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Business Labour Laws Code 824 Assignment No.

Q.#.1. IN WHAT WAYS AN OFFER CAN BE COMMUNICATED,


ACCEPTED AND REVOKED?
ANSWER
PROPOSAL OR OFFER (Sec.2(a)
For a valid contract it is essential that there must be consensus between
the contracting parties by means of offer and acceptance. An agreement
arises when one party makes an lawful offer and the other party to whom
it is made accept it in lawful manner. So offer and acceptance are
essential to constitute a valid agreement.

DEFINITION: According to sec 2(a) of the contract act 1872:

“When one person signifies to another his willingness to do, or to abstain


from doing any thing with a view to obtaining the assent of that other to
such act or abstinence, he is said to make a proposal”. Now it is
understood, that an offer is made with the object to obtain the assent of
other person and its main purpose is to create relationship between
contracting parties.

PARTIES OF OFFER:

There are two parties of an offer:


i. Promisor / Offerer
The person who makes the proposal or offer is called offerer or Promisor.

ii. Promisee / Offeree


The person to whom the proposal is made called Offeree or promise.

Illustration:

Suppose A offers B to purchase his car for Rs.150000. Here A is promisor


and B is promisee.

Types of Proposals

Express Implied Special General


Proposal Proposal Proposal Proposal

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i) Express Proposal:
When a proposal is communicate by words spoken or in written form is
called express proposal.

ii) Implied Proposal:


When the proposal is expressed by the conduct. It is called implied
proposal.

iii) Specific Proposal:


When a proposal is made to certain or specific person it is called as
specified proposal. It can be accepted only by a specific person.

iv) General Proposal:


When a proposal is made to a country or world at large it is knows as
general proposal.

ESSENTIALS OF VALID PROPOSAL:


Following are the rules or essentials of valid proposal:

1. Express or Implied:

An offer may be communicate in writing, orally or by conduct. When offer


is made by words spoken or written is called express offer. The offer
which is made by the conduct of a person is called an implied offer.

Illustration:

(i) The owner of the weighting machine gives offer to general public
through his conduct by putting the weighing machine at nay public
place. It is an example of implied offer.

(ii) X says to Y that the will sell his watch to him for Rs.5000 after two
days. It is an express offer.

2. Legal Relationship:

It is essential for valid proposal that it must create a legal relationship


otherwise it is only an invitation. A social offer does not create a legal
relationship. A proposal made without an intention to create legal
relationship is not a valid offer. Legal relationship determine the rights
duties and obligation of the contracting parties.

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Illustration:

(i) Ali invites Arif to attend his birthday party at Avari Hotel. It is a
social offer which do not create legal obligation.

(ii) X offers to sel his car to Y at a price of Rs.100000. It is a valid offer


which creates legal relationship.

3. Specific or General Proposal:

An offer may be made either to specific person or persons or to the


country or world at large. A proposal is called specific when it is made to
a certain person and when proposal is made to country or world it is
called general proposal. In specific offer it must be accepted by the same
person to whom it is made.

Illustration:

(i) Mr. Akram announces a prize of Rs.1000 for any one who will find
his lost documents. It is a general offer.

(ii) Mr. Akram offers to sell his watch to Ali for Rs.2000. It is a specific
offer.

4. Precise and Definite:

An offer must be precise and definite. If the proposal is indefinite then it


is not consider a valid proposal. An ambiguous or vague offer is consider
invalid offer. The terms and conditions of the proposal must be simple
clear and understandable, so that the persons involves in agreement
must be aware of it.

Illustration:

Ali says to Arif “I will sell my precious item to you at a very low price”. It
is not a valid offer because nature and price of item is not clear.

5. Communication of Offer:

It is an important factor of offer that it must be communicated to the


other party without communication. Mere intention does not create
agreement. So the offer must be in the notice of offeree before its
acceptance.

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Illustration:

(i) Mr. A have just intention to sell his VCR to B for Rs.5000 and fails to
communicate offer in writing, orally or by conduct, then there is no
valid proposal.

(ii) A’s nephew was missing. He sent B his servant to trace the boy,
subsequently A announced a reward for information relating to the
boy. B traced the boy in ignorance of the announcement regarding
award. Later on reading the notice of award B claimed it. Held B
was not entitled to the award on the ground that he could not
accept the offer unless he had knowledge of it.

6. Lawful Proposal:

The proposal must fall under the law of state and it should not against the
public interest. If proposal is against the law of state then it will not
enforceable at law.

Illustration:

(i) An offer to create Monopoly.


(ii) An offer to trade with Alien enemy.

7. Object is obtaining the Consent:

Where a person just show his intention without any willingness to obtain
the assent of offeree, is not consider a valid offer. So the object of the
proposal should be to obtain the free consent of the other party.

Illustration:

(i) A says to B, “I will sell my VCR at a reasonable price in next few


months”. If my mood will good. It is not a valid offer by A.

