
companies. It is aimed at easing the process of doing business
in India and improving corporate governance by making
companies more accountable.
The new law which has been rewritten extensively with several
new provisions for investor protection, better corporate
governance and corporate social responsibility etc. is
considered as trend changer in Indian Corporate law.
It has introduced several new provisions which change the face
of Indian corporate business. Business and investors have
expressed confidence in the Acts ability to induce
transparency.
It defines a number of new terms that have come into vogue in
recent times.
The act provides for class action suit, which is key weapon for
individual shareholders to take collective action against errant
companies.
The Companies Act, 2013
It provides for better disclosure requirements in

financial statements and has streamlined
procedures relating to disclosure of transactions
with parties related to directors, promoters etc.
Thus with the introduction of the new Companies
Act 2013, regulatory checks, accountability and
governance standards in India have received a
serious boost.
It provides for new concepts such as a one-person
company.
It has raised the cap on number of persons in a
private company from 50 to 200. E-voting has
been recognized.
The Government of India introduced this
New Requirements / Concepts

1. Introduction of One Person Company (OPC)It means a company which has only one person as
a member/ shareholder
. It's a Private Company having only one Member
and at least One Director. This concept is already
prevalent in the Europe, USA, China, Singapore and
in several countries in the Gulf region
. The one basic pre-requisite to incorporate an OPC is
that the only natural-born citizens of India,
including small businessmen, entrepreneurs,
artisans, weavers or traders among others can take
advantage of the One Person Company (OPC)
concept.
. This may be relevant to financial advisors and other
One Person Company

Concept of One Person Company is a new vehicle or
form of business to facilitate the entrepreneur(s)
carrying on the business in the Sole-Proprietor form
of business to enter into a Corporate Framework.
One Person Company is a hybrid of Sole-Proprietor
and Company form of business.
It must have a minimum of One Director, the Sole
Shareholder can himself be the Sole Director. The
Company may have a maximum number of 15
directors.
The Shareholder can nominate another person who
shall become the shareholders in case of
death/incapacity of the original shareholder.
Such nominee shall give his/her consent for being
One Person Company
Only a natural person, who is an Indian citizen and

resident in India ( i.e. a person who has stayed in
India for a period of not less than 182 days during
the immediately preceding one calendar year) shall
be a nominee for the sole member of OPC.
A person shall not be eligible to incorporate more
than one OPC or become nominee in more than one
such company.
Minor cannot become member or nominee of the
One Person Company or can hold share with
beneficial interest.
If and when the Paid-up capital of the Company
crosses Rs.50 Lakhs or the average annual turnover
during the relevant period exceeds Rs.2 Crores, then
OPC & Sole Proprietorship

The hybrid nature of OPC offers the advantages of
sole proprietorship as well as private limited
company without their limitations.
The main advantage of sole proprietorships is the
ease and informality with which it can be created
and dissolved.
There is no cost at all in setting up a self
proprietorship as no formal registration is needed.
Also there are less legal formalities that need to
be complied with to start it.
The business can be run out of home but if the
proprietor wishes to run it out of a commercial
place then the provisions of the Shop &
Establishments Act become applicable.
Sole proprietorship business model is advantageous

where close personal relations with employees/
customers are essential
The main problem with the sole proprietorship
model of business is that it can exist only for as
long as the owner exists ( owners death or
insolvency can put an end to the business )
OPC scores on this automatic succession aspect
because of the nomination facility as well as
possibility that it could be converted into a Private
Limited Company in the future.
In an OPC, there is a designated individual who
shall, in the event of the death of the subscriber
become the member of the company and be
responsible for the running of the company.

Hence it suits those businesses where the business
continuity for next generation is essential.
The biggest limitation or risk in sole proprietorship
organizational form is the unlimited liability of sole
proprietor which means that in a situation where a
sole proprietor fails to meet his debts or business
obligations and a lawsuit is filed by a consumer,
then the personal properties of the proprietor could
also be disposed of to satisfy the debts.
As against unlimited liability of proprietor, in a one
person company the liability of the single
shareholder will be limited to the unpaid
subscription money in his name.
A proprietorship is taxed at slab rates applicable to
individuals and there is no tax on withdrawal of

A One Person Company creates a separate legal
entity as contrasted with a sole proprietorship
where the proprietor and the entity are one and the
same. Hence the income tax rate for the sole
proprietorship is that applicable to individuals
An OPC allows for the limitation of liability whereas
in a sole proprietorship liability is unrestricted and
extends to the individuals assets.
It can help attract investors who were not keen to
invest in a sole proprietorship owing to the risks
imposed by unlimited liability.
The biggest deterrent for selecting an OPC over a
sole proprietorship is that an OPC would be charged
at the 30% base tax rate, minimum alternative tax

Both are methods by which an individual can
own/run a business.
The main differences relates to the business'
liabilities.
If the business is unable to pay its liabilities, the
individual has to pay such liabilities off in the case
of sole proprietorship; and the individual is not
responsible for such liabilities in the case of a one
person company.
The OPC is an artificial entity distinct from its
owner.
Thus OPC allows an individual to take risks without
risking his/her personal assets.
This limited liability feature of OPC can be compared
OPC and LLP

Features of Limited Liability Partnership (LLP) 1. Minimum two partners required to form a LLP.
2. It depends on the Individual contribution by the
Partners
3. LLP cant be converted into a privateLimited
company.
4. The compliances are quite less comparing a pvt
ltd.
5. Income Tax has to be paid.
6. Auditor is mandatory only if the revenue reaches
Rs 40 lakhs.
. Both LLP and OPC has its own merits.
. 2013 act has permitted the conversion of
Small Company Introduction
2. Small Company The concept of Small

Company has been introduced and defined for
the first time.
The Act identifies some companies as small
companies based on their capital and turnover
position for the purpose of providing certain
relief/exemptions relating to board meeting,
presentation of cash flow statement, reporting
requirements, mergers/ amalgamations etc. to
these companies.
Small Companymeans a company other than a
Public Company that satisfies either of the
following conditions
(a) paid-up share capital not exceeding Rs. fifty lakh
Small Company
If the company breaches any one criterion for Small

Company, it will not be eligible for the benefits of
Small Company,
Most of the exemptions provided to a small company
are same as that provided to a one person company.
A holding or a subsidiary company can never enjoy
the privileges of a small company even though they
may fulfill the capital or turnover requirement of a
small company.
Similarly, a company may classify as a small
company in a particular year but may become
ineligible in the next year and may become eligible
again in the subsequent year.
New Requirements /
Concepts
3. Minimum members for private company
and Minimum Paid-up Share Capital: The new act has increased the limit of the
number of members in a private company from
50 to 200.
Also the minimum paid-up share capital
requirement of INR 100,000 (in case of a private
company) and INR 500,000 (in case of a public
company) under CA 2013 has been done away
with.
Consequently, the definitions of private and
public companies stand amended.
Accordingly, no minimum paid-up capital
requirements will now apply for incorporating

4. Immediate changes in stationery - The letterhead, bills or
invoices, quotations, emails, publications & notifications,

letters or other official communications, should bear the full
name of contact person, address of companys registered
office, Corporate Identity Number ( CIN No. which is a 21 digit
number allotted by Government), Telephone number, fax
number, Email id, contact website (if any).
5. Commencement of business All the companies
(public/private company) registered under Companies Act
2013 need to file the following with the Registrar of
Companies (ROC) in order to commence their business
A declaration by the director in prescribed form stating that
the subscribers/ promoters to the memorandum have paid the
value of shares agreed to be taken by them.
A confirmation that the company has filed a verification of its
registered office with the Registrar of companies (ROC)

