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N.P.

R COLLEGE OF ENGINEERING TECHNOLOGY, NATHAM Subject Subject Code Semester Faculty Name Faculty Code : Business Law : 10488M108 : I semester : V.Tamilselvi : NPRCET 066

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BA*118 BUSINESS LAW LT P C 3003 UNIT I MERCANTILE AND COMMERCIAL LAW 15 THE INDIAN CONTRACT ACT 1872: Essential of a valid contract, Void Agreements, Definition of contract, Formation of a contract, performance of contracts, breach of contract and its remedies, Quasi contracts. THE SALE OF GOODS ACT 1930: Sales contract, Transfer of title and risk of loss, Guarantees and Warranties in sales contract, performance of sales contracts, conditional sales and rights of an unpaid seller. NEGOTIABLE INSTRUMENTS ACT 1881: Nature and requisites of negotiable instruments. Transfer of negotiable instruments and liability of parties, enforcement of secondary liability, holder in due course, special rules for Cheque and drafts, discharge of negotiable instruments.

AGENCY: Nature of agency Creation of agency, types of agents, Agents authority and liability of principal and third party: Rights and duties of principal, agents and Third party, liability of agents torts, termination of agency. UNIT II COMPANY LAW 10 Major principles Nature and types of companies, Formation, Memorandum and Articles of Association, Prospectus, Power, duties and liabilities of Directors, winding up of companies Corporate Governance. UNIT III INDUSTRIAL LAW 8 An Overview of Factories Act, Payment of Wages Act, Payment of Bonus Act, Industrial Disputes Act. UNIT IV INCOME TAX ACT AND SALES TAX ACT(Theory only) 5 Corporate Tax Planning, Overview of central Sales Tax Act 1956 Definitions, Scope, Incidence of CST, Practical issues of CST, Value Added Tax Concepts, Scope, Methods of VAT Calculation, Practical Implications of VAT RTI UNIT - V CONSUMER PROTECTION ACT AND INTRODUCTION OF CYBER LAWS 7 Consumer Protection Act Consumer rights, Procedures for Consumer greivances redressal, Types of consumer Redressal Machinaries and Forums, Cyber cvimes, IT Act 2000 and 2002, Cyber Laws, Introduction of IPR Copy rights, Trade marks, Patent Act. TOTAL: 45 PEROIDS TEXT BOOKS 1. P. K. Goel, Business Law for Managers, Bizentra Publishers, India, 2008. REFERENCES

1. P. P. S. Gogna, Mercantile Law, S. Chand & Co. Ltd., India, Fourth Edition, 2008. 2. Dr. Vinod, K. Singhania, Direct Taxes Planning and Management, 2008. 3. Akhileshwar Pathack, Legal Aspects of Business, 4th Edition, Tata McGraw Hill, 2007. 4. N. D. Kapoor, Elements of mercantile Law, Sultan Chand and Company, India, 2006. 5. V. S. Datey, Taxman Publication, 21st Edition, 2008.

UNIT I MERCANTILE AND COMMERCIAL LAW 15 THE INDIAN CONTRACT ACT 1872: Essential of a valid contract, Void Agreements, Definition of contract, Formation of a contract, performance of contracts, breach of contract and its remedies, Quasi contracts. THE SALE OF GOODS ACT 1930: Sales contract, Transfer of title and risk of loss, Guarantees and Warranties in sales contract, performance of sales contracts, conditional sales and rights of an unpaid seller. NEGOTIABLE INSTRUMENTS ACT 1881: Nature and requisites of negotiable instruments. Transfer of negotiable instruments and liability of parties, enforcement of secondary liability, holder in due course, special rules for Cheque and drafts, discharge of negotiable instruments. AGENCY: Nature of agency Creation of agency, types of agents, Agents authority and liability of principal and third party: Rights and duties of principal, agents and Third party, liability of agents torts, termination of agency. Unit 1 Law of Contract Introduction Some knowledge of law is necessary for all persons since life of each member of society must proceed to a large extent in conformity with recognized rules and principles of social conduct. Life in general and business in particular could not continue without law to regulate the conduct of people and to protect their property and contract rights. The law of contracts forms the oldest branch of the law relating to business. Its object is to introduce definiteness in commercial and other transactions, and to ensure the realization of reasonable expectations of the parties who enter into a contract. In India the law of contracts is governed by the Indian contracts Act, 1872. Objectives After studying this unit you will be able to:

Define contract. Explain the essentials of a valid contract. State the essentials of offer, proposal, acceptance and consideration. Indian Contract Act 1872 Law Its origin Every human being would like to have his own way to express himself and act. Such an unrestricted freedom can be enjoyed only in isolation. Being a social being, man wants to live in harmony with his fellow men. In such a life, ones interests are bound to clash with that of other members of the society despite best co-operation. So there is a need for control or regulations. Law happens to be one of the most effective instruments of control. In the words of Holland, law is a general rule of external human action enforced by a sovereign political authority. In the words of Salmond, law is the body of principles recognized and applied by the State in the administration of justice. Thus, law is a rule of action evolved to regulate social life and to avoid conflict of interests. The phrase commercial law, mercantile law or business law is used to denote those portions of the law which deal with the rights and obligations arising out of transactions between mercantile persons. It can be regarded as a part of Civil Law though certain aspects of Criminal Law such as forgery and fraud often become relevant in business transactions. There is no statute titled mercantile or business law. It comprises a vast number of laws governing the relation of businessmen to the society. The Indian Contract Act-1872 The Indian Contract Act, 1872 lays down the law relating to contracts. It does not lay down a number of enforceable rights and duties, but lays down a number of limiting principles subject to which the parties may create rights and duties for themselves. Definition: Contract: Sec. 2 (h) An agreement enforceable by law is a contract. To make a contract, there must be (I) an agreement and (ii) the agreement should be enforceable by law.

Agreement: Agreement is defined as every promise and every set of promises forming consideration for each other . A promise is defined as an accepted proposal. Thus, every agreement in its ultimate analysis is made of a proposal from one side and its acceptance by the other. To become a contract an agreement must be enforceable by law. Sec. 10 of the Act lays down the condition of enforceability. An agreement becomes enforceable only when it is coupled with obligation. An obligation is the legal bond, which binds the parties to a contract. The obligations springing from agreements should be legal obligations and not moral, social or religious obligations. Essentials of a Valid Contract : All contracts are agreements but all agreements need not be contracts. The agreements that create legal obligations only are contracts. The validity of an enforceable agreement depends upon whether the agreement satisfies the essential requirements laid down in the Act. Section 10 lays down that all the agreements are contracts if they are made by the free consent of the parties competent to contract for a lawful object and are not hereby expressly declared to be void. The following are the essentials: a) Agreement : An agreement which is preliminary to every contract is the outcome of offer and acceptance. An offer to do or not to do a particular act is made by one party and is accepted by the other to whom the offer is made. Then we say that there is a meeting of the minds of the parties. Such a position is known as consensus ad idem. b) Free consent : The parties should agree upon the same thing in the same sense and their consent should be free from all sorts of pressure. In other words it should not be caused by coercion, undue influence, misrepresentation, fraud or mistake. c) Contractual capacity: The parties entering into an agreement must have legal competence. In other words, they must have attained the age of majority, should be of sound mind and should not be disqualified under the law of the land. A contract entered into between the parties having no legal capacity is nullity in the eyes of law. d) Lawful consideration: There must be consideration supporting every contract. Consideration means something in return for something. It is the price for the promise. An agreement not supported by consideration becomes a nudum pactum

i.e., naked agreement. The consideration should be lawful and adequate. However, there are certain exceptions to this rule. e) Lawful object : The object or purpose of an agreement must be lawful. It should not be forbidden by law, should not be fraudulent, should not cause injury to the person or property of another, should not be immoral or against public policy. f) Not expressly declared void: The statute should not declare an agreement void. The Act itself has declared certain types of agreements as void. E.g., agreements in restraint of marriage, trade, legal proceedings. In such cases, the aggrieved party cant seek any relief from the court of law. g) Possibility of performance: The agreement should be capable of being performed. e.g., Mr. A agrees with Mr. B to discover treasure by magic. Mr. B cant seek redressal of the grievance if Mr. A fails to perform the promise. h) Certainty of terms: The terms of the agreement should be certain. E.g., Mr. A. agrees to sell 100 tons of oil. The agreement is vague as it does not mention the types of oil agreed to be sold. i) Intention to create legal obligation: Though Sec. 10 is silent about this, under English law this happens to be an important ingredient. Therefore, Indian courts also recognise this ingredient. An agreement creating social obligation cant be enforced. j) Legal formalities: Indian Contract Act deals with a simple contract supported by consideration. Agreements made in India may be oral or written. However, Sec. 10 states that where the statute states that the contract should be in writing and should be witnessed or should be registered, the same must be observed. Otherwise, the agreement cant be enforced e.g., Under Indian Companies Act, the Memorandum of Association and Articles of Association must be registered. Classes of Contracts: On the basis of enforceability, contracts may be classified as follows: Valid contract: It is a contract which satisfies all the legal requirements provided for under Sec. 10. Void contract: An agreement not enforceable by law is said to be void. Sec. 2 (g). A void agreement is a nullity in the eyes of law creating no legal rights or obligations. Therefore, it is inappropriate to call it void contract. However,

sometimes it may happen that an agreement which is valid in the beginning may become void subsequently due to various reasons, such as impossibility of performance or illegality. Then we do refer to the term void contract. An agreement void from the beginning is known as Void ab initio. Then we cant use the term void contract. E.g., an agreement with a minor. An agreement which ceases to enforceable by law becomes void when it ceases to be enforceable. Such a contract, though valid in the beginning becomes void subsequently. Voidable contract: An agreement which is enforceable by law at the option of one or more of the parties thereto but not at the option of the other or others is a voidable contract. The party entitled to affirm or reject it is the aggrieved party. This right of revocation has to be exercised within the reasonable time and before third parties acquire rights under contract. When the aggrieved party avoids the contract, the other party there to need not perform any promise and the party avoiding the contract should restore any benefit he has received under the contract. Illegal contract: There is nothing like a legal contract or an illegal contract. It is right to call illegal agreement. An agreement is illegal when it is against the law of the land. E.g., an agreement to commit fraud, crime or one that is opposed to good morals. It is to be noted that while all the illegal agreements are void, all void agreements need not be illegal. Unenforceable contract: An unenforceable contract is one which is valid but for certain technical reasons such as want of proof, expiry of period within which enforceable, absence of writing or registration etc. it becomes unenforceable. By clearing the technical reasons it can be enforced. Offer or Proposal Sec. 2 (a) defines offer as follows: When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other person to such act or abstinence, he is said to make a proposal. The person making the proposal is called promisor and the person accepting it is called promisee. Essentials of a Valid Offer:

a) An offer may be general or specific: According to Sec. 2 (a) an offer must be made to a specific person. An offer may be made to the world at large. But the contract is made only with the person who accepts and fulfills the conditions of the proposal. In the words of Anson, An offer need not be made to an ascertained person, but no contract can arise until it has been accepted by an ascertained person. In Carlill Vs Carbolic Smoke Ball Co. (1893), a Company offered by advertisement to pay 100 to any one who contacts the increasing epidemic influenza, cold or any disease caused by taking cold after having used the ball as per printed directions. It was added that 1000 is deposited with the Alliance Bank showing our sincerity in the matter. The plaintiff used the smoke mokeball as per the directions but subsequently suffered from influenza. She was held entitled to recover the promised reward. b) An offer should be made with an intention of creating legal obligation: This principle of English law though not incorporated specifically under Section 10, is generally accepted as vital to form a legal agreement. Social, moral or religious agreements are not legally enforceable. For example, Mr. A invites Mr. B to dinner. Mr. B fails to attend. Mr. A cannot sue Mr. B for unconsumed food. Whether the offeror intended to enter into legal obligations or not could be known from the nature of the agreement and the surrounding circumstances. The court has to ascertain the intention of the parties. The test of contractual intention is objective and not subjective. What is considered is not what the parties had in mind but what a reasonable person would think in the circumstances their intentions to be. c ) An offer must be definite and certain: The terms of an offer should not be uncertain and ambiguous. Anson expressed The law requires the parties to make their own contract, it will not make a contract for them out of terms which are indefinite or illusory . This is so because the courts cannot say what the parties to the contract are to do and whether there is violation of the contract. However, all the terms of an offer need not be expressed. If some of the essential terms of a bargain may not be specified but are capable of being determined by some method other than by a future agreement there will be a good contract between the parties.

d) A statement of intention and an invitation to offer are not offers: Preliminary negotiations are likely to take place before entering into an agreement. In the course of such negotiations one party may make some declarations regarding his intention of doing something. Such a declaration by itself does not become an offer. e.g., A tells B I want to sell my car. This is not an offer. An invitation to offer is not an offer. An advertisement for tenders for sale of goods by auction, an announcement about the stock of goods for sale, display of goods in shop windows, prospectus of a company, catalogue, price-lists, loudspeaker announcements etc. are merely invitations to offer or offers. E )An offer must be communicated to the offeree: An offer becomes operative only when it has been communicated to the person to whom the offer is made. Communication is necessary whether the offer is specific or general. Under Section 4 the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. However, mere knowledge of a proposal does not amount to communication unless the offeree acquires it with express or implied intention of the offeror. The Act does not indicate the mode of communication. The offeror may communicate the offer by choosing any available means. However, a letter containing an offer which is never mailed is not an offer even if the contents are known by the offeree in some manner. General offers are communicated to public through notice and advertise-ments. But as regards reward cases the question arises whether the person performing the conditions of the offer can claim the reward even if he is ignorant of the offer. In Lalman Shukla Vs. Gouri Dutt case it was held that knowledge of the offer is essential. There can be no acceptance unless there is knowledge of the offer. When the offer is not communicated silence on the part of the offeree does not amount to consent since he does not have the opportunity to reject the offer. E.g., A works for B without the request or knowledge of B. A cant sue B for remuneration since Bs consent cant be presumed from his silence. f) The terms and conditions of offer should also be communicated: An agreement is a two-sided bargain based on freedom of contract. However, in modern times the buyer of an article is in an unfavourable position. Freedom of contract becomes one-sided in the case of agreements with common carriers, dry cleaners, tailors, insurance companies, landlords, public utilities etc. It is also

difficult to draw up a separate agreement with each individual. Therefore, printed forms of agreements known as standard form contracts are used. Such forms contain large number of terms and conditions very often small in print absolving the dominant party of all liability. The economically weaker party has to accept all such terms and conditions irrespective of whether he likes them or not. The Court too finds it difficult at times to protect the interest of the weaker party. Therefore the courts have evolved certain methods. When the offer contains special terms and conditions the offeror must communicate all the terms and conditions either before or at the time of contracting in order to bind the acceptor. On the other hand if the acceptor knew that there was writing and knew or believed that the writing contained conditions he is then bound by the conditions even though he did not read them. It is enough if the offeror has done all that can be considered necessary to give notice to the acceptor. g) Two identical offers do not make a contract: An offer made by a person may cross a similar one made by another person of course in the course of transit. They are just two identical or cross offers, though there seems to be identity of mind. h) An offer should not contain any term the non-compliance of which amounts to acceptance: There may be any number of terms and conditions in an offer. The acceptor can accept or reject them. While the offeror can prescribe mode of acceptance, he cant prescribe the form or time of refusal so as to fix a contract upon the acceptor. He cant say, for example, that if the offeree does not communicate before a given time, he is deemed to have accepted the offer. Acceptance According to Sec. 2 (b) When the person to whom the proposal is made signifies his willingness thereto the proposal is said to be accepted. A proposal, when accepted, becomes a promise. By accepting the offer, the acceptor expresses his willingness to be bound by the terms and conditions of the offer. Regarding an offer and its acceptance, Anson has given an analogy of a lighted match stick. Acceptance is to an offer what a lighted match is to a train of gunpowder. It produces something which cant be recalled or undone. An acceptance turns the offer into a binding obligation. Rules Regarding Acceptance:

a) An offer can be accepted only by the person to whom it is made: The offeree only has to accept the offer. In case it is accepted by any other person no agreement is formed. However, in case authority is given to another person to accept the offer on behalf of the person to whom it is made, it is a valid acceptance. b) Acceptance should be unconditional and absolute: Sec. 7 (I) states that the acceptance should be absolute and unconditional. The acceptor should accept the offer in toto. If it is qualified or conditional, it ceases to be valid. In fact, a qualified or conditional acceptance is nothing but a counter-offer. c) Acceptance should be communicated: The party accepting the offer must communicate his acceptance to the offeror. Acceptance is not a mental resolve but some external manifestation. The acceptance can be communicated in writing or word of mouth or also by conduct. An agreement does not result from a mere state of mind. As regards unilateral contracts (e.g., offer of reward) it is impossible to the offeree to communicate his acceptance otherwise than by performing the contract. In the case of bilateral contracts acceptance must be communicated. The offeror cant force a contract on offeree by fixing the mode of refusal. Further, acceptance should be communicated only to the offeror and not to somebody else. d) Acceptance should be according to the prescribed form: Unless specified in the offer the acceptance must be in some usual and reasonable manner. The proposer has the right to prescribe the manner of acceptance. He may require it to be oral or in writing or to be communicated to him by phone or telephone etc. He can also waive his right or may ask the offeree to express acceptance by some gesture. Once he prescribes the mode of communication later he cant say that it was insufficient. If the offeree does not signify his assent to the offeror according to the mode prescribed it becomes deviated acceptance and strictly speaking it is no acceptance at all. However, such a regid rule is not followed in India. In the case of deviated acceptance the proposer may insist for the acceptance in the prescribed manner. He then has to do this within a reasonable time after communication of acceptance to him. Otherwise it will be presumed that the proposer has accepted the deviated acceptance. Sec. 7 of the Act does not tell that deviated acceptance is no acceptance.

e) Acceptance must be provoked by offer: The acceptor must be aware of the offer. Even if he fulfills the conditions mentioned in the offer, if he is ignorant of the offer itself, he cant give a valid acceptance. [Lalmann Shukla V, Gouridutt]. f) Acceptance must be given before the offer lapses or is revoked: Where a time limit has been fixed the acceptor has to accept the offer within such time. Where no time limit is prescribed the acceptance has to be within the reasonable time. An offer once dead cant be accepted unless there is a fresh offer. g) Provisional acceptance is no acceptance: A provisional acceptance does not make a binding agreement unless final approval is given. The offer may be withdrawn before giving final approval. However, whether an agreement is provisional or final depends upon the intention of the parties. Contract by post: No problem arises where there is instantaneous communication of offer and acceptance which is possible when the parties are face to face. But how to determine the point of time when the contract is complete if the parties are at distance by each other ? As regards the point of time when the contract is complete, there is fundamental difference between English Law and Indian Law. Under English Law, the proposer is legally bound by the acceptance effected through postal medium when the letter is prepared, addressed, stamped and mailed eventhough it is delayed or lost in transit. Indian Law (Sec. 4) lays down that the communication of an acceptance is complete as against the proposer when it is put in a course of transmission to him so as to be out of the power of the acceptor; as against the acceptor when it comes to the knowledge of the proposer . The distinction between English Law and Indian Law lies with regard to the position of the acceptor. While under English Law, the acceptor is bound by acceptance the moment the letter is mailed properly, under Indian Law the communication of acceptance is complete as against, the acceptor only when it comes to the knowledge of the proposer. Termination of offer: Following are the circumstances under which an offer is terminated. a) Lapse : An offer lapses because of passage of time, death or insanity of the proposer. In case time limit for acceptance is prescribed by the offeror, offer lapses if not accepted within that time. In the absence of any stipulation of time, it has to

be accepted within a reasonable time depending upon the circumstances of each case. 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. An acceptance is not effective if it is communicated to the legal representatives of the proposer. But in case the offeree is ignorant of the offerors death, it can be accepted. b) Failure to fulfill a condition procedent: Sec. 6 (3) provides that an offer is terminated by the failure of the acceptor to fulfil a condition precedent to acceptance. e.g., A offers to sell his car to B for Rs. 1,00,000 on the condition that B has to show his driving licence to A. B has to comply with this condition if he has to accept the offer. c) Rejection: By rejecting the offer offeror can terminate an offer. This rejection may be express or implied. A counter offer has the same effect as rejection. d) Destruction of the subject matter or illegality : If the thing offered is destroyed or cant be bought and sold due to operation of law, the offer itself lapses. e) Revocation: The withdrawal of an offer by the offeror is known as revocation. Till the acceptance of the offer, the offeror can revoke it. Sec. 5 provides that a proposal may be revoked by the proposer at any time before the communication of its acceptance is complete. Communication of acceptance as against the proposer is complete where it is put in the course of transmission to him so as to be out of the reach of the acceptor. In England, an acceptance cant be revoked. Contractual Capacity Legal disability of the parties would render the agreement entered into between them unenforceable in a court of law. In fact, even a desirable person may enter into an agreement. Law does not infringe his freedom of making an agreement with anybody he likes. But by declaring certain classes of persons having no contractual capacity, law seeks to protect their interests from being exploited by unscrupulous persons. Definition: Section II lays down that Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is

subject. This section declares following persons to be incompetent: (1) Minors (2) persons of unsound mind and (3) persons disqualified by law to which they are subject. Minors: A minor is a person who has not attained the age of majority. According to Indian Majority Act, 1875 the age of 18 years is a major. However, if a guardian is appointed by the court or if the minor or his property is under the supervision of a court of wards, the age of majority is 21 years. Principles governing minors contracts: The law protects minors persons, preserves either their rights and estates, excuses their shortcomings and negligences and assists them in their pleadings, the judges are their counsellors, the jury are their servants and law is their guardian. In pursuing the above objective, the law should not cause unnecessary hardship to those who deal with minors. Sec. II of the Act is silent as regards the legal effects of an agreement entered into by or with a minor. In Mohari Bibi Vs. Dharmo Das Ghosh case it was held that a minors agreement is void-ab-initio. Effects of minors agreement: A minors agreement is void-ab-initio. Where there is no contract, there should be no contractual obligation on either side. Hence, the effects of a minors agreements are worked out independently of any contract. No estoppel against minor: A minor who has made an agreement by misrepresentation of his age may disclose his real age. There is no estoppel against him. No liability in contract or tort arising out of contract: A minor is, in law, incapable of giving consent. Hence, there could be no change in the character or status of the parties. A minor who misrepresents his age to obtain a contract cannt be sued for deceit. You cannt convert a contract into a tort to enable you to sue an infant. This principle has been followed in India. Where, however, the tort is independent of contract the mere fact that a contract is also involved will not absolve the minor from liability.

Doctrine of restitution: If a minor obtains property or goods by misrepresentating his age, he can be compelled to restore it but only so long as the same is traceable in his possession. This is known as the equitable doctrine of restitution. Suppose the minor has sold the goods he cant be made to repay the value of the goods because that would amount to enforcing a void contract. However, when a minor invites the aid of the court for the cancellation of his contract the court may grant relief subject to the condition that he shall restore all benefits obtained by him under the contract or make suitable compensation to the other party. But the court will not compel any restitution by a minor even when he is a plaintiff, where the other party was aware of the infancy so that he was not deceived or where the other party was unscrupulous in his dealings with the minor. Beneficial contracts: The law that a minors agreement is absolutely void has been confined to the cases where a minor is charged with obligations and the other party seeks to enforce them. On the other hand a minor is allowed to enforce a contract which is of some benefit to him and under which he is required to bear no obligations. A minor is capable of purchasing immovable property and he may sue to recover the possession of the property purchased by tendering the purchase money. A minor can be a beneficiary e.g., a payee, an endorsee, or a promisee under a contract. A promissory note executed in favour of a minor is valid and can be enforced in a court. Ratification: On attaining majority, a person cant ratify an agreement made by him when he was a minor. Ratification relates back to the date of making of the contract. Therefore, a contract which was void originally cant be made valid by subsequent ratification. If it is necessary, a fresh contract should be made on attaining majority. A new contract requires a fresh consideration. The consideration which passed under the earlier contract cant be implied into the contract into which the minor enters on attaining majority. Liability for necessaries (Sec. 68): Persons incompetent to contract are made liable for necessaries supplied to them. Sec. 68 reads If a person incapable of entering into a contract or any one whom he is legally bound to support is supplied by another person with necessaries suited to his conditions in life, the person who has

furnished such supplies is entitled to be reimbursed from the property of such incapable person. The liability is only for necessaries. But what is necessary is not defined by the Act. We have to depend upon judicial decisions. Things necessary are those without which an individual cannt reasonably exist such as food, raiment, lodging etc. What may be necessary for one class may be luxury for another. Therefore, the class has to be ascertained and then whether a thing is a necessity or not has to be determined. To render an infants estate liable for necessaries, two conditions must be satisfied: (1) The contract must be for goods reasonably necessary for his support in his state of life and (2) he must not have already a sufficient supply of these necessaries. The supplier has to prove not only that the goods supplied were suitable to the conditions in life of the minor but that he was not sufficiently supplied with the goods of that class. Thus, the liability for supply of necessaries attaches only to the estate of a minor and he does not incur any personal liability. Persons of Unsound Mind: A person is said to be of sound mind for the purpose of making a contract if at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effects upon his interests. A person who is usually of sound mind but occasionally of unsound mind may not make a contract when he is of unsound mind (Sec. 12). Two tests are laid to determine the soundness of mind while making a contract. They are (i) the person making a contract should be capable of understanding it and (ii) should be capable of forming a rational judgement as to its effects upon his interests. In English Law, a person of unsound mind is competent to contract. He may avoid his contract by satisfying the court that he was incapable of understanding the contract at the time of its formation and the other party knew it. The contract is voidable at his option. Under Indian Law, the agreement of a person of unsound mind is absolutely void. A person of unsound mind, however, may make a contract when he is of sound mind. Sec. 12 also puts the persons such as drunkard or a person who is delirious from fever in the same category as a person of unsound mind.

Free Consent One of the essentials of a valid contract is free consent. Sec. 13 of the Act defines consent as Two or more persons are said to consent where they agree upon the thing in the same sense. There should be consensus ad idem or identity of minds. The validity of a contract depends not only on consent of the parties but their consent must also be free. According to Sec. 14, consent is said to be free when it is not caused by (i) coercion as defined under Section 15, or (ii) undue influence as defined under Section 16, or (iii) fraud as defined under Section 17, or (iv) misrepresentation or defined under Section 18, or (v) mistake subject to the provisions of Section 21, 21 and 22. 1. Coercion: (Sec. 15) Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code or the unlawful detaining or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed. Under English Law, coercion must be applied to ones person only whereas under Indian Law it can be ones person or property. So also under English Law, the subject of it must be the contracting party himself or his wife, parent, child or other near relative. Under Indian Law, the act or threat may be against any person. It is to be noted that the act need not be committed in India itself. Unlawful detaining or threatening to detain any property is also coercion. While threat to sue does not amount to coercion threat to file a false suit amounts to coercion since such an act is forbidden by Indian Penal Code. 2. Undue influence: In the words of Holland, Undue influence refers to the unconscious use of power over another person, such power being obtained by virtue of a present or previously existing dominating control arising out of relationship between the parties. According Sec. 16 (1) A contract is said to be induced by undue influence where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

A person is deemed to be in a position to dominate the will of other a) Where he holds a real or apparent authority over the other or where he stands in a fiduciary relation to the other; or b) Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress; c) Where a person who is in a position to dominate the will of another, enters into a contract with him and the transaction appears to be unconscionable. The burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. Both coercion and undue influence are closely related. What contributes coercion or undue influence depends upon the facts of each case. Sec. 16 (i) provides that two important elements must be present. The first one is that the relations subsisting between the parties to a contract are such that one of them is in a position to dominate the will of the other. Secondly, he uses that position to obtain unfair advantage over the other. In other words, unlike coercion undue influence must come from a party to the contract and not a stranger to it. Where the parties are not in equal footing or there is trust and confidence between the parties, one party may be able to dominate the will of the other and use that position to obtain an unfair advantage. However, where there is no relationship shown to exist from which undue influence is presumed, that influence must be proved. Presumptions as to undue influence: Sec. 16 (2) mentions certain types of relationships which give rise to presumptions of undue influence. They are (i) parent and child (ii) guardian and ward (iii) trustee and beneficiary (iv) religious advisor and disciple (v) doctor and patient (vi) solicitor and client (vii) fiance and fiancee. The presumption about undue influence is rebuttable one by proving that a ) the person complaining of undue influence had independent advice. b) Full disclosure of facts was made to him and he understood the same. c) There was no undue influence and adequate consideration was there. As regards the relationship between debtor and creditor, landlord and tenants, mother and daughter, husband and wife, grandson and grand/father there exists no presumption of undue influence. The party avoiding the contract must prove the existence of undue influence.

Contracts with pardanashin women: A pardanashin woman is one who according to the customs of her community lives in complete seclusion. The law presumes undue influence in the case of a contract with a pardanashin women. Ordinary presumption is that a person who signs a document understands its contents. But as regards a pardanashin woman this presumption does not hold good. The burden of proof lies on the other party to show that there was no undue influence, that the party understood the contents and the effects of the document upon her interests. Unconscionable or catching bargains: When a dominant party enters into contract with a weaker party, he may take undue advantage or that others ignorance, infirmity or impaired bargaining power. Such contracts are known as unconscionable contracts. Sec. 16 (3) lays down that in the case of unconscionable bargain the onus of proof that the transaction was not induced by undue influence is on the person who is in a dominating position in relation to the other party to the contract. Coercion and undue influence distinguished: In the case of coercion, contract is obtained by committing or treatening to commit an act punishable under Indian Penal Code. In the case of undue influence the consent is obtained by dominating the will of the other. Coercion involves physical force. Undue influence involves moral force. Coercion may proceed from a stranger and may be directed against a stranger. Undue influence must proceed from a party to the contract. There is no presumption as regards coercion. On the other hand law presumes undue influence in certain circumstances. The offence may be committed in or outside India in order to render it coercion. Undue influence must be exercised in India. Coercion affects provisions of Indian Penal Code. There is no criminal liability for undue influence. The party avoiding a contract under coercion has to restore any benefit he received under the contract to the other party. Under undue influence the party avoiding the contract may or may not be directed by the court to do so. Fraud: A false statement made knowingly or without belief in its truth or recklessly careless whether it be true or false is called fraud.