(ii) A says to B. I will sell my VCR to you for Rs.5000. it is a valid offer
of Mr. A.

8. It must not CoÐÏÎÍ44444`44@â

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Business Labour Laws Code 824 Assignment No.1

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5s acceptance. In simple words the person making an offer cannot say
that if the acceptance is not communicated to him up to a certain time,
the offer would be treated to have been accepted.

Illustration:

X offers to Y to sell his watch to him at a price of Rs.2000, adding that if


he does not replay within ten days, the offer would be considered
accepted. It is only one side offer because such condition cannot be
imposed on the offeree, so it is not a valid offer.

10. Distinction between Offer and Invitation to Offer:

A proposal must be different from an invitation to offer. An invitation to


offer is not treated as offer in the eye of law because proposal or offer is
different from invitation to proposal. An invitation to proposal is just
inviting the other person to show his willingness to do or not to do
anything. Son a offer must not be an invitation to offer.

Illustration:

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An advertisement of sale of a car by auction, invitation by tender,


issuance of prospectus by educational institution and quotation are only
invitation to offer and not offer.

REVOCATION OF PROPOSAL OR OFFER:

According to contract act an offer may revoke in following circumstances:

1. Notice of Revocation: (Sec.6(1))

Revocation means the “cancellation”. A proposal is revoked by the


communication of notice of revocation by the offeror to the other party.
The offeror can cancel its offer even the time for acceptance is still un-
expired. An offer once revoked cannot be accepted until it’s renewed by
offeror.

Illustration:

X proposes, by a letter sent by post, to sell his VCR to Y, X may revoke


his proposal at any time before or at the moment when Y posts his letter
of acceptance, but not afterwards.

2. Lapse of Time: (Sec.6(2))

A proposal is revoked by the lapse of time prescribed in proposal for its


acceptance. Where no time is prescribed, by the lapse of reasonable time
without communication of the acceptance, the proposal may comes to an
end. So proposal must be accepted to the time specified by the offeror.
“Reasonable time” is depend upon the circumstances. In case of
perishable goods time is obviously very short.

Illustration:

On Thursday a seller offers Rice to a buyer and gave him three days for
acceptance. The buyer accepted offer after ten days. After waiting for
three days the seller sold the Rice. Offer has lapsed by ten days and
seller is not bound, to sell the rice to such buyer.

3. Failure of Acceptor to Meet Conditions: (Sec.6(3)).

A proposal is revoked by the failure of acceptor to fulfill condition


precedent to acceptance. Every proposal contains some conditions and for
a valid agreement their acceptance must be made according to

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requirement of proposal. So an offeror can terminate the offer due to


failure of acceptor to meet required condition.

Illustration:

A seller agrees to sell T.V. to B on condition that buyer should pay the
price before a particular date. The buyer fails to pay the price on due date
the offer comes to an end.

4. Death or Insanity of Proposer and Acceptor: (Sec.6(4))

A proposal is revoked by the death or insanity of the proposer if the fact


of his death or insanity comes to the knowledge of the acceptor before
acceptance. In simple words where the offeror is died before acceptance
of the offer may comes to an ends provided that death must be in the
notice of offeree. If offeree is died before acceptance, the proposal may
cancel. But where the offeree is died before acceptance of the proposal,
then his executors will liable for the contract.

Illustration:

X owned certain debentures of a company. Y offered to buy them. X died


without accepting the offer. Held, the death of X terminated the offer to
buy and his administrator after X’s death could not accept.

5. Counter Offer:

If offeror accept the counter offer, then it creates a legal obligation and
the contract will enforceable at law. An offer is revoked when a counter
offer is made by the other party. Counter offe77
7§7777777777777777ÿÿÿÿn. An offer is counter when it is accepted with
some amendment in the terms and conditions are attached by the
offeree. This type of offer is called counter offer.

6. Revocation by Sending Refusal:

An offer lapses when offeree rejects it by sending refusal. A rejected offer


cannot be accepted unless it is renewed by the offeror.

Illustration:

X offers to Y to sell his car for rupees two hundred thousands. The market
value of the car is Rupees three hundred thousand. Y refuses and does
not accept the offer. There is revocation of offer.

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Business Labour Laws Code 824 Assignment No.1

7. Subsequent Illegality:

The offer comes to an end when performance of contract becomes illegal


after offer is made. An offer may also be terminate, when it becomes
illegal due to incapability of performance or change in law before its
acceptance.

8. Destruction of Subject matter:

The proposal or offer comes to an end after the destruction of the subject
matter. The subject matter is the reason of offer given by the offeror. So
existence of subject matter is necessary for an agreement.
9. Acceptance in Prescribed Mode:

When the offeror mention the prescribe mode for the acceptance of
proposal, then for valid acceptance it is necessary that acceptance should
be made in the required manner. If the acceptance is not made in a
prescribe way, the offeror may cancel the acceptance. Where no prescribe
way is mention by the offeror, then acceptance should made according to
normal trends and customs.

