Business Law

Q1. Essentials Qualities of a Contract?

Ans. A contract is an agreement which is enforceable by law. Agreements may be valid or may be void but contracts are
valid... or voidable
Intention to create legally binding relationship
Offer and Acceptance
Two or more persons
Section 10 All agreements are contracts if they are made by
!ree consent
"arties competent to contract
!or lawful consideration and lawful ob#ect
And not e$pressly declared to be void
1. Free consent of parties %onsent is free if it is not caused by
Coercion Force! " use of physical force# %oercion is the &1' committing of any act forbidden by the I"%(
or &)' the threatening to commit any act forbidden by the I"%( or &*' the unlawful detaining of any property to
the pre#udice of any person whatsoever( or &+' the unlawful threatening to detain any property to the pre#udice
of any person whatsoever, with the intention of causing any person to enter into an agreement.
$ndue %nfluence " use of dominant position# %ontract is said to be influenced by undue influence where
the relations subsisting between the parties are such that one of them &i' is in a position to dominate the will of
other- and &ii' uses that position to obtain an unfair advantage over the other. Three e$amples. &i' holds a real
or apparent authority- &ii' stands in a fiduciary relation- or &iii' contracts with a person whose mental capacity is
affected.
&isrepresentation " false statement# any breach of duty which- without an intent to deceive- gain or
advantage to the person committing it... by misleading another to his pre#udice or any other claiming under
him... party is under a duty to disclose certain facts and does not do so thereby misleading another.
Fraud " cheating# !raudany of the following five acts committed by a party or with his connivance or by
his agent with intent to deceive another party to induce him to enter into a contract. To deceive means to
ma/e a person to believe that something is true which in fact is false.
&ista'e " erroneous state of affairs# 0ista/e not defined by the Actmay be defined as an erroneous
belief or incorrect belief concerning something. !ree consent... an essential re1uirement which is possible only
when the parties agree upon the same thing in the same sense.
). Competence of parties to the contract 2very person is competent to contract if
&inors Agreement# Indian 0a#ority Act... 0inor is one who has not completed 13 years of age... where a
guardian is appointed of the minor4s person or property twenty one years. 0a#ority is a necessary element.
Agreement by a minor is void and inoperative
(e is of sound mind# !or a valid agreement... each party should have a sound mind see Sec. 1). Test
of soundness of mind. &1' capacity to understand &)' ability to form rational #udgment. 5nsoundness of mind
insanity or lunacy- idiocy- drun/enness- mental decay brought about by old age. %ontract by persons of
unsound mind are absolutely void.
)ot dis*ualified under law
*. Lawful Consideration and Lawful +b,ect# %onsideration and ob#ect must be lawful... Sec. )*, consideration
or ob#ect are unlawful if . &1' it is forbidden by law- &)' it would defeat the provisions of any law.. violation
of law- &*' it is fraudulent- &+' it involves or implies in#ury to the person or property of another- &6' the court
regards it as immoral- and &7' the court regards it as opposed to public policy.
+. %ertainty of performance
6. 8ot ambiguous 9 vague&the agreement must be certain'
7. :egal !ormalities
;. 8ot declared to be void
Q-. A consideration is the foundation of all obligations. E.plain
Ans. C+)/%0E1A2%+)#
It is an essential element in a contract. Sec. )&d' defines consideration as.
When at the desire of the
promisor, the promisee or any
other person
i) has done; or abstained from doing, or
ii) does or abstains from doing, or
iii) promises to do or abstain from doing
something such act,
abstinence or promise is called
a consideration for the
promise.
"olloc/ defines consideration as <the price for which the promise of the other is bought- and the promise thus given
for value is enforceable.=
%onsideration is an important re*uisite of contract there are two clearly separable parts. the promise on the
one hand and the consideration for the promise on the other hand.
Sec. )&e'. 2very promise and every set of promises- forming the consideration for each other- is an agreement.
Sec. )&f'. "romises which form the consideration or part of the consideration for each other are called reciprocal
promises.
Consideration is a necessity to the 3alidity of a contract. :aw insists on e$istence of consideration.
Ex nudo pacto non oritur actio. :aw will not enforce a promise given for nothing. Out of na/ed pact- no cause of
action arises.
0efinition analy4ed.
>At the desire of the promisor5. the act or forbearance must be done at the desire of the promisor. A
voluntary act is not a consideration.
