1.

Please give a practical example each of Contract of Indemnity and

Contract of Guarantee. Also identify and highlight as to how these contracts,
as quoted by you as examples, are different from each other. (10 Marks)

Ans INTRODUCTION Contracts of guarantee are mainly used for securing

Loans, performance bonds, bail bonds etc. Whereas in contract of indemnity
one party promises to save the other from loss caused to him by way of his
conduct or by the conduct of any other person. When its about securing
ones interest while entering into the contract, people mostly go for a
contract of indemnity or guarantee. At first instance, these two will appear
same, but there are some differences between them. Indemnity is when one
party promises to compensate the loss occurred to the other party, due to
the act of the promisor or any other party. The guarantee is when a person
assures the other party that he will fulfill the obligation in case of default by
the third party.

A. INDEMNITY CONTRACT -

Indian Contract Act, 1872 - Section 124 - 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".

Example: A contract in which A says to B, If you lend Rs. 1 Lac to C, I will see
that your money comes back is an indemnity.

B. GUARANTEE CONTRACT -

Indian Contract Act, 1872 - Section 126 A contract to perform the

obligation or to discharge the liability of a third party in case of its default is
called contract of guarantee.

Example: A contract in which A says to B, If you lend 1 Lac to C and he does

not pay you, I will pay is a guarantee. Here A, B and C are surety, creditor,
and principal debtor respectively.
Difference between Examples of contract of Indemnity and Guarantee.

a) Number of Parties: Indemnity contract there are two parties includes

namely, indemnifier (A) and indemnity holder (B) WHEREAS In
guarantee contract there are three parties includes namely A, B and C
are surety, creditor, and principal debtor respectively.

b) Liability: In contract of indemnity if indemnity holder (B) suffers loss and

incurred expenses in such a case, there is no classification and sharing
of liability where the absolute liability rests with indemnifier (A) WHEREAS
In contract of guarantee there will be two types of liabilities namely;
primary and secondary liabilities which will be with principal debtor (C)
and surety (A) respectively towards Creditor (B).

c) Number of Contracts: In case of indemnity contract, as there are only

two parties, there is possibility for existence of one contract only
between A & B. WHEREAS In a contract of guarantee there are three
Sub-contracts, between Principal Debtor and Creditor (B & C);
between creditor and the surety (A & B) and between surety and
principal debtor (A & C).

d) Express/Implied In contract of indemnity the nature of such contract

is of express and specific between indemnity holder (B) and indemnifier
(A) WHEREAS the contract between principal debtor (C) and creditor
(B) is specific and between the principal debtor (C)and surety (A) is
implied.

e) Recovery: In case of indemnity contract the indemnifier (A), after

compensating indemnity holder`s (B) loss, cannot recover that amount
from any person. WHEREAS in contract of guarantee, if surety (A) makes
payment to creditor (B), Later on he (surety) can recover that amount
from principal debtor (C).
 f) Nature: As indemnity contract includes two parties and one contract, it
can be said that indemnity contract is simple in nature. WHEREAS
guarantee contract includes three parties and three sub-contracts and
hence be said that guarantee contract is complex in nature.

COMMENT A contract of guarantee is a contract to perform the promise or

discharge the liability, of a third person in case of his default. The person who
gives the guarantee is called Surety and the person for whom the guarantee
is given is called the Principal Debtor and the person to whom the guarantee
is given is called the Creditor. A contract of Guarantee may be either oral or
in writing. In the above said example A(Surety) asked to B(Creditor) that if he
lends 1 lakh rupees to C(Principal debtor) and on his default A will pay 1 lakh
rupees to B. Here A is giving guarantee to B in respect to secure his loan from
any default made by the borrower. Therefore the first and primary liability to
pay 1 lakh rupees is of C but on his default, A will have secondary liability to
pay 1 lakh rupees to B. Here the creditor is entitled to demand payment from
the surety as soon as the principal debtor refuses to pay or makes default in
payment. The liability of the surety cant be postponed till all other remedies
against the principal debtor have been exhausted. There are three sub-
contracts and three parties. WHEREAS in the contract of indemnity it is a
contract whereby one party promises to save the other form loss caused to
promisee by the conduct of the promisor himself or by the conduct of any
other person. In the above said example A (Indemnifier) asked to B
(Indemnity Holder)that if he lends 1 lakh rupees to C then he will see that his
money comes back. Here there is a contract of indemnity between A and B
only; C has nothing to do with the contract made between A and B. If C
makes default in payment of 1 lakh rupees to B, then A will pay 1 lakh rupees
to B. There is only one contract between A and B and only two parties in
contract of indemnity.
Conclusion In Indian Contract Act 1872 under section 124 contract of
indemnity has been defined and under section 126 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. The indemnity contract
whereby one party promises to save the other form loss caused to promisee
by the conduct of the promisor himself or by the conduct of any other
person.
Question 2 . Please explain the Corporate Social Responsibility (CSR)
obligation as enshrined under the Companies Act, 2013. Please quote at least
two examples of CSR in recent times.