Illustration:

X offers to purchase Y’s car and impose a condition that to intimate him
by a phone call within two days. If Y accept the offer by sending a letter
which receives by X after three days, X may reject the offer.

ACCEPTANCE: Sec 2(b)

Section 2(b) of contract act defines Acceptance “when the person to


whom the proposal is made signifies his assent thereto the proposal is
said to be accepted”. A proposal when accepted becomes a promise. So
every contract arises from the acceptance of offer.

Illustration:

A offer B to sell his watch for Rs.2000. B accept the offer. This is valid
acceptance.

Parties of Acceptance:

(i) Promisor:

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The person making the proposal is called “Promisor”.


(ii) Promisee:

The person to whom the proposal is made is called “Promisee”.

Q.#.2. DISCUSS IN DETAIL THE RIGHTS AND OBLIGATIONS


OF PARTNERS BEFORE AND AFTER THE DISSOLUTION
OF A PARTNERSHIP FIRM.
ANSWER
DISSOLUTION OF A FIRM

When a partnership is dissolved, all the liabilities of the firm are paid, out of the
assets of the firm, available at the time of dissolution. The remaining amount
after paying all the liabilities, if available, will be distributed among the partners
in their profit loss sharing ratios. If assets of the firm are not sufficient to pay all
the liabilities of the firm, the partners will contribute the balance amount in their
profit/loss sharing ratios to meet the liabilities of the firm.

Business organization is an act of grouping activities into effective cooperation to


obtain the “It is more or less independent complex of land, labour and capital,
organized and directed for “It is the simplest form of business organization,
which is owned and controlled by one man.” Sole proprietorship is the oldest
form of business organization which is owned and controlled by one person. In
this business, one man invests his capital himself. He is all in all in doing his
business. He enjoys the whole of the profit.

According to Partnership Act 1932:


“Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all.” Partnership
means a lawful business owned by two or more persons. The profit of the
business shared by the partners in agreed ratio. The liability of each partner is
unlimited. Small and medium size business activities are performed under this
organization. It has the following features:

• Legal Entity
• Profit and Loss Distribution
• Unlimited Liability

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• Transfer of Rights
• Management
• Number of Partners

DISSOLUTION OF FIRM

According to Section 39 of Partnersh1010


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12121212121212121212E1212y of Period
If a firm is established for a fixed period, then it will be dissolved after the expiry
of period.
2. Completion of Particular Venture
A firm may be dissolved after the completion of particular venture, for which it is
formed:
3. Death of a Partner
A partnership firm may also dissolve with the death of a partner.
4. Insolvency
Insolvency of a partner also serves as a notice for dissolution of firm.

DISSOLUTION BY COURT
The court may dissolve a firm due to the following reasons:
1. Case of Unsound Mind
A partnership firm may be dissolved by the order of court, if any partner
becomes of unsound mind.
2. Case of Incapable Partner
A partnership firm may be dissolved by the order of court if any partner
permanently become incapable of performing his duties.
3. Case of Misconduct
A partnership firm may be dissolved if a partner is found guilty of misconduct in
affairs of business.
4. Transfer of Interest
A partnership firm may be dissolved if any partner transfers his share of interest
to other persons, without the consent of existing partners.
5. Breach of Agreement
A partnership firm may be dissolved if any partner commits a breach of
agreement.
6. Assurance of Loss
Court may dissolve a partnership firm if the business of that firm is suffering
from continuous loss.
7. Others Reasons
The court has the right to accept or reject the application of dissolution. The just
and equitable reason is determined by the court.

RULE OF DISTRIBUTION (Sec.48)

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After dissolution of firm it is the liability of every partner to pay:

i) The deficiency or loss first out of the profit of business.


ii) If profit of the firm is not sufficient to pay the deficiency of the
firm then pay it form of capital.
iii) If capital is not sufficient then each partner individually
contributes the loss according to their profit sharing ratio.

Q.#.3. DISCUSS VARIOUS STEPS INVOLVED IN THE


REGISTRATION OF A COMPANY?
ANSWER
Formation of company:

The following documents are required to be prepared/ submitted for


formation of a company.
1. Certificate of Incorporation
2. Commencement of business
3. Memorandum of Association
4. Articles of Association
5. Prospectus

Certificate of Incorporation:
On issuance of this certificate, the promoters of proposed company
become entitled on the registration of its memorandum with the registrar
of companies. This certificate contains the following information:

• Date of issue
• Name of the company
• Certification by the registrar that company is incorporated
• In case of limited company certificate by the registrar that company
is limited.
• Province and seal of the registrar