In the case of a company requiring registration from
any sectoral regulators such as RBI, SEBI etc.,
approval from such regulator shall be required prior
to starting the business.
6. Financial Year - The Companies Act 1956 Act
provided companies to elect financial year. The
Companies Act 2013 Act eliminates the existing
flexibility in having a financial year different than 31
March and provides that every
companyshallfollowuniformaccountingyeari.e.1 s
t
April -31stMarch, with certain exceptions approved
by the National Company Law Tribunal.
Those companies which follow a different financial
year should align the financial year to 31 March
within two years from 01 April 2014 since most the
New Requirements /
Concepts
7. Eligibility age to become Managing Director or
whole time Director -The eligibility criteria for the age
limit has been revised to 21 years as against the existing
requirement of 25 years.
8. Number of directorships held by an individual Section 165 provides that a person cannot have
directorships (including alternate directorships) in more than
20 (twenty)companies, including ten (ten) public companies.
It provides a transition period of one year from 1 April
2014 to comply with this requirement.
9. Board of Directors and Disqualifications for
appointment of director - The 2013 Act requires that the
company shall have a maximum of 15 (fifteen) directors
(earlier it was 12) and appointing more than 15 (fifteen)
directors will require special resolution by shareholders
New Requirements /
Concepts
Further, it requires appointment of at least one woman director

on the board for prescribed class of companies, i.e. Every Listed
Company /Public Company with paid up capital of Rs 100 Crores
or more / Public Company with turnover of Rs 300 Crores or
more shall have at least one Woman Director.
It also requires that company should have at least 1 (one)
resident director i.e. who has stayed in India for a total period of
not less than 182 (hundred and eighty two days) in the previous
calendar year. For existing companies, the compliance need to
be made before 31st March 2015.
All existing directors must have Directors Identification Number
(DIN) allotted by central government. Directors who already
have DIN need not take any action. However, Directors not
having DIN should initiate the process of getting DIN allotted to
him and inform the respective companies on which he is a
director. The Company, in turn, has to inform the registrar of
companies (ROC).
New Requirements /
Concepts
10. Independent Directors - The 2013 Act
defines the term "Independent Director".
In case of listed companies, one third of the board
of directors should be independent directors.
There is a transition period of 1 (one) year form
01 April 2014 to comply with this requirement.
The 2013 Act also provides additional
qualifications/ restrictions for independent
directors as compared to the 1956 Act.
Section 150 enables manner of selection of
independent directors and maintenance of
databank of independent directors and enables
their selection out of data bank maintained by a
prescribed body.
New Requirements /
Concepts
11. Appointment of managing director, whole
time director or manager [section 196 of
2013 Act] - The re-appointment of a managerial
person cannot be made earlier than one year
before the expiry of the term instead of two years
as per the existing provision of section 317 of the
1956 Act.
However, the term for which managerial personnel
can be appointed remains as five years.
Further, the 2013 Act lifts the upper bar for age
limit and thus an individual above the age of 70
years can be appointed as Key Managerial
Personnel (KMP) by passing a special resolution.
New Requirements /
Concepts
The Provisions relating to appointment of KMP

includes(i) the Chief Executive Officer (CEO) or the managing
director (MD) or the manager
(ii) the company secretary
(iii) the whole-time director;
(iv) the Chief Financial Officer (CFO); and
(v) such other officer as may be prescribed
These are applicable only for Public Limited
Companies having paid up capital more than 10
crores. and Private Limited Companies are
exempted from appointment of KMPs.
12. Board meeting and attending Board
Meetings - At least 7 days notice is to be given

The Board need to meet at least 4 times within a year. Notices
for Board and General Meetings sent by electronic mode are
recognised in the statute.
There should not be a gap of more than 120 days between
two consecutive meetings.
As per section 167 of the Act, a Director shall vacate his/her
office if he/she absents himself from all the meetings of the
Board of Directors held during a period of 12 (twelve months)
with or without seeking leave of absence of the Board.
Simply speaking, attending at least one Board Meeting by a
director in a year is a must, else he has to vacate his/her
office.
Quorum for meetings of Board - Participation of directors
through video conferencing or by other audio visual means is
recognized for the purpose of quorum.
New Requirements /
Concepts
13. Loans to director No Company shall
directly or indirectly make any loan including
book debt or give any guarantee or provide any
security to its directors or to any persons in whom
the director is interested.
However, this provision shall not be applicable to
managing director / whole time director subject to
conditions, etc.
The Company cannot advance any kind of loan /
guarantee / security to any director, Director of
holding company, his / her partner/s, his/ her
relative/s, firm in which he or his relative is
partner, private limited in which he is director or
member or any bodies corporate whose 25% or
New Requirements /
Concepts
13a Inter-Corporate loans / investment
Rate of interest on inter corporate loans will be the
prevailing rate of interest on dated Government
Securities.
Further, exemption to Private companies from
restrictions /conditions contained under section 372A of
the exiting Companies Act, 1956 is now done away
with.
Hence, private companies shall be required to be
bound by the above restrictions (i.e., private companies
may not be able to grant interest free loans).
New Requirements /
Concepts
14. Corporate Social Responsibility ( CSR) - The concept
of CSR rests on the ideology of give and take. Companies
take resources in the form of raw materials, human
resources etc from the society. By performing the task of
CSR activities, the companies are giving something back to
the society.
As per Clause (135), every Indian company havingi.
net worth of Rs. five hundred crore or more, or
ii. turnover of Rs. one thousand crore or more or
iii. a net profit of Rs. five crore or more during any financial
year
shall constitute a Corporate Social Responsibility
Committee of the Board and 2% of the average net profits
of the last three financial years are to be mandatorily
spent on CSR activities.
New Requirements /
Concepts
15. Articles of Association-In the next General

Meeting, it is desirable to adopt Table F as standard
set of Articles of Association of the Company with
relevant changes to suite the requirements of the
company.
Further, every copy of Memorandum and Articles
issued to members should contain a copy of all
resolutions / agreements that are required to be
filed with the Registrar.
15A Maintenance and inspection of documents
in electronic form Any document required to kept
by a company or allowed to be inspected or copies
given can be maintained in electronic mode.
16. Appointment of Statutory Auditors - Every
New Requirements /
Concepts
Those companies who have reappointed their
statutory auditors for more than 5 / 10 years, have
to appoint another auditor in their Annual General
Meeting for year 2014 and it is necessary to ratify
such appointment at each annual general meeting
The Statutory Auditor of the Company cannot give
following specialized services directly or indirectly to
the company
i. Accounting and book keeping services, Rendering
of outsourced financial services
ii. Design and implementation of any financial
information system
iii. Actuarial services, Internal audit
iv. Investment advisory services, Investment banking
New Requirements /
Concepts
17. Registered Valuers - Valuation by registered
valuers. Clause (247) (1) Where a valuation is
required to be made in respect of any property,
stocks, shares, debentures, securities or goodwill or
any other assets (herein referred to as the assets)
or net worth of a company or its liabilities under the
provision of this Act, it shall be valued by a person
having such qualifications and experience and
registered as a valuer in such manner, on such
terms and conditions as may be prescribed and
appointed by the audit committee or in its absence
by the Board of Directors of that company
Class Action Suit - Introduction

18. Class Action Suit - For the first time, a provision
has been made under the Companies Act, 2013 for
class action suits. It requires at least 100 members
or depositors to file a class action suit.
Class action is simply filing a law suit in a larger
group instead of individual suits where there are
numerous persons having the same interest in that
suit.
A "class action"lawsuitis one in which a group of
people with the same or similar injuries caused by
the same product oractionsue the defendant as a
group, i.e. itis a type of lawsuitwhere one of the
parties is a group of people who are represented
collectively by a member of that group .
If the group of members are of the opinion that
Class Action Suit

A class action suit can be filed against members of a company,
its auditors, or any expert, advisor, consultant to the company
under several grounds like :
i. To prevent the company from making any misleading
statement, or inclusion or omission of any matter in the
prospectus that goes against the articles or memorandum of
the company;
ii. To restrain the company from doing an act which is contrary to
the provisions of the company law;
iii. Against the auditors for any improper or misleading statement
of particulars in the audit report.
. The members or depositors seek any damages or
compensation or demand any other suitable action from or
against an audit firm.
. Aclass action,class suit, orrepresentative action
Class Action Suit