>the promisee or any other person5. %onsideration can be furnished by the promisee or any other person- it
may move from the promisee or a third party &stranger' , %hinnaya v. ?amya.
In 2nglish law- consideration must move from the promisee himself and not from any other person.
>has done6 or abstained from doing5. "ast consideration something wholly done or suffered- before ma/ing
the agreement. In India- past consideration is sufficient to sustain a valid contract( in 2nglish law it has to be
either present or future.
>does or abstains from doing5. %onsideration may consist either of some act which the promisee does- or of
some omission or forbearance on the part of the promisee or any other person-
> %onsideration need not be ade1uate4. Anson court do not sit to ma/e bargains for the parties although the act
must be done for some consideration- for some value.
Therefore it can be rightly said that a consideration is the foundation of all obligations.
Q7. Quasi Contracts e.plain with sections
Ans. >@uasi4 means >almost4 or >apparently but not really4 or >as if it were4. This term is used when one sub#ect resembles
another in certain characteristics but there are intrinsic differences between the two. >@uasi contract4 is not a
>contract4. It is an obligation which law created in absence of any agreement. It is based on e1uity. There are certain
relations resembling those created by contract. These are termed as >1uasi contracts4.
%ontractual obligations are voluntarily created by free consent through proposal and acceptance. In some cases-
some obligations though not contractual but treated as contractual by law. In fact there is no contract but there is
one in contemplation of law... 1uasi contracts.
S. 73 to ;)... !ive types of 1uasi contracts.
1. Claim for necessaries supplied to a person incapable of contracting8 /. 9:# A person incapable of
contracting or the one to whom he is legally bound to support- is supplied by another person with necessaries of
life- such other person is entitled to be reimbursed from the- necessaries supplied- &b' to a person incapable of
entering into a contract or to whom he is legally bound to maintain- &c' the price to be paid is reasonable price- and
&d' only the property of incapable person is liable and not the incapable person personally.
). 1eimbursing a person paying money due by another8 /. 9;# a person who is interested in payment of money
which another is bound by law to pay- and who therefore pays it- is entitled to be reimbursed by the other.
*. +bligation of person en,oying benefit of a non8gratuitous act8 /. <=# Ahere a person lawfully does
something for another or delivers anything to him- not intending to do so gratuitously- and such other person en#oys
the benefit thereof- the later is bound to ma/e compensation to the former.
+. 1esponsibility of finder of goods " / <1# An agreement is implied by law where a person finds goods
belonging to another and ta/es them into his custody.. he is sub#ect to the same responsibility as a bailee
responsibility to ta/e care of the goods and try and find out the true owner... entitled to its possession as against
everyone e$cept the true owner.
6. >ayment or deli3ery by mista'e or under coercion8 /. <-# A person whom money has been paid or anything
delivered by mista/e or under coercion must repay or return it.
!urther as per S. ;* the rights and liabilities of parties to a 1uasi contract are the same as if they willingly- and in
fact- entered into such a contract.
0istinction between a contract and a *uasi contract#
1. %ontract... result of the will of the parties e$pressed with sole intention of creating legal relationship- 1uasi
contract... relationship created without the will or intention.
). %ontract is an agreement( 1uasi contract is not an agreement.
*. %ontract... all ingredients of a valid contract- 1uasi contract... ingredients not necessary.
+. %ontract... intention of binding each other. @uasi contract- it is incidental and law imposes certain obligations-
parties never intended to create such obligations.
Q?. Breach of contract and its 1emedies
Ans. Breach of Contract#8 %ontractual obligations not carried out in agreed manner.
Actual &On due date
of performance'
Anticipatory &Before the actual due date intention not to perform is communicated'
The other party can treat
this communication as
breach of contract on the
date of receipt of
communication
The other party can wait till actual due date
Ae can perform on due
date &alternative
arrangement'
If we fail it will be breach of
contract on actual due date
Conse*uences of Breach of Contract#8
/uit for 0amages &2stimate of
monetary loss suffered on
account of non performance'
)ormal Arising out of normal
course of business
/pecial "arties had estimated
or convisaged
E.emplary "uritive by way
of punishment
)ominal Ta/en but in
recognition of rights of the party
/uit for /pecific
>erformance
%n,unction
%ourt order
restricting the
parties
Quantum &eruit
- As much as is merited
- Ahere contract is abandoned
or cancelled
- %ontract becomes void
- Ahen contract is voidable C
party decides to cancel
- In the mean time part of the
contract is already performed
payment is re1uired to be
made to the e$tent of
performance
@uidelines for determining damages#8
- Damages to be on account of pro$imate cause C not remote cause e.g. Eeadley vs Ba$andle
- Damages must arise out of C during the normal course of business
- "erson claiming damages must show his sincerity in mitigating the losses
- Amount of damages claimed can never e$ceed the actual loss suffered
QA. Contingent contract and its types.