Answer INTRODUCTION - Corporate Social Responsibility is not a new

concept in India, however, the Ministry of Corporate Affairs, Government of
India has notified the Section 135 of the Companies Act, 2013 along with
Companies (Corporate Social Responsibility Policy) Rules, 2014 "hereinafter
CSR Rules" and other notifications which makes it mandatory (w.e.f. 1st April,
2014) for certain companies who fulfill the criteria as mentioned under Sub
Section 1 of Section 135 to comply with the provisions relevant to Corporate
Social Responsibility.

WHAT IS CSR?

The term "Corporate Social Responsibility (CSR)" means corporate

initiative to assess and take responsibility for the company's effects on
the environment and impact on social welfare.

CSR is not charity or mere donations. CSR is a way of conducting

business, by which corporate entities visibly contribute to the social
good. They use CSR to integrate economic, environmental and social
objectives with the company's operations and growth.

APPLICABLE TO WHOM

CSR shall be applicable on companies which are contained under Section

135(1) of the Companies Act, 2013. As per the said section, the companies
having

1. Net worth of INR 500 crore or more; or

2. Turnover of INR 1000 crore or more; or

3. Net Profit of INR 5 crore or more, during any financial year shall be required
to constitute a Corporate Social Responsibility Committee of the Board w.e.f.
1st April, 2014.

OBLIGATIONS IF CSR IS APPLICABLE?

- The companies covered under the Sub section 1 of Section 135 shall be
abide by the duties to do the following activities:

1. Constitute CSR Committee - The companies shall be required to Constitute

CSR Committee of the Board The CSR Committee shall be comprised of 3 or
more directors, out of which at least one director shall be an independent
director.

2. Composition In Boards Report - The Board's report shall disclose the

compositions of the CSR Committee.

3. Spend 2 Percent of Average Net Profits - All such companies shall spend, in
every financial year, at least 2% of the average net profits of the company
made during the three immediately preceding financial years, in pursuance
of its Corporate Social Responsibility Policy.

4. Calculation of average net profit - The average net profits shall be

calculated in accordance with the provisions of Section 198 of the
Companies Act, 2013.

- CSR is obligation on businessmen they should inculcate it into policy

and do better for society and maintain relations

1. Ethical obligation - Ethics is a set of principles or standard of human

conduct that govern the behaviour of individuals or organisations. Using
these ethical standards, a person or group of persons or organisations
regulate their behaviour to distinguish what is right and what is wrong as
perceived by others. society wants the business to produce the needed
goods and services but it also expects the business to conduct its economic
operations in an ethical way.

2. Legal Obligation A company's legal responsibilities are the requirements

that are placed on it by the law. A company need to ensure that they obeys
all the laws which are in force and Next to ensuring that company is
profitable, it is the most important responsibility. Legal responsibilities can
range from securities regulations to labor law, environmental law and even
criminal law.

3. Economic Responsibilities - A company's third responsibility is its economic

responsibility, a company needs to be primarily concerned with turning a
profit. Before a company thinks about being a good corporate citizen, it first
needs to make sure that it can be profitable. Company need to maintain the
equilibrium in micro and macro environment, apart from this fact, if a
company does not make money, it won't last and employees will lose their
jobs and the company won't be able to think about taking care of its social
responsibilities.

4. Philanthropic Obligation - This type of CSR is very commonly associated

with assigning money to charities. Organizations will have specific charities
that they support, and these may be linked to their line of business. It refers to
society's expectation that organizations would be good citizens. This may
involve such things as philanthropic support of programs benefiting a
community or the nation. It may also involve donating employee expertise
and time to worthy causes.