The order of the National Company Law Tribunal in
any class action suit is binding on a company.
The liability shall be of the firm as well as of each
partner of audit firm who was involved in making
any improper or misleading statement of particulars
in the audit report or who acted in a fraudulent,
unlawful or wrongful manner.
Any failure to implement the order of the tribunal
can attract fine in the range of Rs 5 lakh to Rs 25
lakh on the defaulting company.
Further, every officer responsible for such default
shall be liable for imprisonment and fine.
Similarly, if the tribunal finds the application for
filing class action suit frivolous, it may, in addition
Class Action Suit

Class actions suits have not been successful in
India till now.
Following the Satyam case such a suit was filed by
many shareholders in India but in vain.
This is one of the reasons for introducing class
action suits in the Companies Act, 2013.
Class action is prominent and successful globally,
especially in the US because US laws permit
contingency fees for lawyers
Contingency fee is like a success fee paid to the
lawyer arguing the class action for the plaintiff.
The fee will only be paid if the order is in favour of
the plaintiff and is paid from the compensation and
damages that is awarded.
Dormant Company
Introduction
19. Dormant Company The 2013 act for the
first time has introduced a concept of a dormant
company within its ambit, i.e. company which is
not active.
Dormant company can be a company formed for
a future project or to hold an asset or intellectual
property without there being any significant
accounting transaction OR an inactive company.
Any company which has not been doing any
business for the last two years OR they have not
filed any financial statements and annual returns
for the last two years is an inactive company..
Dormant Company
So it means any active company doing regular
business and regular accounting transactions, but
has failed to file its mandatory annual documents,
then it can also be construed to become a dormant
company!!
Many a times, promoters incorporate companies
but either there is dispute between the promoters
or a major project fails through or it is formed for
holding an intellectual property title or an asset,
then this concept of dormant company comes into
use
Serious Fraud Investigation Office - Introduction

20. TheSerious Fraud Investigation Office(SFIO)
is a fraud investigating agency involved in major
fraud probes and is the co-ordinating agency with
the Income Tax and CBI..
2013 Act has proposed Statutory status to SFIO, i.e.
investigation report of SFIO filed with the Court for
framing of charges shall be treated as a report filed
by a Police Officer.
SFIO shall have power to arrest in respect of certain
offences which attract the punishment for fraud.
Those offences shall be cognizable and the person
accused of any such offence shall be released on bail
subject to certain conditions
SFIO is a multi-disciplinary organization having
experts from financial sector, capital market,
New Requirements /
Concepts
21. Fast Track Merger: Concept of fast track merger

without the requirement of a Court Process
introduced to facilitate merger between 2 or more
Small Companies or between holding Company and
its wholly owned subsidiary
The Companies Act, 2013 has separate provisions of
fast track merger under Section 233 of Companies
Act, 2013.
These provisions are notwithstanding with the
normal provisions of merger under Section 230 and
232 of this Act.
Under fast track merger processes Central
Government has the power to sanction all such
scheme and there will be no requirement to
New Requirements /
Concepts
22. Public offer of securities to be in
dematerialised form - Any company, other than a
public company may convert its securities into
dematerialised form or issue its securities in physical
form in accordance with the provisions of this Act or in
dematerialised form in accordance with the provisions
of the Depositories Act, 1996 and the regulations
made thereunder.
23. Issue of differential equity shares -Issue of
equity shares with differential rights would have to be
in accordance with such rules as may be prescribed.
This has been made applicable to even private
companies now.
New Requirements /
Concepts
24. Preferential issue of shares - Pricing of a
Preferential Issue of shares by a company to be
determined by a registered valuer.
Conditions may be prescribed in rules for
preferential issue by companies.
25. Further issue of Capital Provisions relating
to further issue of capital applicable to all
companies.
Accordingly, any shares have to be offered to all
shareholders on pro-rata basis (except in case of
preferential issue through special resolution )
New Requirements /
Concepts
26. Financial Statements and consolidation Cash flow statement and statement showing
changes in equity if any of the company also forms
part of the financial statements.
In case the Company has a subsidiary company, the
consolidated financial statements of all subsidiaries
and the company shall be prepared and laid before
the AGM.
Consolidation of financial statements is mandatory
in case a Company has one or more subsidiaries
Business Responsibility
Reporting
In keeping with the spirit of the new Companies

Act to provide better perspective by greater
disclosure, stock exchange regulator SEBI has
mandated top 100 companies by market
capitalization, to enhance responsibility reporting
in their annual reports. It should include a. the ratio of remuneration of each director to the
median employee's remuneration;
b. the amount spent on CSR and its break up,
c. number of sexual harassment cases,
d. child labour and forced labour cases;
Business Responsibility
Reporting
e. number of employees with disabilities & those hired

on contract
f. number of stakeholder complaints
g. employees to whom skill training was given.
. It should also contain Information on their
mechanisms to a. recycle products and waste,
b. support whistle-blowers,
c. prevent and report frauds,
d. protect human rights
e. source sustainably.
. These disclosures are expected to result in better
governance as the companies gradually move to fix
Companies (Amendment) Act, 2015

The Government of India (GOI) had received several
representations from industry stakeholders for
amending various provisions of Companies Act, 2013
(CA 2013) to ensure ease of doing business in India.
Towards this, the Companies (Amendment) Act,
2015 (CA Amendment 2015) received the assent
from the President of India on 25 May 2015 after
both the houses of the Parliament approved the CA
Amendment 2015.
It is a welcome step towards addressing some of the
concerns under CA 2013, though there are several
other concerns which are yet to be addressed by the
GOI. It has constituted the Companies Law
Committee to identify and recommend the GOI on
Competition Act 2002

Definition & S/3. S/4 and
S/5
Earlier Scenario
The Competition law in India is in vogue since June
01, 1970. At that time it was known as the
Monopolise and Restrictive Trade Practices Act, 1969
(MRTP Act) which was administered by the MRTP
Commission.
MRTP Commission used to pass the final orders by
directing the delinquent party(s) to refrain from the
prohibited trade practices (cease) and not to indulge
in such prohibited practices in future (desist). Thus,
it was lacking teeth as it had only limited power of
passing Cease and Desist orders which are in the
nature of Reformative punishment.
However to ensure that the provisions of the law
are rigorously followed by the all citizens it became
necessary to prescribe more Deterrent
Background
In the wake of LPG, especially liberalization and
privatization, that was triggered in India in early
nineties, a realization gathered momentum that the
existing "MRTP Act" was not equipped adequately
enough to tackle the competition aspect of the
Indian economy.
With starting of the globalization process, Indian
enterprises started facing the heat of competition
from domestic players as well as from global giants,
which called for level playing field and investorfriendly environment.
Hence, need arose with regard to competition laws
to shift the focus from curbing monopolies to
encouraging companies to invest and grow, thereby
Background
Today with the spread of globalization, the whole
world is facing the cut throat competition and to
survive and prosper every nation is trying to pull its
economy up.
To have a fair and healthy competition and to
prevent activities that have an adverse effect on
competition in India, our nation has set up a judicial
body known as Competition Commission of India
[CCI].
A new act named The Competition Act was enacted
in 2002 which replaced the archaic Monopoly and
Restrictive Trade Practices Act, 1969. This act was
repealed and the MRTP Commission was dissolved
w.e.f. September 01, 2009.
The new act is a tool to implement and enforce
Abuse of Market & Need for New Law
Competition and liberalization, together unleash the

entrepreneurial forces in the economy.
Competition is a situation in market, in which sellers
independently strive for buyers patronage to
achieve business objectives. It
- offers wide array of choices to consumers at
reasonable prices,
- stimulates innovation and productivity, and
- leads to optimum allocation of resources.
In an open market economy, some enterprises may
undermine the market by resorting to anticompetitive practices for short-term gains. These
practices can completely nullify the benefits of
competition.
Competition Act 2002