Ans. Contingent Contracts#8 %ontract to perform or not to perform if an uncertain future event collateral to the contract
does or does not happen.
1. %ontract contingent on happening of an event
Such contract cannot be enforced until the event ta/es place
If the event becomes impossible contract is void
). %ontract contingent on non,happening of an event such contract cannot be enforced until it is clear that the
event shall never ta/e place
*. %ontract contingent on future behavior of an individual event shall be considered impossible if a person
behaves in such a way that he cannot come bac/ to the original position
+. %ontract contingent on happening of an event within a specified time Such contract cannot be enforced until
the event ta/es place within a specified time
6. %ontract contingent on non,happening of an event , such contract cannot be enforced until it is clear that the
event shall never ta/e place within a specified time
7. %ontract contingent on impossible events
Q9. Bhat are negotiable %nstruments?C0iff between the che*ue and >romissory notes888E.plain why
negotiable
instruments are a realty and not myth888diff between bill of e.change and che*ue.
Ans. <8egotiable= means transferable by deli3ery and <instrument= means a written document by which a right is
created in favour of some person. The term negotiable instrument literally means <a document transferable by
deli3ery=.
E//E)2%AL FEA2$1E/ +F )E@+2%ABLE %)/21$&E)2/
1. 0ust be written and signed by the ma/er9drawer.
). It shall be unconditional.
*. "ayable by legal tender money only. :iability is always determined in terms of legal tender money. It shall be
for a fi.ed sum of money only.
+. The right of ownership passes automatically to the transferee. %an be transferred by a simple process.
Bearer instruments mere delivery to the transferee is sufficient. Other instruments indorsement &signature
of the holder' and delivery are re1uired.
6. The transferee- who fulfils certain conditions- is called the Dholder in due course5- who gets a good title even
where the title of the transferee is defective.
7. )otice of transfer to the party liable to pay is not necessary.
;. Consideration is always presumed. Aords >for value received4 not necessary but may be included.
3. 0a/er9Drawer shall be a specific person. "erson in whose favour the instrument is drawn shall also be a
specific person.
As per the 8egotiable Instruments Act- 1331- <A 8egotiable Instrument means a promissory note- bill of e$change
or che1ue payable either to order or to bearer=. Thus in India only three 'inds of instruments are recogniFed as
negotiable instruments viF.- promissory notes- bills of e$change and che1ues.
0%/2%)C2%+) BE2BEE) A >1+&%//+1E )+2E A)0 A B%LL +F EFC(A)@E#
1. "romissory note two parties- a bill of e$change three parties.
). "romissory note promise to pay- a bill an order to pay.
*. A "romissory note needs no acceptance( a bill needs acceptance by the drawee.
+. 0a/er of a "romissory note primarily liable( the drawer of a bill liable only when the drawee does not accept or
does not pay.
6. 8otice of dishonour is re1uired to be given to all persons liable to pay. In case of a "romissory note- no notice
of dishonour to the ma/er is necessary.