Sec. 17 of the Act instead of defining fraud, gives various acts which amount to fraud. Sec. 17: Fraud means and includes any of the following acts committed by a party to a contract or with his connivance or by his agent to induce him to enter into contract: The suggestion that a fact is true when it is not true by one who does not believe it to be true. A false statement intentionally made is fraud. An absence of honest belief in the truth of the statement made is essential to constitute fraud. The false statement must be made intentionally. The active concealment of a fact by a person who has knowledge or belief of the fact. Mere non-disclosure is not fraud where there is no duty to disclose. A promise made without any intention of performing it. Any other act fitted to deceive. The fertility of mans invention in devising new schemes of fraud is so great that it would be difficult to confine fraud within the limits of any exhaustive definition. Any such act or omission as the law specially declares to be fraudulent. Essentials of fraud: Making a false suggestion: There should be a false suggestion by a party who knows it to be false or the statement must have been made recklessly without caring to know its truthfulness. The false suggestion can be made by conduct of the party. The representation must be of a fact. The false suggestion or representation must be of a fact and not of opinion or intention. Commendatory explanations as found in advertisements that a soap washes whiter than white do not constitute representations of fact. It is usual for a trader to praise his own goods. Active concealment of facts amounts to fraud: Instead of making a false representation a person may conceal a material fact which according to him, if stated, would be disadvantageous to him, such concealment of fact amounts to suppression of truth. A promise made without any intention of performing it: A promise includes a representation to the effect that the promisor has the intention of performing it. So if a party makes a promise without having any intention of performing it, he commits fraud e.g., buying goods with no intention of paying for the same.

Any other act filled to decieve: Sec. 17 (4) brings within the purview of Sec.17 all such acts which though apparently amount to misrepresentation of fact, may amount to fraud considering the facts of the case. Any act of ommission which the law specifically declares to be fraudulent. Misrepresentation should be addressed to the party misled: The idea behind making misrepresentation should be that the other person must act upon it. Once it is shown that the misrepresentation was addressed to him, it becomes fraud if the person acts upon it though the person making representation may say that he did not intend that the person to whom it was addressed, should act upon it. The representation must induce the contract: The person to whom the representation is made should rely upon the same and should enter into a contract. A false representation is merely irrelevant if it has not induced the party to whom it was made to act upon it by entering into a contract. The party acting on the representation should have been deceived and suffered damage. The aggrieved party can not set aside the contract if he has not sustained damage. If one knows that he is going to be deceived later he cannot complain of being deceived by entering into contract. Silence whether fraud ? While active concealment of a material fact is fraud, silence is not fraud except under two circumstances. There is no general duty cast upon a party to a contract to disclose to the other party material facts within his knowledge, but are unknown to the other party. This principle is known as Caveat Emptor (let the buyer beware) in contracts of sale of goods. However, under the following two circumstances silence would amount to fraud: a) Circumstances of the case cast a duty upon the person keeping silence to speak and (b) silence itself is equivalent to speech. Duty to speak arises when the parties to a contract are in a fiduciary relationships. Such contracts are known as uberrimae fide contracts, the most common examples being insurance contracts, contracts of suretyship, releases or compromises. When a person is under no duty to speak, he may become guilty of fraud by nondisclosure, if he voluntarily discloses something and then stops half the way. 4. Misrepresentation: Before entering into a contract, the parties will make certain statements inducing the contract. Such statements are called representation. A representation is a statement of fact made by one party to the other at the time of entering into

contract with an intention of inducing the other party to enter into the contract. If the representation is false or misleading, it is known as misrepresentation. A misrepresentation may be innocent or intentional. An intentional misrepresentation is called fraud and is covered under Section 17. Sec. 18 deals with an innocent misrepresentation. Sec. 18 misrepresentation means and includes (i) the positive assertion in a manner not warranted by the information of the person making it, of that which is not true, though he believed it to be true. (ii) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, by misleading another to his prejudice. (iii) by causing however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement. Positive assertion of a fact: A person might have received information from an untrustworthy source or hear-say. But he may assert positively that a particular fact concerning the subject matter of the agreement is true. Then he is said to have misrepresented the fact. A false statement need not be made direct to the plaintiff. It is sufficient if it is made to a third party so that the plaintiff becomes aware of it. However, if the misrepresentation has not been embodied in the contract it creates no contractual obligation unless it turns out to be fraudulent. Breach of duty: A person may commit breach of duty without any intention to deceive the other party thus gaining an unfair advantage over the other. When a party to the contract has a duty to disclose all the material facts concerning the subject matter of the contract, but does not do so, he is said to be guilty of misrepresentation. A representation may be true at the time of making it, but later becomes false. This should also be disclosed before the contract is entered into. Causing mistake about the subject matter: If a party to an agreement induces the other to commit mistake as to the nature or quality of the subject matter of the agreement, he is guilty of misrepresentation. Distinction between fraud and misrepresentation: In misrepresentation the person making the false statement honestly believes it to be true. In fraud, the false statement is made by person who knows that it is false or he does not care to know whether it is true or false. There is no intention to deceive the other party when there is misrepresentation of fact. The very purpose of fraud is to deceive the other party to the contract.

Misrepresentation renders the contract voidable at the option of the party whose consent was obtained by misrepresentation. In the case of fraud the contract is voidable. It also gives rise to an independent action in tort for damages. Misrepresentation is not an offence under Indian Penal Code and hence not punishable. Fraud, in certain cases is a punishable offence under Indian Penal Code. Generally, silence is not fraud except where there is a duty to speak or the relation between parties is fiduciary. Under no circumstances can silence be considered as misrepresentation. The party complaining of misrepresentation cannt avoid the contract if he had the means to discover the truth with ordinary deligance. But in the case of fraud, the party making a false statement cannot say that the other party had the means to discover the truth with ordinary deligance. 5. Mistake: Usually, mistake refers to mis-understanding or wrong thinking or wrong belief. But legally, its meaning is restricted and is to mean operative mistake. Courts recognise only such mistakes which invalidate the contract. Mistake may be mistake of fact (either unilateral or bilateral) or mistake of law (either Indian law or foreign law). Sec. 20 Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Sec. 21 A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not inforce in India has the same effect as a mistake of fact. Bilateral mistake: Sec. 20 deals with bilateral mistake. Bilateral mistake is one where there is no real correspondence of offer and acceptance. The parties are not really in consensus-ad-idem. Therefore there is no agreement at all. A bilateral mistake may be regarding the subject matter or the possibility of performing the contract. Mistake as to the subject matter: This mistake arises when the parties to the contract assume at the time of making the contract, that a certain state of things exists, but in reality it does not exist. Such a mistake may relate to

(i ) existance of the subject matter: Two parties may enter into the contract on the assumption that the subject matter exists at the time contract. But actually it may have ceased to exist or has never existed at all. Then the contract becomes void. (ii) Identity of the subject matter: A mutual mistakes as to the identity of subject matter renders the contract void. (iii) A mistake as to the quality of the subject matter will not render the agreement void owing to the application of the principle of caveat emptor unless there is misrepresentation or guarantee by the seller. (iv)Price of the subject matter: An explanation to Sec. 20 provides that an erraneous opinion as to the value of the thing which forms the subject matter of the agreement is not to be deemed a mistake as to a matter of fact. A mistaken notion about the value of a thing bought or sold may be unilateral or bilateral. If it is unilateral, the buyer or seller has to presume that he has made a bad bargain. Where the mistake is mutual and the parties enter into the contract with false assumption and mistake as to the value of the subject matter is the basis of their agreement, there cant be an enforceable contract between them. (v) Title of the subject matter: If a person agrees to purchase property which is unknown to himself and the seller is his own already, the contract may be void. A mistake as to the title does not invalidate a contract since Sec. 14 of the Sale of Goods Act imposes an implied condition as to the title of the seller. Where there is no such warrantee or the buyer purchases his own property the agreement will be void-ab-initio. (vi) A false and fundamental assumption: A false and fundamental assumption going to the root of the contract would render the contract invalid. Mistake as to the possibility of performance: There may not be any possibility of the performance of the contract. This impossibility of performance may be physical or legal impossibility. However, impossibility of performance cannot be included under the head bilateral mistake as there is Sec. 56 which lays down a positive rule of law regarding responsibility. Unilateral mistakes: Mistake of one of the parties to a contract as to a matter of fact is known as unilateral mistake. Sec. 22 provides that a contract is not voidable merely because it was caused by unilateral mistake. A person is bound by an agreement to which he has expressed a clear assent unless the unilateral mistake is caused by misrepresentation or fraud.

However, where consent to an agreement is given by a party to it under mistake which prevents the formation of a contract, the unilateral mistake multifies the consent and the contract becomes void. The following are such exceptional cases: (a)Mistake as to identity: It is a rule of law that if a person intends to contract with A, B cannot give himself any right under it. An offer can be accepted only by the person to whom it is offered. If it is accepted by some one else, there arises a unilateral mistake rendering the contract void. Mistake as to identity is of two types: (i) where the parties are dating with each other from a distance (ii) where they are face to face with each other. (b)Mistake as to the character of a written document: If a person signs a document under the mistaken impression that he is signing a document of a different nature altogether he may escape liability in the document signed by him, provided he can prove that the nature of the document is different from what it is supposed to be. One party to a contract may not disclose to the other the nature of the document and induce the other to sign the same. The other party may sign it presuming it to be a document of different nature. In such a case, the contract becomes wholly void for want of concent. Mistake of law: A mistake of law may be of law of land or of foreign law. Mistake as to the law of the land doesnot render the contract voidable as ignorance of law is no excuse. Consideration Consideration means something in return.It is one of the essentials of valid contract. Ex Nudo Pacto Non Oritar Actio means out of bare promise no action arises. Definition: Blackstone defined consideration as the recompense given by the party contracting to the other. In the words of Pollack, Consideration is the price for which the promise of the other is bought and the promise thus given for value is enforceable. Sec. 2 (d) of the Act defines consideration in the following terms: When at the desire of the promisor the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing

something, such act or abstinence or promise is called a consideration for the promise. Rules Governing Consideration: (i) Consideration should be furnished at the desire of the promisor. The consideration should be the outcome of the desire of the promisor. The desire may be express or implied. The act done at the instance of third party or gratuitously does not become consideration. e.g. As house catches fire. B goes and helps in extinguishing it. B later cannot ask for any payment for his services. Even spiritual promises or mental satisfaction are not enforceable. The question arises whether a promise of a subscription to a public or charitable trust becomes legal. (Kedarnath Vs Gorie Mohammed). A mere promise is not enough. The promisee must have done some act or incurred expenses on the strength of the promise. (Abdul Aziz Vs Maznoon Ali). (ii) Consideration may move from the promisee or any other person: Sec. 2 (d) provides that the consideration may be furnished by the promisee or any other person. At this point Indian law differs from English law according to which the consideration must move from the promisee only and not from the third party. However, there is a doctrine known as constructive consideration under which if the person who was to take a benefit under the contract was nearly related by blood to the promisee, a right of action would vest to him. But this doctrine is no more valid. (iii) Consideration may be past, present or future: Past consideration is something done or not done at the request of the promisor, before the making of the agreement. Under English Law, past consideration is no consideration. Nevertheless, past consideration will support a subsequent promise of the promisor. If services are rendered under circumstances which raise an implication of a promise to pay for them, the subsequent promise to pay is merely fixing a reasonable compensation for the services. In India past consideration is sufficient to support a promise provided it is made at the request of the promisor. Present consideration refers to one furnished at the time of the promise. Where both the parties to a contract promise to each other of doing or not doing something the consideration on both sides moves to a future date and is known as future

consideration. Present and future considerations are also known as executed and executory consideration respectively. (iv) Consideration need not be adequate: The law does not expect that the consideration should be adequate. It is the lookout of the promisor. The parties as between themselves can determine adequate consideration. The consideration which the contracting parties give to each other need not be of equal value. However, explanation 2 to Sec. 25 provides that the agreement to which the consent of the promisor is given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into consideration by the court in determining whether the consent of the promisor was freely given. (v) Consideration should be valuable: The consideration should not be unreal or illusory or of the nature of moral obligation. It should be valuable, though the value of the consideration need not be the same as the value of the promise which it supports. (vi) The discharging of a pre-existing obligation is not consideration: The law may compel a person to do an act. Then the mere doing of such act cant become consideration for anothers promise. However, doing or agreeing to do more than what a person is legally bound amounts to good consideration. In the same way performing or promising to perform an existing obligation imposed by a previous contract will not form consideration. (vii) Consideration should be certain and lawful: Consideration should not be illusory or uncertain or impossible. Discovering a treasury by magic, for example, cannot form consideration. Exceptions to the rule no consideration, no contract: Sec. 25 of the Act declares that an agreement made without consideration is void. However, Sec. 25 also provides for the following statutory exceptions: Agreement made on account of natural love and affection: It is valid provided it is in writing, is registered and is made between the parties standing in near relation to one another. Nearness of relation implies blood relationship. However, even mental relationship is equally nearness of relationship. Promise to compensate voluntary services: Sec. 25 (2) provides that a promise to compensate wholly or in part a person who has already voluntarily done something

for the promisor is valid and enforceable. E.g., A finds Bs purse and gives it to him. B promises to give A Rs. 50. This is a contract. Sec. 2 (d) also deals with past consideration. But the difference between Sec. 2 (d) and Sec. 25 (2) is that under Section 2 (d) the services are rendered at the request of the promisor whereas under Section 25 (2) the services are voluntary. However, voluntary act should satisfy following conditions so as to become an exception: i) The voluntary act should have been done for the promisor and not anybody else. ii) The promisor must have been existing at the time when the act was done. iii) The promisor should be competent to contract at the time when the act was done. iv) The intention of the promisor should have been to compensate the promisee. v) The services rendered should not be immoral. A promise to pay a time-barred debt: The time-barred debt i.e. the one barred by the law of limitation, cant be recovered. But Sec. 25 (3) provides that if a promise is made in writing and signed by the person to be charged therewith or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits is valid and enforceable. However, mere oral promise or acknowledgement of debt is not enforceable. A completed gift: In the case of a gift actually made not being an agreement to make a gift, no consideration is necessary. The donor and donee may not be the near relatives. Agency: No consideration is necessary to create an agency. Remission: No consideration is necessary for an agreement to receive less than what is due. Similarly, an agreement to extend time for performance of a contract need not be supported by consideration. Contribution to charity: A promise to contribute to charity, though gratuitous, would be enforceable if on the faith of the promised subscription, the promisee takes definite steps in furtherance of the object and undertakes a liability. Privity of Contract

The general rule of law is that a person who is not a party to a contract can not claim any rights under the contract even though the contract is for his benefit. Such a person is known as a stranger to the contract. Though Indian Contract Act is silent about the position of a stranger to a contract, the Privy Council and later the Supreme Court extended the principle of the English Law to India. Exceptions: The rule discussed above has the following exceptions: In the case of a trust or a charge: Where a trust is created by a contract, the beneficiary can enforce his rights which the trust has conferred upon him eventhough he is not a party to the contract creating the trust. In the case of acknowledgement or estoppel: Wherein a contract between two parties, the promisee may be required to make a payment to a third party. The promisor may acknowledge the payment by conduct or otherwise to the third party. Then the third party can sue the promisor though there is no privity of contract between himself and the promisor. In the case of assignment: When rights under a contract are assigned, the assignee can sue upon the contract for the enforcement of his rights. In the case of family and marriage settlements: When a provision is made for the maintenance of female members of a Hindu family in a partition of Joint Hindu property, or for the marriage expenses of a female member the person for whose benefit such a provision is made is entitled to enforce the provision in her favour. In the case of agency: A contract entered into by the agent acting within the scope of his authority can be enforced by the principal. Lawful Object Section 23 of the Act seeks to impose limitations on the freedom of contract by declaring certain agreements to be void and certain others unlawful and void. Sec. 23: The consideration or object of an agreement is lawful unless it is forbidden by law, or is of such a nature that if permitted it would defeat the provisions of any law or is fraudulent or involves or implies injury to the person or property of another or the court regards it as immoral or opposed to public policy. In each of these cases the consideration or object of an agreement is said to be

unlawful. Every agreement of which the object or consideration is unlawful is void. Unlawful consideration and objects: In the following cases consideration or the object of an agreement is unlawful: (a)Forbidden by law: Sec. 23 provides that if the consideration or object is forbidden by law it becomes unlawful and the agreement based on it also becomes unlawful and hence void. Under the English law a contract that is expressly or implicitly prohibited by statute is termed as illegal contract. On the other hand Sec. 23 of the Act uses only the term unlawful. Though both illegal and unlawful agreements are void an illegal agreement is necessarily unlawful whereas an unlawful agreement need not be illegal. Nevertheless, the difference between the two is very thin and quite often they are used interchangeably. The term law under Sec. 23 means the enactment of the legislature, subordinate legislation and the Hindu and Mohammadan laws. (b)Defeat the provisions of any law: Sometimes the object may not be illegal. But it may aim at circumventing the provisions of any law. Then it becomes void under Section 23. (c)Fraudulent: An agreement entered into between the parties with a fraudulent purpose or to perpetuate fraud on others is void. (d)Injury to the person or property of another: If the object of an agreement is to cause injury to the person or property of another, then it is unlawful. (e)Immoral: Anson states, Although it has sometimes been said that contracts contrary to good morals are void the only aspect of immorality with which courts of law have actually dealt is sexual immorality.The same view was referred to by the Supreme Court. Thus though the word immoral is very comprehensive, Sec. 23 of the Act regards promises to pay in consideration of concubinage, contracts of sale or hire of things to be used in a brothel or by a prostitute for purposes incidental to her profession, agreement to pay money for future cohabitation, contracts facilitating divorce as immoral. A promise to pay for past cohabitation has been held to be enforceable by the Supreme Court. But a promise to pay for future cohabitation whether adultery or not is unenforceable. So also a promise to pay for past cohabitation for securing the continuation of the cohabitation is not enforceable. Agreements interfering marital relations are also considered immoral.

(f)Opposed to public policy: The Act has not defined the term public policy. Sec. 23 intends to leave what is opposed to public policy for the courts to decide considering the circumstances of the case. Lord Truro defined: Public policy is that principle of law which holds that no subject can lawfully to that which has a tendency to be injurious to the public or against the public good. As the courts can decide whether a particular type of agreement could be considered to be opposed to public policy the judiciary can invent new heads of public policy considering the economic and social conditions prevailing in India. Public Policy is an elastic term and its connotations may vary with the social structure of the state. Agreements which are held void on the ground that the consideration or object is opposed to public policy are as follows: i) Trading with enemy: An agreement entered into with an enemy countrys citizen is against public policy. Because such an agreement if performed would benefit an enemy country or injure the State in its relations with other States. The term alien enemy means a person resident in the enemy country or the enemy-occupied territory. Even temporary residence is sufficient. ii) Stifling prosecution: An agreement which seeks to absolve an offender of the criminal liability either by promising not to prosecute him for his offence or withdraw a criminal case pending against him is known as an agreement to stifle prosecution. Such an agreement is unlawful as opposed to public policy. This principle of law was established in 1866. iii) Maintenance and champerty: Maintenance refers to an agreement seeking to provide assistance financial or otherwise to bring or defend a lawsuit. Champerty refers to the agreement for sharing the benefit to be derived from the lawsuit. The object of maintenance is to encourage speculative litigation whereas the object of champerty is to share the proceeds of the litigation. Under English law the agreements of this kind are illegal and void. However, it is not so in India. In order to be unlawful, they must be against public policy. Thus an agreement to render professional service with a bona-fide object of assisting a claim which is just, although made by way of maintenance is valid. But if it is made by way of champerty (i.e., making the remuneration dependent to any extent whatsoever upon the result of the suit) it is void.

iv) Interference with the course of justice: Agreements for using improper influence of any kind with judges or officials of court, to bribe witnesses, inducing them to give false evidence etc. are opposed to public policy. Thus, any agreement intended to obstruct or prevent legal process or interfere in any manner the course of justice, is void. v) Trafficking in public offices: These agreements interfere with free exercise of governmental functions. They include agreements to influence public officers by promising illegal gratification, to provide money to the members of parliament for presenting his convictions on a certain legislation, sale of public offices etc. vi) Marriage brokerage contracts: Society desires to prevent reckless or unsuitable marriages. So third parties are not allowed to make money by bringing about matrimonial unions. Such agreements to pay money to one who brings marriage connections are void. vii)Agreements in restraint of trade: Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is void. However, an agreement in restraint of trade is valid in the following cases: sale of goodwill, partners agreements, trade combinations, negative stipulations in service agreements. vii) Agreements tending to create an interest against duty: If an agreement entered into by or with a public servant imposes an obligation upon such person to do something which is inconsistent with his duty (official) then it is void as being opposed to public policy. ix) Agreements intefering with parental duties: Agreements tending to transfer absolutely the rights of parents over their children as to their custody, education and religious training are void as being opposed to public policy. Father being the natural guardian can entrust the custody of his children to others. But this is revokable. x) Agreements restraining personal liberty: An agreement which unduly restrains the liberty of an individual is void. Discharge of Contract Introduction Discharge of contract means parties to the contract are no more liable to the contract. In other words, the liability of the parties to the contract will come to an end.

Objectives After studying this unit, you will be able to: Mention the ways of discharge of contract. State the remedies for breach of contract. Ways of Discharge of Contract When the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged or terminated. A contract may be discharged in any of the following ways: By performance actual or attempted. By mutual consent or agreement. By subsequent or supervening impossibility or illegality. By lapse of time. By operation of law. By breach of contract. 1.Discharge by performance: When a contract is duly performed by both the parties, the contract is discharged or terminated by due performance. But if one party only performs his promise, he alone is discharged. Such a party gets a right of action against the other party who is guilty of breach. Performance may be: (1) Actual performance; or (2) Attempted performance or Tender. Actual performance: When each party to a contract fulfills his obligation arising under the contract within the time and in the manner prescribed, it amounts to actual performance of the contract and the contract comes to an end. Attempted performance or tender: When the promisor offers to perform his obligation under the contract, but is unable to do so because the promisee does not accept the performance, it is called attempted performance or tender. Thus tender is not actual performance but is only an offer to perform the obligation under the contract. A valid tender of performance is equivalent to performance. Essentials of a valid tender. A valid tender or offer of performance must fulfil the following conditions: It must be unconditional. A conditional tender is not a tender.

It must be made at proper time and place. A tender before or after the due date or at a place other than agreed upon is not a valid tender. It must be of the whole obligation contracted for and not only of the part. If the tender relates to delivery of goods, it must give a reasonable opportunity to the promisee for inspection of goods so that he may be sure that the goods tendered are of contract description. It must be made by a person who is in a position and is willing to perform the promise. A tender by a minor or idiot is not a valid tender. It must be made to the proper person i.e., the promisee or his duly authorised agent. Tender made to a stranger is invalid. If there are several joint promisees, an offer to any one of them is a valid tender. In case of tender of money, exact amount should be tendered in the legal tender money. Tendering a smaller or larger amount is an invalid tender. Similarly, a tender by a cheque is invalid as it is not legal tender but if the creditor accepts the cheque, he cannot afterwards raise an objection. Effect of refusal to accept a valid tender (Sec. 38): The effect of refusal to accept a properly made offer of performance is that the contract is deemed to have been performed by the promisor i.e., tenderer and the promisee can be sued for breach of contract. A valid tender, thus, diacharges the contract. Exception: Tender of money, however, does not discharge the contract. The money will have to be paid even after the refusal of tender of course without interest from the date of refusal. In case of a suit, cost of defence can also be recovered from the plaintiff, if tender of money is proved. 2. Discharge by Mutual Consent or Agreement Since a contract is created by means of an agreement, it may also be discharged by another agreement between the same parties. Sections 62 and 63 provide for the following methods of discharging a contract by mutual agreement: Novation: Novation occurs when a new contract is substituted for an existing contract, either between the same parties or between different parties, the consideration mutually being the discharge of the old contract. When the parties to a contract agree for novation, the original contract is discharged and need not be performed. The following points are also worth-notng in connection with novation:

Novation cannot be compulsory, it can only be with the mutual consent of all the parties. The new contract must be valid and enforceable. If it suffers from any legal flaw on account of which it becomes unenforceable, then the original contract revives. Alteration: Alteration of a contract means change in one or more of the material terms of a contract. If a material alteration in a written contract is done by mutual consent, the original contract is discharged by alteration and the new contract in its altered form takes its place. A material alteration made in a written contract by one party without the consent of the other, will, make the whole contract void and no person can maintain an action upon it. Rescission: A contract may be discharged, before the date of performance, by agreement between the parties to the effect that it shall no longer bind them. Such an agreement amounts to rescission or cancellation of the contract, the consideration for mutual promises being the abandonment by the respective parties of their rights under the contract. An agreement of rescission releases the parties from their obligations arising out of the contract. There may also be an implied rescission of a contract e.g., where there is non-performance of a contract by both the parties for a long period, without complaint, it amounts to an implied rescission. Remission: Remission may be defined As the acceptance of a lesser sum than what was contracted for or a lesser fulfilment of the promise made. Section 63 lays down that a promisee may give up wholly or in part, the performance of the promise made to him and a promise to do so is binding even though there is no consideration for it. An agreement to extend the time for the performance of a promise also does not require consideration to support it on the ground that it is a partial remission of performance. Waiver: Waiver means the deliberate abandonment or giving up of a right which a party is entitled to under a contract, whereupon the other party to the contract is released from his obligation. 3.Dischargebysubsequentorsuperveningimpossibilityorillegality: Impossibility at the time of contract: There is no question of discharge of a contract which is entered into to perform something that is obviously impossible, e.g., an agreement to discover treasure by magic, because, in such a case there is no

contract to terminate, it being an agreement void ab-initio by virtue of Section 56, Para 1, which provides: An agreement to do an act impossible in itself is void. Subsequent impossibility: Section 56, Para 2, declares: A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. The following conditions must be fulfilled: (1) that the act should have become impossible; (2) that impossibility should be by reason of some event which the promisor could not prevent; and (3) that the possibility should not be self-induced by the promisor or due to his negligence. Thus, under Section 56 (Para 2), where an extent which could not reasonably have been in the contemplation of the parties when the contract was made, renders performance impossible or unlawful, the contract becomes void and stands dischraged. This is known as frustration of the contract brought about by supervening impossibility. It is also known as the doctrine of supervening impossibility. The rationale behind the doctrine is that if the performance of a contract becomes impossible by reason of supervening impossibility or illegality of the act agreed to be done, it is logical to absolve the parties from further performance of it as they never did promise to perform an impossibility. The doctrine of supervening impossibility as enunciated in Section 56 (Para 2), is wider than the doctrine of frustration known to the English law. The doctrine of frustration is an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done. In the case of subsequent impossibility or illegality, the dissolution of the contract occurs automatically. It does not depend on the choice of the parties. Cases where the doctrine of supervening impossibility applies: A contract will be discharged on the ground of supervening impossibility in the following cases: Destruction of subject-matter: When the subject-matter of a contract, subsequent to its formation, is destroyed, without the fault of the promisor or promisee, the contract is discharged. It is so only when specific property or goods are destroyed which cannot be regained. Failure of ultimate purpose: Where the ultimate purpose for which the contract was entered into fails, the contract is discharged, although there is no destruction of any property affected by the contract and the performance of the contract remains possible.

Death or personal incapacity of promisor: Where the performance of a contract depends upon the personal skill or qualification or the existence of a given person, the contract is discharged on the illness or incapacity or the death of that person. Change of law: A subsequent change in law may render the contract illegal and in such cases the contract is deemed discharged. The law may actually forbid the doing of some act undertaken in the contract, or it may take from the control of the promisor something in respect of which he has contracted to act or not to act in a certain way. Cases not covered by supervening impossibility: He that agrees to do an act must do it or pay damages for not doing it is the general rule of the law of contract. Thus, unless the performance becomes absolutely impossible (as discussed above), a person is bound to perform any obligation which he has undertaken, and cannot claim to be excused by the mere fact that performance has subsequently become unexpectedly burdensome, more difficult or expensive. Some of the cases where impossibility of performance is not an excuse are as follows: Difficulty of performance: Increased or unexpected difficulty and expense do not, as a rule, excuse from performance. Commercial impossibility: When in a transaction profits dwindle to a very low level or actual loss becomes certain, it is said that the performance of the contract has become commercially impossible. Commercial impossibility also does not discharge a contract. Impossibility due to the default of a third person. The doctrine of supervening impossibility does not cover cases where the contract could not be performed because of the impossibility created by the failure of a third person on whose work the promisor relied. Strikes and lock-outs: A strike by the workmen or a lock-out by the employer does not excuse performance because the former is manageable and the latter is selfinduced. Where the impossibility is not absolute or where it is due to the default of the promisor himself, Section 56 would not apply. As such these events also do not discharge a contract. Failure of one of the objects: When a contract is entered into for several objects, the failure of one of them does not discharge the contract. 4. Discharge by lapse of time:

The Limitation Act lays down that in case of breach of a contract legal action should be taken within a specified period, called the period of limitation. Otherwise the promisee is debarred from instituting a suit in a court of law and the contract stands discharged. Thus in certain circumstances lapse of time may also discharge a contract. Where time is of essence in a contract if the contract is not performed at the fixed time, the contract comes to an end, and the party not at fault need not perform his obligation and may sue the other party for damages. 5. Discharge by operation of law: A contract terminates by operation of law in the following cases: a)Death: Where the contract is of a personal nature, the dealth of the promisor discharges the contract. In other contracts the rights and liabilities of the deceased person pass on to the legal representatives of the dead man. b)Insolvency: A contract is discharged by the insolvency of one of the parties to it when an insolvency court passes an order of discharge exonerating the insolvent from liabilities on debts incurred prior to his adjudication. c)Merger: Where an inferior right contract merges into a superior right contract, the former stands discharged automatically. d)Unauthorised material alteration: A material alteration made in a written document or contract by one party without the consent of the other, will make the whole contract void. 6. Discharge by breach of contract: Breach of contract by a party thereto is also a method of discharge of a contract, because breach also brings to an end the obligations created by a contract on the part of each of the parties. Of course the aggrieved party i.e., the party not at fault can sue for damages for breach of contract as per law; but the contract as such stands terminated. Breach of contract may be of two kinds: (1) Anticipatory breach; and (2) Actual breach. Anticipatory breach: An anticipatory breach of contract is a breach of contract occurring before the time fixed for performance has arrived. It may take place in two ways: (a) Expressly by words spoken or written. Here a party to the contract communicates to the other party, before the due date of performance, his intention not to perform it. (b) Impliedly by the conduct of one of the parties. Here a party by his own voluntary act disables himself from performing the contract. When a party to a contract has refused to perform or disabled himself from performing, his

promise in its entirity, the promisee may put an end to the contract, unless he has signed, by words or conduct his acquiscence in its continuance. Actual breach: Actual breach may also discharge a contract. It occurs when a party fails to perform his obligations upon the date fixed for performance by the contract. Actual breach entitles the party not in default to elect to treat the contract as discharged and to sue the party at fault for damages for breach of contract. Remedies for Breach of Contract Whenver there is breach of a contract, the injured party becomes entitled to any one or more of the following remedies against the guilty party: Rescission of the contract. Suit for damages. Suit upon quantum merit. Suit for specific performance of the contract. Suit for an injunction. As regards the last two remedies stated above, the law is regulated by the Specific Relief Act, 1963. 1 Rescission of the contract: When there is a breach of contract by one party, the other party may rescind the contract and need not perform his part of obligations under the contract. But in case the aggrieved party intends to sue the guilty party for damages for breach of contract, he has to file a suit for rescission of the contract. When the court grants rescission, the aggrieved party is free from all his obligations under the contract and becomes entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract (Sec. 75). 2. Suit for damages: Damages are a monetary compensation allowed to the injured party for the loss or injury suffered by him as a result of the breach of contract. The fundamental principle underlying damages is not punishment but compensation. By awarding damages the court aims to put the injured party into the position in which he would have been, had there been performance and not to punish the defaulting party. As a general rule, compensation must be commensurate with the injury or loss sustained, arising naturally from the breach. If actual loss is not proved, no damages will be awarded.