Fair competition in the market is beneficial for all
because it makes the enterprises more efficient and
it gives a wider choice to the consumers at lower
prices.
It is for this reason that, while countries across the
globe are increasingly embracing market economy,
they are also reinforcing their economies through
the enactment of competition law and setting up
competition regulatory authority.
In line with the international trend and keeping in
view the economic development of the country, to
cope up with the changing realities in India,
theCompetition Act, 2002 was enacted to achieve
multiple objectives.
The substance and practice of competition act differ
Objectives of Competition Act

1. Prevent practices having adverse effect on
competition .i.e. check anti-competitive practices
by prohibiting the agreements or practices that
restrict free trading and also the competition
between two business entities and provide the
opportunity to the entrepreneur for the competition
in the market.
2. Promote and sustain a fair and healthy competition
in markets to ensure freedom of trade carried on
by other participants in markets, by preventing
the abusive situation of dominance or market
monopoly.
3. Protect the interests of consumers by regulating
combinations.
4. Provide for the establishment of CCI,a quasi-
Overview of the Act

CCI, established to administer the Act, is vested with ample
powers to investigateand to impose heavy penalties in the
nature of deterrent punishment for the violation of provisions
of the Act.
The Act of 2002, as amended by the Competition
(Amendment) Act, 2007, follows the philosophy of modern
competition laws.
It is not exclusivist and operates in tandem or in
synchronization with other laws / policies such as liberalized
trade policy, relaxed FDI norms, FEMA, deregulation etc.
It regulates combinations for acquisition of control which
causes or likely to cause an appreciable adverse effect on
competition.
It prevents unnecessary Government interference in the
market and is equally applicable to written as well as oral
agreements and arrangements between the enterprises or
persons.
Salient Features
The Act is comprehensive enough and
meticulously carved out to meet the requirements
of the new era of market economy.
It is designed as an omnibus code to deal with all
matters relating to the existence and regulation of
competition and monopolies.
Competition Commission of India is the statutory
body to approach for unfair competition practices.
CCI has power to act suo-moto or on the reference
from Government. Consumers (individuals/ HUF /
NGOS) can also directly approach the CCI .
Salient Features
If any case is made out then, on receipt of such
application, the CCI refers it to Director General for
opinion.
Director General shall submit its report/finding to CCI for
proper hearing and trial for the case.
Competition advocacy is one of the most significant
feature in the Act. It is the obligation of CCI to create
the awareness about the competition laws through nonenforcement measures. It also includes training
programs, seminar, educational workshops.
The competition laws lays down heavy penalty of 10% of
total turn over of preceding three years if any enterprises
act or infringe the provision of competition act.
Salient Features
It prohibits
1. anti-competitive agreements,
2. deliberate exploitation or abuse of a dominant
market position
3. Unlawful monopolization through possession of
market power( market power is the power to control
prices and / or restrict /exclude competition and is
measured in terms of market share)
4. Wilful acquisition or maintenance of market power
for limiting access, as distinguished, from the
normal growth and development.
5. Bid rigging and lays down provisions for penalty for
such practices. Any agreement or consent among
the prospective bidder which affect the bidding
process and causes or likely to cause losses to the

i.
Anti-competitive
Agreement
An anti-competitive agreement includes;

Agreement to limit or control production or supply
or provision of services,
ii. Agreement to allocate market by geographical
area or nature of goods or number of customers or
any other similar way,
iii. Agreement to fix sale or purchase prices.
iv. Agreement which directly or indirectly results in
Bid rigging or collusive bidding. (If two or more
supplier exchange sensitive information of bid,
then it is a restricted practice and against
competition.)
v. Refusal for price maintenance.
vi. Exclusive supply position (If a distributor
Definitions and Meaning
1. Acquisition:Acquisition means, directly or

indirectly, acquiring or agreeing to acquire
shares, voting rights or assets of any enterprise
or control over management or assets of any
enterprise.
2. Cartel:Cartel includes an association of
producers, sellers, distributors, traders or service
providers who, by agreement amongst
themselves, limit control or attempt to control
the production, distribution, sale or price of
goods or provision of services, i.e. it is the group
of enterprises which collectively make some
agreement either explicit or implicit -which
adversely affects the competition through

The competition law restricts the Cartel as it is
injurious to competition.
CCI has wide power to take cognizance of the cartel
and refer it to director general for investigation. It
further provides the penalty provision up to three
times of yearly profit to the offenders.
3. Rule of reasons: It is the analysis of any activity
under the challenge on the basis of business
justification, competitive intent, market impact,
impact on competition and on consumer. It is the
logic behind the conclusion for any order.
4. Predatory pricing:Predatory pricing means the

sale of goods or provision of services, at a price
which is below the cost of production.
Its objective is to eliminate the competition and then
create dominant position in the market and put the
price so high to recover the earlier losses.
It is sort of abuse of dominant position. Once the
predatory pricing is fixed then the CCI can pass a
order that enterprise has abused its dominant
position in contravention of the competition act and
pass the penal order for it.
The four objectives of the act are explained in next
few slides
1. Anti-competitive Agreements
Section 3 of the Act states that enterprises, persons

or associations of enterprises or persons, including
cartels, shall not enter intoagreementsin respect
of production, supply, distribution, storage,
acquisition or control of goods or provision of
services, which cause or are likely to cause
an"appreciable adverse impact"on competition
in India which would consequently be considered
void .
They include those agreements which:
i. Directly or indirectly determine sale / purchase
prices or result in bid rigging or collusive bidding.
ii. Limit or control production, supply, markets,
technical development, investment or provision of
services;
2. Abuse Of Dominant Position
Section 4 of the Act enjoins, "no enterprise shall

abuse itsdominant position".
Abuse is the misuse of an advantageous position
by an enterprise to gain extra benefits but which
resultantly damage the consumer interest and make
it difficult for other players to compete.
Dominant position is the position of strength
enjoyed by an enterprise in the relevant market,
which enables it to operate independently of
competitive forces prevailing market, or affect its
competitors or consumers or the relevant market in
its favour.
There shall be an abuse of dominant position if an
enterprise imposes directly or indirectly unfair or
2. Abuse Of Dominant Position

Following provisions relate to abuse of dominant
position
i. Limiting or restricting the production of goods or
provision of services or market therefore limiting
technical or scientific development relating to
goods or services to the prejudice of customers;
ii. Indulging in practice resulting in the denial of
market access
iii. Creating hindrance in entry of new operators to
the prejudice of consumers.
iv. Making conclusion of contracts subject to
acceptance by other parties of supplementary
obligations, which has no connection with the
subject of such contract;
v. Utilization of the dominant position in one
3. Combinations
Section 5 of the Act is designed to regulate the

operation and activities of"combinations", a
term, which contemplatesacquisition, mergers
or amalgamations.
Combination that exceeds the threshold limits
specified in the Act in terms of assets or turnover,
which causes or is likely to cause an appreciable
adverse impact on competition within the relevant
market in India, can be scrutinized by the
Commission.( recent case acquisition of Ranbaxi
by Sun Pharma )
Threshold limitsthat would invite the scrutiny are
as below:
1. For Acquisition:
i. Combined assets of the firm more than Rs 3,000
3. Combinations
2. For Mergers:
Assets of the merged/amalgamated entity more
than Rs 1,000 crore or turnover more than Rs
3,000 crore
These limits are more than Rs 4,000 crore or Rs
12,000 crore in case merged/amalgamated
entity belongs to a group in India or outside
India respectively.
Further, such combination, which causes or is
likely to cause "appreciable adverse impact" on
competition, would be treated as void.
3. Combinations
A systemis provided under the Act wherein at the option
of the person or enterprise proposing to enter into a
combination may givenotice to the Competition
Commission of Indiaof such intention providing details of
the combination.
The Commission after due deliberation, would give its
opinion on the proposed combination to approach the
Commission for this purpose.
However, public financial institutions, foreign institutional
investors, banks or venture capital funds which are
contemplating share subscription financing or acquisition
pursuant to any specific stipulation in a loan agreement or
investor agreement are not required to approach the CCI for
this purpose.
4. Competition Commission Of India
CCI, entrusted with eliminating prohibited practices,