EXAMPLES OF CSR IN RECENT TIMES ARE AS FOLLOWS :-

A. TATA MOTORS Tata Motors have spent Rs 18.62 crore on CSR in 2014-
15, despite reporting a net loss. Its programs are like, Learn, Earn and
 Progress (LEAP) for mechanic motor vehicle training, a year-long
programme where theoretical learning is supplemented through 'on-
the job' exposure at service centres. Tata Motors' Dealers,
implementation partners (NGOs and Technical Training Institutes) are
partners. Dealers provide the training and contribute two-thirds of
monthly stipend of the trainee while Tata Motors contributes the rest.
The implementation partner provides theory training.

B. Bharat petroleum - In 2014-15, BPCLBSE -0.29 % had a CSR allocation of

Rs 76 crore, of which it spent Rs 33.95 crores. The balance has been
carried to the current fiscal, and has been spent on Swachh Bharat
Swachh Vidyalaya projects. Its programs are like, Project BOOND,
which has evolved from the construction of rain water harvesting
structures to making villages drought-free. It began with four villages in
Maharashtra, which were along BPCL's product pipeline. In the past 6
years, it has been extended to over 140 villages in Maharashtra, Tamil
Nadu, Karnataka, Rajasthan, Uttar Pradesh and Andhra Pradesh,
making them water positive. In 2014-15, 40 villages were made water
positive by creating 7 crore litres of water, benefitting over 5,500
families.

C. Mahindra & Mahindra - It is one of the largest vehicle manufacturers

by production in India and the largest manufacturer of tractors in the
world. Project Nanhi Kali set up by Anand Mahindra in 1996 which
supports the education of over 11 lakhs with uniforms, bags, notebooks,
shoes, socks etc. The project includes an increase in enrolment of girls
in schools. Provides livelihood training to 13,000 youth in all over India.
M&M has constructed 4,340 toilets in 1,171 locations across 11 states
and 104 districts specifically for girls in government schools as part of
Swachh Bharat & Swachh Vidyalaya. Expenditure on CSR in the last
fiscal was Rs 83.24 crore 2% of PAT.
Question 3. Ms. Neha had purchased a Watch from a Showroom in Mumbai.
Neha gifted the Watch to her college friend Ms. Rita who stays in Patna. The
payment for the Watch was made by Neha. Rita on opening the Gift found
the watch to be having a manufacturing defective.

Questions
a) In this example, who is the Consumer as per the definition mentioned in
Consumer Protection Act, 1986 and under which Section? Can Rita file a
consumer complaint against the Watch Company? Explain with reasons? (5
Marks)

Answer (A) In the instant case Ms. Neha is the customer and Ms Rita is a
consumer under section 2(d) of Consumer Protection Act 1986.

Reason 1. That Section 2(d) of consumer protection act 1986 states that
consumer includes any user of such goods and when such use is made with
the approval of buyer, then user is a consumer under the Act. Here, Rita is a
user of the watch and using the watch with the approval of buyer/ Ms. Neha.
Hence, Ms. Rita is a consumer under the section 2(d) of Consumer Protection
Act 1986.

2. Case Law [Dinesh Bhagat v. Bajaj Auto Ltd. (1992) III CPJ 272] - A
purchased a scooter which was in Bs possession from the date of purchase.
B was using it and taking it to the seller for repairs and service from time to
time. Later on B had a complaint regarding the scooter. He sued the seller.
The seller pleaded that since B did not buy the scooter, he was not a con-
sumer under the Act. The Delhi State Commission held that B, the
complainant was using it with the approval of A, the buyer, and therefore he
was consumer under the Act.

(B) Yes, Ms. Rita can file a complaint under section 12 of the consumer
Protection Act 1986 before District forum in consonance with pecuniary
Jurisdiction.
In the instant case we can assume price of watch would be Rs. 1,500/- and
valuation of dispute is below 20 lakhs and Ms Rita can file a complaint before
District Forum.

Reasons - 1. That under section 2(b) of CPA,1986 complainant has been

defined. It states that a consumer can be complainant and consumer can
file a complaint before appropriate forum/commission. At the outset it is clear
that a person who can be termed as a consumer under the Act can make a
complaint.