Different kinds of damages: Damages may be of four kinds: Ordinary or General or Compensatory damages (i.e., damages arising naturally from the breach). Special damages (i.e., damages is contemplation of the parties at the time of contract). Exemplary, Punitive or Vindictive damages. Nominal damages. Ordinary damages: When a contract has been broken, the injured party can, as a rule, always recover from the guilty party ordinary or general damages. These are such damages as may fairly and reasonably be considered as arising naturally and directly in the usual course of things from the breach of contract itself. In other words, ordinary damages are restricted to the direct or proximate consequences of the breach of contract and remote or indirect losses, which are not the natural and probable consequence of the breach of contract, are generally not regarded. Special damages: Special damages are those which arise on account of the special or unusual circumstances affecting the plaintiff. In other words, they are such remote losses which are not the natural and probable consequence of the breach of contract. Unlike ordinary damages, special damages cannot be claimed as a matter of right. These can be claimed only if the special circumstances which would result in a special loss in case of breach of contract are brought to the notice of the other party. It is important that such damages must be in contemplation of the parties at the time when the contract is entered into. Subsequent knowledge of the special circumstances will not create any special liability on the guilty party. Exemplary or vindictive damages: These are such damages which are awarded with a view to punish the guilty party for the breach and not by way of compensation for the loss suffered by the aggrieved party. As observed earlier, the cardinal principle of the law of damages for a breach of contract is to compensate the injured party for the loss suffered and not to punish the guilty party. Hence, obviously, exemplary damages have no place in the law of contract and are not recoverable for a breach of contract. There are, however, two exceptions to this rule: (a) Breach of a contract to marry. In this case the amount of the damages will depend upon the extent of injury to the partys feelings. (b) Dishonour of a cheque by a banker when there are sufficient funds to the credit of the customer. In this case the rule of ascertaining damages is, the smaller the cheque, the greater the

damage. Of course, the actual amount of damages will differ according to the status of the party. Nominal damages: Nominal damages are those which are awarded only for the name sake. These are neither awarded by way of compensation to the aggrieved party nor by way of punishment to the guilty party. These are awarded to establish the right to decree for breach of contract when the injured party has not actually suffered any real damage and consist of a very small sum of money. Duty to mitigate damage suffered: It is the duty of the injured party to mitigate damage suffered as a result of the breach of contract by the other party. He must use all reasonable means of mitigating the damage, just as a prudent man would, under similar circumstances in his own case. He cannot recover any part of the damage, traceable to his own neglect to mitigate. Liquidated damages and penalty: Liquidated damages means a sum fixed up in advance, which is a fair and genuine pre-estimate of the probable loss that is likely to result from the breach. Penalty means a sum fixed up in advance, which is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. Courts in England usually allow liquidated damages as stipulated in the contract, without any regard to the actual loss sustained. Penalty clauses, however, are treated as invalid and the courts in that case calculate damages according to the ordinary principles and allow only reasonable compensation. Under the Indian Law the courts are not bound to treat the sum mentioned in the contract, either by way of liquidated damages or penalty, as the sum payable as damages for the breach. Instead the courts are required to allow reasonable compensation so as to cover the actual loss sustained, not exceeding the amount so named in the contract. The court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated. The principles governing the measure of damages discussed above may be summarised as under:

The damages are awarded by way of compensation for the loss suffered by the aggrieved party and not for the purpose of punishing the guilty party for the breach. The injured party is to be placed in the same position, so far as money can do, as if the contract had been performed. The aggrieved party can recover by way of compensation only the actual loss suffered by him, arising naturally in the usual course of things from the breach itself. Special or remote damages i.e., damages which are not the natural and probable consequence of the breach are usually not allowed until they are in the knowledge of both the parties at the time of entering into the contract. The fact that damages are difficult to assess does not prevent the injured party from recovering them. When no real loss arises from the breach of contract, only nominal damages are awarded. If the parties fix-up in advance the sum payable as damages in case of breach of contract, the court will allow only reasonable compensation so as to cover the actual loss sustained, not exceeding the amount so named in the contract. Exemplary damages cannot be awarded for breach of contract except in case of breach of contract of marriage or wrongful refusal by the bank to honour the customers cheque. It is the duty of the injured party to minimise the damage suffered. The injured party is entitled to get the costs of getting the decree for damages from the defaulter party. 3. Suit upon quantum merit (Sections 65 and 70): The third remedy for a breach of contract available to an injured party against the guilty party is to file a suit upon quantum merit. The phrase quantum merit literally means as much as is earned or in proportion to the work done. This remedy may be availed of either without claiming damages (i.e., claiming reasonable compensation only for the work done) or in addition to claiming damages for breach (i.e., claiming reasonable compensation for part performance and damages for the remaining unperformed part). The aggrieved party may file a suit upon quantum merit and may claim payment in proportion to work done or goods supplied in the following cases:

Where work has been done in pursuance of a contract, which has been discharged by the default of the defendant. Where work has been done in pursuance of a contract which is discovered void or becomes void. When a person enjoys benefit of non-gratuitous act although there exists no express agreement between the parties. One of such cases is provided in Section 70 (other cases are covered under quasicontracts). Section 70 lays down that when services are rendered or goods are supplied by a person, (i) without any intention of doing so gratuitously, and (ii) the benefit of the same is enjoyed by the other party, the latter must compensate the former or restore the thing so delivered. A party who is guilty of breach of contract may also sue on quantum merit provided both the following conditions are fulfilled: (a) the contract must be divisible and (b) the other party must have enjoyed the benefit of the part which has been performed, although he had an option of declining it. 4. Suit for specific performance: Specific performance means the actual carrying out of the contract as agreed. Under certain circumstances an aggrieved party may file a suit for specific performance, i.e., for a decree by the court directing the defendant to actually perform the promise that he has made. Such a suit may be field either instead of or in addition to a suit for damages. A decree for specific performance is not granted for contracts of every description. It is only where it is just and equitable so to do, i.e., where the legal remedy is inadequate or defective, that the courts issue a decree for specific performance. It is usually granted in contracts connected with land, buildings, rare articles and unique goods having some special value to the party suing because of family association. In all these contracts monetary compensation is not an adequate relief because the injured party will not be able to get an exact substitute in the market. Specific performance is not granted, as a rule, in the following cases: i) Where monetary compensation is an adequate relief. ii) Where the court cannot supervise the actual execution of the contract, e.g., a building construction contract. Moreover, in most cases damages afford an adequate remedy. iii) Where the contract is for personal services, e.g., a contract to marry or to paint a picture. In such contracts injunction (i.e., an order which forbids the defendant

to perform a like personal service for other persons) is granted in place of specific performance. iv) Where the contract is not enforceable by either party against the other, that is, where one of the parties does not possess competency to contract. Thus a minor cannot succeed in an action for specific performance since he cannot himself be sued for breach of contract. 5. Suit for an injunction: Injunction is an order of a court restraining a person from doing a particular act. It is a mode of securing the specific performance of the negative terms of the contract. To put it differently, where a party is in breach of a negative term of the contract (i.e., where he is doing something which he promised not to do), the court may, by issuing an injunction, restrain him from doing, what he promised not to do. Thus injunction is a preventive relief. It is particularly appropriate in cases of anticipatory breach of contract where The Sale of Goods Act, 1930 Preamble 3 of 1930 (15th March, 1930) An Act to define and amend the law relating to the sale of goods. WHEREAS it is expedient to define and amend the law relating to the sale of goods, it is hereby enacted as follows: Chapter 1 - Preliminary 1. Short title, extent and commencement.- (1) This Act may be called the Sale of Goods Act, 1930. 2) It extends to the whole of India (except the State of Jammu and Kashmir). (3) It shall come into force on the 1st day of July, 1930 2. Definitions .- In this Act, unless there is anything repugnant in the subject of content(1) buyer" means a person who buys or agrees to buy goods, (2) "delivery" means voluntary transfer of possession from one person to another 3. Applications of provisions of Act 9 of 1882.- The unrepealed provisions of the Indian

Contract Act, 1872 save insofar as they are inconsistent with the express provisions of this Act, shall continue to apply to contracts for sale of goods. Chapter 2 - Formation of the Contract 4. Sale and agreement to sell.- (1) 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. (2) A contract of sale may be absolute or conditional (3) Where under a contract of sale the property in the goods in 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. (4) 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. 5. Contract of Sale how made -. (1) 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 instalments, or that the delivery or payment or both shall be postponed. (2) 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. 6. Existing or future goods.- (1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods. (2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen. (3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods. 7. Goods perishing before making of contract.- Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have, at the time when the contract was made, perished or become so damaged as no longer to answer to their description in the contract. 8. Goods perishing before sale but after agreement to sell.- Where there is an agreement to sell specific goods, and subsequently the goods without any fault on

the part of the seller or buyer perish or become so damaged as no longer to answer to their description in the agreement before the risk passes to the buyer, the agreement is thereby avoided. 9. Ascertainment of price.- (1) 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. (2) 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. 10. Agreement to sell at valuation.- (1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party and such third party cannot or does not make such valuation, the agreement is thereby avoided. Provided that, if the goods or any part thereof have been delivered to, and appropriated by, the buyer, he shall pay a reasonable price there for. (2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in fault. 11. Stipulations as to time.- 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 stipulations as to time is of the essence of the contract or not depends on the terms of the contract. 12. Condition and warranty.- (1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. (2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to right to treat the contract as repudiated. (3) 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. (4) Whether a stipulation in a contract of sale is condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty 13. When condition to be treated as warranty.- (1) Where a contract of sale is subject to any condition to the 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 relating the contract as repudiated. (2) 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 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. (3) Nothing in this section shall affect the case of any condition or warranty fulfilment of which is excused by law by reason of impossibility of otherwise. 14. Implied undertaking as to tile, etc.- In a contract of sale, unless the circumstances of the contract are such as to show a different intention there is(a) an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. (b) an implied warranty that the buyer shall have and enjoy quiet possession of the goods. (c) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made. 15. Sale by description.- Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description, and, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description. 16. Implied condition as to quality or fitness.- Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, excepts as follows:(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the sellers skill or judgement, and the goods are of a description which it is in the course of the sellers business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fit for such purpose.

Provided that, in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied conditions to its fitness for any particular purpose. (2) Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality. Provided that, if the buyer has examined the goods, there shall be no implied conditions as regards defects which such examination ought to have revealed. (3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. (4) An express warranty or conditions does not negative a warranty or condition implied by this Act unless inconsistent therewith. 17. Sale by sample.- (1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. (2) In the case of a contract for sale by sample there is an implied condition (a) that the bulk shall corresponded with the sample in quality. (b) that the shall have a reasonable opportunity of comparing the bulk with the sample. (c) that the goods shall be free from any defect, rendering them un-merchantable, which would not be apparent on reasonable examination of the Chapter 3 - Effects of the Contract 18. Goods must be ascertained.- 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 sanctioned. 19. Property passes when intended to pass.- (1) 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. (2) 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. (3) Unless a different intention appears, the rules contained in Section 20 to 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.

20. 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. 21. Specific goods to be put into a deliverable state.- Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. 22. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain price.- Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof. 23. Sale of unascertained goods and appropriation.- (1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made. (2) Delivery to carrier.- Where, in pursuance of the contract, the seller delivers the goods 24. Goods sect on approval or on sale or return- when goods are delivered to the buyer on approval or on sale or return or other similar terms, the property therein passes to the buyer(a) when he signifies his approval or acceptance to the seller to does not other act adopting the transaction. (b) if he does not signify his approval or acceptance to the seller but retains the gods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if not time has been fixed, on the expiration of a reasonable time. 25. Reservation of right of disposal.- (1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the

seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. (2) Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of landing or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal. (3) Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange together with the bill of lading or, as the may be, the railway receipt, to secure acceptance to payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honour the bill of exchange, and, if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him. Explanation.- In this section, the expression "Railway" and "Railway administration" shall have the meanings respectively assigned to them under the Indian Railways Act, 1890. 26. Risk Prima facie passes with property.- Unless otherwise agreed, the goods remain at the sellers risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyers risk whether delivery has been made or not. Provided that, where deliver has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault. Provides also that nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee of the goods of the other party. 27. Sale by person not the owner.- Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by conduct precluded from denying the sellers authority to sell. Provided that, where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner

of the goods to make the same, provided that the buyer act is good faith and has not at the time of the contract of sale notice that the seller has not authority to sell. 28. Sale by one of joint owners.- If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the property in the goods in transferred to any person how buys them of such joint owner in good faith and has not at the time of the contract of sale notice that the seller has not authority to sell. 29. Sale by person in possession under voidable contract.- When the seller of gods has obtained possession thereof under a contract voidable under Section 19 or Section 19A of the Indian Contract Act, 1872, but the contract has not rescinded at the time of the sale, the buyer acquires a god title to the goods, provided he buys them in good faith and without notice of the sellers defect of title. 30. Seller or buyer in possession after sale.- (1) Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the gods or documents of title under any sale, pledge o other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery to transfer were expressly authorised by the owner of the gods to make the same. (2) Where a person, having bought or agreed to buy goods, obtains with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of tile under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the gods shall have effect as if such lien or right did not exist. Chapter 4 - Performance of the Contract 31. Duties of seller and 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. 32. Payment and delivery are concurrent conditions.- Unless otherwise agreed, delivery of the gods 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. 33. Delivery.- Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf. 34. Effect of part delivery.- A delivery of part of goods, in progress of the delivery of the whole has the same effect, for the purpose of passing the property in such goods, as a delivery of the whole, but a delivery of part of the gods, with an intention of severing it from the whole, does not operate as a delivery of the remainder. 35. Buyer to apply for delivery.- Apart from any express contract, the seller of goods in not bound to deliver them until the buyer applies for delivery. 36. Rules as to delivery.- (1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, goods sold are to be delivered at the place at which they are the time of the sale, and goods agreed to be sold are to be delivered at the place at which they are at the time of the agreement to sell, if not then in existence, at the place at which they are manufactured or produced. (2) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. (3) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf. Provided that nothing in this section shall affect the operation of the issue or transfer of any document of title to goods. (4) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact. (5) Unless otherwise agreed, the expense of and incidental to putting the goods into a deliverable state shall be borne by the seller.

37. Delivery of wrong quantity.- (1) Where the seller delivers to the buyer a quantity of good less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate. (2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell the buyer may accept the goods included in the contact and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pay for them at the contract rate. (3) Where the seller delivers to the buyer the gods he contract to sell mixed with goods of a different description not included in the contract., the buyer may accept the goods which are in accordance with the contract and reject the rest, or may reject the whole. (4) The provisions of this section are subject to any usage of trade, special agreement or course of dealing between the parties. 38. Installment deliveries.- (1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments. (2) Where there is a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for, and the seller makes no delivery or defective delivery in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each cased depending on the terms of the contract and the circumstances of the case, whether the breach of contract is a repudiation of the whole contract, or whether it is a severable breach giving rise to a claim for compensation, but not a right to treat the whole contract as repudiated. 39. Delivery to carrier or wharfinger.- (1) Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to he buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer. (2) Unless otherwise authorised by the buyer, the seller shall makes such contract with the carrier or wharfinger on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in course of transit or whilst in the custody of the wharfinger, the buyer made decline to treat the delivery

to the carrier or wharfinger as a delivery to himself, or may hold the seller responsible in damages. (3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to insure them during their sea transit and if the seller fails so to do, the goods shall be deemed to be at his risk during such sea transit. 40. Risk where goods are delivered at distant place.- Where the seller of goods agrees to deliver them at his own risk at place other than that where they are when sold, the buyer shall, nevertheless, unless otherwise agreed, take any risk of deterioration in the goods necessarily incident to the course of transit. 41. Buyers right of examining the goods.- (1) 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 a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract. (2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, 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, 42. Buyer not bound to return rejected goods.- Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient it he intimates to the seller that he refuses to accept them. 43. Buyer not bound to return rejected goods.- Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is he intimates to the seller that he intimates to the seller that he refuses to accept them. 44. Liability of buyer for neglecting or refusing delivery of goods.- When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods , he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery and also for a reasonable charge for the care and custody of the goods.

Provided that nothing in this section shall affect the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract. Chapter 5 - Rights of unpaid seller against the goods 45. "Unpaid seller" defined.- (1) The seller of goods is deemed to be an "unpaid seller" within the meaning of this Act(a) When the whole of the price has not been paid or tendered. (b) When a bill of exchange or other negotiable instrument has been received as conditionalpayment, and the conditions on which it was received has not been fulfilled by reason of thedishonour of the instrument or otherwise. (2) In this Chapter, the term "seller" includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price. 46. Unpaid sellers rights.- (1) Subject to the provisions of this Act and of any law for the for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law. (a) a lien on the goods for the period while he is in possession of them, (b) in case of the insolvency of the buyer a right of stopping the goods in transit after he hasparted with the possession of them. (c) a right of re-sale as limited by this Act. (2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transit where the property has passed to the buyer. 47. Sellers lien.(1) Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely :(a) where the goods have been sold without any stipulations as to credit. (b) where the goods have been sold on credit, but the term of credit has expired. (c) where the buyer becomes insolvent.

(2) The seller may exercise his right of lien notwithstanding that he in possession of the goods as agent or bailee for the buyer. 48. Part delivery.- Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien. 49. Termination of lien.(1) The unpaid seller of goods losses his lien thereon (a) when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods. (b) when the buyer or his agent lawfully obtains possession of the goods, (c) by waiver thereof. (2) The unpaid seller of goods, having a lien thereon, not lose his lien by reason only that he has obtained a decree for the price of the goods. 50. Right of stoppage in transit.- Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price. 51. Duration of transit.- (1) Goods are deemed to be in course of transit from the time whenthey are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee. (2) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end. (3) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer. (4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.

(5) When goods are delivered to a ship chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the master as a carrier or as agent of the buyer. (6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end. (7) Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder of the goods may be stopped in transit, unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods. 52. How stoppage in transit is effected.- (1) The unpaid seller may exercise his right to stoppage in transit either by taking actual possession of the goods, or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the later case the notice, to be effectual, shall be given at such time and in such circumstances, that the principal, by the exercise of reasonable diligence, may communicate is to his servant or agent in time to prevent a delivery to the buyer. (2) Whether notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the goods, he shall re-deliver the goods to, or according to the directions of, the seller. The expenses of such re-delivery shall be borne by the seller. 53. Effect to sub-sale or pledge by buyer.- (1) Subject to the provisions of this Act, the unpaid sellers right of lien or stoppage in transit is not affected by any sale or other disposition of the gods which the buyer may have made, unless the seller has assented thereto. Provided that where a document of title to goods has been issued or lawfully transferred to any person as buyer or owner of the goods, and that person transfers the document to a person who takes the document in good faith and for consideration, then, if such last mentioned transfer was by way of sale, the unpaid sellers right of lien of stoppage in transit is defeated, and, if such last mentioned transfer was by way of pledge or other disposition for value, the unpaid sellers right of lien or stoppage in transit can only be exercised subject to the rights of the transferee. (2) Where the transfer is by way of pledge, the unpaid seller may require the pledge to have the amount secured by the pledge satisfied in the first instance, as

far as possible, out of any other goods or securities of the buyer in the hands of the pledge and available against the buyer. 54. Sale not generally rescinded by lien or stoppage in transit.- (1) Subject to the provisions of this section, a contract of sale is not rescinded by the mere exercise by an unpaid seller of his right of lien or stoppage in transit. (2) Where the goods are of a perishable nature, or where the unpaid seller who has exercised his right of lien or stoppage in transit gives notices to the buyer of his intentions to re-sell, the unpaid seller may, if the buyer does not within a reasonable time pay or tender the price, re-sell the goods within a reasonable time and recover from the original buyer damages for any loss occasioned by his breach of contract, but the buyer shall not be entitled to any profit which may occur on the re-sale. If such notices is not given, the unpaid seller shall not be entitled to recover such damages and the buyer shall be entitled to the profit, if any, on the re-sale. (3) Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells the goods, the buyer acquires a good title thereto as against the original buyer, notwithstanding that no notice of the re-sale has been given to the original buyer. (4) Where the seller expressly reserves a right of re-sale in case the buyer should make default, and on, the buyer making default, re-sells the goods, the original contract of sale is thereby rescinded, but without prejudice to any claim which the seller may have for damages. Chapter 6 - Suits for Breach of the Contract 55. Suit for price.- (1) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods. (2) Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract. 56. Damages for non-acceptance.- Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance.

57. Damages for non-delivery.- Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for nondelivery. 58. Specific performance.- Subject to the provisions of Chapter II of the Specific Relief Act, 1877, in any suit for breach of contract to deliver specific or ascertained goods, the Court may, if it thinks fit, one the application of the plaintiff, by its decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. The decree may be unconditional, or upon such terms and conditions as to damages, payment of the price or otherwise, as the Court may deem just, and the application of the plaintiff may be made at any time before the decree. 59. Remedy for breach of warranty - (1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may(a) Set up against the seller the breach of warranty in diminution or extinction of the price; or (b) Sue the seller for damages for breach of warranty. (2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damage. 60. Repudiation of contract before due date.- Where either party to a contract of sale repudiates the contract before the date of delivery, the other may either treat the contracts as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and use for damages for the breach. 61. Interest by way of damages and special damages.- (1) Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages in any case whereby law interest or special damages may be recoverable, or to recover the money paid where the consideration for the payment of it has failed. (2) In the absence of a contract to the contrary, the Court may award interest at such rate a it think fit one the amount of the price(a) to the seller in a suit by him for the amount of the price.- from the date of the tender of the goods or from the date on which the price was payable.

(b) to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller- from the date on which the payment was made. Chapter 7 - Miscellaneous 62. Exclusion of implied terms and conditions.- Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varies by express agreement or by the course of dealing between the negatives or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind parties to the contract. 63. Reasonable time a question of fact.- Where in this Act any reference is made to a reasonable time, the question what is a reasonable time is a question of fact. 64. Auction sale.- In the case of 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 rights 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 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. 64A. In contracts of sale, amount of increased or deceased to tax to be added or deducted.(1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in sub-section (2) being imposed, increased,

decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulations as to the payment of tax where tax was not chargeable at the time of the making of the contract, or for the sale or purchase of such good tax- paid where tax was chargeable at that time.(a) if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of such tax is paid or is payable, the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition, and (b) if such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid or is payable, the buyer made deduct so much from the contract price as will be equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay, or be sued for, or in respect of, such deduction. (2) The provisions of sub-section (1) apply to the following taxes, namely:(a) any duty of customs or excise on goods. (b) any tax on the sale or purchase of goods. 65. (Repeal.) Rep. By the Repealing Act, 1938 (1of 1938), S. 2 and Sch. 66. Savings.- (1) Nothing in this Act or in any repeal effected thereby shall affect or be deemed to affect. (a) any right, title, interest, obligations or liability already acquired, accrued or incurred before the commencement of this Act, or (b) any legal proceedings or remedy in respect of any such right, title, interest, obligation or liability, or (c) anything done or suffered before the commencement of this Act, or (d) any enactment relating to the sale of goods which is not expressly repealed by this Act, or (e) any rule of law not inconsistent with this Act. (2) The rules of insolvency relating to contracts for the sale of goods shall continue to apply thereto, notwithstanding anything contained in this Act. (3) The provisions of this Act relating to contracts of sale do not apply to any transaction in the form of a contract of sale which is intended to operate by way of mortgage, pledge, charge or other security.

Law of agency The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when an agent is authorized to act on behalf of another (called the Principal) to create a legal relationship with a Third Party.[1] Succinctly, it may be referred to as the relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. This branch of law separates and regulates the relationships between: Agents and Principals; Agents and the Third Parties with whom they deal on their Principals' behalf; and Principals and the Third Parties when the Agents purport to deal on their behalf. The common law principle in operation is usually represented in the Latin phrase, qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in Criminal law or Tort for the acts or omissions of another. Section 182 of the [Indian] Contract Act, 1872 defines Agent as a person employed to do any act for another or to represent another in dealings with third persons.[2] The concepts The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency. A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check whether someone who is represented as having the authority to act for another

actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable. Brief statement of legal principles There are three broad classes of agent 1. Universal agents hold broad authority to act on behalf of the principal, e.g. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client. 2. General agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and 3. Special agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time. Authority An agent who acts within the scope of authority conferred by her principal binds the principal in the obligations she creates against third parties. There are essentially two kinds of authority recognized in the law: actual authority (whether express or implied) and apparent authority. Actual authority Actual authority can be of two kinds. Either the principal may have expressly conferred authority on the agent, or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of fact. An agent, as a general rule, is only entitled to indemnity from the principal if she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority. Express actual authority Express actual authority means an agent has been expressly told she may act on behalf of a principal. Implied actual authority Implied actual authority, also called "usual authority", is authority an agent has by virtue of being reasonably necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners have

authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decisionmaking authority by virtue of their position have authority to bind the corporation. Apparent authority Apparent authority (also called "ostensible authority") exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship. For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.[3] Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147, Slade J, "Ostensible or apparent authority... is merely a form of estoppel, indeed, it has been termed agency by estoppel and you cannot call in aid an estoppel unless you have three ingredients: (i) a representation, (ii) reliance on the representation, and (iii) an alteration of your position resulting from such reliance." Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 The Raffaella or Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and PS Refson & Co Ltd [1985] 2 Lloyd's Rep 36 Watteau v Fenwick In the case of Watteau v Fenwick,[4] Lord Coleridge CJ on the Queen's Bench concurred with an opinion by Wills J that a third party could hold personally liable a principal who he did know about when he sold cigars to an agent that was acting outside of its authority. Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority." This decision is heavily criticised and doubted,[5] though not entirely overruled in the UK. It is sometimes referred to as "usual authority"

(though not in the sense used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with "implied actual authority"). It has been explained as a form of apparent authority, or "inherent agency power. Authority by virtue of a position held to deter: fraud and other harms that may befall individuals dealing with agents, there is a concept of Inherent Agency power, which is power derived solely by virtue of the agency relation.[6] For example, partners have apparent authority to bind the other partners in the firm, their liability being joint and several (see below), and in a corporation, all executives and senior employees with decision-making authority by virtue of their declared position have apparent authority to bind the corporation. Even if the agent does act without authority, the principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the principal's behavior, e.g. if the agent has purported to act in a number of situations and the principal has knowingly acquiesced, the failure to notify all concerned of the agent's lack of authority is an implied ratification to those transactions and an implied grant of authority for future transactions of a similar nature. Liability of agent to third party If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, so long as the relationship of the agency and the identity of the principal have been disclosed. When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of authority. Liability of agent to principal If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage.