is a body corporate and independent entity
possessing a common seal with the power to enter
into contracts and to sue in its name.
It has been vested with the powers of a civil court
including those provided under sections 240 and
240A of the Companies Act, 1956 on an "Inspector of
Investigation while trying a suit, including the
power to summon and examine any person on oath,
requiring the discovery and production of documents
and receiving evidence on affidavits.
CCI is also vested withcertain powers of affirmative
actionto act in an expedited manner.
Civil courts or any other equivalent authority will
not have any jurisdiction to entertain any suit or
4. Competition Commission Of India
To achieve its objectives, CCI endeavours to do the

following:
i. Make the market work for the benefit and welfare of
consumers
ii. Ensure fair and healthy competition in economic
activities in the country for faster and inclusive
growth and development of economy.
iii. Implement competition policies with an aim to
effectuate the most efficient utilization of economic
resources.
iv. Develop and nurture effective relations and
interactions with sectoral regulators to ensure
smooth alignment of sectoral regulatory laws in
tandem with the competition law.
Notable Cases of CCI
CCI has come heavily on the violators of the

Competition Act by imposing a penalty of more than
Rupees Nine Thousand Eight Hundred Crore, during
the last three financial years.
1. In December 2010, CCI instituted a probe to examine
if there was any cartelisation among traders when
onion prices touched 80 rupees a kilo, but did not
find sufficient evidence of market manipulation .
2. In June 2012, CCI imposed a fine of Rs. 63.07
billionon 11 cement companies for cartelisation. It
claimed that cement companies met regularly to fix
prices, control market share and hold back supply
which earned them illegal profits.
3. In January 2013, CCI modified clauses in
agreements between real estate companyDLF
Some of the important modifications in builders

agreement were:
a. The Builder can not undertake any additional
construction beyond the approved building plan
given to the buyers.
b. The builder will not have complete ownership of
open spaces within the residential project area
not sold.
c. Not just the buyer but the builder will be liable
for any defaults.
d. All payments made by the buyers must be
based on construction milestones and not "on
demand
e. The builder will not have the sole power to form

On 8 February 2013, CCI imposed a penalty of Rs.
22 millionon the Board of Control for Cricket in
India (BCCI) for misusing itsdominant position.
It found that IPL team ownership agreements were
unfair and discriminatory, and that the terms of the
IPL franchise agreements were loaded in favour of
BCCI and franchises had no say in the terms of the
contract.
The CCI ordered BCCI to "cease and desist" from
any practice in future denying market access to
potential competitors and not use its regulatory
powers in deciding matters relating to its
commercial activities.
In 2014, CCI imposed a fine of Rs. 1 Crore upon

On 17th November 2015,CCI imposed a fine of
INR 258 crore upon Three Airlines. It penalised
the three airlines for cartelisation in determining
the fuel surcharge on air cargo.
A penalty of Rs 151.69 crore was imposed on Jet
Airways, while that on Inter Globe Aviation
(Indigo) and Spice Jet are Rs 63.74 crore and Rs
42.48 crore, respectively.
CCI intervened in granting exclusive rights of a
cricket game to one media house because such
agreement would impact competition and
consumer.The process of bidding for such rights
started thereafter.
Notable/ Decisions/ Issues / Investigations

1. In the case ofCCI Vs Steel Authority of India (SAIL),
Supreme Court in 2010 has given the landmark
decision on powers of CCI that order of investigation
by CCI is not an appealable order.
Commission has power to refer for investigation
under section 26(1) of the Act. It may ask for the
requisite details from the party or it may go ahead
without asking for the same. It is the matter of
discretion of commission.
2. CCI settled the controversy between SAIL and
Indian Railways on the basis of argument that they
had previously settled arrangement way back in
2003 that SAIL would be the supplier for Indian
Railway.
Notable/ Decisions/ Issues /

Investigations
4. CCI has looked into the agreements of builders

where they put the clause of 18% interest for
delay in payments but lesser interest applicable
for delay in delivery of possession and has asked
them to alter this clause.
5. CCI has suggested TRAI to consult them at the
time of merger and acquisition of telecom service
providers to ensure that any service provider
should not abuse its market dominance. Same
was made applicable to the M&A for
pharmaceutical companies.
Thus Competition laws in India have seen a sea
change from year 1970 to 2015 by transforming
from Reformative theory of punishment to
Competition Compliance
Programme
When the enterprise takes certain necessary and
concrete steps to ensure that knowingly or
unknowingly it does not infringe the provisions of
the Competition Act, it can be stated to maintain
a Competition Compliance Programme (CCP).
The main objectives of CCP are
(i) Prevent violation of competition law;
(ii) Promote a culture of compliance; and
(iii) Ensure good corporate citizenship.
Therefore, in order to avoid violations of the
provisions of the Competition law it is high time
for the enterprises in India to consider having a
compulsory "Competition Compliance
Negotiable Instruments Act