Authority of issuing certificate of


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nce any business or exercise any borrowing powers unless-
(a) Shares held subject to the payment of the whole amount thereof in
cash have been allotted to an amount not less in the whole than the
minimum subscription;
(b) Every director of the company has paid to the company full amount
on each of the shares taken or contracted to be taken by him and for
which he is liable to pay in cash;
(c) No money is or may become liable to be repaid to applicants for any
shares or debentures which have been offered for public subscription by
reason of any failure to apply for or to obtain permission for the shares or
debentures to be dealt in on any stock exchange;
(d) There has been filed with the registrar a duly verified declaration by
the chief executive or one of the directors and the secretary in the
prescribed form that the aforesaid conditions have been complied with
and the registrar has issued a certificate referred to in sub-section (2);
and
(e) In the case of a company which has not issued a prospectus inviting
the public to subscribe for its shares, there has been filed with the
registrar a Statement in lieu of prospectus.

Certificate of commencement of business:


• it is a conclusive evidence that public company can start the business
and enter into contracts with the rest of world.
• Any contract made before issuance of this certificate shall be provisional
and the contracts enter into are not binding.

Restrictions on commencement of business:


1) A company shall not commence any business or exercise any
borrowing powers unless—
a) shares held subject to the payment of the .,whole amount thereof in
cash have been allotted to an amount not less in the whole than the
minimum subscription;

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b) every director of the company has paid to the company full amount on
each of the shares taken or contracted to be taken by him and for which
he is liable to pay in cash;
c) no money is or may become liable to be repaid to applicants for any
shares or debentures which have been offered for public subscription by
reason of any failure to apply for or to obtain permission for the shares or
debentures to be dealt in on any stock exchange;
d) there has been filed with the registrar duly verified declaration by the
chief executive or one of the directors and the secretary in the prescribed
form that the aforesaid conditions have been complied with and the
registrar has issued a certificate referred to in subsection (2); and
e) in the case of a company which has not issued a prospectus inviting
the public to subscribe for its shares, there has been filed with the
registrar a statement in lieu of prospectus.
2) The registrar shall, on th1717
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continues.
6) Nothing in this section shall apply to a private company, or to a
company limited by guarantee and not having a share capital.

Memorandum of Association:
Memorandum of association is a legal document for incorporation of a
company Memorandum of association is a fundamental legal document on
the basis of which the company conducts external affairs. This document
signifies the powers of the company as well as the limitations of
the company. It contains information regarding the purpose, capital,
place of business, liability of the members and acquisition of shares by
the subscribers.

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Business Labour Laws Code 824 Assignment No.1

Contents of Memorandum—section 16,17,18


Memorandum of association is required to be subscribed by at least three
persons in case of public company and at least by one person in case of
private company.
• Name Province in which the registered office of the company is to
be located
• Objects
• Liability of the members—limited or unlimited
• Authorized capital
Section 26 of the Ordinance as contained in the
Ordinance is reproduced here under for reference:

Registration of articles: sec 26


(1) There may, in the case of a company limited by shares, and there
shall, in the case of a company limited by guarantee or an unlimited
company, be registered with the memorandum, articles of association
signed by the subscribers to the memorandum and setting out regulations
for the company.
(2) Articles of association may adopt all or any of the regulations
contained in Table A in the First Schedule.
(3) In the case of an unlimited company or a company limited by
guarantee, the articles, if the company has a share capital, shall state the
amount of share capital with which the company proposes to be
registered.
(4) In case of an unlimited company or a company limited by guarantee,
if the company has not a share capital, the articles shall state the number
of members with which the company proposes to be registered.
(5) In the case of a company limited by shares and registered after the
commencement of this Ordinance, if articles are not registered, or, if
articles are registered, in so far as the articles do not exclude or modify
the regulations in Table A in the First Schedule, those regulations shall, so
far as applicable, be the regulations of the company in the same manner
and to the same extent as if they were contained in duly registered
articles.
(6) The articles of every company shall be explicit and without ambiguity
and, without prejudice to the generality of foregoing, shall list and
enumerate the voting and other rights attached to the different classes of
shares and other securities, if any, issued or to be issued by it.

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323232323±2323a Province, as the case may be, in which the registered
office of the company is stated by the memorandum to be situate.
(2) A declaration by such person as may be prescribed in this behalf, or
by a person named in the articles as a director, or other officer of
company, of compliance with all or any of the requirements of this
Ordinance and the rules made thereunder shall be filed with the registrar;
and the registrar may accept such a declaration as sufficient evidence of
such compliance.
(3) If the registrar is satisfied that the company is being formed for lawful
purposes, that none of its objects stated in the memorandum is
inappropriate or deceptive or insufficiently expressive and that all the
requirements of this Ordinance and the rules made thereunder have been
complied with in respect of registration and matters precedent and
incidental thereto, he shall retain and register the memorandum and
articles. if any.
(4) If registration of the memorandum is refused, the subscribers of the
memorandum or any one of them authorised by them in writing may
either supply the deficiency and remove the defect pointed out, or within
thirty days of the order of refusal prefer an appeal—
(a) where the order of refusal has been passed by an additional registrar,
a joint registrar, a deputy registrar or an assistant registrar, to the
registrar; and
(b) where the order of refusal has been passed, or upheld in appeal, by
the registrar, to the Authority.
(5) An order of the Authority under subsection (4) shall be final and shall
not be called in question before any Court or other authority.