>romissory )ote
Instrument in writing
8ot being a ban/ note or currency note
Signed by the ma/er
%ontaining an unconditional underta/ing
Ta pay certain sum of money only
To a certain person on his order
Bill of e.change
)69119)006
On demand I promise to pay ?upesh "andey sum of ?s. 600009, for value received
To ?upesh "andey
Signed by ma/er 9 promissor
Instrument in writing
Signed by the ma/er
%ontaining an unconditional order
Directing a certain
To pay a certain sum of money only
To certain person or his order
Che*ue
Bill of e$change drawn on a specified ban/er
>romissory )ote Bill of E.change Che*ue
1. >arties %n3ol3ed ) parties ma/er who
promises to pay C payee
&promise' who collects
payment
* parties
Drawer 9 ma/er
who draws the bill
Drawee on
whom the bill is
drawn or to whom
direction to pay is
given
"ayee , Aho
collects the
payment
* parties
Drawer ma/er
of a che1ue
Drawee Ban/
"ayee , Aho
collects the
payment
-. )ature of
relationship
0a/er Debtor
"ayee , %reditor
Drawer %reditor vis,G,vis
Drawee but Debtor vis,G,
vis "ayee
Drawee Debtor
"ayee %reditor
Drawer %reditor vis,G,vis
Ban/ but Debtor vis,G,vis
"ayee
Drawee Ban/ , Debtor
"ayee %reditor
7. )ature of liability 0a/er of promissory note
is primararily liable
Drawee "rimary :iable
Drawer Secondary :iable
Ban/ "rimary :iable
Drawer Secondary :iable
?. Acceptance 8ot ?e1uired Acceptance by drawee
re1uired
8ot ?e1uired
A. Crossing 8.A. 8.A. Only che1ue are re1uired
to be crossed
9. /tamp 0uty Attracted Attracted 8ot ?e1uired
<. )otice of dishonor 8ot ?e1uired ?e1uired Ban/ issues non "ayment
memo
:. /pecial >ro3isions
a. 0rawee in case of
need
8.A. 8.A.
b. Acceptance for (onor 8.A. 8.A.
Q<. /ale of the good act888Bho is the unpaid seller? 88888Bhat are the duties G rights of unpaid seller?
)69119)006
On demand pay ?upesh "andey sum of ?s. 600009, for value received
To Drawee &who has been directed to pay'
Signed by ma/er 9 promissor
Ban/ of Baroda )69119)006
"ay ?upesh "andey
In Aords !iguresHHHHHHHHH

Signed by ma/er 9 promissor
Ans. The law relating to sale of goods is contained in the Sale of Ioods Act- 1J*0- came into force on 1
st
Kuly 1J*0.
Definitions.
1. D@oods5 S. )&;'. means and includes every /ind of movable property e$cept &i' actionable claims and &ii'
money. Actionable claim means a debt or a claim for money- which a person may have against another and which-
he may recover by suit. 0oney means legal tender money.
Things attached to the earth are not movable- but growing crops and grass- which can be easily separated from the
earth before sale- and fruits etc.- which can be severed from trees- are movable goods.
@oods may be# e.isting goods6 future goods and contingent goods.
Contingent @oods are the goods ac1uisition- of which depends upon a contingency which- may or may not
happen.
). >Buyer4 S. )&1'. person who buys or agrees to buy goods.
*. >Seller4 S. )&1*'. person who sells or agrees to sell the goods.
+ . >Delivery4 S. )&)'. voluntary transfer of possession from one person to another.
6. >"rice4 S. )&10'. money consideration for sale of goods
7. >@uality of goods4 S. )&1)'. includes their state or condition.
1ights of an $npaid /eller
Bho is an unpaid seller? S. +6. A seller is deemed to be an unpaid seller &a' when the whole of the price has not
been paid or tendered- or &b' when a che1ue or other negotiable instrument has been received as conditional
payment- and the condition has not been fulfilled by reason of the dishonor of the instrument or otherwise. Any
person who is in the position of a seller or seller4s agent may be a seller.
$npaid /eller5s 1ights. Ee can e$ercise his rights even if the property in goods has passed to the buyer.
1. /eller5s Lien S. +;+J. :ien a legal right to hold a property. The unpaid seller- who is in possession of the
goods- is entitled to retain possession until payment or tender of the price where. &a' the goods have been sold
without any stipulation as to credit( &b' goods were sold on credit but the term of credit has e$pired( or where the
buyer becomes insolvent.
The seller may e$ercise his right of lien even if he is in possession of the goods as agent or bailee of the buyer.
Eowever- if the goods are sold on credit- the seller cannot refuse to part with possession unless the term of credit
has e$pired. :ien can be e$ercised for non,payment of the price- not for any other charges.
An unpaid seller in possession of the part of the goods can e$ercise lien on the goods in his possession unless
intended otherwise. A seller can abandon or waive the lien if he so desires.
The unpaid seller looses his lien. &a' where he delivers the goods to a carrier or other bailee for transmitting them to
the buyer- without reserving the right of disposal of the goods( &b' when the buyer or his agent lawfully obtain
possession of the goods( or &c' seller waiving the right of lien.