1881
Concept of N.I (Promissory
Note, Bill of Exchange &
Cheque), Negotiation &
dishonor of cheque U/S 138
Introduction
Negotiable Instruments Act, 1881 is an act in India
dating from the British colonial rule, that is still in
force largely unchanged.
The term negotiable means transferable by
delivery and the word Instrument means in
writing or a written document by which a right is
created in favour of some person.
Therefore, negotiable instrument literally
means a written document transferable by delivery
or a written promise or order to pay money which
may be transferred from one person to another.
Anegotiable instrumentis a financial document
or contract which shows the debt of one party to
another. It specifies the amount ( payment),
specifies / describes the payee, who can be changed
Background
Goods are generally traded (sold or bought) for cash
or on credit
In cash transaction, payment is received
immediately whereas in credit deals, the payment is
delayed to a future date.
In such cases the firm relies on the party to make
payment on due date.
Sometimes, to avoid any delay or default by the
buyer, an instrument of credit is used through which
the buyer assures the seller that the payment shall
be made according to the agreed conditions.
In India, the instruments of credit have been in use
from times immemorial and have been popularly
known as Hundies.
Negotiable Instruments
A negotiable instrument is a transferable, signed
document consisting of a contract or an
unconditional order that promises payment of
money to a specified person or to his assignee or
bearer at a future date or on demand.
The BoE contains an unconditional order to pay a
certain amount on an agreed date.
The Promissory Note contains an unconditional
promise to pay a certain sum of money on a
certain date.
These instruments are governed in India by
Negotiable Instruments Act, 1881 .
The third instrument covered by this act is the
cheque.
What is Negotiable
Instrument
It indicates a title, orevidence of indebtedness
which is freely / readily / unconditionally
transferable to another in trading as a substitute
for money.
In other words if any condition is attached, then it
can not be called a negotiable instrument.
The instrument may be transferred from one
person to another or to a third party. Once the
instrument is transferred, the holder obtains full
legal title to the instrument i.e. it is the holder of
the instrument who will ultimately get paid by the
payer of the instrument.
The payee(the person who receives the payment)
Features of N. I.
1. Writing and Signature:
Negotiable Instruments must be written and signed
by the parties according to the rules relating to
Promissory Notes, Bills of Exchange and Cheques.
It is the basic condition of the negotiable instrument
that it is always in writing. It can not be verbal.
2. Money:
The amount of N. I. must be specific /definite and
must be written on the instrument. It is always
payable by legal tender money of India.
The possessor of the negotiable instrument is
presumed to be the owner of the property contained
therein, i.e. any person who possesses a N.I.
becomes its owner and entitled to the sum of
money, mentioned on the face of the instrument.
Features of N. I.
Amount written on the instrument is payable to
the bearer or to a specified person on demand or
at any predetermination future time. ( person who
presents a bearer cheque to the bank and desires
to have cash payment has to sign or endorse it on
the backside in front of cashier)
A negotiable instrument does not merely give
possession of the instrument but right to property
also.
The liabilities of the parties of Negotiable
Instruments are fixed and determined in terms of
legal tender money.
3. Negotiability:
Negotiation is the transfer of an instrument by one
party to another so as to constitute the transferee
Features of N. I.
An asset or property that is the subject matter of
the Negotiable Instrument can be transferred from
one person ( transferor) to another (transferee) by a
simple process without any formality.
It can be transferred any number of times till it is at
maturity and the right of ownershippasses either by
delivery or by endorsement.
A bearer instrument is transferable by simple
delivery. It means in the case of bearer instruments,
the property in it is passed from one holder to
another by mere delivery to the transferee.
An instrument payable to order can be transferred
by endorsement and delivery. It means in the case of
order instruments payable to order, two things are
Features of N. I.
For the purpose of negotiation, when the maker or
holder of a N.I. signs the same on the back or face
thereof or on a slip of paper annexed thereto, or so
signs for the same purpose a stamp paper intended
to be completed as a negotiable instrument, he is
said to endorse the same, and is called the
endorser.
An endorsement is completed by the delivery of the
instrument to the endorsee.
Any instrument may be made non-transferable by
using suitable words, e.g., pay to X only.
4.Title:
A negotiable instrument can be conveyed /
transferred as holding value by the holder because it
is a promise of payment in future.
When N.I. is transferred to a third party who fulfills
Features of N. I.
Because money is promised to be paid, the
instrument itself can be used by theholder in due
course as astore of value.
The value that it holds may be less than the face
value because its present valueis adjusted for
interest rates. Therefore, itcan be transferred for a
price less than itsface value (future value)
The holder in due course may hold a better title than
that of the original holder, i.e. the rights ofthe holder
in due course or bonafide transferee are
qualitatively superior to those of the original holder
of the instrument.
Hence the transferee of a N.I. accepting the
instrument in good faith and forvalue, (and who has
Features of N. I.
Even in cases where the title of the transferor or
of any of the previous holders of the instrument is
defective, transferees title will not be affected, by
any defect in the title of the transferor.
In case of transfer of property the general concept
of law is that "No body can transfer a better title
than that of his own.
However this law does not apply in case of
instrument. Therefore a N.I. got in good faith
from a transferor who might have obtained it
through fraud to which transferee is not a party,
or previous holder might have stolen it, gives
better title to transferee .
The cheque and the note can be very easily used
Features of N. I.
It gives the right to the creditor to recover the written
amount from the debtor. He can recover this amount
by himself or he can transfer this right to another.
In case of dishonour, the transferee can sue on the
instrument that is in his own name.
Suppose party A is required to make payments to party
B for services.
If party B transfers the rights to these payments to
party C, then party A is obligated to make payments to
party C (the transferee in this case) even if party B
does not perform the services as shown in the contract.
In such a scenario Party A would have to file a civil suit
against party B to recoup any losses.
Features of N. I.
5. Notice:
It is not necessary to give notice of transfer of a
negotiable instrument to the party liable to pay the
money.
6.Presumptions:
Certain presumptions apply to all negotiable
instruments. Example: It is presumed that there is
consideration which has been paid under it.
It is not necessary to write in a promissory note the
words for value received or similar expressions
because the payment of consideration is presumed. The
words are usually included to create additional evidence
of consideration.
Features of N. I.
7.Special Procedure:
A special procedure is provided for suits on
promissory notes and bills of exchange (The
procedure is prescribed in the Civil Procedure
Code). A decree can be obtained much more
quickly than it can be in ordinary suits.
8.Popularity:
Negotiable instruments are popular in commercial
transactions because of their easy negotiability and
quick remedies, i.e. N.I. enables the holder to
expect prompt payment because a dishonour
means the ruin of the credit of all persons who are
parties to the instrument.
9.Evidence:
Earlier Scenario
Before 1988 there was no provision to restrain the person
issuing the Cheque without having sufficient funds in his
account.
Parliament enacted the Negotiable Instruments (Amendment
and Miscellaneous Provisions) Act, 2002 which is intended to
plug the loopholes.
As a remedy against the defaulters of the Negotiable
Instrument, a criminal remedy of penalty was inserted in the
act.
With the insertion of these provisions in the Act the situation
certainly improved and the instances of dishonour have
relatively come down.
Therefore today business person prefers to carry a small piece
of paper known as Cheque for business transactions rather
than carrying the currency worth the value of the cheque
Negotiable Instruments Act
The main object of the Act is to legalise the system by

which instruments contemplated by it could pass from
hand to hand by negotiation like any other goods.
The Negotiable Instruments Act deals with three classes
of N.I. that are payable either to order or to bearer:
1. Promissory Notes
2. Bills of exchange
3. Cheques
. The Act, thus, declares that to be negotiable they must
be made payable in one of the above forms.
. If the instrument is a promissory note, it must contain
an unconditional promise to pay. If the instrument is a
bill or cheque, it must be an unconditional order to pay
money.
Payable to Order
A promissory note, bill of exchange or cheque payable
to order means it is payable to a particular person or
his order. Various forms in which an instrument may be
made payable to order can be :
(i) Pay A,
(ii) Pay A or order,
(iii) Pay to the order of A,
(iv) Pay A and B, and
(v) Pay A or B
() But it should not contain any words prohibiting transfer,
e.g., Pay to A only or Pay to A and none else Such
conditions can not be treated as payable to order
because its negotiability has been restricted and
therefore such a document shall not be treated as N.I.
() Such a document containing express words prohibiting
negotiability remains valid as a document (i.e., as an
Payable to Bearer
Payable to bearer means payable to any person
whosoever bears it or holds it or has its possession.
A N.I. is payable to bearer which is either
expressed to be so payable or on which the only or
last endorsement is an endorsement in blank. Thus,
a note, bill orcheque in the form Pay to A or
bearer, or Pay A, B or bearer, or Pay bearer is
payable to bearer.
Where an instrument is originally payable to order,
it may become payable to bearer if endorsed in
blank by the payee, e.g.
1. A cheque is payable to A.
2. A endorses it merely by putting his signature on the
back and delivers to B with the intention of
Qualifying Clauses
It is important to note that the above definitions are
subject to the provisions of Section 31 of the Reserve
Bank of India Act, 1934, which as amended by the
Amendment Act of 1946, provides as under:
1. No person in India other than the Reserve Bank or
the Central Government can make or issue a
promissory note payable to bearer.
Hence A promissory note cannot be originally made
payable to bearer, no matter whether it is payable
on demand or after a certain time.
It must be made payable to order initially. However,
on being endorsed in blank it can become payable
to bearer or payable to bearer on demand
subsequently and it shall be valid in that case.
Qualifying Clauses
2. No person in India other than the Reserve Bank or,
the Central Government can draw or accept a bill of
exchange payable to bearer on demand.
A bill of exchange may be originally made payable
to bearer but in that case it must be payable
otherwise than on demand (say, payable three
months after date)
If its payable on demand then it must be made
payable to order
However, on being endorsed in blank subsequently,
it can become payable to bearer on demand.
3. A cheque payable to bearer on demand can be
drawn on a persons account with a banker.
A cheque drawn on a bank can be originally made
Qualifying Clauses
The object of the above provisions of the RBI Act is

to prevent private persons from infringing the
monopoly of Note Issue of the Reserve Bank and
the Government of India.
For, if individuals are allowed to issue instruments
payable to bearer on demand, then there may be
someone so rich and well known person whose bills
of exchange and promissory notes may be taken as
currency notes.
A currency note bears the words I promise to pay
the bearer the sum of Rupees 10, 50 or 100, as the
case may be. The general public is, therefore,
prohibited to issue such notes or bills.
Section 32 of the RBI Act, 1934, makes the issue of
such bills or notes a criminal offence and declares
Examples of N. I.
While the Act recognizes only three instruments , there are
other N.I. which are recognized by usage or custom like i) Hundis
ii) Share and dividend warrants
iii) Bankers drafts (DD)
iv) Bearer debentures.
v) Railway / Lorry Receipts.
vi) Delivery orders.
) This list is neither exhaustive nor a closed chapter. With the
growth of commerce, new kinds of securities may claim
recognition as negotiable instruments.
) Examples of Non-negotiable instruments
i) Money orders and Postal orders.
ii) Deposit receipts.
iii) Share certificates
Essential Features/ Characteristics of a N. I.
A. N.I. must meet all requirements for negotiability