Liability of principal to agent If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principals business. Duties An agent owes the principal a number of duties. These include: a duty to undertake the task or tasks specified by the terms of the agency (that is, the agent must not do things that he has not been authorised by the principal to do); a duty to discharge his duties with care and due diligence; and a duty to avoid conflict of interest between the interests of the principal and his own (that is, the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal). An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal. An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the agency. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate and pay the agent either a prearranged commission, or a reasonable fee established after the fact. Termination An agent's authority can be terminated at any time. If the trust between the agent and principal has broken down, it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice. As per Section 201 to 210 The Indian Contract Act, 1872, an agency may come to an end in a variety of ways:

(i) WITHDRAWAL BY THE AGENT However, principal cannot revoke an agency coupled with interest to the prejudice of such interest. Such Agency is coupled with interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e.g., where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the goods; in such a case, the principal cannot revoke the agents authority till the goods are actually sold, nor is the agency terminated by death or insanity. (Illustrations to section 201) (ii) By the agent renouncing the business of agency; (iii) By the business of agency being completed; (iv) By the principal being adjudicated insolvent (Section 201 of The Indian Contract Act. 1872) The principal also cannot revoke the agents authority after it has been partly exercised, so as to bind the principal (Section 204), though he can always do so, before such authority has been so exercised (Sec 203). Further, as per section 205, if the agency is for a fixed period, the principal cannot terminate the agency before the time expired, except for sufficient cause. If he does, he is liable to compensate the agent for the loss caused to him thereby. The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. Further, reasonable notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid (Section 206). As per section 207, the revocation or renunciation of an agency may be made expressly or impliedly by conduct. The termination does not take effect as regards the agent, till it becomes known to him and as regards third party, till the termination is known to them (Section 208). When an agents authority is terminated, it operates as a termination of subagent also. (Section 210).[7] This has become a more difficult area as states are not consistent on the nature of a partnership. Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. Others treat the partnership as a business entity and, like a corporation, vest the partnership with a separate legal personality. Hence, for example, in English law, a partner is the agent of the other partners whereas, in Scots law where there is a separate personality, a partner is the agent of

the partnership. This form of agency is inherent in the status of a partner and does not arise out of a contract of agency with a principal. In the English Partnership Act 1890 provides that a partner who acts within the scope of his actual authority (express or implied) will bind the partnership when he does anything in the ordinary course of carrying on partnership business. Even if that implied authority has been revoked or limited, the partner will have apparent authority unless the Third Party knows that the authority has been compromised. Hence, if the partnership wishes to limit any partner's authority, it must give express notice of the limitation to the world. However, there would be little substantive difference if English law was amended (see Law Commission Report 283 [1]): partners will bind the partnership rather than their fellow partners individually. For these purposes, the knowledge of the partner acting will be imputed to the other partners or the firm if a separate personality. The other partners or the firm are the principal and third parties are entitled to assume that the principal has been informed of all relevant information. This causes problems when one partner acts fraudulently or negligently and causes loss to clients of the firm. In most states, a distinction is drawn between knowledge of the firm's general business activities and the confidential affairs as they affect one client. Thus, there is no imputation if the partner is acting against the interests of the firm as a fraud. There is more likely to be liability in tort if the partnership benefited by receiving fee income for the work negligently performed, even if only as an aspect of the standard provisions of vicarious liability. Whether the injured party wishes to sue the partnership or the individual partners is usually a matter for the Plaintiff since, in most jurisdictions, their liability is joint and several. Agency relationships Agency relationships are common in many professional areas. employment. real estate transactions (real estate brokerage, mortgage brokerage). In real estate brokerage, the buyers or sellers are the Principals themselves and the broker or his/her salesperson who represents each Principal is his/her Agent. financial advice (insurance agency, stock brokerage, accountancy) contract negotiation and promotion (business management) such as for publishing, fashion model, music, movies, theatre, show business, and sport. An Agent in Commercial Law (also referred to as a manager) is a person who is authorised to act on behalf of another (called the Principal or client) to create a legal relationship with a Third Party

. The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when an agent is authorized to act on behalf of another (called the Principal) to create a legal relationship with a Third Party.[1] Succinctly, it may be referred to as the relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. This branch of law separates and regulates the relationships between: Agents and Principals; Agents and the Third Parties with whom they deal on their Principals' behalf; and Principals and the Third Parties when the Agents purport to deal on their behalf. The common law principle in operation is usually represented in the Latin phrase, qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in Criminal law or Tort for the acts or omissions of another. Section 182 of the [Indian] Contract Act, 1872 defines Agent as a person employed to do any act for another or to represent another in dealings with third persons.[2] The concepts The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency. A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check

whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable. Brief statement of legal principles There are three broad classes of agent Universal agents hold broad authority to act on behalf of the principal, e.g. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client. General agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and Special agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time. Authority An agent who acts within the scope of authority conferred by her principal binds the principal in the obligations she creates against third parties. There are essentially two kinds of authority recognized in the law: actual authority (whether express or implied) and apparent authority. Actual authority : Actual authority Actual authority can be of two kinds. Either the principal may have expressly conferred authority on the agent, or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of fact. An agent, as a general rule, is only entitled to indemnity from the principal if she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority. Express actual authority Express actual authority means an agent has actually been expressly told she may act on behalf of a principal. Ireland v Livingstone (1872) LR 5 HL 395 Implied actual authority Implied actual authority, also called "usual authority", is authority an agent has by virtue of being reasonably necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners have authority to bind the other partners in the firm, their liability being joint and

several, and in a corporation, all executives and senior employees with decisionmaking authority by virtue of their position have authority to bind the corporation. Apparent authority Apparent authority (also called "ostensible authority") exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship. For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.[3] Authority by virtue of a position held to deter: fraud and other harms that may befall individuals dealing with agents, there is a concept of Inherent Agency power, which is power derived solely by virtue of the agency relation.[6] For example, partners have apparent authority to bind the other partners in the firm, their liability being joint and several (see below), and in a corporation, all executives and senior employees with decision-making authority by virtue of their declared position have apparent authority to bind the corporation. Even if the agent does act without authority, the principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the principal's behavior, e.g. if the agent has purported to act in a number of situations and the principal has knowingly acquiesced, the failure to notify all concerned of the agent's lack of authority is an implied ratification to those transactions and an implied grant of authority for future transactions of a similar nature. [edit] Liability of agent to third party If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, so long as the relationship of the agency and the identity of the principal have been disclosed. When the agency is

undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of authority. ] Liability of agent to principal If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage. Liability of principal to agent If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principals business. Duties An agent owes the principal a number of duties. These include: a duty to undertake the task or tasks specified by the terms of the agency (that is, the agent must not do things that he has not been authorised by the principal to do); a duty to discharge his duties with care and due diligence; and a duty to avoid conflict of interest between the interests of the principal and his own (that is, the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal). An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal. An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the agency. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate and pay the agent either a prearranged commission, or a reasonable fee established after the fact. Termination

An agent's authority can be terminated at any time. If the trust between the agent and principal has broken down, it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice. As per Section 201 to 210 The Indian Contract Act, 1872, an agency may come to an end in a variety of ways: (i) By the principal revoking the agency However, principal cannot revoke an agency coupled with interest to the prejudice of such interest. Such Agency is coupled with interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e.g., where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the goods; in such a case, the principal cannot revoke the agents authority till the goods are actually sold, nor is the agency terminated by death or insanity. (Illustrations to section 201) (ii) By the agent renouncing the business of agency; (iii) By the business of agency being completed; (iv) By the principal being adjudicated insolvent (Section 201 of The Indian Contract Act. 1872) The principal also cannot revoke the agents authority after it has been partly exercised, so as to bind the principal (Section 204), though he can always do so, before such authority has been so exercised (Sec 203). Further, as per section 205, if the agency is for a fixed period, the principal cannot terminate the agency before the time expired, except for sufficient cause. If he does, he is liable to compensate the agent for the loss caused to him thereby. The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. Further, reasonable notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid (Section 206). As per section 207, the revocation or renunciation of an agency may be made expressly or impliedly by conduct. The termination does not take effect as regards the agent, till it becomes known to him and as regards third party, till the termination is known to them (Section 208). When an agents authority is terminated, it operates as a termination of subagent also. (Section 210).[7]

This has become a more difficult area as states are not consistent on the nature of a partnership. Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. Others treat the partnership as a business entity and, like a corporation, vest the partnership with a separate legal personality. Hence, for example, in English law, a partner is the agent of the other partners whereas, in Scots law where there is a separate personality, a partner is the agent of the partnership. This form of agency is inherent in the status of a partner and does not arise out of a contract of agency with a principal. In the English Partnership Act 1890 provides that a partner who acts within the scope of his actual authority (express or implied) will bind the partnership when he does anything in the ordinary course of carrying on partnership business. Even if that implied authority has been revoked or limited, the partner will have apparent authority unless the Third Party knows that the authority has been compromised. Hence, if the partnership wishes to limit any partner's authority, it must give express notice of the limitation to the world. However, there would be little substantive difference if English law was amended (see Law Commission Report 283 [1]): partners will bind the partnership rather than their fellow partners individually. For these purposes, the knowledge of the partner acting will be imputed to the other partners or the firm if a separate personality. The other partners or the firm are the principal and third parties are entitled to assume that the principal has been informed of all relevant information. This causes problems when one partner acts fraudulently or negligently and causes loss to clients of the firm. In most states, a distinction is drawn between knowledge of the firm's general business activities and the confidential affairs as they affect one client. Thus, there is no imputation if the partner is acting against the interests of the firm as a fraud. There is more likely to be liability in tort if the partnership benefited by receiving fee income for the work negligently performed, even if only as an aspect of the standard provisions of vicarious liability. Whether the injured party wishes to sue the partnership or the individual partners is usually a matter for the Plaintiff since, in most jurisdictions, their liability is joint and several. Agency relationships Agency relationships are common in many professional areas. employment.

real estate transactions (real estate brokerage, mortgage brokerage). In real estate brokerage, the buyers or sellers are the Principals themselves and the broker or his/her salesperson who represents each Principal is his/her Agent. financial advice (insurance agency, stock brokerage, accountancy) contract negotiation and promotion (business management) such as for publishing, fashion model, music, movies, theatre, show business, and sport. An Agent in Commercial Law (also referred to as a manager) is a person who is authorised to act on behalf of another (called the Principal or client) to create a legal relationship with a Third Party.

Negotiable Instruments Act Introduction Negotiable instruments are the most common credit devices used in modern business. They are basically written promises or orders to pay money, and may be transferred from person to person. The law relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881. The chief objective of this Act is to legalise the system under which negotiable instruments pass from hand to hand in negotiation like ordinary goods. The Act is based on the principles of English Law. In fact the law of negotiable instruments is not the law of a single country but of the whole of the commercial world and the general rule of the law will be of the same pattern in all the countries. Objectives: After studying this unit, you will be able to: Explain the features of negotiable instruments. Define Promissory note, bill of exchange and cheque. Mention the parties to negotiable instruments. Negotiable Instruments Act

The law relating to Negotiable Instruments is contained in the Negotiable Instruments Act, 1881, as amended up-to-date. It deals with three kinds of negotiable instruments, i.e., Promissory Notes, Bills of Exchange and Cheques. The provisions of the Act also apply to hundis (an instrument in oriental language), unless there is a local usage to the contrary. Other documents like treasury bills, dividend warrants, share warrants, bearer debentures, port trust or improvement trust debentures, railway bonds payable to bearer etc., are also recognised as negotiable instruments either by mercantile custom or under other enactments like the Companies Act, and therefore, Negotiable Instruments Act is applicable to them. Definition & Features The word negotiable means transferable by delivery, and the word instrument means a written document by which a right is created in favour of some person. Thus, the term negotiable instrument literally means a written document transferable by delivery. According to Section 13 of the Negotiable Instruments Act, a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. The Act, thus, mentions three kinds of negotiable instruments, namely notes, bills and cheques and declares that to be negotiable they must be made payable in any of the following forms: a)Payable to order: A note, bill or cheque is payable to order which is expressed to be payable to a particular person or his order. But it should not contain any words prohibiting transfer, e.g., Pay to A only or Pay to A and none else is not treated as payable to order and therefore such a document shall not be treated as negotiable instrument because its negotiability has been restricted. There is, however, an exception in favour of a cheque. A cheque crossed Account Payee only can still be negotiated further, of course, the banker is to take extra care in that case. b)Payable to bearer: Payable to bearer means payable to any person whom so ever bears it. A note, bill or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsement is an endorsement in blank. The definition given in Section 13 of the Negotiable Instruments Act does not set out the essential characteristics of a negotiable instrument. Possibly the most

expressive and all encompassing definition of negotiable instrument had been suggested by Thomas which is as follows: A negotiable instrument is one which is, by a legally recognised custom of trade or by law, transferable by delivery or by endorsement and delivery in such circumstances that (a) the holder of it for the time being may sue on it in his own name and (b) the property in it passes, free from equities, to a bonafide transferee for value, notwithstanding any defect in the title of the transferor. Characteristics of Negotiable Instruments: An examination of the above definition reveals the following essential characteristics of negotiable instruments which make them different from an ordinary chattel: Easy negotiability: They are transferable from one person to another without any formality. In other words, the property (right of ownership) in these instruments passes by either endorsement and delivery (in case it is payable to order) or by delivery merely (in case it is payable to bearer), and no further evidence of transfer is needed. Transferee can sue in his own name without giving notice to the debtor: A bill, note or a cheque represents a debt, i.e., an actionable claim and implies the right of the creditor to recover something from his debtor. The creditor can either recover this amount himself or can transfer his right to another person. In case he transfers his right, the transferee of a negotiable instrument is entitled to sue on the instrument in his own name in case of dishonour, without giving notice to the debtor of the fact that he has become holder. Better title to a bonafide transferee for value: A bonafide transferee of a negotiable instrument for value (technically called a holder in due course) gets the instrument free from all defects. He is not affected by any defect of title of the transferor or any prior party. Thus, the general rule of the law of transfer applicable in the case of ordinary chattels that nobody can transfer a better title than that of his own does not apply to negotiable instruments. Examples of Negotiable Instruments: The following instruments have been recognized as negotiable instruments by statute or by usage or custom: (i) Bills of exchange; (ii) Promissory notes; (iii) Cheques; (iv) Government promissory notes; (v) Treasury bills; (vi) Dividend warrants; (vii) Share warrants; (viii) Bearer

debentures; (ix) Port Trust or Improvement Trust debentures; (x) Hundis; (xi) Railway bonds payable to bearer, etc. Examples of Non-negotiable Instruments: These are: (i) Money orders; (ii) Postal orders; (iii) Fixed deposit receipts; (iv) Share certificates; (v) Letters of credit. Promissory Note-Definition & Essentials Definition: According to Section 4 a promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of a certain person, or to the bearer of the instrument. Essentials of a Promissory Note: From the definition given in the Act it follows that to be a valid promissory note an instrument must fulfill the following essential requirements: It must be in writing: A promissory note has to be in writing. An oral promise to pay does not become a promissory note. The writing may be on any paper, on any book. It may be in pencil or in ink and includes printing or typing. No particular form of words is necessary, even a promise contained in a letter will suffice, provided the other requirements of Section 4 are complied with. The following is the usual form of a promissory note:

It must contain a promise or undertaking to pay: There must be a promise or an undertaking to pay. The undertaking to pay may be gathered either from express words or by necessary implication. A mere acknowledgement of indebtedness is not a promissory note, although it is valid as an agreement and may be sued upon as such.

The promise to pay must be unconditional: A promissory note must contain an unconditional promise to pay. The promise to pay must not depend upon the happening of some uncertain event i.e., a contingency or the fulfillment of a condition. If an instrument contains a conditional promise to pay, it is not a valid promissory note. It must be signed by the maker: It is imperative that the promissory note should be duly authenticated by the signature of the maker. The maker must be a certain person: The instrument itself must indicate with certainty who is the person or are the persons engaging himself or themselves to pay. The payee must be certain: Like the maker the payee of a promissory note must also be certain. The sum payable must be certain: For a valid promissory note it is also essential that the sum of money promised to be payable must be certain and definite. The amount payable must be in legal tender money of India: A document containing a promise to pay a certain amount of foreign money or to deliver a certain quantity of goods is not a promissory note. Other formalities: Though it is usual and proper to state in a note the place where it is made and the date on which it is made but their omission will not render the instrument invalid. But a promissory note must be properly stamped as required by the Indian Stamp Act and each stamp must also be duly cancelled. The makers signature with the date across the stamp cancels the stamp effectively. Although an unstamped or inadequately stamped promissory note is invalid, but the amount of loan can be recovered if proved otherwise. Bill of Exchange-Definition & Essentials Definition: Section 5 of the Negotiable Instruments Act defines a bill of exchange as follows: A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. Parties to a bill of exchange: There are three parties to a bill of exchange viz., drawer, drawee and payee. The person who makes the bill is called the drawer. The person who is directed to pay is called the drawee. The person to whom the payment is to be made is called the payee. The drawer, or if the bill is endorsed to

the payee, the endorsee, who is in possession of the bill is called the holder. The holder must present the bill to the drawee for his acceptance. When the drawee accepts the bill, by writing the words accepted and then signing it, he is called the acceptor. Drawee in case of need: Sometimes the name of another person may be mentioned in a bill of exchange as the person who will accept the bill, if the original drawee does not accept it. Since another person so named is to be approached in case of need, he is known as drawee in case of need. Acceptor for honour: When a bill of exchange has been noted or protested for nonacceptance or for better security and any person accepts it supra protest for honour of the drawer or of any one of the endorsers, such person is called an acceptor for honour. Essentials of a Bill of Exchange: To be a valid bill of exchange an instrument must comply with the requirements of the definition given in Section 5, which are as follows: It must be in writing. It must contain an order to pay. A mere request to pay on account will not amount to an order. The order to pay must be unconditional. It must be signed by the drawer. The drawer, drawee and payee must be certain. The sum payable must be certain. The bill must contain an order to pay money only. It must comply with the formalities as regards date, consideration, stamps, etc.

Specimen of a Bill of Exchange:

Cheque- Definitions & Distinction between a Cheque and a Bill of Exchange Definition: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Thus, a cheque is a bill of exchange with two distinctive features, namely: (i) it is always drawn on a bank, and (ii) it is always payable on demand. Distinction between a Cheque and a Bill of Exchange: Although a cheque, being a species of a bill of exchange, must satisfy almost all the essentials of a bill, e.g., signed by the drawer, containing an unconditional order, to pay a certain sum of money, to the order of a person or the bearer, etc., yet there are few points of difference between the two, namely: A cheque is always drawn on a banker, while a bill may be drawn on any person, including a banker. A cheque can only be drawn payable on demand, whereas a bill may be drawn payable on demand or on the expiry of a certain period after date or sight. A cheque drawn payable to bearer on demand is valid but a bill drawn payable to bearer on demand is absolutely void and illegal. A cheque does not require any acceptance by the drawee before payment can be damanded. But a bill requires acceptance by the drawee before he can be made liable upon it. A cheque does not require any stamp, whereas a bill of exchange must be properly stamped.

Three days of grace are allowed while calculating the maturity date in the case of time bills (i.e., bills drawn payable after the expiry of a certain period). Since a cheque is always payable on demand, there is no question of allowing any days of grace. Unlike cheques, a bill of exchange cannot be crossed. Unlike cheques, the payment of a bill cannot be countermanded by the drawer. Unlike bills, there is no system of Noting or Protest in the case of a cheque. The drawer of a bill is discharged from liability, if it is not duly presented for payment, but the drawer of a cheque will not be discharged by delay of the holder in presenting it for payment, unless through the delay, the drawer has been injured, e.g., by the failure of the bank the drawer has lost the money which would have otherwise discharged the amount of the cheque. However, where the drawer is so discharged, the payee may rank as creditor of the bank for the amount of the cheque. Bank Draft and Hundis A bank draft is an order issued by one bank on another bank or on its own branch (usually drawn on its own branch) instructing the latter to pay a specified sum of money to a specified person or his order. It is a negotiable instrument and is very much like a cheque, with the following distinctions: a)It can be drawn only by a bank on another bank or on its another branch and not by an individual as in the case of a cheque. b)It cannot so easily be countermanded as a cheque. c)It cannot be made payable to bearer. Hundis: Hundis are negotiable instruments written in Hindustani language. Sometimes they are in the form of promissory notes but usually they are like bills of exchange in form and substance. The provisions of the Negotiable Instruments Act apply to Hundis unless there is a local usage to the contrary. They are quite popular among the Indian merchants from the very old days.

Parties to Negotiable Instruments Holder: The holder of a negotiable instrument means any person entitled to the possession of the instrument in his own name and to receive or recover the amount

due thereon from the parties liable thereto. Thus, in order to be called a holder a person must satisfy the following two conditions: He must be entitled to the possession of the instrument in his own name. Actual possession of the instrument is not essential. What is required is a right to possession under some legal or valid title. If a person is in possession of a negotiable instrument without having a right to possess the same, he cannot be called the holder. Thus, a thief, or a finder on the road, or an indorsee under a forged indorsement, although may be having the possession of the instrument, cannot be called its holder because he does not acquire legal title thereto and hence is not entitled in his own name to the possession thereof. He must be entitled to receive or recover the amount due thereon from the parties liable thereto. In order to be called a holder the person must have the right to receive or recover the amount of the instrument and give a valid discharge to the payer. Thus, one may be the bearer or the payee or indorsee of an instrument but he may not be called a holder if he is prohibited by a court order from receiving the amount due on the instrument. Holder in due course The holder in due course means any person who for consideration became the possessor of a negotiable instrument if payable to bearer, or the payee or indorsee thereof if payable to order, before the amount mentioned in it became, payable, and without sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. Thus, in order to be called a holder in due course a person must possess the following qualifications: He must be a holder i.e., he must be entitled to the possession of the instrument in his own name under a legal title and to recover the amount thereof from the parties liable thereto. He must be a holder for valuable consideration i.e., there must be some consideration to which law attaches value. The consideration, however, need not be adequate. A donee, who acquires title to the instrument by way of gift, is not a holder in due course for want of consideration, although he is a holder. The consideration must also be lawful. He must have become the holder of the negotiable instrument before its maturity. The holder who acquires a negotiable instrument after maturity cannot be a holder

in due course. In case of instruments payable on demand, e.g., a cheque, he must have taken the instrument within a reasonable time of its issue. He must take the negotiable instrument complete and regular on the face of it. It is the duty of every person who takes a negotiable instrument to examine its form and contents thoroughly, for if it contains any material alteration which has not been confirmed by the drawer through his signature, or if it is incomplete, say, drawers name is not there or it is not properly stamped, he will not become a holder in due course. He must have become holder in good faith without having sufficient cause to believe that any defect existed in the title of the transferor. He must exercise great care and take all necessary precautions in finding out if the transferors title was defective. He must take the instrument without any negligence on his part. Negotiation of Negotiable Instruments The process of transferring the title or ownership of negotiable instruments is called negotiation. Definition According to Section 14, When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated. Thus negotiation implies a transfer of negotiable instrument so as to constitute the transferee a holder thereof, who should be entitled in his own name to sue on the instrument and recover the amount due thereon. There must be a transfer with intention to pass title and in the manner prescribed by the Act. Every maker, drawer, payee or indorsee, and if there are several makers, drawers, payees or indorsees, all of them jointly can negotiate an instrument, provided the negotiability of such instrument has not been restricted or excluded by any express words used in the instrument. But the maker, drawer, payee or indorsee cannot negotiate an instrument, unless he is in lawful possession or is holder thereof. A negotiable instrument may be negotiated until payment or satisfaction thereof by the maker, drawee or acceptor at or after maturity, but not after such payment or satisfaction. Thus, negotiability of an instrument stops only when the party ultimately liable thereon pays it at or after maturity. It can be negotiated even at or after maturity if it has not been paid or satisfied. A payment before maturity does

not stop negotiability. The acceptor or maker who receives the instrument after payment but before maturity may reissue it.

Modes of Negotiation There are two ways of negotiating or transferring a negotiable instrument: Negotiation by mere delivery: A negotiable instrument payable to bearer is negotiable by delivery thereof. Thus, a bearer instrument may be negotiated by delivery only. It does not require signature of the transferor (i.e. indorsement) and the transferee becomes the holder thereof by mere possession. The transferor of a bearer instrument is not liable on its dishonour. Negotiation by indorsement and delivery: A negotiable instrument payable to order is negotiable by the holder by indorsement and delivery thereof. Thus the negotiation of an order instrument requires two formalities, namely, first the holder should indorse it and then deliver to his indorsee. In both the modes of negotiation stated above, delivery with the intention of transferring the ownership of the instrument to the transferee is essential. Mere delivery without the intention of passing the property is not sufficient to constitute a complete negotiation. Indorsement: Section 15 defines indorsement as follows: When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as negotiable instrument, he is said to indorse the same, and is called the indorser. Thus, an indorsement consists of the signature of the holder usually made on the back of the negotiable instrument with the object of transferring the instrument. If no space is left on the back of the instrument for the purpose of indorsement, further indorsements are signed on a slip of paper attached to the instrument. Such a slip is called allonge and becomes part of the instrument. The person making the indorsement is called an indorser and the person to whom the instrument is indorsed is called an indorsee. Kinds of Indorsements: Indorsements may be of the following kinds:

Blank or general indorsement: If the indorser signs his name only and does not specify the name of the indorsee, the indorsement is said to be in blank. The effect of a blank indorsement is to convert the order instrument into bearer instrument which may be transferred merely by delivery. Indorsement in full or special indorsement: If the indorser, in addition to his signature, also adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person, the indorsement is said to be in full. Partial indorsement: Section 56 provides that a negotiable instrument cannot be indorsed for a part of the amount appearing to be due on the instrument. In other words, a partial indorsement which transfers the right to receive only a part payment of the amount due on the instrument is invalid. Restrictive indorsement: An indorsement which, by express words, prohibits the indorsee from further negotiating the instrument or restricts the indorsee to deal with the instrument as directed by the indorser is called restrictive indorsement. The indorsee under a restrictive indorsement gets all the rights of an indorser except the right of further negotiation. Conditional indorsement: If the indorser of a negotiable instrument, by express words in the indorsement, makes his liability, dependent on the happening of a specified event, although such event may never happen, such indorsement is called a conditional indorsement. In the case of a conditional indorsement the liability of the indorser would arise only upon the happening of the event specified. But the indorsee can sue other prior parties, e.g., the maker, acceptor etc., if the instrument is not duly met at maturity, even though the specified event did not happen. Dishonour and Discharge of Negotiable Instruments Dishonour of Negotiable Instruments A negotiable instrument may be dishonoured by (i) non-acceptance or (ii) nonpayment. As presentment for acceptance is required only in case of bills of exchange, it is only the bills of exchange which may be dishonoured by nonacceptance. Dishonour by Non-acceptance: A bill of exchange is said to be dishonoured by non-acceptance when the drawee makes default in acceptance upon being duly required to accept the bill.

Dishonour by Non-payment: A promissory note, bill of exchange or cheque is said to be dishonoured by nonpayment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon. Effect of Dishonour As soon as a negotiable instrument is dishonoured (either by non-acceptance or by non-payment) the holder becomes entitled to sue the parties liable to pay thereon. The drawer of cheque, maker or note, acceptor and drawer of bill and all the indorsers are liable severally and jointly to a holder in due course. The holder must, however, give notice of dishonour to all parties against whom he intends to proceed. He may (at his option) also have the instrument noted and protested before a notary public. Discharge of the Instrument and the Parties The term discharge in relation to negotiable instruments has two connotations, viz., (1) discharge of instrument, and (2) discharge of one or more parties from liability on the instrument. Discharge of the Instrument A negotiable instrument is said to be discharged when it becomes completely useless, i.e., no action on that will lie, and it cannot be negotiated further. After a negotiable instrument is discharged the rights against all the parties thereto comes to an end, and no party, even a holder in due course, can claim the amount of the instrument from any party thereto. Discharge of the party primarily and ultimately liable on the instrument results in the discharge of the instrument itself. For example, in the following cases and instrument is deemed to be discharged: When the party primarily liable on the instrument (i.e., the maker of the note, acceptor of the bill or drawee bank) makes the payment in due course to the holder at or after maturity. A payment by a party who is secondarily liable does not discharge the instrument because in that case the payer holds it to enforce it against prior indorser and the principal debtor. When a bill of exchange which has been negotiated is, at or after maturity, held by the acceptor in his own right, the instrument is discharged. When the party primarily liable becomes insolvent, the instrument is discharged and the holder cannot make any other prior party liable thereon. Similarly, an

instrument stands discharged when the primary party liable is discharged by material alteration in the instrument or by lapse of time making the debt time barred under the Limitations Act. When the holder cancels the instrument with an intention to release the party primarily liable thereon from the liability, the instrument is discharged and ceases to be negotiable. Discharge of One or More Parties A party is said to be discharged from his liability when his liability on the instrument comes to an end. When only some of the parties to a negotiable instrument are discharged, the instrument continues to be negotiable and the undischarged parties remain liable on it. One or more parties to a negotiable instrument are are discharged from liability in the following ways: By cancellation: When the holder of a negotiable instrument deliberately cancels the name of any of the party liable on the instrument with an intent to discharge him from liability thereon, such party and all indorsers subsequent to him, who have a right of action against the party whose name is so cancelled, are discharged from liability. If the name of an indorser has been cancelled then all the indorsers subsequent to him will be discharged but those prior him will remain liable. Where the cancellation is done under a mistake or without the authority of the holder if will not discharge any party. By release: If the holder of a negotiable instrument releases any party to the instrument by any method other than cancellation of names (i.e., by a separate agreement of waiver, release or remission), the party so released and all parties subsequent to him, who have a right of action against the party so released, are discharged from liability. By payment: When the party primarily liable on the instrument makes the payment in due course to the holder at or after maturity, all the parties to the instrument stand discharged. By allowing drawee more than 48 hours to accept: If the holder of a bill of exchange allows the drawee more than forty-eight hours, to consider whether he will accept the same, all previous parties not consenting to such allowance are thereby discharged from liability to such holder.

By taking qualified acceptance: If the holder of a bill agrees to a qualified acceptance all prior parties whose consent is not obtained to such an acceptance are discharged from liability. By not giving notice of dishonuour: Any party to a negotiable instrument (other than the party primarily liable) to whom notice of dishonour is not sent by the holder is discharged from liability as against the holder, unless the circumstances are such that no notice of dishonour is required to be sent. By non-presentment for acceptance of a bill: When a bill of exchange is payable certain period after sight, its holder must present it for acceptance to the drawee within a reasonable time after it is drawn. If he makes a default in making such presentment the drawer and all indorsers who were liable towards such a holder are discharged from their liability towards him. By delay in presenting cheque: It is the duty of the holder of a cheque to present it for payment within reasonable time of its issue. If he fails to do and in the meanwhile the bank fails.

PART A 1. what do you mean by Contract? 2. What is meant by void Agreement? 3. Define Contract 4. What do you mean by Formation of a Contract? 5. What is Discharge of Contract? 6. What do you mean by Discharge of contract? 7. What is Quasi Contract? 8. What is meant by conditional sale? 9. Who is unpaid seller? 10.What is meant by negotiable instrument? 11.What is meant by holder in due course? 12.What is cheque? 13.What do you mean by draft? 14.Who is called as agent? 15.Who is principal under the agency act?