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Business Labour Laws Code 824 Assignment No.1

Q.#.4. EXPLAIN THE VARIOUS PROVISIONS OF COMPANIES


ORDINANCE 1984 REGARDING THE WINDING UP OF
COMPANIES?
ANSWER
COMPANIES ORDINANCE, 1984
Law relating to Companies:
At the time of independence, Companies Act, 1913 prevalent in undivided
India was adapted by a government of Pakistan. Companies Act, 1913
was replaced by Companies Ordinance, 1984 which is the law relating to
company.

Scope of Company Law:


Company Law covers the following areas:
• Rules regarding incorporation of companies
• Rules regarding issue of prospectus
• Conditions with regard to issue of shares
• Rights of various classes of shares
• Transfer of shares
• Rights, duties and obligation of promoters, directors, managers,
secretaries, chief executives and
• other officers of the company
• Rights and duties of members, auditors, liquidators, creditors of the
company
• Rules regarding the preparation of memorandum and articles of
association

Objects of Companies Ordinance, 1984:

• Consolidate and amend the law relating to companies.


• Healthy growth of corporate sector
• Setting minimum standards of integrity and management
• Prevention of malpractices
• Promotion of investment
• Protection of interests of share holders
• Full and fair disclosure of information
• Empowering government to intervene and investigate

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Business Labour Laws Code 824 Assignment No.1

Winding up of companies

Winding Up-- Defined:


It is a process through which the property of the company is administered
by the liquidator who takes control of the company, liquidates the assets
and pay off the debts owed by the company and thereafter distributes the
surplus, if any to the members according to the proportion of shares held
by them. Winding up is a process culminating on dissolution. Dissolution
is the stage where a company ceases to exist, its’ name is struck off by
the registrar. These modes as provided in section 297 of the ordinance:

Modes of winding up –(sec 297)


Winding up by Court –a compulsory winding up by the order of court or

Voluntary winding up
Members’ voluntary winding up or Creditors’ voluntary winding up

Winding up subject to the supervision of the Court:


Circumstances in which company may be wound up by Court: –
Sec 305
A company may be wound up by the Court -
(a) if the company has, by special resolution, resolved that the company
be wound up by the Court;
(b) if default is made in delivering the statutory report to the registrar or
in holding the statutory meeting or
any two consecutive annual general meetings;
(c) if the company does not commence its business within a year from its
incorporation, or suspends its
business for a whole year;
(d) if the number of members is reduced, in the case of private company,
below two or, in the case of any
other company, below seven;
(e) if the company is unable to pay its debts;
(f) if the company is -
(i) conceived or brought forth for, or is or has been carrying on,

unlawful or fraudulent activities;

Winding up
84. (1) If the company is wound up, the liquidator may, with the sanction of a
special resolution of the company and any other sanction required by the
Ordinance divide amongst the members, in specie or kind, the whole or any part
of the assets of the company, whether they consist of property of the same kind
or not.

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Business Labour Laws Code 824 Assignment No.1

(2) For the purpose aforesaid, the liquidator may set such value as he deems
fair upon any property, to be divided as aforesaid and may determine how such
division shall be carried out as between the members or different classes of
members.
(3) The liquidator may, with like sanction, vest the whole or any part of such
assets in trustees upon such trusts for the benefit of the contributories as the
liquidator, with the like sanction, thinks fit, but so that no member shall be
compelled to accept any shares or other securities whereon there is any liability.

(ii) Carrying on business not authorized by the memorandum;


(g) if the company is -
(iii) conducting its business in a manner oppressive to any of its members
or persons concerned with the formation or promotion of the company or
the minority shareholders;
(iv) run and managed by persons who fail to maintain proper and true
accounts, or commit fraud, misfeasance or malfeasance in relation to the
company; or
(h) if the company is -
(v) managed by persons who refuse to act according to the requirements
of the memorandum or articles or the provisions of this Ordinance or fail
to carry out the directions or decisions of the Court or the registrar or the
Commission given in the exercise of powers under this Ordinance;
(i) if, being a listed company, it ceases to be such company; [
(j) if the Court is of opinion that it is just and equitable that the company
should be wound up; or
(i) if the company ceases to have a member.