). 1ight of stoppage in 2ransit S. 60,6). Ahen the buyer becomes insolvent and the goods are still in transit-
the seller can resume possession from the carrier. !ollowing points to be noted.
i' Ioods are deemed to be in transit till the carrier delivers them to the buyer or his agent.
ii' ?ight of stoppage comes to an end moment goods are delivered. If the carrier- as an agent of the buyer holds
the goods- seller4s right to resume possession ends.
i' If the carrier wrongfully refuses to deliver the goods to the buyer- the transit ends and so also the seller4s right.
ii' Ahere a part delivery is made- the reminder of the goods may be stopped unless otherwise intended.
iii' >Insolvent4 in the Act means buyers financial inability to pay- whether he is so declared by the court or not.
iv' The seller e$ercises the right to stoppage by ta/ing actual possession or by giving notice to the carrier to re,
deliver the goods. The e$penses of redelivery are to be borne by the seller.
*. 1ight of 1esale S. 6+. The unpaid seller in possession or who has resumed possession can resell the goods.
&a' if the goods are of a perishable nature- without giving any notice to the buyer( &b' In other cases- after notice to
the buyer- calling him to pay- and if he still fails to pay within reasonable time.
If the money so received upon resale is less then the money the original buyer would have paid- then the seller is
entitled for the compensation. If the seller receives more that what is due to him- he can retain the e$cess.
4. /uit for the >rice S. 66. The unpaid seller always has a right to sue the buyer for the price of the goods.
Q. : 2he 1egistration of a Company is li'e issuance of birth certificate to human being. E.plain.
Ans. A company has been defined in the Indian %ompanies Act in Section ) &10'. &%ompany as defined under Section 7.
Section * of the %ompanies Act defines a %ompanies Act &a %ompany form a registration in the %ompanies Act,
1J67 or not in any other earlier statutes. (owe3er6 a Company in short can be described or defined as an
artificial person created by law6 ha3ing a common seal and perpetual succession. :ord Kustice 0indlay has
defined a %ompany as an incorporated association of any persons- which is owned artificial person in law having a
common seal and perpetual succession.
It can be seen from the definition of the %ompany itself with the most essential re1uirement for the formation of the
%ompany is that of registration.
The essential characteristics of the company including its independent corporate e$istence- limited law- perpetual
succession- transferable share- separate property- all come in e$istence only upon a registration of a %ompany.
Its registration which provides identical to the %ompany incorporation of a %ompany mar/s both the company. The
word LMN%orpusLM in :atin means a body in 2nglish. Eence- corporation is a legal person having its own rights
and liabilities- enshrined in the constitution of the corporation.
The "ersons who come together to form a company- are called its promoters. A short procedure in formation of a
company includes the following steps.
1' "assing of resolution by promoters(
)' 2ngaging legal e$perts by promoters to prior 0emorandum of Association- Articles of Association.
*' %ompleting re1uisite formalities.
+' Application for registration.
The registration of a %ompany is achieved by filing the application with the ?egistrar of the %ompany( accompanied
by the re1uisite documents including-
1. 0emorandum Of Association To be stamped according to the value of authoriFed
). Articles Of Association capital
*. :ist of Directors on !orm *) &In Duplicate'
+. %onsent of persons who have agreed to become Director on !orm )J &only in respect of "ublic :TD
%ompanies'
6. Declaration that provisions of %ompany :aw have been complied with !orm I &signed by Director 9 Advocate 9
%A 9 "%S'
7. "articulars of registered office on !rom 13
;. ?egistration !ee
5pon which the ?egistrar issued a certificate /nown as %ertificate of incorporation- as if provided for Section *+ of
the %ompanies Act. The certificate of incorporation- after registration of a company- thus brings the company in to
e$istence as a legal person. It mar/s the birth of the company which is conclusive evidence of its e$istence.
?egistration of a company is thus- an inevitable re1uisite for providing identity to a company. An unregistered
company suffers lac/ of recognition and legal identity in absence of registration.
Any given company suffers the following disadvantages in its pre,incorporation stage. The contract entered into by
the %ompany do not bind either parties( secondly the company- is not bind by any contract read on its behalf prior
to its incorporation as a company is no status prior to its incorporation and is thus non,est( thirdly ages of the
proposed company are li/ely to incur the personal liability due to non,registration of the company.
On the other hand- the registration being en#oys the following privileges compared to unregistered one.
1' It can raise funds for huge underta/ing from small investors.