PART B 1. Explain the steps involved in the formation of contract. 2. What is breach of contract? Explain the remedies for the breach of contract. 3. What are all the rights and duties of unpaid seller? 4. Explain the nature and requisites of negotiable instruments. 5. What is meant by agent ? Explain its types 6. What are all the rights and duties of the agent? 7. What are all the duties and rights of a principal? UNIT II COMPANY LAW 10 Major principles Nature and types of companies, Formation, Memorandum and Articles of Association, Prospectus, Power, duties and liabilities of Directors, winding up of companies Corporate Governance. Unit II-Company Law Introduction Law regulates the rights and obligations of persons, and divides them into two classes natural persons and artificial persons. Natural persons are human beings of different degrees of capacity. Artificial persons are created and devised by human laws for the purposes of society and government, which are called companies. Objectives: After studying this unit, you will be able to: Define of company. Name the types of companies. Explain the process of incorporation of a company. Describe the Management of company. Companies Act, 1956 Definition: The term company implies an association of a number of persons for some common objective e.g. to carry on a business concern, to promote art, science or culture in the society, to run a sport club etc. Every association, however, may not be a company in the eyes of law as the legal import of the word company is different from its common parlance meaning. In legal terminology its use is

restricted to imply an association of persons, registered as a company under the law of the land. The following are some of the definitions of company given by legal luminaries and scholars of law: Company means a company formed and registered under this Act or an existing company. Existing company means a company formed and registered under the previous company laws. Companies Act, 1956 Sec. 3(i & ii) A joint stock company is an artificial person invisible, intangible and existing only in the eyes of law. Being a mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence. Justice Marshall A company is an association of many persons who contribute money or moneys worth to a common stock and employ it in some common trade or business and who share the profit or loss arising therefrom. The common stock so contributed is denoted in terms of money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share. Shares are always transferable although the right to transfer them is often more or less restricted. Lord Lindley From the above definitions it is clear that a company has a corporate and legal personality. It is an artificial person and exists only in the eyes of law. It has an independent legal entity, a common seal and perpetual succession. Sometimes, the term corporation (a word derived from the Latin word corpus which means body) is also used for a company. At present the companies in India are incorporated under the Companies Act, 1956. Characteristics of Company The various definitions reveal the following essential characteristics of a company: Artificial Person: A company is an association of persons who have agreed to form the company and become its members or shareholders with the object of carrying on a lawful business for profit. It comes into existence when it is registered under the Companies Act. The law treats it as a legal person as it can conduct lawful business and enter into contracts with other persons in its own name. It can sell or purchase property. It can sue and be sued in its name. It cannot be regarded as an imaginary person because it has a legal existence. Thus company is an artificial person created by law.

Independent corporate existence: A company has a separate independent corporate existence. It is in law a person. Its entity is always separate from its members. The property of the company belongs to it and not to the shareholders. The company cannot be held liable for the acts of the members and the members can not be held liable for the acts or wrongs or misdeeds of the company. Once a company is incorporated, it must be treated like any other independent person. As a consequence of separate legal entity, the company may enter into contracts with its members and vice-versa. Perpetual existence: The attribute of separate entity also provides a company a perpetual existence, until dissolved by law. Its life remains unaffected by the lunacy, insolvency or death of its members. The members may come and go but the company can go on for ever. It is created by law and the law alone can dissolve it. Separate property: A company, being a legal entity, can buy and own property in its own name. And, being a separate entity, such property belongs to it alone. Its members are not the joint owners of the property even though it is purchased out of funds contributed by them. Consequently, they do not have even insurable interest in the property of the company. The property of the company is not the property of the shareholders; it is the property of the company. Limited liability: In the case of companies limited by shares the liability of every member of the company is limited to the amount of shares subscribed by him. If the member has paid full amount of the face value of the shares subscribed by him, his liability shall be nil and he cannot be asked to contribute anything more. Similarly, in the case of a company limited by guarantee, the liability of the members is limited up to the amount guaranteed by a member. The Companies Act, however, permits the formation of companies with unlimited liability. But such companies are very rare. Common seal: As a company is devoid of physique, it cant act in person like a human being. Hence it cannot sign any documents personally. It has to act through a human agency known as Directors. Therefore, every company must have a seal with its name engraved on it. The seal of the company is affixed on the documents which require the approval of the company. Two Directors and the Secretary or such other person as the Board may authorize for this purpose, witness the

affixation of the seal. Thus, the common seal is the official signature of the company. Transferability of shares: The shares of a company are freely transferable and can be sold or purchased through the Stock Exchange. A shareholder can transfer his shares to any person without the consent of other members. Under the articles of association, even a public limited company can put certain restrictions on the transfer of shares but it cannot altogether stop it. A shareholder of a public limited company possessing fully paid up shares is at liberty to transfer his shares to anyone he likes in accordance with the manner provided for in the articles of association of the company. However, private limited company is required to put certain restrictions on transferability of its shares. But any absolute restriction on the right of transfer of shares is void. Capacity to sue and be sued: A company, being a body corporate, can sue and be sued in its own name. Types of Companies Companies may be classified into various categories as shown in the chart below:

Royal or Chartered Companies: These companies are incorporated under a special charter such as the East India Company, the Bank of England. A chartered company is regulated by the charter incorporating it and the Companies Act does not apply to it. These companies are created and regulated by the king or queen in exercise of an ancient prerogative vested in the crown. Such companies are formed in England and do not exist in India.

Statutory Company: These companies are formed under a special Act of Parliament or the state legislature e.g. the Reserve Bank of India, the State Bank of India, IFCI, Life Insurance Corporation, Unit Trust of India. The powers which are to be exercised by such companies are defined by the Acts constituting them and therefore, they are not required to have a memorandum of association. Although each statutory company is governed by the provisions of its special Act, the provisions of the Companies Act, 1956 also apply to them, in so far as the said provisions are not inconsistent with the provisions of the Special Acts under which these companies are formed. These companies are mostly public undertakings and are formed with the main object of public utilities and not for profit. They also need not use the word limited with their names. Registered Companies: A registered company is one which is formed and registered under the Indian Companies Act, 1956 or under any earlier Companies Act in force in India. The two basic types of companies which may be registered under the Act are: (a) Private Companies; and (b) Public Companies. These companies may be: (i) Companies limited by shares; (ii) Companies limited by guarantee; (iii) Unlimited companies. Companies may also be classified as: Association not for profit having licence under Section 25 of the Act; Government companies; Foreign companies; Holding and Subsidiary companies. A brief description of each type of company is given below: Private Company: A Private Company is defined by Section 3(1) (iii) of the Act as a company which, by its articles of association: a) Restricts the right of the members to transfer shares, if any, b) Limits the number of its members to fifty, excluding members who are or were in the employment of the company and c) Prohibits any invitation to the public to subscribe for any shares in, or debentures of the company.

Section 26 of the Companies Act, provides that a private limited company must necessarily have articles of its own. Public Company: The Companies Act does not provide any positive definition of a Public Company. Section 3(1) (iv) defines it as, A public company means a company which is not a private company. Elaborating the above definition, a Public Company is one which: i) does not have any restriction on the transfer of shares; ii) does not limit the maximum number of members and iii) can invite public for the subscription of its shares and debentures. The minimum number of members required to form a public company is seven. There are no restrictions with regard to the maximum number of members in a public company. Companies Limited by Shares: When the liability of the members of a company is limited up to the unpaid value of their shares, it is called a limited liability company or a company limited by shares. This liability or unpaid amount may be called up at any time during the life time of the company or at the time of its winding up. Such a company must have share capital since the extent of liability is determined on the basis of the face value of shares. This company may be a public company or a private company. Companies Limited by Guarantee: The liability of a member in these companies is limited to the amount undertaken to be contributed by him at the time of winding up of the company. The amount of guarantee is mentioned in the memorandum of association. Such companies are formed for non-trading purposes such as charity, promotion of sports, science, art, culture etc. These companies may or may not have any share capital. If these companies do not have any share capital, the members can be required to pay the amount of guarantee undertaken by them and that too in the event of liquidation. But if these companies have any share capital, the members are liable to pay the amount which remains unpaid on their shares together with the amount payable under the guarantee. A company limited by guarantee and having a share capital may be a public company or a private company. Unlimited Companies: An unlimited company is that company which has no limit on the liability of its members. It means that its members are liable to contribute to the debts of the Company in proportion to their respective interests. In case a

member is unable to contribute his share, his deficiency is shared by the rest of the members in proportion to their capital in the company. If the assets of such a company are not sufficient to pay off its liabilities, the private assets of the members can be utilised for this purpose. Such a company may or may not have share capital. In case, it has a share capital, it can be either a public company or a private company. It is essential for this type of company to have its Articles of Association which must state the number of members with which the company is to be registered. However, under Section 32 of the Act, it is provided that an unlimited company can be converted into a limited company by passing a special resolution for this purpose. Holding Company & Subsidiary Company: A company which controls another company is known as holding company and the company so controlled is termed a subsidiary company. Government Company: The Companies Act defines a government company as a company in which not less than 51 percent of the paid up share capital is held by: (a) The Central Government; or (b) Any State Government; or (c) Partly by the Central Government and partly by one or more State Government. A company which is a subsidiary of a government company shall be considered a government company. Foreign Companies: Foreign companies are those companies which are incorporated outside India but which have a place of business within India. Place of business here means an identifiable place where it carries on business such as office, store house, go down, etc. If 50 percent or more of the paid up share capital of a foreign company is held by Indian citizens and or by companies incorporated in India whether singly or jointly, it shall be treated as an Indian company in respect of its business in India. It means that such a company has to comply with the provisions of the Companies Act as if it were an Indian Company. Licensed Companies or Associations not for profit: The Companies Act permits the registration under a licence granted by the Central Government of an association not for profit with limited liability. However, such a company can not use the word Ltd. or the words Pvt. Ltd. with its name. This type of association or company is formed for the promotion of charity, science, commerce, sports, art

or culture etc. Naturally, such associations are not of a commercial nature and do not aim at earning profits. Formation of a Company The process of formation of a company can be divided and discussed under the following four stages: Promotion; Incorporation or Registration; Capital subscription; Commencement of business. Of these stages only the first two are necessary for the formation of a private company and of a public company not having any share capital. They may commence business immediately after they have received a certificate of incorporation. But a public company having a share capital has to pass through all the four stages mentioned above before it can commence business or exercise any borrowing powers. Promotion: Before a company can be formed, there must be some persons who intend to form a company and who take the necessary steps to carry that intention into operation. Such persons are called promoters. It is they who conceive the idea of forming the company and it is they who take the necessary steps to incorporate it by registration. The promotion of a company is comprehensive term denoting that process by which a company is incorporated and floated or established financially as a joint concern by the issue of a prospectus. The promotion is the first stage in the formation of a company. Promotion may be defined as the discovery of business opportunities and the subsequent organisation of funds, property and managerial ability into a business concern for the purpose of making profits therefrom. The promoter: The promoter of a company is a person who does the necessary preliminary work incidental to the formation of a company. The word promoter has not been defined anywhere in the Companies Act. Palmer has defined a promoter as a person who originates a scheme for the formation of the company, has the memorandum and articles prepared, executed and registered and finds the first directors and settles the terms of the preliminary contracts and prospectus (if

any) and making arrangement for advertising and circulating the prospectus and placing the capitals is a promoter. Incorporation of a company: Any seven or more persons or where the company to be formed will be a private company, any two or more persons, associated for any lawful purpose may, by subscribing their name to a memorandum of associations and otherwise complying with the requirement of this Act in respect of registration, form an incorporated company, with or without limited liability. Documents to be filed for registration: After ascertaining the availability of name, the promoter should proceed to prepare the following documents and file with the Registrar of companies: Memorandum of Association: The memorandum of association is the charter of the company. This includes its objectives, its name, the address of its registered office, the capital which the company is authorised by law, the nature of liability of members as well as the names, addresses and agreement of people who agree to form a company. Articles of Association: The other important document is the articles of association which contains the rules and regulations relating to the internal management of the company. However, it is not necessary for a public company limited by shares to file the Articles of Association. If such public company does not file Articles of Association, it is deemed to have adopted Table A of schedule I of the Act. Copy of proposed agreement: If a company purposes to enter into an agreement with any individual for appointment as a Managing Director, or a whole-time director or manager, a copy of such an agreement should also be filed with the Registrar of companies. Consent of the Directors: According to Section 266, in the case of a public limited company having share capital, a person cannot be appointed as a Director by the Articles of Association unless, he has, before the registration of the articles, either himself or through his agent, signed and filed, with the Registrar his consent in writing to act as Director. Certificate of Commencement of Business: A private company can commence business immediately after incorporation. However, in the case of companies other than the private company and a company having no share capital, further

requirement is to be complied with, namely, obtaining a certificate of commencement of business before it can commence its business. Memorandum of Association: Section 2(28) defines it as The Memorandum of Association of a company as originally framed or as altered from time to time in pursuance of any previous companies or of this Act. It sets out the constitution of the company and defines the scope of the activities of the company. It is the foundation on which the structure of the company depends. It also defines the relationship of the company with the public. As the interests of the shareholders, creditors and other members of the public are to be protected by law, this document cannot be altered easily. It was regarded as an unalterable charter of a company in England, until the year 1980, when the Act was amended to allow alterations in certain cases and to a certain extent. Section 16 of the Indian Companies Act lays down that the conditions in the memorandum cannot be altered except in the cases and in the manner and to the extent provided in the Act. Importance of Memorandum: Memorandum of Association of a company is its charter and defines the limitations of the powers of the company, established under the Act. The Memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated. The Memorandum of Association is the most important document with regard to its constitution. It is the foundation on which the whole super structure of company is built-up. Its purpose is two fold. The first is the prospective inventor knows within what field his money is to be risked. Secondly, outsiders also know the nature of the activities of the company and their rights against the company in times of breach of contracts. The memorandum is the basis of the company on which is existence depends. Section 9 lays down that the memorandum cannot contain anything contrary to the provisions of the Act. The memorandum must be signed at least by seven members in the case of a public company and two members in the case of a private company. It is to be divided into paragraphs, numbered consecutively and printed. It must be dated and duly stamped. Contents of Memorandum of Association (Section 13):

i) Name clause: A company may have any name which is not undesirable in the view of the Central Government. For example, the name cannot be identical or similar to the name of another existing company. It must contain at its end, the word Limited if it is a public limited company or the words Private Limited if it is a private limited company. But companies formed for the promotion of art, science, etc., may be exempted from adding words Limited or Private Limited as the case may be, by means of general or special order granted by the Central Government under Section 25. Section 147(1) lays down that the name must appear on the outside of every office or place of business in a conspicuous manner and on all bills, notices, etc., of the company. ii) The Situation Clause: It shows the State in which the registered office of the company is situated. iii) The Objects Clause: It states separately (1) the main objects and objects ancillary or incidental to the main objects to be pursued by the company and (2) other objects. It defines the powers of the company beyond which, the company cannot act. But it cannot contain the objects or powers which are contrary to the provisions of the Act. iv) The Liability Clause: It states whether the liability of the members is limited to the extent of the nominal value of the shares or the extent of the amount guaranteed by the members or unlimited. v) The Capital Clause: It states the amount of the capital and the way in which it is to be divided into shares. vi) The Association and Subscription Clause: All the signatories of the memorandum make a declaration that they are desirous of forming themselves into a company and that they agree to take the number of shares mentioned against their respective names given therein, with their addresses and occupations. Articles of Association: They are the rules, regulations and bye-laws for the internal management of the company. They bind the company and its members. They also bind the members inter sec. But they do not constitute a contract between the company and the public. Articles of association are filed with the Registrar for the incorporation of a company. Where they are not filed, the rules contained in Table A of the Companies Act shall apply. In the case of companies with unlimited liability or with liability limited to the guarantee and a private company limited by shares, the articles of association are compulsory.

The usual contents of the articles of association relate to the following: a) Share capital and variation of rights. b) The companys lien on the shares. c) Calls on shares. d) Transfer and transmission of shares. e) Forfeiture and re-issue of forfeited shares. f) Conversion of shares into stock and re-conversion of stock into shares. g) Rules regarding the holding and conducting of the general meetings and board meetings. h) Rules regarding the appointment of directors, managing agents, secretaries and treasurers, Managing Director and secretary their remuneration, powers and duties etc. i) Alteration of share capital. j) Borrowing powers. k) Accounts and audit. l) The common seal etc. List of persons who act as directors. The consent of directors in writing to act as such. Directors undertaking to take up and pay for qualification shares. This undertaking is to be given by all the Directors jointly or individually and signed by each one of them and should contain their names, occupations, etc. The articles are subservient to the memorandum. It must not contain anything inconsistent with the memorandum. It defines the relationship between the company and members as well members inter se. The memorandum defines the relation of the company with the public. An act ultra vires the articles but intra vires the memorandum can be ratified by the company. But an act ultra vires the memorandum cannot be ratified. Share Capital After having obtained the Certificate of Incorporation, the promoters of a public company will have to take steps to raise the necessary capital for the company. A public company may invite the public to subscribe to its shares or debentures. For this purpose, a document known as prospectus has to be issued. A document containing detailed information about the company and an invitation to the public for subscribing to the share capital and debentures issued is called

prospectus. According to Section 2(36) of the Companies Act, prospectus 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 offers from the public for the subscription or purchase of any shares in or debentures of a body corporate. The term capital usually means a particular amount of money with which business is started. In relation to a company limited by shares, the word capital means share capital. In fact the amount required by the company for its business activities is raised by the issue of shares. The amount so raised is called the share capital of the company. The persons contributing towards the share capital are known as shareholders. The share capital of a company may be classified as follows: Authorised Capital: It is the capital which is stated in companys memorandum of association with which the company intends to be registered. It is called the nominal or registered capital. It is the maximum amount of share capital which a company is authorised to raise by issuing the shares. The amount of nominal capital is determined on the basis of present and future capital need of the company. The authorised capital may be increased or reduced by the company by passing an ordinary resolution. Issued Capital: It is that part of the authorised capital which is actually offered (issued) to the public for subscription. Therefore, the issued capital can never be more than the authorised capital. It can at the most be equal to the nominal capital. The balance of nominal capital remaining to be issued is called unissued capital. Subscribed Capital: It is that part of the issued capital which has been actually subscribed by the public. The amount of subscribed capital cannot exceed the amount of issued capital. This is so, because the company cannot accept for subscription on amount greater than the issued amount. Called-up Capital: It is that part of nominal value of issued capital which has been called-up or demanded on the shares by the company. Normally, a company does not collect the full amount on shares it has allotted. It collects it in installments known as application money, allotment money, first call, second call and so on. The amount of installments which have been demanded for the time being are termed as called-up capital and the amount not yet demanded is termed

as uncalled capital and the shareholders continue to be liable to pay this amount as and when called. Paid-up Capital: It is that part of the called-up capital which has actually been received from the shareholders. Reserve Capital: It is part of the uncalled capital which cannot be called by the company except in the event of its winding up. The company may, by a special resolution, determine that a portion of its uncalled capital shall be called-up: (i) in the event of winding up, (ii) for the purposes of winding up. Meaning of a Share: The capital of a company is divided into a number of indivisible units of a fixed amount. These units are known as shares. Section 2(46) defines, A share is a share in the share capital of a company and includes stock except where a distinction between stock and shares is expressed or implied. A share is the interest of a shareholder in the company, measured by a sum of money. Types of shares: Prior to the Companies Act, 1956, a company could issue the following kinds of shares: Preference shares; 2) Equity shares/Ordinary shares; 3) Deferred shares. After the Companies Act, 1956, a company can issue only two kinds of shares: Preference shares; 2) Equity shares. However, a private company which is not a subsidiary of a public company may issue shares of such other kind as it may think fit. Preference Shares: Preference shares are those which carry: a) A right to be paid a fixed amount of dividend or the amount of dividend calculated at a fixed rate. b) A right to be paid the amount of capital paid up on such shares in the event of winding up of the company. The articles of the company may provide some other preferences too to the preference shareholders. Types of Preference Shares: These may be of the following types: (i) Cumulative Preference Shares: These shares are entitled to dividend at a fixed rate whether there are profits or not. The company pays dividend if it has sufficient profits. In case the company does not have sufficient profits, dividend on cumulative preference shares will go on accumulating till it is fully paid off. Such arrears are carried forward to the next year and are actually paid out of the subsequent years profits. All preference shares are presumed to be cumulative unless expressly stated in the articles to be non-cumulative.

(ii) Non-cumulative Preference Shares: Non-cumulative preference shares are those on which the arrears of dividend do not accumulate. If in a particular year there are no profits or profits are inadequate, the shareholders shall not get anything or receive a partial dividend and they cannot claim the arrears of dividends in the subsequent year. (iii) Participating Preference Shares: The holders of such shares are entitled to receive dividend at a fixed rate and in addition, they have a right to participate in the surplus profits along with equity shareholders after dividend at a certain rate has been paid to equity shareholders. In the event of winding up, if after paying back both the preference and equity shareholders, there are surplus assets, then the holders of such shares shall be entitled to share in the surplus assets as well. (iv) Non-participating Preference Shares: The holders of such shares are entitled to only a fixed rate of dividend and do not participate further in the surplus profits. If the articles are silent, all preference shares are deemed to be non-participating. (v) Convertible Preference Shares: The holders of such shares have a right to convert these shares into equity shares within a certain period. (vi) Non-convertible Preference Shares: The preference shares, where the holders have no right to convert their shares into equity shares are known as nonconvertible preference shares. Unless otherwise stated preference shares are assumed to be non-convertible. (vii) Redeemable Preference Shares: Ordinarily, the amount received by the company on shares is not returned except on the winding up of the company. A company limited by shares, if authorised by its articles, may issue preference shares which are to be redeemed or repaid after a certain fixed period. Thus, the amount received on such shares can be returned during the life-time of the company. Such shares are termed as redeemable preference shares. Ordinary Shares (Equity Shares) Capital: Equity share capital means all share capital which is not preference share capital. Equity shareholders receive dividend out of profits after preference shareholders have been paid their fixed dividend. They have a right to vote on every resolution placed in the meeting and the voting right shall be in proportion to the paid up equity capital. Ordinary Shares compared with Preference Shares: Preference shares are entitled to a fixed rate of dividend. But the rate of dividend on equity shares is not fixed and it depends upon the amount of profits available.

Dividend on preference share is paid before the payment of dividend on the equity shares. Preference shares have a preferential right to the return of capital on the winding up of the company. If the preference shares are cumulative, the dividend not paid in any year are accumulated and until such arrears of dividend are paid equity shareholders are not paid any dividend. The holder of equity shares can vote on all matters affecting the company whereas preference shareholders can vote only on resolutions which directly affect the rights attached to preference shares or when dividend has remained unpaid in which case he may vote on any resolution in respect of preference share capital. A company may issue rights shares or bonus shares to the existing equity shareholders of the company whereas it is not so in the case of preference shares. Company Management A company is an artificial person having no physical existence and as such can act only through human agency i.e., directors. The persons who are in charge of the management of the affairs of a company are called Directors. They are collectively known as Board of Directors or the Board. The supreme executive authority in the control of a company and its affairs resides in persons known as Board of Directors. Director: Definition Sec. 2(13) of the Companies Act, 1956 defines the term Director as including any person occupying the position of a Director by whatever name called. A Director is a person who, along with his fellow Directors, manages the affairs of a company. He is a member of the governing body of a company and takes part in planning, conducting and controlling its affairs. The appointment of Directors is regulated by the Act. Directors may be appointed in the following ways: By the articles as regard first directors. By the company in general meeting. By the directors. By third parties. By the principle of proportional representation. By the central government.

Appointment by the Articles as regard first directors: The first Directors are usually named in the articles. The articles may also provide that both the number and the names of the first Directors shall be determined in writing by the subscribers to the memorandum or a majority of them. Managing Director: According to Sec. 2(26), a Managing Director means a Director who by virtue of an agreement with the company or of a resolution passed by the company in a general meeting or by its Board of Directors or, by virtue of its Memorandum or Articles of Association, is entrusted with substantial powers of management, which would not otherwise be exercisable by him, and includes a Director occupying the position of a Managing Director, by whatever name called. (1) Appointment of the Managing Director: The following provisions relate to the appointment of the Managing Director in Section 269: Every public company or a private company which is a subsidiary of a public company, having a paid up capital of rupees five cr. or more shall have a Managing Director or a Whole-time Director or Manager. No appointment of a person as a Managing or Whole-time Director or a Manager in a public company or a private company which is a subsidiary of a public company shall be made except with the approval of the Central Government unless such appointment is made in accordance with the conditions specified in parts I and II of Schedule XIII. Ordinarily a person cannot be the Managing Director of more than one company. Section 316 restricts the managing directorship to only one company except in the following cases: A public company or a private company subsidiary of public company may appoint a person as its Managing Director if he is already the Managing Director or Manager of one and not more than one other company including a private company which is not a subsidiary of a public company. However, such appointment must have been approved by a board resolution which has been consented to by all the directors present at the meeting. Under this clause, a person can be appointed the Managing Director of only two companies and not more. A person can be the Managing Director of any number of private companies but he can not be the Managing Director of any public and one private company. The Central Government may permit any person to be appointed as the Managing Director of more than two companies if it thinks that the companies should, for

their proper working, function as a single unit and have a common Managing Director. Manager: According to Sec. 2(24), Manager means an individual who has the management of the whole or virtually the whole of the affairs of a company under his control. He is subject to superintendence, control and direction of the Board of Directors. Manager includes a Director or any other person occupying the position of a Manager, by whatever name called, and whether under a contract of service or not. A company can not appoint or employ a firm, body corporate or association as its Manager. According to Section 385, the following person can not be appointed as managers: i) A person who is an undischarged insolvent, or has to any time within the preceding five years been adjudged an insolvent. ii) A person who suspends, or has at any time within the preceding five years suspended, payment to his creditors, or makes, or has at any time within the preceding five years made, a composition with them. iii) A person who is, or has at any time within the preceding five years been, convicted by a court in India of an offence involving moral turpitude. The company may appoint a Managing Director or Manager for the management of the company in addition to the Board of Directors. However, according to Section 197A, a company can not appoint both a Managing Director and a Manager at the same time. The following officers are included in the category of other managerial personnel: Secretary: Section 2(45) of the Companies Act, 1956 defines a Secretary as follows: Secretary means a Company Secretary within the meaning of Clause C of subsection 1 of Section 2 of the Company Secretaries Act, 1980, and includes any other individual possessing the prescribed qualifications and appointed to perform the duties which may be performed by a Secretary under this Act and any other ministerial or administrative duties. The definition reveals the following characteristics of a Company Secretary. Only an individual may be appointed a Company Secretary. Thus, a firm or a body corporate cannot be a Company Secretary. A Company Secretary should possess the requisite qualifications to be prescribed by the Central Government. The Company Secretary performs the functions

performed by a Secretary under the Companies Act including any other ministerial or administrative duties. Section 383-A of the Companies Act, 1956 provides for the statutory requirement for certain companies to have a Company Secretary. No firm or body corporate can hold the office of a secretary and no individual can be a secretary in more than one company at the same time. Meetings Meaning of a meeting A meeting may be generally defined as a gathering or assembly or getting together of a number of persons for transacting any lawful business. For proper working of the company,it is necessary that the shareholders meet as often as possible and discuss matters of mutual interest and take important decisions, there must be at least two persons to constitute a meeting. Company meetings must be convened and held in perfect compliance with the various provisions of the Companies Act, 1956, and the rules framed thereunder. Kinds of company meetings Company meetings can broadly be classified as follows: (A) Shareholders meetings: Such meetings are known as general meeting of the members which are held to exercise their collective rights. The meetings of the shareholders may be of the following types: Statutory meetings Annual general meeting Extra-ordinary general meetings; Class meeting of shareholders. (B)MeetingofDirectors: These meetings may be of two types: (i) Board meeting; (ii) Meeting of the board committees. (C) Other Meetings: These meetings may be either of the following; (i) Meetings of the debenture holders; (ii) Meeting of creditors.