Explanation I. - The promotion or the carrying on of any scheme or


business, except the business carried on under the provisions of the
Insurance Act, 1938 (IV of 1938), howsoever described, whereby, in
return for a deposit or contribution, whether periodically or otherwise, of
a sum of money in cash or by means of coupons, certificates, tickets or
other documents, payment, at future date or dates of money or grant of
property, right or benefit, directly or indirectly, and whether with or
without any other right or benefit, determined by chance or lottery or any
other like manner, is assured or promised shall be deemed to be an
unlawful activity.

Explanation ll. - "Minority shareholders" means shareholders together


holding not less than twenty per cent of the equity share capital of the
company.

Company when deemed unable to pay its debts: sec 306


(1) A company shall be deemed to be unable to pay its debts,-

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Business Labour Laws Code 824 Assignment No.1

a) if a creditor, by assignment or otherwise, to whom the company is


indebted in a sum exceeding one per cent of its paid-up capital or fifty
thousand rupees, whichever is less, has served on the company, by
causing the same to be delivered by registered post or otherwise, at its
registered office, a demand under his hand requiring the company to pay
the sum so due and the company has for thirty days thereafter neglected
to pay the sum, or to secure or compound for it to the reasonable
satisfaction of the creditor; or
(b) if execution or other process issued on a decree or order of any Court
or any other competent authority in favor of a creditor of the company is
returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is
unable to pay its debts, and, in determining whether a company is unable
to pay its debts, the Court shall take into account the contingent and
prospective liabilities of the company.
(2) The demand referred to in clause (a) of sub-section (1) shall be
deemed to have been duly given under the hand of the creditor if it is
signed by an agent or legal adviser duly authorized on his behalf, or in
the case of a firm if it is signed by such agent or legal adviser or by any
member of the firm on behalf of the firm.

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Business Labour Laws Code 824 Assignment No.1

Q.#.5. EXPLAIN THE CONTRACT OF SALES OF GOODS BY


DISCUSSING ITS MAIN FEATURES.

ANSWER
CONTRACT OF SALES OF GOODS & ITS FEATURES:

Sale of Goods Act is one of very old mercantile law. Sale of Goods is one
of the special types of Contract. Initially, this was part of Indian Contract
Act itself in chapter VII (sections 76 to 123). Later these sections in
Contract Act were deleted, and separate Sale of Goods Act was passed in
1930.

The Sale of Goods Act is complimentary to Contract Act. Basic provisions


of Contract Act apply to contract of Sale of Goods also. Basic
requirements of contract i.e. offer and acceptance, legally enforceable
agreement, mutual consent, parties competent to contract, free consent,
lawful object, consideration etc. apply to contract of Sale of Goods also.

Contract of Sale - A contract of sale of goods is a contract whereby the


seller transfers or agrees to transfer the property in goods to the buyer
for a price. There may be a contract of sale between one part-owner and
another. [section 4(1)]. A contract of sale may be absolute or conditional.
[section 4(2)].

Thus, following are essentials of contract of sale - * It is contract, i.e. all


requirements of ‘contract’ must be fulfilled * It is of ‘goods’ * Transfer of
property is required * Contract is between buyer and seller * Sale should
be for ‘price’ * A part owner can sale his part to another part-owner *
Contract may be absolute or conditional.

How Contract of sale is made - A contract of sale is made by an offer


to buy or sell goods for a price and the acceptance of such offer. The
contract may provide for the immediate delivery of the goods or
immediate payment of the price or both, or for the delivery or payment
by installments, or that the delivery or payment or both shall be
postponed. [section 5(1)]. Subject to the provisions of any law for the
time being in force, a contract of sale may be made in writing or by word
of mouth, or partly in writing and partly by word of mouth or may be
implied from the conduct of the parties. [section 5(2)]. Thus, credit sale
is also a ‘sale’. - - A verbal contract or contract by conduct of parties is
valid. e.g. putting goods in basket in super market or taking food in a
hotel.

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Business Labour Laws Code 824 Assignment No.1

Two parties to contract - Two parties are required for contract. - -


“Buyer” means a person who buys or agrees to buy goods. [section 2(1)].
“Seller” means a person who sells or agrees to sell goods. [section
2(13)]. A part owner can sale his part to another part-owner. However, if
joint owners distribute property among themselves as per mutual
agreement, it is not ‘sale’ as there are no two parties.

Contract of Sale includes agreement to sale - Where under a


contract of sale the property in the goods is transferred from the seller to
the buyer, the contract is called a sale, but where the transfer of the
property in the goods is to take place at a future time or subject to some
condition thereafter to be fulfilled, the contract is called an agreement to
sell. [section 4(3)]. An agreement to sell becomes a sale when the time
elapses or the conditions are fulfilled subject to which the property in the
goods is to be transferred. [section 4(4)]. The provision that contract of
sale includes agreement to sale is only for the purposes of rights and
liabilities under Sale of Goods Act and not to determine liability of sales
tax, which arises only when actual sale takes place.