)' The ris/ of losses is minimiFed as the liability is spread.
*' The liability of individual share,holders to agreed amounts is restricted.
+' It enables transferability of shares.
6' It en#oys perpetual succession as the company subsists despite it or insolvency of the members.
7' The 0anagement of the business can be vested in directors.
;' It en#oys freedom of activity and fle$ibility in the formation and wor/ing.
Section 11 of the %ompanies Act,1J67 provides for incorporation of company. The importance or significance of the
registration of a %ompany has been well e$plained in Section 11 in Section 1 and ) as follows.,
1' 8o company Association or partnership consisting more than 10 persons shall be borrower for the
purpose of carrying on business of ban/ing unless it is registered as a company under this Act or
other Indian :aw.
)' A company consisting of more than )0 persons is also re1uired to get its registration under this
Act as a company for any /ind of business.
*' Sub,Section 6 of Section 11 ma/es every person of an unregistered company liable for
punishment with fine amounting to ?s.1-0009, for contravening the provisions of this section.
It is thus- crystal clear that registration of a company is li/e imparting e$istence to a company. Therefore- it can be
rightly said that registration of a company is li/e issuance of birth certificate to human being. The importance of
registration of a company can be well e$plained by the case /oleman 3s. /oleman in which due to non,
registration- the members of the company is not en#oyed legal status.
Q. 1= 2he prospectus of a Company is not an offer but in3estigation to offer. E.plain.
Ans. Section ) &*7' of the %ompanies Act,1J67 defines prospectus as.
"rospectus means any document described or issued as a prospectus and includes any notice- circular-
advertisement or other document inviting deposits from the public or inviting offer from the "ublic for the
subscription for purchase of any shares or debentures of a paid corporate.
Sections 67 to 73 of the %ompanies Act- 1J67 dealt with the issuance of prospectus and allotment of shares and
debentures.
Offer to the public can be e$plained as an important condition in the definition of prospectus which demonstrates
whether a document is prospectus or not.
The offer of shares of the e$isting members of the company is to be distinguished from an investment to offer to the
public in the former case it is not a prospectus but in the later it is a prospectus.
The prospectus is nothing but a means to facilitate a company to raise its fund i.e. capital by inviting public
subscription for is shares and debentures. The private company is not allowed to invite the public for subscribing in
any share or debentures of the companies. On the other hand- a public company is allowed to raise its capital in *
ways.,
a' By issue of prospectus(
b' By an offer for sale(
c' By placing.
The contents of the prospectus are accepted to comprise all the necessary particulars to indicate all the investors
and enable him to decide himself whether or not it is worthwhile to invest the money in a particular company.
Eence- preparation of issuance of prospectus calls for e$treme caution. The relevant ?ules and ?egulations
regarding prospectus can be briefly stated as follows(
1' Section 76 of the Act re1uires prospectus to be dated.
)' The copy of the prospectus has to be registered with the ?egistrar and this fact must be stated on
the face of the prospectus. 8on compliance of disclosure of registration of a prospectus can lead
to refusal of registration- it registration by the ?egistrar as per Section 70 of the Act. Similarly- the
prospectus should be issued within a J0 days from the date of its registration.
*' If the prospectus includes a statement for porting to be made by an e$perts. The consent re1uires
to be obtained in writing and has also stated in the prospectus as per Section 63. 2$perts should
be unconnected with the formation for management of the company as per Section 6; and could
include an 2ngineer- Oaluer- Accountant or any other professional authoriFing him to ma/e such
statement as per Section 6J.
+' The brief prospectus is re1uied to disclose matter contained scheduled ) of the Act comprising of
the ob#ect of the company- details as to share- managerial personnel- minimum subscription-
underwriting- preliminary e$penses- material contract etc.
The public is at the mercy of the company promoters. 2verything- therefore- has to be stated with strict and
scrupulous accuracy on strict aberrance to the aforesaid provisions regarding issue of prospectus only can a
company proceed with the procedure to raise its fund in the form of capital by inviting applications for share or
debentures from the public.
The mis,statement in a prospectus involving %ivil :aw in the form of damages and compensation as well as
%riminal :aw e$isting to fine of ?s.6-0009, and imprisonment of ) years or both.
Only on such issue of prospectus is the company able to invite minimum subscription to raise of share capital by
inviting applications- acceptance of deposits.