Statutory Meeting: Every public company limited by shares or limited by guarantee and having a share capital must hold a general meeting of the members of the company which may be called the statutory meeting. It is to be convened after not less than one month but within six months from the date at which the company is entitled to commence business. A meeting held prior to the statutory period of one month from the date of entitlement of a company to commence business can not be called the statutory meeting. The notice for such a meeting should state that it is intended to be statutory. The statutory meeting is held only once in the life time of a company. The following companies need not hold statutory meeting: i) Private company, ii) Company limited by guarantee having no share capital. iii) Unlimited liability company. iv) Government companies. Objectives of statutory meeting The statutory meeting is held to inform the shareholders about matters relating to incorporation, allotment of shares, the details of the contracts concluded by the company, etc. Statutory meeting is convened in order to afford the shareholders an opportunity for seeing what degree of success has attained the floatation of the company and in order that any special matters requiring their approval may be laid before them. Annual general meeting: A meeting known as an annual general meeting is required to be held by every company, public or private, annually for the purpose of transacting the companys ordinary business. First annual general meeting: The first annual general meeting of a company may be held within 18 months of incorporation, and so long as the company holds

its first annual general meeting within that period, the company need not hold any general meeting in the year of incorporation or in the following year. However, the provision of Section 210 must be complied with which provide that the first annual general meeting of the company must be held not later than 9 months from the date of the closing of its financial year. Subsequent annual general meeting: Section 166(1) of the Companies Act, 1956 provides that every company shall in each calendar year hold in addition to any other meetings, its annual general meeting and shall specify the meeting as such in the notice calling the meeting, provided that not more than 15 months shall elapse between two annual general meetings. Meeting must be held not later than 6 months from the close of financial year and extension granted by the Registrar. Extra-ordinary general meeting: All the general meetings of a company, with the exception of the statutory meeting and the annual general meeting, are called extraordinary general meetings. There are, various matters in relation to the administration of a Companys affairs which can be transacted only by resolutions of members in a general meeting. It is not always possible or expedient for consideration of such matters to wait until the next annual general meeting. The Articles of Association of the company therefore make provisions for the convention of general meeting than the annual general meeting. Such meetings are termed extraordinary general meetings. All business transacted at such meeting is deemed to be special. In nut shell, extraordinary general meeting is a meeting which is held between two annual general meetings. This meeting is called to discuss some urgent special business which cannot be postponed till the next annual general meeting. An extraordinary general meeting may be convened by: Board of Directors on its own motion. Board of Directors on the requisition of members. Requisitionists themselves on the failure of the Board to call the meeting. Company Law Board. Board Meeting: The affairs of a Company are managed by the Board of Directors. In other words, powers delegated by a company to its directors must be exercised

at properly convened and duly constituted meeting generally referred as Board meeting. Only acts done at duly constituted meetings are therefore valid, unless the articles provide otherwise. The rules regarding the holding and conduct of Board meetings are laid down by the Act and the Articles. Section 285 require the Board to meet at least once every three months irrespective of whether it is the Board of a public company or a private company and at least four such meetings must be held in every year. Resolutions: Decisions of the members at a general meeting are expressed by way of resolutions. At the meetings a definite proposal in the form of a motion is placed, it is discussed thoroughly and finally is put to vote. When the motion is passed by a majority, it is called a resolution. In simple words, resolution means the decision taken at the meeting. A company expresses its will by means of resolution. Three kinds of resolutions are recognised by the Companies Act: i) Ordinary resolutions, ii) Special resolutions, iii) Resolutions requiring a special notice. (i) Ordinarily Resolution: Section 189(1) defines an ordinary resolution as follows: A resolution shall be an ordinary resolution when at a general meeting of which the notice required under this Act has been duly given, the votes cast (whether on a show of hands, or on a poll, as the case may be) in favour of the resolution (including the casting vote, if any, of the chairman) by members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy, exceed the votes, if any, cast against the resolution by members so entitled and voting. An ordinary resolution means a resolution passed by a simple majority of shareholders present and voting. As distinguished from a simple majority, an absolute majority is a majority of all those entitled to vote whether they attend or not. So all resolutions which are not special or which do not require special notice are ordinary resolutions. Ordinary resolutions normally do not require filing with the Registrar of companies. The usual notice of 21 days is however, required for passing an

ordinary resolution. The important items of business of a company which can be transacted with ordinary resolutions are: a) To authorise an issue of shares at a discount. b) To increase the share capital if authorised by the articles, or otherwise alter the share capital apart from its reduction. c) To appoint auditors; but in the case of a company in which not less than 25 per cent of the subscribed share capital is held. Whether single or in any combination, by a public financial institution or a Government company or Central or any State Government, or a nationalised bank or an insurance company carrying a general insurance business, the appointment of auditors requires a special resolution (Section 224A); d) To appoint directors; e) To adopt annual accounts; f) To declare dividends; g) To wind up voluntarily when the period, if any, fixed for the duration of the company by the articles has expired, or the event, if any, has occurred, on the occurrence of which the articles provide that the company is to be dissolved. h) To appoint liquidators in a members voluntary winding up and to fix their remuneration. i) To register an unlimited company as a limited company. j) To do all things for which a special resolution is not specifically required either by the Act or the companys articles. ii) Special resolution: A resolution shall be a special resolution when: a) The intention to propose the resolution as a special resolution has been duly specified in the notice; b) The notice required under the Act (21 days) has been duly given; and c) The votes cast in favour of the resolution by members entitled to vote either in person or by proxy are not less than three times the number of votes if any, cast against the resolution. The votes may be cast either on a show of hands or by poll. There is no question of a casting vote in case of a special resolution. A resolution is said to be a special resolution if notice of the intention to move it as a special resolution is given specifically and it is passed by three-forth of the votes. The notice convening the meeting at which a special resolution is to be considered must set out the actual wording of the resolution.

The articles of association may provide that certain types of business shall be approved by a special resolution. The Act also provides that in certain specified cases, a company must pass a special resolution. It is not necessary that a special resolution should be passed only at an extraordinary meeting of the shareholders. It may be passed at any general meeting of the shareholders. A special resolution is required for the following purposes: To alter any provisions contained in the memorandum which could lawfully have been contained in the articles instead of the memorandum; To alter the objects or the place of registered office of a company; To change the name of a company; To alter the articles of association; To create a reserve capital; To reduce the share capital; To move the companys registered office within the same State but outside the local limits of the city, town or village where such office is situated; To commence any new business which is not related to the business the company is carrying on currently; though covered by the objects clause of the memorandum; To pay interest on shares out of capital; To appoint auditors, if not less than 25 per cent of the companys subscribed capital is held, whether singly or in any combination, by the Central or any State Government, Government companies, financial institutions, nationalised banks, etc.; To support an application to the Central Government to appoint inspectors to investigate the affairs of the company; To appoint sole selling agents, if the companys paid-up capital is Rs. 50 lakhs or more; To authorise payment of remuneration to directors who are not in the whole-time employment of the company; To make the liability of directors unlimited; To have the company wound up by the court; To wind up the company voluntarily; In addition, a companys own articles may prescribe for special resolution where under the Act only an ordinary resolution is required, but vice versa is not allowed

i.e. where the Act specifies for a special resolution, the articles cannot provide in the different kind of resolution. Resolution requiring a special notice: Where the Act requires a special notice, i.e., 14 clear days notice, to be received by the company from a shareholder of his intention to move the resolution, either as an ordinary or as a special resolution. After the receipt of the notice, the company must immediately issue a notice to the shareholders in this regard, not less than 7 days before the meeting either by serving it on them or through an advertisement in the newspaper having an appropriate circulation or in any other mode allowed by the articles. The object of drawing special attention of the company, and through the company of the members to it, is to give the members sufficient time to consider the proposed resolution and to give an opportunity to the directors to indicate their views if the resolution is proposed by the shareholders. Resolutions where special notice is required: A resolution appointing an auditor other than the retiring one. A resolution providing expressly that the retiring auditor shall not be reappointed. A resolution purposing to remove a director before the expiry of his period of office. A resolution to appoint another director in place of the removed director. PART A 1. What do you mean by Company? 2. What is public company? 3. What is meant by Private Company? 4. What do you mean by Government company? 5. What do you mean by Memorandum of Association? 6. What is Articles of Association? 7. What do you mean by prospectus? 8. Who is director?

9. What is meant by winding up of a company? 10. What do you mean by corporate Governance? PART B 1. 2. 3. 4. 5. 6. 7. 8. 9. What are all the major principles involved in the formation of company? Explain the contents of MOA? Explain the contents of AOA? What are the difference between MOA and AOA? What is Prospectus? Explain its contents Who is director? What are all the powers of Director? What are the rights and liabilities of Director? What are all the procedures involved in the winding up of a company? What is meant by meeting? Explain the various types of meeting

UNIT III INDUSTRIAL LAW 8 An Overview of Factories Act, Payment of Wages Act, Payment of Bonus Act, Industrial Disputes Act. UNIT-III Industrial law What is a factory? According to Sec. 2 (m) factory means any premises included the precincts thereof-Whereon 10 or more workers are working or were working on any day of the preceding 12 months and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or

i)

Whereon 20 or more are working or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on aid of power, or is ordinarily so carried on.

The term factory does not include a mine subject to the operation of the Indian Mines Act, 1952 or a mobile unit belonging to the armed forces to the Union, a railway running shed or a hotel, restaurant or eating place. For proper understanding of the meaning of the term factory the following three terms should be clearly understood.

1) Manufacturing process 2) Worker 3) Power DEFINITIONS

1)Adult (Sec.2 (a)) :

An adult means a person who has completed his 18 the year of age.

2)Adolescent (Sec.2 (b)):

age

An adolescent means a person who has completed his 15th year of but has not completed his 18th year.

3)Child (Sec.2 (c ): A child means a person who has not completed his 15th year of age.

4)Competent person:(Sec. 2(c a) as introduced by the Amendment Act of 1987)

Competent person In relation to any provision of the Act, means a person or an institution recognized as such by the Chief Inspector. The recognition must be for the purposes of carrying out tests, examinations and inspections required to be done in a factory under the provisions of the Act. This recognition must be given having regard to-

a) the qualifications and experience of the person and the facilities available at his disposal; or b) the qualifications and experience of the person employed in such institutions and facilities available therein with regard to the conduct of such tests, examinations and inspections. It may be noted that more than one person or institution may be recognized as competent persons in relation to a factory.

5)Hazardous process (Sec, 2(c (b) as introduced by the Amendment Act of 1987),

It means any process or activities in relation to an Industry specified in the First Schedule by way of addition omission or variation of any industry specified in the First Schedule1 where, unless special care is taken, raw material used therein or the intermediate or finished products, bye products, wastes or effluents thereof would-

or

a)cause material impairment to the health of the persons engaged in connected therewith, or

b)result in the pollution of general environment.

The State Government may, by notification in the Official Gazette, amend the First Schedule by way of addition, omission or variation of any industry specified in the First Schedule.

The definition of hazardous process has been introduced by the Amendment Act of 1987.

6)Calendar year (Sec,2 (bb)).

It means the period of 12 months beginning with the 1st day of January in any year.

7)Young person (Sec 2 (d)).

A young person means a person who is either a child or an adolescent.

8)Shift and Relay (Sec 2(r)).

Where work of the same kind is carried out by 2 or more sets of workers working during different periods of the day, each of such sets is called a relay and each of such periods is called a shift.

APPROVAL, LICENSING AND REGISTRATION OF FACTORIES:

a) The State Government is empowered under Sec.6 to make rules requiring the submission of plans, and approval, licensing and registration of factories.

Application for permission:

Under Sec.6. to make rules requiring the submission of plans of factories to the inspector or the State Government. (b) An application for such permission may be made to the State Government or the Chief Inspector , along with the duly certified plans and specifications. (c) The State Government may also make rules requiring the registration and licensing of factories and prescribing the fees payable for such registration and licensing and the renewal of licenses. Presumption of permission if nothing is heard within 3 months If on an applications to the State Government or the Chief Inspector For permission accompanied by plans and specification of a factory, nothing is heard within 3 months, the permission is deemed to be granted (Sec.6(2))

(a)

Appeal.

Where a State Government refuses to grant permission to the site, construction or extension of a factory or to the registration and licensing of a factory the applicant may within 30 days of the date of such refusal appeal to the Central Government. Where a Chief Inspector refuses to grant such

permission, the applicant may, within 30 days of refusal, appeal to the State Government (Sec 6(3))

THE INSPECTING STAFF Inspectors (sec. 8): A. Appointment Sec. 8 provides for the appointment of Chief Inspector, Additional Chief Inspection, Joint Chief Inspectors, Deputy Chief Inspector, and Inspectors. B. According to it, the State Government may, by notification in the Official Gazette, appoint any person to be a Chief Inspector to exercise the powers conferred on his by the Factories Act. He shall also exercise the powers of an Inspector throughout the State [Sec. 8(2)]. C. The State Government may also appoint, by notification in the Official Gazette, such persons as possess the prescribed qualifications to be Inspectors. It may assign to the Inspectors such local limits as it may think fit [Sec. 8(1)].

Powers of Inspectors(Sec. 9).

An Inspector may, within the local limits for which he is appointed,

(d) Enter, with assistants who are in the service of the Government or any local or other public authority or with an expert, the premises of a factory: (e) Make examination of the premises, plant, machinery, article or substance

(f) Inquire into any accident or dangerous occurrence, whether resulting in bodily injury, disability or not, and take on the spot or otherwise statements of any person which he may consider necessary for such inquiry: (g) Require the production of any prescribed register or any other document relating to the factory:

(h) Seize, or take copies of, any register, record or other document or any portion thereof, as he may consider necessary in respect of any offence under this Act. Which he has reason to believe, has been committed: (i) Direct the occupier that any premises or any part thereof, or anything lying therein, shall be left undisturbed (whether generally or in particular respects) for so long as is necessary for the purpose of any examination under cause(b):

(j) Take measurements and photographs and make such recordings as he considers necessary for the purpose of any examination under clause(b) taking with him any necessary instrument or equipment: (k) In case of any article or substance found in any premises, being an article or substance which appears to him as having caused or is likely to cause danger to the health or safety of the workers, direct it to be dismantled or subject it to any process of test(but not so as to damage or destroy it unless the same is necessary for carrying out the purposes of this Act). Further, he may take possession of any such article or substance or a part thereof, and detain it for so long as is necessary for such examination:

(l) Exercise such other power as may be prescribed. The above powers of an Inspector are subject to any rules which may be made by the State Government in this behalf.

Additional powers. An Inspector has also the power

(a) To require medical examination of a young person working in a factory(Sec.75), and also (b) To the take sample of any substance used, or intender to be used, in a factory for the purpose of finding out if the substance is injurious to the health of the workers(Sec. 91). Certifying surgeons(Sec. 10)

Appointment. The State Government may appoint qualified medical practitioners to be certifying surgeons for specified local limits or factories [Sec.(10)]

Duties of certifying surgeons.

The certifying surgeon shall carry out such duties as may be prescribed in connection with (a) The examination and certification of young persons:

(b) The examination of persons engaged in factories in dangerous occupations or processes:

(c) The exercising of such medical supervision as may be prescribed for any factory.

HEALTH, SAFETY AND WELFARE

The Act makes detailed provisions in regard to various matters relating to health, safety and welfare of the workers. These provisions impose upon the occupiers or managers certain obligations (a) to protect workers, unwary as well as negligent, from accidents and (b) to secure for them in employment, conditions conductive to their health, safety, and welfare.

1. Cleanliness(Sec. 11) 2. Disposal of wastes and effluents(Sec. 12) 3. Ventilation and temperature(Sec. 13) 4. Dust and fume(Sec. 14) 5. Artificial humidification(Sec. 15) 6. Overcrowding(Sec. 16) 7. Lighting(Sec. 17) 8. Drinking water(Sec. 18) 9. Latrines and urinals(Sec. 19) 10.Spittoons(Sec. 20) SAFETY: 1. Fencing of machinery(Sec. 21) 2. Work on near(Sec. 22)

3. Employment of young persons of dangerous machines(Sec. 23) 4. Striking gear and devices for cutting off power(Sec. 24) 5. Self-acting machines(Sec. 25) 6. Casing of new machinery(Sec. 26) 7. Prohibition of employment of women and children near cotton-openers(Sec. 27) 8. Hoists and lifts(Sec. 28) 9. Lifting machines, chains, repose and lifting tackles(Sec. 29) 10.Revolving machinery(Sec. 30) 11.Pressure plant(Sec. 31) 12.Floors, stairs and means of access(Sec. 32) 13.Pits, sumps, openings in floors, etc(Sec. 33) 14.Excessive weights(Sec. 34) 15.Protection of eyes(Sec. 35) 16.Precautions against dangerous fumes(Sec. 34) 17.Precautions regarding the use of portable electric light(Sec. 36-A) 18.precautions against explosive or inflammable dust, gas, etc. (Sec. 37) 19.Precautions in cases of fire(Sec. 38) 20.Power to require specifications of defective parts or tests of stability(Sec. 39) 21.Safety of building and machinery(Sec. 40) 22.Maintenance of building(Sec. 41) 23.Safety Officers(Sec. 40-B) WELFARE:

1. Washing facilities 2. Facilities for storing and drying clothing 3. Facilities for sitting

4. Provision of seating arrangement for workers doing work which can be done in a sitting position 5. First-aid appliances 6. Canteens 7. Provision in rules 8. Shelters, rest rooms and lunch rooms 9. Shelters etc 10.Creches 11.Welfare officers

WORKING HOURS OF ADULTS

Working hours:

Weekly hours. No adult worker shall be requires or allowed to work in a factory for more than 48 hours in any week.

1.Daily hours 2. Intervals for rest 3. Spread over, night shifts and overlapping shifts 4. Extra wages for overtime 5. Restriction on double employment 6. Notice of periods of work for adult workers 7. Register of adult workers

HOLIDAYS

1. Weekly holidays 2. Compensatory holidays

EMPLOYMENT OF YOUNG PERSONS

1. Prohibition of employment of young children 2. Non-adult workers to carry tokens 3. Certificate of fitness 4. Working hours and notice of periods of work for children 5. Register of child workers 6. Power to require medical examination 7. Power o make rules 8. Safety provisions for young persons ANNUAL LEAVE WITH WAGES

1. Rules relating to annual leave with wages

1. Leave entitlement 2. Computation of period of 240 days 3. Discharge, dismissal, death or quitting of employment 4. Treatment of fraction of leave superannuation,

5. Treatment of unavailed leave 6. Application for leave to be made in writing within a specified time 7. Application for leave covering a period of illness may not be made within the specified time 8. Scheme for the grant of leave 9. Display of scheme for grant of leave 10. Refusal of leave to be a in accordance with scheme 11. Payment of wages to workers for leave if he is discharged or if he quits service 12. Unveiled leave period

THE INDUSTRIAL DISPUTES ACT, 1947

Industrial dispute means any dispute or difference between 1. employers and employers 2. employers and workmen, or 3. workmen and workmen, which is connected with the employment or non-employment, the terms of employment, or the conditions of labour of any person OBJECTIVES OF THE ACT:

The main object of the Act are:

1. To secure industrial peace (a) by preventing and setting industrial disputes between the employers and workmen, (b) by securing and preserving amity and good relations between the employers and workmen,

(c) by promoting good relations through and external machinery 2. To ameliorate the condition of workmen in industry (a) by redressal of grievances of workmen in industry (b) by providing job security

Appropriate government(Sec 2(a))

Appropriate Government means Government in relation to any industrial dispute concerning.

the

Central

any industry carried on (i) by or under the authority of the Central Government or ii) by a railway company, or iii)concerning anysuch controlled industry as may be specified in this behalf by the Central Government. Average pay (Sec.2 (aaa) )

It means the average of the wages payable to a workmani)in the case of a monthly paid workman, in the 3 complete calendar months.

ii)in the case of a weekly paid workman in the 4 complete weeks, and

iii)in the case of a weekly paid workman in the 12 full working days. 3)AWARD( Sec.2(b))

It means an interm or a final determination of any industrial disputes or of any question relating thereto by any Labour Court Industrual Tribunal or National Tribunal.

4)BOARD(Sec 2 )

Boards means a Board of Conciliation constituted under the Act. 5)CLOSURE (Sec 2(cc))

It means the permanent closing down of employment or part thereof. 6)CONCILIATION OFFICER (Sec.2 (d))

a place of

Conciliation officer means a conciliation officer under the Act.

7)CONCILIATION PROCEEDING (Sec 2(e))

It means any proceeding held by a conciliation officer or Board of Conciliation Under the Act.

8)Controlled industry (Sec 2(ee))

It means any industry the control of which by the Union has been declared by any Central Act to be expedient in the public interest.

9)Court (Sec .2(f) It means a court of Inquiry constituted under the Act.

10) Employer (Sec.2 (g)

Employer in relation to an industry carried on by or under the authority of any department of the Central or State Government.

11)Executive and office bearer in relation to a trade Union (Sec 2(gg) and Sec.2(lll))

12)Independent person (Sec 2(i) LAY-OFF (Sec.2 (kkk)

Lay off means the failure, refusal or inability of an employer to give employment to a workman (a) whose name is borne on the musterrolls of his industrial establishment, and b) who has not been retrenched. The failure, refusal, or inability to give employment may be due to-

1) 2) 3) 4)

Shortage of coal, power or raw materials, or The accumulation of stocks, or The breakdown of machinery, or Natural calamity or for any other connected reasons.

LOCK-OUT (Sec 2 (l))

It means the temporary closing of a place of employment, or suspension of work, or the refusal by an employer to continue to employ any

number of persons employed by him. The word temporary waysides to the definition by the Amendment Act of 1982,

Essential of a lock out:

The essential of a lack- out are as follows:

b) There is a temporary closing of the place of employment or suspension or withholding of the work by the employer in some form. c) There is an element of demands for which the place of employment is locked out or closed. d) There is an intension to re-employ the workers if they accept the demands. RETRENCHMENT

It means to end conclude or cease. The term used in the industrial disputes act mean the termination by the employer of the service of a workman for reason whatsoever other wise than as punishment inflicted by way of disciplinary action.

STRIKE It means

1) a cessation of work by a body of persons employed in any industry acting in combination 2) a concerted refusal of any number of persons who are or have been so employed to continue to work or to accept employment 3) refusal under a common understanding of any number of such persons to continue to work or to accept employment.

Unfair lab our practices:

It means any of the practices specified in the fifth schedule which declares certain labour practices as unfair on the part of employers and their trade unions and on the part of workmen and their trade unions.

PROCEDURE FOR SETTLEMENT OF INDUSTRIAL DISPUTES AND AUTHORITIES UNDER THE ACT

The Industrial disputes Act intended, by making various provisions the prevention and settlement of industrial disputes. The Act, in its Preamble, has also emphasized this point by saying that the Act is for the investigations and settlement of industrial disputes

The Act provides elaborate and effective machinery for bringing about industrial peace by setting up various authorities for the investigation and settlement of industrial disputes. These authorities are:

1) 2) 3) 4) 5) 6) 7)

works committees (Sec.3) conciliation officers (Sec. 4) boards of conciliation (Sec.5) courts of inquiry (Sec. 6) labour courts (Sec. 7) Industrial Tribunals (Sec. 7-A) National tribunals (Sec.7-B)

The Act provides for the following modes of settlement of disputes under the Act:

1) voluntary settlement and conciliation 2) Adjudication, and Arbitration THE PAYMENT OF BONUS ACT, 1965

INTRODUCTION

The practice of paying bonus in India appears to have originated during First World War when certain textile mills granted 10% of wages as war bonus to their workers in 1917. In certain cases of industrial disputes demand for payment of bonus was also included. In 1950, the Full Bench of the Labour Appellate evolved a formula for determination of bonus. A plea was made to raise that formula in 1959. At the second and third meetings of the Eighteenth Session of Standing Labour Committee (G. O.I.) held in New Delhi in March/April 1960, it was agreed that a Commission be appointed to go into the question of bonus and evolve suitable norms. A Tripartite Commission was set up by the Government of India to consider in a comprehensive manner, the question of payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government. The Government of India accepted the recommendations of the Commission subject to certain modifications. To implement these

recommendations the Payment of Bonus Ordinance, 1965 was promulgated on 29 th May, 1965. To replace the said Ordinance the Payment of Bonus Bill was introduced in the Parliament.

STATEMENT OF OBJECT AND REASONS A Tripartite Commission was set by the Government of India by their resolution No.WB-20(9)/61, dated 6th December, 1961 to consider in a comprehensive manner, the question of payment of bonus based on profits to employees employed in establishments and to make recommendations to the Government. The Commissions Report containing their recommendations was received by the Government on 24th January, 1964. In their Resolution No. WB20(3)/64, dated the 2nd September, 1964, the Government announced acceptance of the Commissions recommendations subject to a few modifications as were mentioned therein. With a view to implement the recommendations of the Commission as accepted by the Government, the Payment of Bonus Ordinance, 1965, was promulgated on 29th May, 1965. The object of the Bill is to replace the said Ordinance.

The notes on clauses explain the various provisions of the Bill.

ACT 21 OF 1965 The Payment of Bonus Bill having been passed by both the Houses of Parliament received the assent of the President on 25th September, 1965. It came on the Statute Book as THE PAYMENT OFBONUS ACT, 1965 (21 of 1965).

LIST OF AMENDING ACTS

1. 2. 3. 4. 5. 6. 7. 8 9

The Insurance (Amendment) Act, 1968 (62 of 1968). The Payment of Bonus (Amendment) Act, 1969 (8 of 1969). The Central Labour Laws (Extension of Jammu And Kashmir) Act, 1970 (51 of 1970). The Payment of Bonus (Amendment) Act, 1972 (68 of 1972). The Payment of Bonus (Amendment) Act, 1973 (39 of 1973). The Payment of Bonus (Second Amendment) Act, 1973 (55 of 1973). The Payment of Bonus (Amendment) Act, 1974(42 of 1974). The Payment of Bonus (Amendment) Act, 1976(23 of 1976). The Payment of Bonus (Amendment) Act, 1977 (43 of 1977) [as amended by the Payment of Bonus (Amendment) Act, 1978 (48of 1978) and the Payment of Bonus (Amendment) Act, 1980 (5 of 1980)].

10. The Payment of Bonus (Second Amendment) Act, 1980 (66 of 1980). 11. The National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981). 12. The Payment of Bonus (Amendment) Act, 1985 (30 of 1985). 13. The Payment of Bonus (Second Amendment) Act, 1985 (67of 1985). 14. The National Housing Bank Act, 1987 (53 of 1987). 15. The Small Industries Development Bank of India Act, 1989 (39 of 1989). 16 The Payment of Bonus (Amendment) Act, 1995 (34 of 1995).

THE PAYMENT OF BONUS ACT, 1965

in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith.] BE it enacted by Parliament in the Sixteenth Year of the Republic of India as follows:-

1. Short title, extent and application.-(1) This Act may be called the Payment of Bonus Act, 1965. (2) It extends to the whole of India1[***]. (3). Save as otherwise provided in this Act, it shall apply to (a) every factory; and (b) every other establishment in which twenty or more persons are employed on any day during an accounting year. 2 [Provided that the appropriate Government may, after giving not less than two months notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act with effect from; such accounting year as may be specified in the notification, to any establishment or class of establishment [including an establishment being a factory within the meaning of sub-clause (ii) of clause (m) of section 2 of the Factories Act, 1948 (63 of 1948)] employing such number of persons less than twenty as may be specified in the notification; so, however, that the number of persons so specified shall in no case be less than ten.] (4). Save as otherwise provided in this Act, the provisions of this Act shall, in relation to a factory or other establishment to which this Act applies, have effect in respect of the accounting year commencing on any day in the year 1964 and in respect of every subsequent accounting year:

[Provided that in relation to the State of Jammu and Kashmir, the reference to the accounting year commencing on any day in the year 1964 and every subsequent accounting year shall be construed as reference to the accounting year commencing on any day in the 1968 and every subsequent accounting year:]

[Provided further that when the provisions of this Act have been made applicable to any establishment or class of establishments by the issue of a notification under the proviso to sub-section (3), the reference to the accounting year commencing on any day in the year 1964 and every subsequent accounting year or, as the case may be the reference to the accounting year commencing on any day in the year 1968 and every subsequent accounting year, shall, in relation to such establishment or class of establishments, be construed as a reference to the accounting year specified in such notification and every subsequent accounting year.]

(5) An establishment to which this Act applies 1[***] shall continue to be governed by this Act notwithstanding that the number of person employed therein falls below twenty 2[or, as the case may be, the number specified in the notification issued under the proviso to sub-section (3)].

2. Definition.- In this Act, unless the context otherwise requires,-

(1) accounting year means (i) in relation to a corporation, the year ending on the day on which the books and accounts of the corporation are to be closed and balanced.