in order for a transfer to be negotiated.
1. It must be in writing i.e. the instrument is reduced
to tangible form.
2. It must be signed by the maker or drawer (This
action that is accepted by the parties as a form of
validating a writing)
3. There must be a promise or an order to pay a
certain sum or Fixed Amount , i.e. it must have an
absolute minimum principle amount to pay - A promise to pay is an underwriting to pay that
must be more than a simple acknowledgement of
the debt.
- Order to Pay is an instruction to pay such as a
4. The promise or order must be unconditional , i.e. it is an

absolute promise to pay that has no contingencies.
If the instrument is a promissory note, it must contain
an unconditional promise to pay. If the instrument is a
bill or cheque, it must be an unconditional order to pay
money.
5. It must call for payment in the form of money and
money only and should not contain any other
undertaking . If the instrument contains a promise to pay
something other than money or something in addition to
money, it will not be a promissory note.
Negotiable Instruments are payable by the legal tender
money of India because the liabilities of the parties are
governed in terms of such money only.
Negotiability is destroyed if a promise or order of an act
is made in addition to the payment.
6. It should be payable on Demand or at a Definite

Time
- An instrument is a demand instrument if
payment must be made upon request.
- If a payment on an instrument is required at a
specified time then it is a definite time
instrument.
7. Acquisition of Property and freely transferability
A negotiable instrument is transferable from one
person to another by delivery or by endorsement
and delivery , i.e. anassetor property(that is the
subject matter of the instrument) passes from the
transferor to the transfereeby mere
deliveryand/or endorsementof the instrument.
Any person who possesses a negotiable
When it is payable to bearer, the property in its

passes from one holder to another by mere
delivery.
If it is payable to order, the property passes by
endorsement, i.e. by the signature of its holder on
its back and its delivery
8. It should be paid to Order or to Bearer i.e. either
- Pay to Order of the designated person or
- Pay to Bearer. It means payable to the order of
the holder or bearer but does not specify a name.
The maker or drawer of a negotiable financial
instrument must indicate whether or not they
intend the payment to pass into the hands of
someone other than the payee.
Promissory note
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.
An instrument is a promissory note if the essential
elements of a N.I. are present.
1. Writing : The first essential is that all negotiable
instruments must be in writing. An oral engagement to
pay a sum of money is not an instrument, much less
negotiable.
2. Unconditional Promise to pay : Secondly, it must
contain an unconditional promise to pay. A mere
acknowledgement of debt is not a promissory note.
I.O.U. is not a promissory note. A mere receipt for
money does not amount to a promissory note, even
though it might contain the terms of repayment.
Promissory Note
There are two parties to the promissory note.
1. The maker or drawer is the person who makes the
note. He is also called the promisor.
2. The drawee or the payee in whose favour the note
is drawn. He is also called the promisee.
. A pro. note does not require any acceptance
because the maker of the note himself promises to
make the payment.
. Suppose if Rohan has to pay Rs. 10,000 to Ram on
January 31 (after three months from today), then
Rohan is the drawer or maker of the note who
promises to make this payment to Ram who is the
payee or drawee.
. If Ram gets this note discounted from bank, then
Promissory note
When a person gives a promise in writing to pay
certain sum of money unconditionally to a certain
person or according to his order, the document is a
promissory note. In short , to consider whether or
not a document is a pro. note following are the
tests
(i) Is the sum to be paid a sum of money and is that
sum certain ?
(ii) Is the payment to be made to or to order of a
person who is certain or to the bearer of the
instrument
(iii) Has the maker signed the document ?
(iv) Is the promise to pay made in the instrument the
substance of the instrument ?
(v) Did the parties intend that the document should
Promissory Note - Quiz

(a) I promise to pay B or order Rs. 500.
(b)
I acknowledge myself to be indebted to B in
Rs.1,000, to be paid on demand, for value received.
(c) Mr. B, I.O.U. Rs.1,000.
(d) I promise to pay B Rs. 500 and to deliver to him
my black horse on 1st January next.
(e) We promise to pay AB Rs.1,000 for value received,
on the death of Mr. C provided he leaves either of us
sufficient money to pay the said sum or if we shall
be otherwise able to pay.
(f) A written undertaking duly signed by C I promise
to pay Rs. 50,000 to A within seven days after the
marriage of my son B.
(g) I promise to pay to A the sum of Rs 5000 with
lawful interest for the same, 3 months after date,
and also all other sums which may be due to him.
Promissory Note - Answers

The instruments marked (a) and (b) are promissory notes.
The instruments (c) and (d) are not promissory notes.
(e) specifies a conditional promise and hence can not be a
promissory note. A note payable on an uncertain
contingency can never be a negotiable instrument. If the
note had merely been made payable on the death of Mr. C,
it would have been a good promissory note, because death
is an event so certain that it is bound to happen and
therefore the not must have become payable at one time or
the other. But the other condition that it would be payable
provided there would be sufficient funds left behind made
the instrument bad, because that was an uncertain event.
(f) is not a promissory note because possibly B may never
marry and the sum may never become payable.
Instrument (g) is too indefinite to be considered a
promissory note. It contains a promise to pay interest for a
sum not specified and not otherwise ascertained than by
reference to the defendants book.
Bill of Exchange
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.
An essential character of a bill of exchange is that
it contains an order to accept or to pay and that
the acceptor should accept it, in the absence of
such a direction to pay, the document will not be a
bill of exchange or a hundi.
It is generally drawn by the creditor (seller) on his
debtor(buyer)
It has to be accepted by the drawee (debtor) or
someone on his behalf. It is just a draft till it is
How a Bill of Exchange

Works?
How a bill of exchange can increase the business
activities is illustrated in a simple example below.
A person who wants to purchase goods but has
no money, may agree to accept a bill of exchange
drawn upon him at some future date for the value
of the goods he wants to purchase.
For example, Mr. B (a retail trader) wishes to
purchase furniture from a furniture manufacturer
(Mr. A) but has no money.
Business activities cannot proceed because the
retail trader (Mr. B) has nothing to sell and has no
money to buy goods.
How a Bill of Exchange Works?
We need a system by which retailer can purchase

goods without paying for them at the moment and
which enables the manufacturer (Mr. A) to be paid
immediately.
Since a bill of exchange from a reputable trader is
almost as good as money, it will be acceptable to
banks.
They have plenty of money to lend out to reliable
customers so, they will advance money to the
holder of bills of exchange.
Mr. A agrees to sell furniture for a 90 days credit
worth $10,000.
The drawer (Mr. A) draws a bill for $10,000 on the
customer (Mr. B), the drawee, who accepts it (thus
How a Bill of Exchange

Works?
When a drawee (the acceptor) acknowledges the

obligation in the bill he is bound by law to honour
the bill on the due date.
If he is a reputable person the bill is as good as
money, and any bank will discount it. The
discounting bank cashes the bill by giving the
drawer the present value of the bill.
Present Value = Face value of the bill - Interest at
agreed rate for the time the bank has to wait. Hence
the drawer who discounts the bill with the bank
gets less than the face value.
On the due date the bank will present the bill to the
acceptor, who honours it by paying the full value.
The manufacturer has given a period of 90 days to
Bill of Exchange
There are three parties to the BoE
A. Drawer is the maker of BoE. A seller /creditor who is
entitled to receive money from the debtor, can
draw a BoE on buyer /debtor . The drawer after
writing the BoE has to sign it as a maker of the BoE.
B. Drawee is the person upon whom the Bill is drawn.
He is the purchaser or debtor.
C. Payee is the person to whom the payment is to be
made. The drawer of the bill himself will be the
payee if he keeps the bill with him till the date of its
payment.
. Normally the drawer and the payee is the same
person , similarly drawee and aceptor is the same
person.
Bill of Exchange
The payee may change in the following situations
1. In case the drawer has got the bill discounted, the
person who has discounted the bill will become
payee.
2. In case the bill is endorsed in the favour of creditor
of the drawer, the creditor will become the payee.
Following example will bring home these terms.
- Ram sold goods to Rohan on credit of Rs. 10000 for
three months
- To ensure payment on due date Ram draws a BoE
upon Rohan for Rs 10,000 to be payable after thee
months.
- Here Ram is the drawer and Rohan is drawee.
- Before it is accepted by Rohan it will be called a
Bill of Exchange - Example