Owing to all the aforesaid functions that a prospectus carries out- is a prospectus said to be important in building
the share capital of the company.
Therefore- prospectus is rightly an investment to offer and not an offer in itself.
Q.11 &eetings are the soul of the Company.
Ans. A company e$istence is distinct by its share holders and directors.
The share holders are said to be the owners of the company while the Directors are its manager. The Directors are
the lin/ between the share holders and the public at large. %onse1uently- the company can run successfully only on
the basis of co,ordination between the share holders and its Directors. A company being entity involving 60 or
unlimited number of persons- it re1uires a source to bind its owners and managers by /eeping both of them well
versed with the conduct of business of the company. 0eetings of share holders and the Directors thus- comes into
apply. Sections 176 to 1J* of the %ompanies Act,1J67 deal with the meetings and procedure of the meetings of the
company.
The meetings of the company can be bifurcated as follows.,
1' Statutory 0eeting(
)' Annual Ieneral 0eeting(
*' 2$tra,ordinary Ieneral 0eeting.
1' /tatutory &eeting#8 Section 176 provides for statutory meetings of the company.
The first meeting of the share holders of the public company- /nown as statutory meeting which is
conducted within a period of 1 month to 7 months from the date of commencement of business of the
company. The Directors are re1uired to be prepared and sent and statutory report to offer share holders at
least )1 days prior to the meeting- informing them of the shares allotted consideration receipts and
payments- commission and discount information about the directors and managers material contract- and
underwriting contract etc. Such a report is also re1uired to be sent to the ?egistrar and non compliance of
the same is not only punishable but render to company to be wound up under Section +** of the Act.
)' Annual @eneral &eeting#8 2very company is re1uired to be called at least one meeting of its share
holders each year /nown as Annual Ieneral 0eeting which has to be held within a period of 13 months
from the date of incorporation. Default in holding this meeting also attracts penal liability in the form of
fine. The business to be transacted at the meeting is generally contended in the %ompanies Articles and
/nown as ordinary business.
*' E.tra8ordinary @eneral &eeting#8 2$tra,ordinary Ieneral 0eeting is a annual Ieneral meeting which is
called by the Directors whenever they thin/ fit and as re1uisitioned by the share holders. Such re1uisition
is signed by the share holders of at least 1910
th
paid up capital and having to right to vote. The
re1uisitioned must statutes the matter for consideration in the meeting e$cept when the purpose is to
remove the Directors. Such a meeting has to be held within a period of +6 days and failing to do so- the
company liable for paying necessary e$penses incurred in re1uisitioning the meeting.
The meeting of the company- li/e any other meting re1uired to be constituted properly with a proper notice-
coram- procedure and recording minutes of the meeting. The notice is shown to intimate the share holders
or directors the time- place and venue of the meeting and its nature and therefore- re1uires to set up all
these particulars in a properly drafted notice.
The meetings of a company also re1uires ade1uate coram i.e. a minimum number of members re1uired to
attend which differs from ) in case of private company to 6 in case of public company as per Section 1;+
of the Act. A meeting without appropriate coram is automatically ad#ourned and on subse1uent
inade1uacy conducted with the number of member actual person.
The business of the meeting is in the form of resolution passed in favour and against the proposal. The
vote is by showing hands and each member has one vote.
Section 1J* provides for recording minutes of the meeting. Accordingly- entries regarding proceeding of
the meeting- has to be made in the boo/s /ept for the purpose by paging consecutively- within *0 days of
every meeting.
This being the procedure and re1uisites of the meetings- no decision ta/en by the company can be made
without a proper resolution and without informing the owners or managers of the company. The company
being a large entity with its unlimited members and the management is a difficult tas/. The only mode of
breeFing managers the gaps of owner and its manager and thereby ensuring smooth functioning of the
company is the meeting. Therefore- meetings can be said to be a soul of the company.
/hort notes on#
b. Quantum &erut# Quantum meruit4 means >as much as earned4. A contract may come to end by P breach of contract P
contract becoming void or P Ooidable contract avoided by party. In such case- if a party has e$ecuted part of contract- he
is entitled to get a proportionate amount i.e. >as much as earned by him4. This is not by way of >damages4 or
>compensation for loss4. , , The principle is that even when contract comes to a premature end- the party should get
amount proportional to the wor/ done9services provided9goods supplied by one party. One party should not get enriched
at the cost of other.
e. Contingent Contract# &?efer @6'