(ii) in relation to a company, the period in respect of which any profit and loss account of the company laid before it in annual general meeting is made up, whether that period is a year or not; (iii) in any other case -

(a) the year commencing on the 1st day of April; or (b) if the accounts of an establishment maintained by the employer thereof are closed and balanced on any day other than the 31st day of March, then, at the option of the employer, the year ending on the day on which its accounts are so closed and balanced: Provided that an option once exercised by the employer under paragraph (b) of this sub-clause shall not again be exercised except with the previous permission in writing of the prescribed authority and upon such conditions as that authority may think fit;

(2) agricultural income shall have the same meaning as in the Income-tax Act; (3) agricultural income-tax law means any law for the time being in force relating to the levy of tax on agricultural income; (4) allocable surplus means(a) in relation to an employer, being a company 3[(other than a banking company)] which has not made the arrangements prescribed under the Income-tax Act for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of section 194 of that Act, sixty-seven per cent of the available surplus in an accounting; year; (b) in any other case, sixty percent of such available surplus;

[***]

(5) appropriate Government means-

in relation to an establishment in respect of which the appropriate Government under the Industrial Disputes Act, 1947 (14 of 1947), is the Central Government, the Central Government; (ii) in relation to any other establishment, the Government of the State in which that other establishment is situate; (6) available surplus means the available surplus computed under section 5; (7) award means an interim or a final determination of any industrial dispute or of any question relating thereto by any Labour Court, Industrial Tribunal or National Tribunal constituted under the Industrial Disputes Act, 1947 (14 of 1947), or by any other authority constituted under any corresponding law relating to investigation and settlement of industrial disputes in force in a State and includes an arbitration award made under section 10A of that Act or under that law; (8) banking company means a banking company as defined in section 5 of the Banking Companies Act, 1949 (10 of 1949), and includes the State Bank of India, any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) 2[any corresponding new bank specified in the First Schedule to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), 3[any corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Under takings) Act, 1980 (40 of 1980),] any co-operative bank as defined in clause (bii) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934),] and any other banking institution which may be notified in this behalf by the Central Government; (9) company means any company as defined is section3 of the Companies Act, 1956 (1 of 1956), and includes a foreign company within the meaning of section 591 of that Act;

(i)

(10) co-operative society means society registered or deemed to be registered under the Co-operative Societies Act, 1912 (2 of 1912), or any other law for the time being in force in any State relating to co-operating societies; (11) corporation means any body corporate established by or under any Central, Provincial or State Act but does not include a company or a cooperative society; (12) direct tax means(a) any tax chargeable under(i) the Income-tax Act; (ii) the Super Profits Tax Act, 1963 (14 of 1963); (iii) the Companies (Profits) Surtax Act, 1964 (7 of 1964); (iv) the agricultural income-tax law; and (b) any other tax which, having regard to its nature or incidence, may by declared by the Central Government, by notification in the Official Gazette, to be a direct tax for the purposes of this Act; (13) employee means any person (other than an apprentice) employed on a salary or wage not exceeding 1[three thousand and five hundred rupees] per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied;

(14) employer includes(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and where a person has been named as a manager of the factory under clause (f) of sub-section (1) of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and (ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment and

where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent; (15) establishment in private sector means any establishment other than an establishment in public sector; (16) establishment in public sector means an establishment owned, controlled or managed by-

(a) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); (b) a corporation in which not less than forty per cent of its capital is held (whether singly or taken together) by(i) the Government; or (ii) the Reserve Bank of India; or (iii) a corporation owned by the Government or the Reserve Bank of India; (17) factory shall have the same meaning as in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948); (18) gross profits means the gross profits calculated under section 4; (19) Income-tax Act means the Income-tax Act, 1961 (43 of 1961); (20) prescribed means prescribed by rules made under this Act; (21) salary or wage means all remuneration (other than remuneration in respect of over-time work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include(i) any other allowance which the employee is for the time being entitled to;

(ii) the value of any house accommodation or supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food grains or other articles; (iii) any traveling concession; (iv) any bonus (including incentive, production and attendance bonus); (v) any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force; (vi) any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him; (vii) commission payable to the employee. any

Explanation. Where an employee is given in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall, for the purpose of this clause, be deemed to from part of the salary or wage of such employee; (22) words and expressions used but not defined in this Act and defined in the Industrial Disputes Act, 1947 (14 of 1947) shall have the meanings respectively assigned to them in that Act. 3. Establishments to include departments, undertakings and branches.--

Where an establishment consists of different department or undertakings or has branches, whether situated in the same place or in different places, all; such departments or undertakings or branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act: Provided that where for any accounting year a separate balance-sheet and profit and loss account are prepared and maintained in respect of any such department or undertaking or branch, then such department or undertaking or

branch shall be treated as a separate establishment for the purpose of computation of bonus, under this Act for that year, unless such department or undertaking or branch was, immediately before the commencement of that accounting year treated as part of the establishment for the purpose of computation of bonus.
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[4. Computation of gross profits.The gross profits derived by an employer from an establishment in respect of the accounting year shall (a) in the case of a banking company, be calculated in the manner specified in the First Schedule; (b) in any other case, be calculated in the manner specified in the Second Schedule;] 5. Computation of available surplus.The available surplus in respect of any accounting year shall be the gross profits for that year after deducting therefrom the sums referred to in section 6; [Provided that the available surplus in respect of the accounting year commencing on any day 1968 and in respect of every subsequent accounting year shall be the aggregate of (a) the gross profits for that accounting year after deducting therefrom the sums referred to in section 6; and (b) an amount equal to the difference between -(i) the direct tax, calculated in accordance with the provisions of section 7, in respect of an amount equal to the gross profits of the employer for the immediately preceding accounting year; and (ii) the direct tax, calculated in accordance with the provisions of section 7, in respect of an amount equal to the gross profits of the employer for such preceding accounting year after deducting therefrom the amount of bonus which the employer has paid or is liable to pay to his employees in accordance with the provisions of this Act for that year.] 6. Sums deductible from gross profits.The following sums shall be deducted from the gross profits as prior charges, namely:2

(a) any amount by way of depreciation admissible in accordance with the provisions of sub-section (1) of section 32 of the Income-tax Act, or in accordance with the provisions of the agricultural income-tax law, as the case may be: Provided that where an employer has been paying bonus to his employees under a settlement or an award or agreement made before the 29th May, 1965, and subsisting on that date after deducting from the gross profits notional normal depreciation, then, the amount of depreciation to be deducted under this clause shall, at the option of such employer (such option to be exercised once and within one year from the date) continue to be such notional normal depreciation; (b) any amount by way of 1[development rebate or investment allowance or development allowance] which the employer is entitled to deduct from his income under the income-tax Act; (c) subject to the provisions of section 7, any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during that year; (d) such further sums as are specified in respect of the employer in the 2 [Third Schedule]. 7. Calculation of direct tax payable by the employer.3[Any direct tax payable by the employer] for any accounting year shall, subject to the following provisions, be calculated at the rates applicable to the income of the employer for that year, namely:(a) in calculating such tax no account shall be taken of -(i) any loss incurred by the employer in respect of any previous accounting year and carried forward under any law for the time being in force relating to direct taxes; (ii) any arrears of depreciation which the employer is entitled to add to the amount of the allowance for depreciation for any following accounting year or years under sub-section (2) of section 32 of the Income-tax Act; (iii) any exemption conferred on the employer under section 84 of the Income-tax Act or of any deduction to which he is entitled under sub-section (1) of section,101 of that Act, as in force immediately before the commencement of the Finance Act, 1965 (10 of 1965);

(b)

where the employer is a religious or a charitable institution to which the provisions of section 32 do not apply and the whole or any part of its income is exempt from tax under the Income-tax Act, then, with respect to the income so exempted, such institution shall be treated as if it were a company in which the public are substantially interested within the meaning of that Act; (c) where the employer is individual or a Hindu Undivided Family, the tax payable by such employer under the Income-tax Act shall be calculated on the basis that the income derived by him from the establishment is his only income; (d) where the income of any employer includes any profits and gains derived from the export of any goods or merchandise out of India and any rebate on such income in allowed under any law for the time being in force relating to direct taxes, then, no account shall be taken of such rebate; (e) no account shall be taken of any rebate 1[(other than development rebate or investment allowance or development allowance)] or credit or relief or deduction (not herein before mentioned in this section) in the payment of any direct tax allowed under any law for the time being in force relating to direct taxes or under the relevant annual Finance Act, for the development of any industry. 8. Eligibility for bonus.Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year. 9. Disqualification for bonus.Notwithstanding anything contained in this Act, an employee shall be disqualified from receiving bonus under this Act, if he is dismissed from service for -(a) fraud; or (b) riotous or violent behaviour while on the premises of the establishment; or (c) theft, misappropriation or sabotage of any property of the establishment. 1 [10. Payment of minimum bonus.Subject to the other provisions of this Act, every employer shall be bound to pay to every employee in respect of the accounting year commencing on any day in the year 1979 and in respect of every

subsequent accounting year, a minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher, whether or not the employer has any allocable surplus in the accounting year: Provided that where an employee has not completed fifteen years of age at the beginning of the accounting year, the provisions of this section shall have effecting relation to such employee as if for the words one hundred rupees, the words sixty rupees were substituted.]
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[11. Payment of maximum bonus.(1) Where in respect of any accounting year referred to in section 10, the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section, the employer shall, in lieu of such minimum bonus, be bound to pay to every employee in respect of that accounting; year bonus which shall be an amount in proportion to the salary or wage earned by the employee during the accounting year subject to a maximum of twenty per cent, of such salary or wage. (2) In computing the allocable surplus under this section, the amount set on or the amount set off under the provisions of section 15 shall be taken into account in accordance with the provisions of that section.]
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[12. Calculation of bonus with respect to certain employees.Where the salary or wage of an employee exceeds 4[two thousand and five hundred rupees] per mensem, the bonus payable to such employee under section 10 or, as the case may be, under section 11, shall be calculated as if his salary or wage were [two thousand and five hundred rupees] per mensem.]
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[13.Proportionate reduction in bonus in certain cases.Where an employee has not worked for all the working days in an accounting year, the minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than 8.33 per cent, of his salary or wage for the days he has worked in that accounting year, shall be proportionately reduced.]

14. Computation of number of working days.For the purposes of section 13, an employee shall be deemed to have worked in an establishment in any accounting year also on the days on which-(a) he has been laid off under an agreement or as permitted by standing orders under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment; (b) he has been on leave with salary or wage; (c) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and (d) the employee has been on maternity leave with salary or wage, during the accounting year. 1 [15. Set on and set off of allocable surplus. (1) Where for any accounting year, the allocable surplus exceeds the amount of maximum bonus payable to the employees in the establishment under section 11, then, the excess shall, subject to a limit of twenty per cent. of the total salary or wage of the employees employed in the establishment in that accounting year, be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilized for the purpose of payment of bonus in the manner illustrated in the Fourth Schedule. (2) Where for any accounting year, there is no available surplus or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employees in the establishment under section 10, and there is no amount of sufficient amount carried forward and set on under sub-section (1) which could be utilized for the purpose of payment of the minimum bonus, then, such minimum amount or the deficiency, as the case may be, shall be carried forward for being set off in the succeeding accounting year and so on up to and inclusive of the fourth accounting year in the manner illustrated in the Fourth Schedule. (3) The principle of set on and set off as illustrated in the Fourth Schedule shall apply to all other cases not covered by sub-section (1) or sub-section (2) for the purpose of payment of bonus under this Act. (4) Where in any accounting year any amount has been carried forward and set on or set off under this section, then, in calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account.]

16. Special provisions with respect to certain establishment 2[(1) Where an establishment newly set up, whether before or after the commencement of this Act, the employees of such establishment shall be entitled to be paid bonus under this Act in accordance with the provisions of sub-section (1A), (1B) and (1C). (1A) In the first five accounting year following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, bonus shall be payable only in respect of the accounting year in which the employer derives profit from such establishment and such bonus shall be calculated in accordance with the provisions of this act in relation to that year, but with out applying the provisions of section 15. (1B) For the sixth and seventh accounting year following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, the provisions of section 15 shall apply subject other following modifications, namely:-(i) for the sixth accounting year -set on or set off, as the case may be, shall be made in the manner illustrated in the 1[Fourth Schedule] taking into account the excess or deficiency, if any, as the case may be, of the allocable surplus set on or set off in respect of the fifth and sixth accounting years; (ii) for the seventh accounting year -set on or set off, as the case may be, shall be made in the manner illustrated in the 1[Fourth Schedule] taking into account the excess or deficiency, if any, as the case may be, of the allocable surplus set on or set off in respect of the fifth, sixth and seventh accounting year. (1C) From the eighth accounting year following the accounting year in which the employer sells the goods produced or manufactured by him or renders services, as the case may be, from such establishment, the provisions of section 15 shall apply in relation to such establishment as they apply in relation to any other establishment.

Explanation I. For the purpose of sub-section (1), an establishment shall not be newly set up merely by reason of a change in its location, management, name or ownership. Explanation II. -- For the purpose of sub-section (1A), an employer shall not be deemed to have derived profit in any accounting year unless (a) he has made provision for that years depreciation to which he is entitled under the Income-tax Act or, as the case may be, under the agricultural income-tax, law; and (b) the arrears of such depreciation and losses incurred by him in respect of the establishment for the previous accounting years have been fully set off against his profits. Explanation III. For the purpose of sub-section (1A), (1B) and (1C), sale of the goods produced or manufactured during the course of the trial running of any factory or of the prospecting stage of any mine or an oil field shall not be taken into consideration and where any question arises with regard to such production or manufacture, the decision of the appropriate Government, made after giving the parties a reasonable opportunity of representing the case, shall be final and shall not be called in question by any court or other authority.] (2) The provisions of 1[sub-section (1), (1A), (1B) and (1C)] shall, so far as may be, apply to new departments or undertakings or branches set up by existing establishments: Provided that if an employer in relation to an existing establishment consisting of different (departments or undertakings or branches (whether or not in the same industry) set up at different periods has, before the 29 th May, 1965, been paying bonus to the employees of all; such departments or undertakings or branches, irrespective of the date on which such departments or undertakings or branches were set up, on the basis of the consolidated profits computed in respect of all such departments or undertaking or branches, then, such employer shall be liable to pay bonus in accordance with the provisions of this Act to the employees of all such departments or undertaking or branches (whether set up before or after that date) on the basis of the consolidated profits computed as aforesaid.

17. Adjustment of customary or interim bonus against bonus payable under the Act.Whether in any accounting year -(a) an employer has paid any puja bonus or other customary bonus to an employee; or (b) an employer has paid a part of the bonus payable under this Act to an employee before the date on which such bonus becomes payable. then, the employer shall be entitled to deduct the amount of bonus so paid from the amount of bonus payable by him to the employee under this Act in respect of that accounting year and the employee shall be entitled to receive only the balance. 18. Deduction of certain amounts from bonus payable under the Act. Where in any accounting year, an employee is found guilty of misconduct causing financial loss to the employer, then, it shall be lawful for the employer to deduct the amount of loss from the amount of bonus payable by him to the employee under this Act in respect of that accounting year only and the employee shall be entitled to receive the balance, if any. 19. Time-limit for payment of bonus. 2[All amounts] payable to an employee by way of bonus under this Act shall be paid in cash by his employer -(a) where there is a dispute regarding payment of bonus pending before any authority under section 22, within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute; (b) in any other case, within a period of eight months from the close of the accounting year: Provided that the appropriate Government or such authority as the appropriate Government may specify in this behalf may, upon an application made to it by the employer and for sufficient reasons, by order, extended the said period of eight months to such further period or periods as it thinks fit; so, however, that the total period so extended shall not in any case exceed two years. 20. Application of Act to establishments in public sector in certain cases.3 [(1)] If in any accounting year an establishment in public sector sells any goods produced or manufactured by it or renders any services, in competition with an
.

establishment in private sector, and the income from such sale or services or both less than twenty percent of the gross income of the establishment in public sector for that year, then, the provision of this Act shall apply in relation to such establishment in public sector as they apply in relation to a like establishment in private sector.
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[(2) Save as otherwise provided in sub-section (1), nothing in this Act shall apply to the employees employed by any establishment in public sector] 21. Recovery of bonus due from an employer.- Where any money is due to an employee by way of bonus from his employer under a settlement or an award or agreement, the employee himself or any other person authorised by him in writing in this behalf, or in the case of the death of the employee, his assignee or heirs may, without prejudice to any other mode of recovery, make an application to the appropriate Government or such authority as the appropriate Government may specify in this behalf is satisfied that any money is so due, it shall issue a certificate for that amount to the Collector who shall proceed to recover the same in the same manner as an arrears of land revenue. Provided that every such application shall be made within one year from the date on which the money became due to the employee from the employer. Provided further that any such application may be entertained after the expiry of the said period of one year, if the appropriate Government is satisfied that the applicant had sufficient cause for not making the application within the said period. Explanation- In this section and in 5[sections 22,23, 24 and 25], employee includes a person who is entitled to the payment of bonus under this Act but who is no longer in employment. 22. Reference of disputes under the Act.- Where any dispute arises between an employer and his employees with respect to the bonus payable under this Act or with respect to the application of this Act to an establishment in public sector, then, such dispute shall be deemed to be an industries dispute within the meaning of the Industrial Disputes Act, 1947 (14 of 1947), or of any corresponding law relating to investigation and settlement of industrial disputes in force in a State and the provisions of that Act or, as the case may be, such law, shall, save as otherwise expressly provided, apply accordingly.

23. Presumption about accuracy of balance-sheet and profit and loss account of corporation and companies.- Where, during the course of proceedings before any arbitrator or Tribunal under the Industrial Disputes Act, 1947 (14 of 1947) or under any corresponding law relating to investigation and settlement of industrial disputes in force in a State (hereinafter in this section 1 [and in 2[sections 24 and 25] referred to as the said authority ) to which any dispute of the nature specified in section 22 has been referred, the balance-sheet and the profit and loss account of an employer, being a corporation or a company (other than a banking company), duly audited by the comptroller and AuditorGeneral of India or by auditors duly qualified to Act as auditors of companies under sub-section (1) of section 226 of the Companies Act, 1956 (1 of 1956), are produced before it, then, the said authority may presume the statements and particulars contained in such balance-sheet and profit and loss account to be accurate and it shall not be necessary for the corporation or the company to prove the accuracy of such statements and particulars by the filing of an affidavit or by any other mode. Provided that where the said authority is satisfied that the statement and particulars contained in the balance-sheet or the profit and loss account of the corporation or the company are not accurate, it may take such steps as it thinks necessary to find our the accuracy of such statement and particulars. (2) When an application is made to the said authority by any trade union being a party to the dispute or where there is no trade union, by the employees being a party to the dispute requiring any clarification relating to any item in the balance-sheet or the profit and loss account it may, after satisfying itself that such clarification is necessary, by order, direct the corporation or, as the case may be, the company, to furnish to the trade union or the employees such clarification within such time as may be specified in the direction and the corporation or , as the case may be, the company, shall comply with such direction.
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[24. Audited accounts of banking companies not to be questioned. (1) Where any dispute of the nature specified in section 22 between an employer , being a banking company, and its employees has been referred to the said authority under that section and during the course of proceedings the accounts of the banking company duly audited and produced before it, the said authority shall not permit any trade union or employees to question the correctness of such accounts , but the trade union or employees to question the correctness of such

accounts, but the trade union or employees may be permitted to obtain from the banking company such information as is necessary for verifying the amount of bonus due under this Act. (2) Nothing contained in sub-section (1) shall enable trade union of the employees to obtain any information which the banking company is not compelled to furnish under the provisions of section 34A of the Banking Regulation Act, 1949 (10 of 1949)]. 25. Audit of accounts of employers, not being corporations or companies.(1) Where any dispute of the nature specified in section 22 between an employer, not being a corporation or a company, and his employees has been referred to the said authority under that section and the accounts of such employer audited by any auditor duly qualified to act as auditor of companies under sub-section (1) of section 226 of the Companies Act, 1956 (1 of 1956) , are produced before the said authority, the provisions of section 23, shall , so far as may be, apply to the accounts so audited. (2) When the said authority finds that the accounts of such employer of such employer have not been audited by any such auditor and it is of opinion that an audit of the accounts of such employer is necessary for deciding the question referred to it, then, it may, by order direct the employer to get his accounts audited within such time as may be specified in the direction or within such further time as it may allow by such auditor or auditors as it thinks fit and thereupon the employer shall comply with such direction. (3) Where an employer fails to get the accounts audited under sub-section (2) the said authority may, without prejudice to the provisions of section 28, get the accounts audited by such auditor or auditors as it thinks fit. (4) When the accounts are audited under sub-section (2) or sub-section (3) the provision of section 23 shall, so far as may be, apply to the accounts so audited. (5) The expenses of and incidental to, any audit under sub-section (3) (including the remunerating of the auditor or auditors) shall be determined by the said authority (which determination shall be final) and paid by the employer and in default or such payment shall be recoverable from the employer in the manner provided in section 21.

26. Maintenance of register, records, etc. Every employer shall prepare and maintain such registers, records and other documents in such form and in such manner as may prescribed. 27. Inspectors. (1) The appropriate Government may, by notification on the Official Gazette, appoint such person as it think fit to be Inspectors for the purposes of this Act and may define the limits within which they shall exercise jurisdiction. (2) An Inspector appointed under sub-section (1) may, for the purpose of ascertaining whether any of the provisions of this Act has been complied with -(a) Require an employer to furnish such information as he may consider necessary; (b) at any reasonable time and with such assistance, if any, as he thinks fit enter any establishment or any premises connected therewith and require any one found in charge thereof to produce before him for examination any accounts, books, registers and other documents relating to the employment of persons or the payment of salary or wage or bonus in the establishment; (c) examine with respect to any matter relevant to any of the purposes aforesaid, the employer, his agent or servant or any other person found in charge of the establishment or any premises connected therewith or any person whom the Inspector has reasonable cause to believe to be or to have been an employee in the establishment; (d) make copies of, or take extracts from, any book, register or other document maintained in relation to the establishment; (e) exercise such other powers as may prescribed. (3) Every Inspector shall be deemed to be a public servant within the meaning of the Indian penal Code (45 of 1860). (4) Any person required to produce any accounts, book, register or other documents or to give information by an Inspector under sub-section (1) shall be legally bound to do so.
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[(5) Nothing contained in this section shall enable an Inspector to require a banking company to furnish or disclose any statement or information or to produce, or give inspection of any its books of account or other documents which a banking company cannot be compelled to furnish, disclose, produce or give

inspection of, under the provision of section 34A of the Banking Regulation Act, 1949 (10 of 1949). 28. Penalty.- if any person(a) contravenes any of the provision of this Act or any rule made thereunder, or (b) to whom a direction is given or a requisition is made under this Act fails to comply with the direction or requisition, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both. 29. Offences by companies.- (1) If the person committing an offence under this Act is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he exercised all; due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation. For the purposes of this section, -(a) company means any body corporate and includes a firm or other association of individuals; and (b) director, in relation to a firm, means a partner in the firm. 30. Cognizance of offences. (1) No court shall take cognizance of any offence punishable under this Act, save on complaint made by or under the authority of the appropriate Government 1[or an officer of that Government (not below the rank of a Regional Labour Commissioner in the case of an officer of the Central Government, and not below the rank of a Labour Commissioner in the case of an

officer of the State Government) specially authorised in this behalf by that Government]. (2) No court inferior to that of a presidency magistrate or a magistrate of the first class shall try any offence punishable under this Act. 31. Protection of action taken under the Act. No suit, prosecution or other legal proceeding shall lie against the Government or any officer of the Government for anything which is in good faith done or intended to be done in pursuance of this Act or any rule made thereunder.
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[31A. Special provision with respect to payment of bonus linked with production or productivity. Notwithstanding anything contained in this Act,-(i) where an agreement or a settlement has been entered into by the employees with their employer before the commencement of the Payment of Bonus (Amendment) Act, 1976 (23 of 1976), or (ii) where the employees enter into any agreement or settlement with their employer after such commencement, for payment of an annual bonus linked with production or productivity in lieu of bonus based on profits payable under this Act, then, such employees shall be entitled to receive bonus due to them under such agreement or settlement, as the case may be: [Provided that any such agreement or settlement whereby the employees relinquish their right to receive the minimum bonus under section 10 shall be null and void in so far as it purports to deprive them of such right:] [Provided further that] such employees shall not be entitled to be paid such bonus in excess of twenty per cent. of the salary or wage earned by them during the relevant accounting year. 32. Act not to apply to certain classes of employees. Nothing in this Act shall apply to -(i) 3[***] employees employed by any insurer carrying on general insurance business and the employees employed by the Life Insurance Corporation of India;
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Ins. by Act 66 of 1980, sec. 17 (w.r.e.f. 21.8.1980) Subs. by Act 66 of 1980, sec. 17, for Provided that (w.r.e.f. 21.8.19800 3 the words employees employed by any insurer carrying on general insurance business and the omitted by Act 62 of 1968, sec. 41.

(ii) seamen as defined in clause (42) of section 3 of the Merchant Shipping Act, 1958 ( 44 of 1958); (iii) employees registered or listed under any scheme made under the Dock Workers (Regulation of Employment) Act, 1948 (9 of 1948), and employed by registered or listed employers; (iv) employees employed by an establishment engaged in any industry carried on by or under the authority of any department of the Central Government or a State Government or a Local authority; (v) employees employed by -(a) the Indian Red Cross Society or any other institution of a like nature (including its branches); (b) universities and other educational institutions; (c) institutions (including hospitals, chambers of commerce and social welfare institutions) established not for purposes of profit; (vi) employees employed through contractor on building operations; 4 [***] (viii) employees employed by the Reserve Bank of India; (ix) employees employed by -(a) the Industrial Finance Corporation of India; (b) any Financial Corporation established under section 3, or any Joint Financial Corporation established under section 3A, of the State Financial Corporations Act, 1951 (63 of 1951); (c) the Deposit Insurance Corporation; 5 [(d) the National Bank for Agriculture and Rural Development;] (e) the Unit Trust of India; (f) the Industrial Development Bank of India;

[(fa) the Small Industries Development Bank of India established under section 3 of the Small Industries Development Bank of India Act, 1989;] 2 [(ff) the National Housing Bank;] (g) any other financial institution 3[(other than a banking company)], being an establishment in public sector, which the Central
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Clause (vii) omitted by Act 66 of 1980, sec, 18 (w.r.e.f. 21.8.1982) Subs. by Act of 1981, sec. 61 and Sch.II, for sub-clause (d) (w.r.e.f. 12.7.1982) 1 Ins. by Act 39 of 19879, sec. 53 and Sch.II. 2 Omitted by Act 66 of 1980, sec. 18 (w.r.e.f. 21.8.1980) and ins. by Act 53 of 1987, sec. 56 and Sch. II (w.e..f 9.7.1988). 3 Ins. by Act 66 of 1980, sec. 18 (w.r.e.f. 21.8.1980)

Government may, by notification in the Official Gazette, specify, having regard to -(i) its capital structure; (ii) its objectives and the nature of its activities; (iii) the nature and extent of financial assistance or any concession given to it by the Government; and (iv) any other relevant factor; 4 [***] (xi) employees employed by inland water transport establishment operating on routes passing through any other country. 33. Act to apply to certain pending disputes regarding payment of bonus.[Rep. By the Payment of Bonus (Amendment) Act, 1976 (23 of 1976), sec. 21 (w.r.e.f. 25-9-1975).]
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[34. Effect of laws and agreements inconsistent with the Act. Subject to the provisions of section 31A, the provisions of this Act shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force or in the terms of any award, agreement, settlement or contract of service.] 35. Saving. Nothing, contained in this Act shall be deemed to affect the provisions of the Coal Mines, Provident Fund and Bonus Schemes Act, 1948 (48 for 1948), or of any scheme made thereunder. 36 Power of exemption. If the appropriate Government, having regard to the financial position and other relevant circumstances of any establishment or class of establishment, is of opinion that it will not be in public interest to apply all or any of the provisions of this Act thereto, it may, by notification in the Official Gazette, exempt for such period as maybe specified therein and subject to such conditions as it may think fit to impose, such establishment or class of establishment from all or any of the provisions of this Act. 37. Power to remove difficulties. [Rep. by the Payment of Bonus (Amendment) Act, 1976 (23 of 1976), sec. 23 (w.r.e.f. 25-9-1975).]

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Clause (x) omitted by Act 23 of 1976, sec. 20 (w.r.e.f 25.9.1975) Subs. by Act 23 of 1976, sec. 22, for section 34 (w.r.e.f. 25.9.1975)

38. Power to make rules. (1) The Central Government may make rule for the purpose of carrying into effect the provisions of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for -(a) the authority for granting permission under the proviso to sub-clause (iii) of clause (1) of section 2; (b) the preparation of registers, records and other documents and the form and manner in which such registers, records and documents may be maintained under section 26; (c) the powers which may be exercised by an inspector under clause (e) of sub-section (2) of section 27; (d) any other matter which is to be, or maybe prescribed. (3) Every rule made under this section shall be laid as soon as may be after it is made, before each House of Parliament while it is in session for a total period of thirty days, which may be comprised in one session [or in two or more successive sessions], and if before the expiry of the session [immediately following the session or the successive sessions aforesaid], both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule. 39. Application of certain law not barred. Save as otherwise expressly provided, the provisions of this Act shall be in addition to and not in derogation of the Industrial Disputes Act, 1947 (14 of 1947), or any corresponding law relating to investigation and settlement of industrial disputes in force in a State. The payment of Wages (Procedure) Rules, 19374

In exercise of the powers conferred by sub-section (1) of section 26 of the Payment of Wages Act, 1936 (4 of 1936), read with section 22 of the General Clauses Act, 1897 (10 of 189), the Governor-General-in-Council is pleased to make the following rules, the same having been previously published as required by subsection (5) of section 26 of the first named Act, namely:

1. Short Title: 5[(1)] These rules may be called the Payment of Wages (Procedure) Rules, 1937. [(2) They extend to the whole of India except the State of Jammu and Kashmir.]
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2. Definitions: In these rules, unless, there is anything repugnant in the subject or context, the Act means the Payment of Wages Act (4 of 1936); Appeal means an appeal under section 17; the authority means the authority appointed under sub-section (1) of section 15; (d) the Court means the court mentioned in sub-section (1) of section 17; (e) Employer includes the persons responsible for the payment of wages under section 3; (f) Section means a section of the Act (g) Form means a form appended to these rules; 7 [(gg) Record of order or direction means the record of an order dismissing either wholly or in part an application made under sub-section (20 of section 15 or of a direction made under sub-section (3) or sub-section (4) of that section kept in Form F;] (a) (b) (c) (h) words and expression defined in the Act shall be deemed to have the same meaning as in the Act.

3. Form of application: Applications under sub-section (2) of section 15 by or on behalf of an employed or group of persons employed shall be made in duplicate in Form A, Form B or Form C, as the case may be, one copy of which shall bear such court-fee as may be prescribed.

4. Authorisation: The Authorisation to act on behalf of an employed person or persons, under section 15, shall be given by a certificate in Form D, shall be presented to the authority hearing the application and shall form part of the record.

5. Permission to appear: Any person desiring the permission of the Authority to act on behalf of any employed person or persons shall present to the Authority a brief written statement explaining his interest in the matter, and the Authority shall record an order on the statement which in the case of refusal shall include reasons for the order, and shall incorporate it in the record.

6. Presentation of documents: (1) Applications or other documents relevant to an application may be presented in person to the Authority at any time during hours to be fixed by the Authority, or may be sent to him by registered post. (2) The Authority shall at once endorse, or cause to be endorsed, on each document the date of the presentation or receipt, as the case may be.

7. Refusal to entertain application: (1) The Authority may refuse to entertain an application presented under rule 6, if after giving the applicant an opportunity of being heard, the Authority is satisfied, for reason to be recorded in writing that a) b) c) the applicant is not entitled to present an application; or the application is barred by reason of the provisions in the provisos to sub-section (2) of section 15; or the applicant shows no sufficient cause for making a direction under section 15.

(2) The Authority may refuse to entertain an application which is insufficiently stamped or otherwise incomplete and, if he so refuses, shall return it at once with an indication of the defects. If the application is presented again after the defects have been made good, the date of representation shall be deemed to be the date of presentation for the purpose of the proviso sub-section (2) of section 15. 8.Appearance of parties: (1) If the application is entertained, the Authority shall call upon the employer by a notice in form E to appear before him on a specified date together with all relevant documents and witnesses, if any, and shall inform the applicant of the date so specified. (2) If the employer or his representative fails to appear on the specified date, the Authority may proceed to hear and determine the application ex parte. (3) If the applicant fails to appear on the specified date, the Authority may dismiss the application: Provided that an order passed under sub-rule (2) or sub-rule (3) may be set aside and the application re-heard on good cause being shown within one month of the date of the said order, notice being served on opposite party of the date fixed for rehearing.

9. Record or proceedings: (1) The Authority shall in all cases, enter the particulars indicated in Form F and at the time of passing orders shall sign and date the form. (2) In a case where no appeal lies, no further record shall be necessary.

(3) In a case where an appeal lies, the Authority shall record the substance of the evidence and shall append it under his signature to 8(the record of order or direction.) 10.Signature on forms: Any form, other than 9[the record of order or direction], which is required by these rules to be signed by the Authority, may

be signed under his direction and on his behalf by any officer subordinate to him, appointed by him, in writing for this purpose.

11.Exercise of powers: In exercising the powers of a Civil Court conferred by section 18 the Authority shall be guided in respect of procedure by relevant orders of the First Schedule of the Code of Civil Procedure, 1908, with such alterations as the Authority may find necessary, not affecting their substance, for adapting them to the matter before him, and save where they conflict with the express provision of the Act or these rules.