Transfer of property - “Property” means the general property in goods,


and not merely a special property. [section 2(11)]. In layman’s terms
‘property’ means ‘ownership’. ‘General Property’ means ‘full ownership’.
Thus, transfer of ‘general property’ is required to constitute a sale. If
goods are given for hire, lease, hire purchase or pledge, ‘general
property’ is not transferred and hence it is not a ‘sale’.

POSSESSION AND PROPERTY - Note that ‘property’ and ‘possession’ are


not synonymous. Transfer of possession does not mean transfer of
property. e.g. - if goods are handed over to transporter or godown
keeper, possession is transferred but ‘property’ remains with owner.
Similarly, if goods remain in possession of seller after sale transaction is
over, the ‘possession’ is with seller, but ‘property’ is with buyer.

Goods - “Goods” means every kind of movable property other than


actionable claims and money; and includes stock and shares, growing
crops, grass, and things attached to or forming part of the land which are
agreed to be severed before sale or under the contract of sale. [section
2(7)].

Price - “Price” means the money consideration for a sale of goods.


[section 2(10)]. Consideration is required for any contract. However, in
case of contract of sale of goods, the consideration should be ‘price’ i.e.
money consideration.

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Business Labour Laws Code 824 Assignment No.1

Ascertainment of price - The price in a contract of sale may be fixed by


the contract or may be left to be fixed in manner thereby agreed or may
be determined by the course of dealing between the parties. [section
9(1)]. Where the price is not determined in accordance with the foregoing
provisions, the buyer shall pay the seller a reasonable price. What is a
reasonable price is a question of fact dependent on the circumstances of
each particular case. [section 9(2)].

Conditions and Warranties - Opening para of section 16 makes it clear


that there is no implied warranty or condition as to quality of fitness of
goods for any particular purpose, except those specified in Sale of Goods
Act or any other law. - - This is the basic principle of caveat emptor’ i.e.
buyer be aware. However, there are certain stipulations which are
essential for main purpose of the contract of sale of goods. These go the
root of contract and non-fulfilment will mean loss of foundation of
contract. These are termed as ‘conditions’. Other stipulations, which are
not essential are termed as ‘warranty’. These are collateral to contract of
sale of goods. Contract cannot be avoided for breach of warranty, but
aggrieved party can claim damages. - - A breach of condition can be
treated as breach of warranty, but vice versa is not permissible.

A stipulation in a contract of sale with reference to goods which are the


subject thereof may be a condition or a warranty. [section 12(1)]. A
condition is a stipulation essential to the main purpose of the contract,
the breach of which gives rise to a right to treat the contract as
repudiated. [section 12(2)]. A warranty is a stipulation collateral to the
main purpose of the contract, the breach of which gives rise to a claim for
damages but not to a right to reject the goods and treat the contract as
repudiated. [section 12(3)]. Whether a stipulation in a contract of sale is
a condition or a warranty depends in each case on the construction of the
contract. A stipulation may be a condition, though called a warranty in the
contract. [section 12(4)].
Where a particular stipulation in contract is a condition or warranty
depends on the interpretation of terms of contract. Mere stating
‘Conditions of Contract’ in agreement does not mean all stipulations
mentioned are ‘conditions’ within meaning of section 12(2).

When condition to be treated as warranty - Where a contract of sale is


subject to any condition to be fulfilled by the seller, the buyer may waive
the condition or elect to treat the breach of the condition as a breach of
warranty and not as a ground for treating the contract as repudiated.
[section 13(1)]. Where a contract of sale is not severable and the buyer
has accepted the goods or part thereof, the breach of any condition to be

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Business Labour Laws Code 824 Assignment No.1

fulfilled by the seller can only be treated as a breach of warranty and not
as a ground for rejecting the goods and treating the contract as
repudiated, unless there is a term of the contract, express or implied, to
that effect. [section 13(2)]. Nothing in this section shall affect the case of
any condition or warranty fulfillment of which is excused by law by reason
of impossibility or otherwise. [section 13(3)].

Time of payment is not essence of contract but time of delivery of goods


is, unless specified otherwise - Unless a different intention appears from
the terms of the contract, stipulations as to time of payment are not
deemed to be of the essence of a contract of sale. Whether any other
stipulation as to time is of the essence of the contract or not depends on
the terms of the contract. [section 11]. As a general rule, time of
payment is not essence of contract, unless there is specific different
provision in Contract. In other words, time of payment specified is
‘warranty’. If payment is not made in time, the seller can claim damages
but cannot repudiate the contract.