- Since Rohan has accepted the bill, he becomes the
acceptor
- Suppose in place of Rohan, if Rawan accepts the bill,
then Rawan becomes the acceptor.
- If the bill is retained by Ram for three months and
the amount of Rs. 10,000 is received by him on due
date, he becomes the payee.
- If Ram gives the bill to Rahim, his creditor, then
Rahim is the payee
- If Ram gets this bill discounted from the bank, then
the discounting bank will be the payee.
Thus the hundi or B.o.E can be of two types:
(1) payable to order and
(2) payable to bearer.
Bill of Exchange
If the hundi is payable to order, the payee or endorsee is

holder in due course; it is not necessary to show that they
had obtained the bill of exchange/hundi for consideration.
But if the hundi is payable to bearer, the person possessing it
will be holder in due course only if he had come to possess it
for consideration.
The examples of B.O.E. Are
(1) A bankers draft
(2) A demand draft even if it is drawn upon another office of the
same bank
(3) An order issued by a District Board Engineer on Government
Treasury for payment to or order of a certain person.
Even though the BoE and Pro. note as instruments of credit
are similar in many ways, there are certain basic differences
too.
Advantages
BoE as an instrument of credit is widely used in
business transactions due to following advantages
1. Framework for relationship It is a device
which provides a framework for enabling a credit
transaction between a creditor and debtor on an
agreed basis.
2. Certainty of terms and conditions The
creditor and debtor are fully aware of the date on
which they have to receive / pay the money,
amount involved, place of payment, interest to be
paid etc.
3. Convenient means of credit It enables buyer
to b uy goods on credit and pay after the period of
credit. The seller of goods , even after extension of
Advantages
4. Conclusive Proof BoE is a legal evidence of credit
transaction implying thereby that the buyer has
obtained credit from the seller of the goods and hence
is liable to pay to the seller. In the event of refusal of
making payment, the law requires the creditor to obtain
a certificate from a notary to make it a conclusive
evidence of happening.
5. Easy transferability A debt can be settled by
transferring the BoE through endorsement and delivery.
If the Bill ( & Pro. Note also) is not payable on demand ,
the payment is deferred to the date of maturity of the
instrument.
It is the date on which the credit period expires and the
instrument becomes due for payment
Distinguishing Features
Basis
Drawer
Order /
Promise
Parties
Bill of Exchange
Drawn by Creditor
Contains an order to
make payment to it
There can be three
parties to it- Drawer,
Drawee and Payee.
Drawer and payee can be
the same party
Accepta Requires acceptance by
nce
drawee or some one else
on his behalf
Dishono Due notice of dishonour
ur
to be given by the holder
to the drawer
Pro. note
Drawn by Debtor
Contains a promise
to make payment
Only two parties
involved Drawer and
payee. Drawer can
not be the payee
Does not require
any acceptance
No notice needs to
be given in case of
dishonour
Cheque
A cheque being a bill of exchange must possess all
the essentials of a bill but it has some peculiarities
which distinguish it from a normal or general bill of
exchange.
i. A cheque does not require acceptance and is not
intended for circulation
ii. A cheque is given and presented for immediate
payment and is not entitled for days of grace
whereas a bill in the first instance is presented for
acceptance unless it is a bill on demand.
iii. A cheque is always to be made payable on
demand, whereas an ordinary bill of exchange can
be made payable after a fixed period. Future dated
cheque, being not payable on demand, may not be
regarded as a cheque in the real sense of the word
Cheque
iv. If the drawer/ issuer has sufficient funds or credit
available with the bank, the bank is bound either to
pay a cheque or dishonour it at once. In case of an
ordinary bill; the drawee is under no liability on the
instrument until he accepts; his liability on the bill
depends on the acceptance of it. Thus while a bill is
dishonoured by non-acceptance, this is not so in
case of a cheque.
v. A cheque is exempted from stamp duty, but a
promissory note as well a bill of exchange attracts
stamp duty.
vi. A pay order is not a cheque. It is issued by one
branch of a bank to another branch of the same
bank or under arrangement, to another bank with a
direction to credit the amount to the account of the
Cheque and its Dishonour
The person named in the instrument, to whom or to whose

order the money is directed by the instrument to be paid, is
called the payee.
Where a cheque bears across its face an addition of two
parallel transverse lines, the cheque is deemed to be
crossed generally.
Where a cheque is crossed generally, the banker, on whom
it is drawn shall not pay it otherwise than to a banker.
Section 138 is intended to prevent dishonesty on the part of
the drawer of a N.I. in drawing a cheque without sufficient
funds in his accounts and in inducing the payee or holder in
due course to act upon it
Section 138 is based upon the presumption that one
commits the offence if he issues the cheque dishonestly and
its objective is to inculcate faith in the efficacy of banking
operations and credibility in transacting business on N.I.
When does Dishonor takes place ?
Once such a cheque against insufficient funds has

been drawn and issued to the payee and the payee
has presented the cheque and thereafter, if any
instructions are issued to the bank for non payment
and the cheque is returned to the payee with such
an endorsement, it amounts to dishonour of the
cheque and it comes within the meaning of Section
138.
However if, after the cheque is issued to the payee
or to the holder in due course and before it is
presented for encashment to the bank, the drawer
informs the payee not to present the cheque , but
still the payee or holder in due course presents the
cheque to the bank for payment and when it is
returned , Section 138 does not get attracted.
Dishonor of Cheque U/S 138
If below mentioned ingredients of liability are satisfied

then the person who has drawn the cheque shall be
deemed to have committed an offence under section 138 .
1. The cheque is drawn on the bank for the discharge of a
legally enforceable debt or other liability.
2. The cheque is returned by the bank unpaid because the
amount available in the drawers account is insufficient
for paying the cheque.
3. The payee has given a notice to the drawer claiming the
amount within 30 days of the receipt of the information
form the bank.
4. The drawer has failed to pay within 15 days from the date
of the receipt of the notice.
. The punishment for committing the offence is Maximum
2 years imprisonment on the defaulting party with fine
which may extend to twice the amount of cheque or with
both.

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Legal Aspects of Business

Definition of Law, Classification,

Functions / Purpose of law

Adjudication Based Classification

Income Tax Act of 1961

Service tax is a part of Central Excise in India. It is a

1. Jurisdiction over the subjectmatter

Every court has its own limits, fixed by the

4.Original or Appellate Jurisdiction

Oral and Documentary

distinguished from oral evidence which is a statement of

It is the obligation to offer evidence that the court

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Principles of Natural Justice

Audi Alteram Partem

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Rule Against Bias

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Indian Contract Act 1872

Definitions and Explanations

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6.Consideration 2(d):- When at the desire of the

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Essential Elements of a Valid

1.Offer & acceptance.

Remedies for Breach of

Remedies for Breach of Contract

Suit Upon quantum meruit

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Quasi Contract Introduction

parties which produces the obligation.

For quasi contracts there are some elements that

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Indemnity is compensation for damages or

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Liability of the surety iscoextensive with that of the

The reason for a contract

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Once the indemnifier

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Indian Companies Act 2013

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Memorandum and Articles

" Company " means a company formed and registered

Private and Public Company

Private and Public Company

Private & Public Company - Distinguishing