2. That under section 2(f) of CPA,1986 defect has been defined which
clearly states that if any good having fault, imperfection, inadequacy in
quality etc in such case the said goods are suffering from the defects and a
person being aggrieved may file a complaint before appropriate
forum/commission.

3. That section 12 of CPA,1986 clearly states that if consumer having

complaint in relation to any goods sold or delivered . In such case consumer
may file a complaint before appropriate forum/commission.

4. That Ms. Rita can only file compliant in Mumbai district forum jurisdiction
because watch was purchased by Ms. Neha at Mumbai only, but due to
incomplete information provided in the question we may assume that Branch
office of watch company is located in Patna also, in such situation Ms. Rita
can file a complaint with regard to defects in watch under section 12 of
CPA.1986 either in Mumbai or Patna. If there is no branch office/service
centre of the watch company located in Patna then Ms. Rita cant file
complaint in Patna district forum due to issue of jurisdiction.

5. Case Law K.B. Jayalaxmi v. Government of Tamil Nadu 1994(1) CPR 114.
- The definition of consumer itself includes beneficiary of goods and services.

In the instant case Ms. Rita is the beneficiary of watch and she includes in
the definition of consumer and she is entitled to file a complaint before
district forum.
b) Explain the doctrine and its specific exception defined in Contract Act,
1872 which exponents that Rita is entitled to sue the Watch Company. (5
Marks)

Answer - Yes, Ms. Rita can file a complaint against Watch Company though
Ms. Rita didnt enter into the contract with Watch Company and no
consideration was paid by Ms. Rita to watch company.

- In practice and as per general rule of doctrine of privity of contract,

only concerned parties to the contract can enforce their rights and
duties towards each other, but due to specific exception of Doctrine of
privity of contract i.e. Third Party Beneficiary, as third party
beneficiary can also file a complaint and suit against the concerned
parties of the contract. A third party beneficiary, in the law of
contracts, is a person who may have the right to sue on a contract,
despite not having originally been a party to the contract.

"DOCTRINE OF PRIVITY OF CONTRACT" means that a contract confers rights

and imposes liabilities only on its contracting parties and not on other
persons. They can sue each other (or be sued) and not any third-party can
sue them, under the terms of the contracts. Whenever there are third party
beneficiaries in a contract, it may become necessary to determine as to,
who, in the eyes of the law should be liable or should be protected in event
of unavoidable breaches that may occur from time to time.

Specific Exception Third party beneficiary

Beneficiaries are those persons who are specifically intended to be

beneficiary (Intended beneficiary) under the contract or for whose benefit
the contract is entered into. When two parties to a contract confer benefits
on a third party who has not signed the contract, then it would appear that
they intended that the third party should be in a position to independently
enforce that right by taking shelter before courts of Law.
Case Law 1 - JUNIOR BOOKS LTD. V. VEITCHI CO. LTD. [1983] 1 AC 520 ,

- A undertook to build a factory for B by a contract which provided that B

would be entitled to nominate subcontractors for different parts of the
work. B nominated C to lay the floor, but there was no contract
between B and C. The floor later cracked due to C's negligence in
doing the work defectively.

- It was held that the consumer (B) is entitled to get compensation

from(C) for defective service or negligence even in absence of direct
contract between the parties. This said decision is a direct
encroachment on the doctrine of privity of contract.

Case Law 2 - Donoghue v. Stevenson [1932] UKHL 100

- A friend of Ms. Donoghue bought her a bottle of ginger beer, which was
defective. Specifically, the ginger beer contained the partially
decomposed remains of a snail. Since the contract was between her
friend and the shop owner, there was no privity of contract between the
manufacturer and the consumer, but the breach of duty to take care of
consumer enables the consumer to sue manufacturer for not performing
his duty to care.

Conclusion That concerned parties to the contract can enforce their rights
and duties towards each other, but due to specific exception of Third Party
Beneficiary, as third party beneficiary can also file a complaint and suit
against the concerned parties of the contract, despite not having originally
been a party to the contract. Hence Ms. Rita can file complaint against
Watch Company for defects in watch as third party beneficiary, despite not
having originally been a party to the contract.