Caveat Emptor - The principle termed as ‘caveat emptor’ means ‘buyer


be aware’. Generally, buyer is expected to be careful while purchasing the
goods and seller is not liable for any defects in goods sold by him. This
principle in basic form is embodied in section 16 that subject to provisions
of Sale of Goods Act and any other law, there is no implied condition or
warranty as to quality or fitness of goods for any particular purpose. As
per section 2(12), “Quality of goods” includes their state or condition.
Transfer of property as between seller and buyer - Transfer of
general property is required in a sale. ‘Property’ means legal ownership.
It is necessary to decide whether property in goods has transferred to
buyer to determine rights and liabilities of buyer and seller. Generally, risk
accompanies property in goods i.e. when property in goods passes, risk
also passes. If property in goods has already passed on to buyer, seller
cannot stop delivery of goods even if in the meanwhile buyer has become
insolvent. - - - Where there is a contract for the sale of unascertained
goods, no property in the goods is transferred to the buyer unless and
until the goods are ascertained. [section 18].

Property passes when intended to pass - Where there is a contract for the
sale of specific or ascertained goods the property in them is transferred to
the buyer at such time as the parties to the contract intend it to be
transferred. [section 19(1)]. For the purpose of ascertaining the intention
of the parties regard shall be had to the terms of the contract, the
conduct of the parties and the circumstances of the case. [section 19(2)].
Unless a different intention appears, the rules contained in sections 20 to

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24 are rules for ascertaining the intention of the parties as to the time at
which the property in the goods is to pass to the buyer. [section 19(3)].

Specific goods in a deliverable state - Where there is an unconditional


contract for the sale of specific goods in a deliverable state, the property
in the goods passes to the buyer when the contract is made, and it is
immaterial whether the time of payment of the price or the time of
delivery of the goods, or both, is postponed. [section 20].

Auction sale - Auction sale is special mode of sale. The sale is made in
open after making public announcement. Buyers assemble and make
offers on the spot. Person offering to pay highest price gets the goods.
Usually, auctioneer is appointed to conduct auction. Higher and higher
bids are offered and sale is complete when auctioneer accepts a bid.- - -
In the case of a sale by auction— (1) where goods are put up for sale in
lots, each lot is prima facie deemed to be the subject of a separate
contract of sale; (2) the sale is complete when the auctioneer announces
its completion by the fall of the hammer or in other customary manner;
and, until such announcement is made, any bidder may retract his bid;
(3) a right to bid may be reserved expressly by or on behalf of the seller
and, where such right is expressly so reserved, but not otherwise, the
seller or any one person on his behalf may, subject to the provisions
hereinafter contained, bid at the auction; (4) where the sale is not
notified to be subject to a right to bid on behalf of the seller, it shall not
be lawful for the seller to bid himself or to employ any person to bid at
such sale, or for the auctioneer knowingly to take any bid from the seller
or any such person; and any sale contravening this rule may be treated
as fraudulent by the buyer; (5) the sale may be notified to be subject to a
reserved or upset price; (6) if the seller makes use of pretended bidding
to raise the price, the sale is voidable at the option of the buyer. [section
64].

Delivery of goods to buyer - The Act makes elaborate provisions


regarding delivery of goods to buyer. It is the duty of the seller to deliver
the goods and of the buyer to accept and pay for them, in accordance
with the terms of the contract of sale. [section 31]. Unless otherwise
agreed, delivery of the goods and payment of the price are concurrent
conditions, that is to say, the seller shall be ready and willing to give
possession of the goods to the buyer in exchange for the price, and the
buyer shall be ready and willing to pay the price in exchange for
possession of the goods. [section 32]. - - Note that this is ‘unless
otherwise agreed’, i.e. buyer and seller can agree to different provisions
in respect of payment and delivery.

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Acceptance of goods by buyer - Contract of Sale is completed not by


mere delivery of goods but by acceptance of goods by buyer. ‘Acceptance’
does not mean mere receipt of goods. It means checking the goods to
ascertain whether they are as per contract. - - - Where goods are
delivered to the buyer which he has not previously examined, he is not
deemed to have accepted them unless and until he has had a reasonable
opportunity of examining them for the purpose of ascertaining whether
they are in conformity with the contract. [section 41(1)]. - - Unless
otherwise agreed, when the seller tenders delivery of goods to the buyer,
he is bound, on request, to afford the buyer a reasonable opportunity of
examining the goods for the purpose of ascertaining whether they are in
conformity with the contract. [section 41(2)].
Buyer’s and Seller’s duties - The Act casts various duties and grants
certain rights on both buyer and seller.
Rights of unpaid seller against the goods - After goods are sold and
property is transferred to buyer, the only remedy with seller is to
approach Court, if the buyer does not pay. Seller has no right to take
forceful possession of goods from buyer, once property in goods is
transferred to him. However, the Act gives some rights to seller if his dues
are not paid.

Suits for breach of the contract - Unpaid seller can exercise his rights
to the extent explained above. In addition, seller can exercise following
rights in case of breach of contract. Buyer has also rights in case of
breach of contract.

Measure for compensation and damages – The Sale of Goods Act


does not specify how to measure damages. However, since the Act is
complimentary to Contract Act, measure of compensation and damages
will be as provided in sections 73 and 74 of Contract Act.

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