12.Appeals: 1[(1) An appeal shall be preferred in duplicate in the form of a memorandum, one copy of which shall bear the prescribed court-fee, setting forth concisely the grounds of objection to the order dismissing either wholly or in part an application made under sub-section (2) of section 15 or a direction made under sub-section (3) or sub-section (4) of that section, as the case may be, and shall be accompanied by a certified copy of the said order or direction.] (2) When an appeal is lodged a notice shall be issued to the respondent in Form G. (3) The Court after hearing the parties and after such further inquiry, if any, as it may deem necessary, may confirm, vary, or set aside the 1[order or direction] from which the appeal is preferred, and shall make an order accordingly.

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[12A Orders or direction when to be made: The Authority or the Court, as the case may be, after the case has been heard, shall make the order or direction either at once or, as soon thereafter as may be practicable, on some future day; and when the order or direction is to be made on some future day, it shall fix date for the purpose of which due notice shall be given to the parties or their pleaders.]

13.Inspection of documents: Any employed person, or any employer or his representative, or any person permitted under sub-section (2) of section 15 to apply for a direction, shall be entitled to inspect any application, memorandum of appeal, or any other document filed with the Authority or the Court, as the case may be, in a case to which he is a party and may obtain copies thereof on the payment of such fees as may be prescribed.

PART A 1.what do you mean by factory? 2.what is meant by employer? 3.who is called as employee? 4.what is meant by wages? 5. what is Bonus? 6. What do you mean by industrial dispute? 7. What is minimum and maximum bonus? 8. What is meant by welfare measure? 9. What are all the things to be included in the safety measure? 10. What is meant by grievance handling?

PART B 1. What are the Permissible deductions under the Payment of wages act?

2. Discuss the various components of the conciliation machinery to settle the industrial disputes 3.Explain the various conditions on which strikes and lock outs are prohibited 4. Explain the concept of payment of payment of bonus. Discuss how the payment of bonus act is applicable while calculating the bonus?

UNIT IV INCOME TAX ACT AND SALES TAX ACT(Theory only) 5 Corporate Tax Planning, Overview of central Sales Tax Act 1956 Definitions, Scope, Incidence of CST, Practical issues of CST, Value Added Tax Concepts, Scope, Methods of VAT Calculation, Practical Implications of VAT RTI UNIT : IV INCOME TAX AND SALES TAX ACT INCOME TAX Taxes in India are of two types, Direct Tax and Indirect Tax. Direct Tax, like income tax, wealth tax, etc. are those whose burden falls directly on the taxpayer. The burden of indirect taxes, like service tax, VAT, etc. can be passed on to a third party. Income Tax is all income other than agricultural income levied and collected by the central governmentandsharedwiththestates. According to Income Tax Act 1961, every person, who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in the finance act. Such income tax shall

be paid on the total income The total income of an individual is determined on the basis of his residential status in India. ResidenceRules An individual is treated as resident in a year if present in India I. II. for 182 days during the year or for 60 days during the year and 365 days during the preceding four years. Individuals fulfilling neither of these conditions are nonresidents. (The rules are slightly more liberal for Indian citizens residing abroad or leaving India for employment abroad.)

A resident who was not present in India for 730 days during the preceding seven years or who was nonresident in nine out of ten preceding yeas . Non-Residents and Non-Resident Indians Residents are on worldwide income. Nonresidents are taxed only on income that is received in India or arises or is deemed to arise in India. A person not ordinarily resident is taxed like a nonresident but is also liable to tax on income accruing abroad if it is from a business controlled in or a profession set up in India. Capital gains on transfer of assets acquired in foreign exchange is not taxable in certain cases. Non-resident Indians are not required to file a tax return if their income consists of only interest and dividends, provided taxes due on such income are deducted at source. It is possible for non-resident Indians to avail of these special provisions even after becoming residents by following certain procedures laid down by the Income Tax act. Taxability of individuals is summarised in the table below Status Indian Income Foreign Income

Resident and ordinarily resident Resident but not ordinary resident Non-Resident Income tax in India

Taxable Taxable Taxable

Taxable Not Taxable Not Taxable

The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts (identified as body of individuals and association of persons) and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The Indian Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance, Govt. of India.

Charge to Income-tax Every Person whose total income exceeds the maximum amount which is not chargeable to the income tax is an assesse, and shall be chargeable to the income tax at the rate or rates prescribed under the finance act for the relevant assessment year, shall be determined on basis of his residential status. Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person. The changeability is based on nature of income, i.e., whether it is revenue or capital. The principles of taxation of income are-: Income Tax Rates/Slabs Rate (%) Up to 1,60,000 = NIL Up to 1,90,000 (for women)= NIL Up to 2,40,000 (for resident individual of 65 years or above)= NIL for men 1,60,001 5,00,000 = 10% 5,00,001 8,00,000 = 20% 8,00,001 upwards = 30% Education cess ihjygujygs applicable @ 3 per cent on income tax, surcharge = NA Residential Status

The three residential status, viz., (i) Resident Ordinarily Residents (Residents) (ii) Resident but not Ordinarily Residents and (iii) Non Residents. There are several steps involved in determining the residential status of a person [1] All residents are taxable for all their income, including income outside India. [2] Non residents are taxable only for the income received in India or Income accrued in India. Not Ordinarily residents are taxable in relation to income received in India or income accrued in India and income from business or profession controlled from India. Heads of Income The total income of a person is divided into five heads, viz., taxable[3]: Individual Heads of Income Income from Salary All income received as salary under Employer-Employee relationship is taxed under this head. Employers must withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and net paid income. In addition, the Form 16 will contain any other deductions provided from salary such as: 1. Medical reimbursement: Up to Rs. 15,000 per year is tax free if supported by bills. 2. Conveyance allowance: Up to Rs. 800 per month (Rs. 9,600 per year) is tax free if provided as conveyance allowance. No bills are required for this amount. 3. Professional taxes: Most states tax employment on a per-professional basis, usually a slabbed amount based on gross income. Such taxes paid are deductible from income tax. 4. House rent allowance: the least of the following is available as deduction 1. Actual HRA received 2. 50%/40%(metro/non-metro) of basic 'salary' 3. Rent paid minus 10% of 'salary'. basic Salary for this purpose is basic+DA forming part+commission on sale on fixed rate.

Income from salary is net of all the above deductions. Income From House property Income from House property is computed by taking what is called Annual Value. The annual value (in the case of a let out property) is the maximum of the following: Rent received Municipal Valuation Fair Rent (as determined by the I-T department) If a house is not let out and not self-occupied, annual value is assumed to have accrued to the owner. Annual value in case of a self occupied house is to be taken as NIL. (However if there is more than one self occupied house then the annual value of the other house/s is taxable.) From this, deduct Municipal Tax paid and you get the Net Annual Value. From this Net Annual Value, deduct : 30% of Net value as repair cost (This is a mandatory deduction) Interest paid or payable on a housing loan against this house In the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs,1,50,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and Rs.30,000 (if the loan is taken before 1 April 1999). For all non self-occupied homes, all interest is deductible, with no upper limits. The balance is added to taxable income. Income from Business or Profession
o

carry forward of losses

An example .. An architect works out of home and co-ordinates work for his clients. All the following expenses would be deductible from his professional fees. he uses a computer, he travels to sites in his car, he has a peon to help him collect payments He has a maid who comes in daily part of the society maintenance bills

entertainment expenses incurred.. books and magazines for his professional practice.

The income referred to in section 28, i.e, the incomes chargeable as "Income from Business or Profession" shall be computed in accordance with the provisions contained in sections 30 to 43D. However, there are few more sections under this Chapter, viz., Sections 44 to 44DA (except sections 44AA, 44AB & 44C), which contain the computation completely within itself. Section 44C is a disallowance provision in the case non-residents. Section 44AA deals with maintenance of books and section 44AB deals with audit of accounts. In summary, the sections relating to computation of business income can be grouped as under: 1. 2. 3. 4. 5. Deductible Expenses - Sections 30 to 38 [except 37(2)]. Inadmissible Expenses - Sections 37(2), 40, 40A, 43B & 44-C. Deemed Incomes - Sections 33AB, 33ABA, 33AC, 35A, 35ABB & 41. Special Provisions - Sections 42 & 43D Self-Coded Computations - Sections 44, 44A, 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, 44-D & 44-DA.

The computation of income under the head "Profits and Gains of Business or Profession" depends on the particulars and information available.[4] If regular books of accounts are not maintained, then the computation would be as under: Income (including Deemed Incomes) chargeable as income under this head xxx Less: Expenses deductible (net of disallowances) under this head xxx Profits and Gains of Business or Profession xxx However, if regular books of accounts have been maintained and Profit and Loss Account has been prepared, then the computation would be as under: Net Profit as per Profit and Loss Account xxx Add : Inadmissible Expenses debited to Profit and Loss Account Deemed Incomes not credited to Profit and Loss Account xxx Less: Deductible Expenses not debited to Profit and Loss Account xxx xxx xxx

Incomes chargeable under other heads credited to Profit & Loss A/c xxx xxx Profits and Gains of Business or Profession xxx Income from Capital Gains Transfer of capital assets results in capital gains. A Capital asset is defined under section 2(14) of the I.T. Act, 1961 as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not include some items like any stock-in-trade for businesses and personal effects. Transfer has been defined under section 2(47) to include sale, exchange, relinquishment of asset, extinguishment of rights in an asset, etc. Certain transactions are not regarded as 'Transfer' under section 47. For tax purposes, there are two types of capital assets: Long term and short term. Long term asset are held by a person for three years except in case of shares or mutual funds which becomes long term just after one year of holding. Sale of such long term assets gives rise to long term capital gains. There are different scheme of taxation of long term capital gains. These are: 1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares or securities or mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. STT has been applied on all stock market transactions since October 2004 but does not apply to off-market transactions and company buybacks; therefore, the higher capital gains taxes will apply to such transactions where STT is not paid. 2. In case of other shares and securities, person has an option to either index costs to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains. The indexation rates are released by the I-T department each year. 3. In case of all other long term capital gains, indexation benefit is available and tax rate is 20%. All capital gains that are not long term are short term capital gains, which are taxed as such: Under section 111A, for shares or mutual funds where STT is paid, tax rate is 10% From Asst Yr 2005-06 as per Finance Act 2004. For Asst Yr 200910 the tax rate is 15%. In all other cases, it is part of gross total income and normal tax rate is applicable.

For companies abroad, the tax liability is 20% of such gains suitably indexed (since STT is not paid).[edit] Income from Other Sources This is a residual head, under this head income which does not meet criteria to go to other heads is taxed. There are also some specific incomes which are to be taxed under this head. 1. 2. 3. 4. 5. Income by way of Dividends Income from horse races Income from winning bull races Any amount received from key man insurance policy an donation. Income from shares (dividend)

Deduction While exemptions is on income some deduction in calculation of taxable income is allowed for certain payments. Section 80C Deductions Section 80C of the Income Tax Act [1] allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs. 100,000 (Rupees One lac) which can be any combination of the below: Contribution to Provident Fund or Public Provident Fund. PPF provides 8% return compounded annually. Maximum limit to contribute in it is 70,000 for each year. It is a long term investment with complete withdrawal not possible till 15 years though partial withdrawal is possible after 5 years. Besides, there is employee providend fund which is deducted from the salary of the person. This is about 10% to 12% of the BASIC salary component. Recent changes are being discussed regarding reducing the instances of withdrawal from EPF especially when one changes the job. EPF has the option of full settlement on leaving the job, taking VRS, retirement after 58. It also has options of withdrawal for certain expenses related to home, marriage or medical. EPF contribution includes 12% of basic salary from employee and employer. It is distributed in ratio of 8.33:3.67 in Pension fund and Providend fund Payment of life insurance premium Investment in pension Plans. National Pension Scheme is meant to save money for the post retirement which invests money in different combination of equity and debt. depending upon age up to 50% can go in equity. Annuity

payable after retirement is dependent upon age. NPS has six fund managers. Individual can make minimum contribution of Rs6000/- . It has 22 point of purchase (banks). Investment in Equity Linked Savings schemes (ELSS) of mutual funds Investment in National Savings Certificates (interest of past NSCs is reinvested every year and can be added to the Section 80 limit) Tax saving Fixed Deposits provided by banks for a tenure of 5 years. Interest is also taxable. Payments towards principal repayment of housing loans. Also any registration fee or stamp duty paid. Payments towards tuition fees for children to any school or college or university or similar institution. (Only for 2 children)or towards coaching fee of various competitive exams. Post office investments The investment can be from any source and not necessarily from income chargeable to tax. Section 80CCF: Investment in Infrastructure Bonds From April, 1 2010, a maximum of Rs. 20,000 is deductible under section 80CCF provided that amount is invested in infrastructure bonds. This is in addition to the 100,000 deduction allowed under Section 80(C). Section 80D: Medical Insurance Premiums Health insurance, popularly known as Mediclaim Policies, provides a deduction of upto Rs. 35,000.00 (Rs. 15,000.00 for premium payments towards policies on self, spouse and children and (read as in addition to) Rs. 15,000.00 for premium payment towards non-senior citizen dependent parents or Rs. 20,000.00 for premium payment towards senior citizen dependent). This deduction is in addition to Rs. 1,00,000 savings under IT deductions clause 80C. For consideration under a senior citizen category, the incumbent's age should be 65 years during any part of the current fiscal, eg. for the fiscal year 2010-11, the incumbent should already be 65 as on March 31, 2011), This deduction is also applicable to the cheques paid by proprietor firms. Interest on Housing Loans Section For self occupied properties, interest paid on a housing loan up to Rs 150,000 per year is exempt from tax.(Excluding Rs.1,00,000/p.a. u/s 80c Saving) However, this

is only applicable for a residence constructed within three financial years after the loan is taken and also the loan if taken after April 1, 1999. If the house is not occupied due to employment, the house will be considered self occupied. For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. However, the rent is to be shown as income from such properties. 30% of rent received and municipal taxes paid are available for deduction of tax. The losses from all properties shall be allowed to be adjusted against salary income at the source itself. Therefore, refund claims of T.D.S. deducted in excess, on this count, will no more be necessary.[5] Use of Deductions While the use of the above sections helps one to avoid paying money as tax if one falls in the tax bracket, one should look at this more as an investment-return opportunity. One should still file income tax, even if one is not paying any tax. Except ELSS (Equity Linked Savings Scheme) and the NPS (National Pension Scheme), other schemes under 80C typically offer a relatively risk-free investment and guaranteed returns. Tax Rates In India, Individual income tax is a progressive tax with three slabs. About 10 per cent of the population meets the minimum threshold of taxable income[6][7] From April 1, 2010 new tax slabs apply, which are as follows: No income tax is applicable on all income up to Rs. 1,60,000 per year. (Rs. 1,90,000 for women and Rs. 2,40,000 for senior citizens of 65 and above and must be resident of india) From 1,60,001 to 5,00,000 : 10% of amount greater than Rs. 1,60,000 (Lower limit changes appropriately for women and senior citizens) From 5,00,001 to 8,00,000 : 20% of amount greater than Rs. 5,00,000 + 34,000 ( Rs. 31,000 for women and Rs. 26,000 for senior citizens) Above 8,00,000 : 30% of amount greater than Rs. 8,00,000 + 94,000 ( Rs. 91,000 for women and Rs. 86,000 for senior citizens)

Surcharge Surcharge has been abolished for Personal income tax in the financial year 200910. A 7.5% surcharge (tax on tax) is applicable if the taxable income (taking into consideration all the deductions) is above Rs. 10 lakh (Rs. 1 million). The limit of 10 lacs was increased to Rs. 1 crore (Rs. 10 million) with effect from 1 June 2007 All taxes in India are subject to an education cess, which is 3% of the total tax payable. With effect from assessment year 2009-10, Secondary and Higher Secondary Education Cess of 1% is applicable on the subtotal of taxable income. Mainly education cess is applicable on excise duty and service tax From Income Tax Year 2010-11, education cess would be 3% and no surcharge would be levied. Tax Rate for non-Individuals There are special rates prescribed for Firms, Corporates, Local Authorities & Cooperative Societies.[8] Refund Status for Salaried tax payers The Income Tax Department has put on its website the list of income tax refunds of all salary tax payers which could not be sent to the concerned persons for want of correct address. (link to check refund) Salary taxpayers who have not received refunds for assessment years 2003-04 to 2006-07 can click on the link below and query using the PAN number and assessment year whether any refund due to them has been returned undelivered. .[9] Corporate Income tax For companies, income is taxed at a flat rate of 30% for Indian companies, with a 7.5% surcharge applied on the tax paid by companies with gross turnover over Rs. 1 crore (10 million). Foreign companies pay 40%.[10] An education cess of 3% (on both the tax and the surcharge) are payable, yielding effective tax rates of 33.2175% for domestic companies and 41.2% for foreign companies. [11] From 2005-06, electronic filing of company returns is mandatory.[12]

Tax Penalties If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person(b) has failed to comply with a notice under sub-section (1) of section 142 or subsection (2) of section 143 or fails to comply with a direction issued under subsection (2A) of section 142, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum of ten thousand rupees for each such failure; (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. When is Sales Tax payable? Central Sales tax is generally payable on the sale of all goods by a dealer in the course of inter-state Trade or commerce or, outside a State or, in the course of import into or, export from India. What is interstate sale? According to S3, a sale or purchase shall be deemed to take place in the course of interstate trade or commerce in the following cases: when the sale or purchase occasions the movement of goods from one State to another; when the sale is effected by a transfer of documents of title to the goods during their movement from one State to another. Where the goods are delivered to a carrier or other bailee for transmission, the movement of the goods for the purpose of clause (b) above, is deemed to start at

the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Also, when the movement of goods starts and terminates in the same State, it shall not be deemed to be a movement of goods from one State to another. To make a sale as one in the course of interstate trade, there must be an obligation to transport the goods outside the state. The obligation may be of the seller or the buyer. It may arise by reason of statute or contract between the parties or from mutual understanding or agreement between them or, even from the nature of the transaction, which linked the sale to such transaction. There must be a contract between the seller and the buyer. According to the terms of the contract, the goods must be moved from one state to another. If there is no contract, then there is no inter-state sale. There can be an interstate sale even if the buyer and the seller belong to the same state; even if the goods move from one state to another as a result of a contract of sale; or, the goods are sold while they are in transit by transfer of documents. To whom is Sales Tax payable? By whom is it payable? Sales tax is payable to the sales tax authority in the state from which the movement of goods commences. It is to be paid by every dealer on the sale of any goods effected by him in the course of inter-state trade or commerce, notwithstanding that no liability to tax on the sale of goods arises under the tax laws of the appropriate state. What are the possible offences, which may be committed, that are liable to be penalized? What are the penalties for such offences? The offences that may be committed and, the penalties, prescribed for can be summarised as under. Offences, under section10, are punishable with simple imprisonment (up to 6months) with or without fine. 1. Giving false declaration in Form C, E-I, E-II, F or H, which he knows or has reason to believe it to be false. 2. Not getting registered under the CST Act, when required to be registered or not complying with provisions relating to security. 3. False representation by a registered dealer that the goods, purchased are covered under his certificate of registration for a concessional rate. 4. Falsely representing that he is a registered dealer, though he is not.

5. Misusing or using for different purpose, the goods, obtained under C form at a concessional rate. 6. Having possession of form C, which is not obtained as per provisions of the CST Act. 7. Collecting any amount, representing as sales tax, by an unregistered dealer or by a registered dealer in contravention of the provisions of the CST Act. What is the liability of a Company in liquidation, with respect to payment of Central Sales Tax? What is the liability of the directors of a private company? If a liquidator or receiver is appointed in the case of a company, he should inform the Sales Tax authorities within 30 days of his appointment. The Sales Tax Authority shall intimate him the amount of tax due from the company in liquidation within 3 months. The Sales Tax authorities are "preferential creditors' in a case of liquidation. The Liquidator shall not dispose of assets of the company before setting aside the amount of dues as intimated by sales tax department. The liquidator may, however, part with such assets or properties in compliance with any order of a court or for the purpose of payment of the tax, payable by the company under the CST Act or, for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to the government, on the date of liquidation or, for meeting such costs and expenses of the winding up of the company, as are in the opinion of the appropriate authority, reasonable. What is the liability of the directors of a private company with respect to payment of Central Sales Tax? If a private limited company is in liquidation and, any tax, assessed on the company, cannot be recovered, it becomes the personal liability of the directors, jointly and severally. Directors can however avoid this liability; if they prove that the non-payment of tax was not on account of neglect, misfeasance or breach of duty on the part of the directors, in relation to affairs of the company. The power to levy Sales tax

1. No state can levy sales tax on any sale or purchase where such sale or purchase takes place o outside the state and o in the course of import of goods into or export of goods outside India. 2. Only the parliament can levy tax on inter-state sale or purchase of goods Main Principles in State Sales Tax Laws 1. A sale or purchase of goods is said to take place when the transfer of property in the existing goods or future goods takes place for consideration of money. 2. The goods have been divided into different categories and different rates of sales tax are charged for different categories of goods. 3. In most of the cases related to the sales tax, the tax on the sale or purchase of goods is at single point. 4. Under the provisions of some state laws the assesses are divided into several categories such as manufacturer, dealer, selling agent etc. and such as assess is required to obtain a registration certificate to that effect. The sales tax or the purchase tax is levied on that assessee on the basis of his category such as dealer, manufacturer etc. on production of certain forms or certificates (and differential rates of sales tax are levied). 5. Generally , a quarter return of sales or purchases is insisted upon and the assessee is required to furnish the return in the prescribed form. 6. At the time of assessment, the assessee has to furnish all the documentary evidence and satisfy the concerned sales tax / commercial tax officer. 7. The sales tax laws of the states prescribe the procedure to be followed in case an assessee prefers to make an appeal. 8. Every dealer should apply for registration and obtain a registration certificate to that effect. The registration certificate number should be quoted in all the bill / cash memos. Transactions not amounting to inter-state sales Not all despatches of goods from one state to another result in inter state sales rather the movement must be on account of a covenant or incident of the contract of sales. There are some instances wherein the goods are moved out of the selling state and yet they are not considered inter state sales :-

Intra-state sales Stock transfer from head office to branch & vice versa Import and Export sales or purchases Sale through commission agent / on account sales Delivery of Goods for executing works contract Sales Tax ID number A state sales tax ID number is basically a business version of your Social Security number under which you collect and pay tax for any service or product you sell that qualifies for taxation in your state. The state department of taxation provides sales tax ID numbers and it takes about a month to get one. The rule of thumb for sales tax is that most services are exempt and most products are taxable except for food and drugs. However, states have been gradually adding to the list of services that are taxable for the last few years. Check with your state department of taxation to determine if the product or service you sell is taxable in your state. Exception in the sales taxes Sales to resellers such as wholesalers and retailers that have a valid state resale certificate. Sales to tax-exempt institutions such as schools or charities Which forms are to be filled? Form C; Form D; Form G; Forms E-I & E-II. VAT - in India VAT will replace the present sales tax in India. Under the current single-point system of tax levy, the manufacturer or importer of goods into a State is liable to sales tax. There is no sales tax on the further distribution channel. VAT, in simple terms, is a multi-point levy on each of the entities in the supply chain with the

facility of set-off of input tax - that is, the tax paid at the stage of purchase of goods by a trader and on purchase of raw materials by a manufacturer. Only the value addition in the hands of each of the entities is subject to tax. For instance, if a dealer purchases goods for Rs 100 from another dealer and a tax of Rs 10 has been charged in the bill, and he sells the goods for Rs 120 on which the dealer will charge a tax of Rs 12 at 10 per cent, the tax payable by the dealer will be only Rs 2, being the difference between the tax collected of Rs 12 and tax already paid on purchases of Rs 10. Thus, the dealer has paid tax at 10 per cent on Rs 20 being the value addition in his hands. Purchase price - Rs 100 Tax paid on purchase - Rs 10 (input tax) Sale price - Rs 120 Tax payable on sale price - Rs 12 (output tax) Input tax credit - Rs 10 VAT payable - Rs 2 VAT levy will be administered by the Value Added Tax Act and the rules made there-under. VAT can be computed by using either of the three methods detailed below The Subtraction method:- The tax rate is applied to the difference between the value of output and the cost of input. The Addition method: The value added is computed by adding all the payments that is payable to the factors of production (viz., wages, salaries, interest payments etc). Tax credit method: This entails set-off of the tax paid on inputs from tax collected on sales. India opted for tax credit method, which is similar to CENVAT. Note : Also look for MODVAT States such as Andhrapradesh, Kerala, Maharashtra, Madhyapradesh, Delhi and Haryana have experimented with VAT albeit in a limited manner, covering only limited goods. The experiments never had the full-fledged features of VAT and were only concoctions. These states have even called off their experiments owing to different reasons. If one analyses why VAT or its variant failed in Maharashtra,

which was the only state to come closer to a true VAT regime, the following reasons emerge: 1. Dual methodologies of computation of VAT credit Error! Hyperlink reference not valid. , one for the Manufacturing stage and the other for the trading stage, thus breaking the audit trail. It may be noted that one of the advantages of VAT system, as we would be dealing later on, is the audit trail that is created in the VAT chain. 2. Presence of a large number of tax deferral and holiday schemes, which resulted in a narrow base. It may again be noted that under VAT, which is multi-point, the tax rates have to be reasonably low, and lower tax rates presupposes that the tax base is wide. These two features were not present in the Maharashtra tax regime. 3. Low level of awareness among traders, and even administrators, giving rise to fears and apprehensions. Owing to this, there was considerable consternation among the trade, which gave rise to open revolt against the system. 4. Partial implementation of the ideal VAT with the existing system coexisting even under this regime. 5. Increased burden on retailers of Bookkeeping and compliance. 6. Multiplicity of rates of tax under the VAT regime. 7. Drop in revenue for the State Government, though there are no studies attributing such reduction to the system of taxation. PART A 1.what is Income Tax? 2. What is Sales Tax? 3. What are the scope of income Tax? 4. what is Value Added Tax/

PART B 1. what are Practical incidents and issues of Central Sales Tax? 2.what are all the methods involved in the calculation of VAT? 3. Explain the practical implications of Income Tax?
UNIT - V CONSUMER PROTECTION ACT AND INTRODUCTION OF CYBER LAWS 7 Consumer Protection Act Consumer rights, Procedures for Consumer greivances redressal, Types of consumer Redressal Machinaries and Forums, Cyber cvimes, IT Act 2000 and 2002, Cyber Laws, Introduction of IPR Copy rights, Trade marks, Patent Act.

Unit V Information Technology Act 2000 Introduction New communication systems and digital technology have made dramatic changes in the way of transacting business. Use of computers to create, transmit and store information is increasing. Computer has many advantages in e-commerce. It is difficult to shift business from paper to electronic form due to two legal hurdles (a) Requirements as to writing and (b) Signature for legal recognition. Many legal provisions assume paper- based records and documents and signature on paper. The General Assembly of the United Nations by resolution dated the 30th January, 1997 adopted the Model Law on Electronic Commerce and recommended that all States should give favourable consideration to the Model Law when they enact or revise their laws. The Information Technology Act has been passed to give effect to the UN resolution and to promote efficient delivery of Government services by means of reliable electronic records. As per Preamble to the Act, the purpose of Act is (a) to provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as electronic commerce, which involve the use of alternatives to paper-based methods of communication and storage of

information and (b) to facilitate electronic filing of documents with the Government agencies. The Act came into effect on 17.10.2000. The Act does not apply to:(a) a negotiable instrument as defined in section 13 of the Negotiable Instruments Act, except cheque (b) a power-of-attorney as defined in section 1A of the Powers-of-Attorney Act (c) a trust as defined in section 3 of the Indian Trusts Act(d) a will as defined in section 2(h) of the Indian Succession Act, including any other testamentary disposition by whatever name called (e) any contract for the sale or conveyance of immovable property or any interest in such property (f) any such class of documents or transactions as may be notified by the Central Government in the Official Gazette. Broadly, documents which are required to be stamped are kept out of the provisions of the Act. Objectives: After studying this unit, you will be able to: Explain the importance of IT Act 2000. Explain the importance of Cyber Law in India. Overview of the Act: According to the said Act: Electronic contracts will be legally valid. Legal recognition of digital signatures. Digital signature to be effected by use of asymmetric crypto system and hash function. Security procedure for electronic records and digital signature. Appointment of Certifying Authorities and Controller of Certifying Authorities, including recognition of foreign Certifying Authorities. Controller to act as repository of all digital signature certificates. Certifying authorities to get License to issue digital signature certificates. Various types of computer crimes defined and stringent penalties provided under the Act. Appointment of Adjudicating Officer for holding inquiries under the Act. Establishment of Cyber Appellate Tribunal under the Act. Appeal from order of Adjudicating Officer to Cyber Appellate Tribunal and not to any Civil Court. Appeal from order of Cyber Appellate Tribunal to High Court. Act to apply for offences or contraventions committed outside India. Network service providers not to be liable in certain cases.

Power of police officers and other officers to enter into any public place and search and arrest without warrant. Constitution of Cyber Regulations Advisory Committee who will advice the Central Government and Controller. What does IT Act enable? The Information Technology Act: Enables Legal recognition to Electronic Transaction / Record Facilitates Electronic Communication by means of reliable electronic record Provides for acceptance of contract expressed by electronic means Facilitates Electronic Commerce and Electronic Data interchange. Facilitates Electronic Governance. Facilitates electronic filing of documents. Enables retention of documents in electronic form. Where the law requires the signature, digital signature satisfies the requirement. Ensures uniformity of rules, regulations and standards regarding the authentication and integrity of electronic records or documents. Facilitates Publication of Official Gazette in the electronic form. Enables interception of any message transmitted in the electronic or encrypted form. Prevents Computer Crime, forged electronic records, international alteration of electronic records fraud, forgery or falsification in Electronic Commerce and electronic transaction. Digital Signature: Any subscriber may authenticate an electronic record by affixing his digital signature. [section 3(1)]. Subscriber means a person in whose name the Digital Signature Certificate is issued. [section 2(1)(zg)]. Digital Signature Certificate means a Digital Signature Certificate issued under section 35(4) [section 2(1)(q)]. Digital signature means authentication of any electronic record by a subscriber by means of an electronic method or procedure in accordance with the provisions of section 3. [section 2(1)(p)]. Affixing digital signature with its grammatical variations and cognate expressions means adoption of any methodology or procedure by a person for the purpose of authenticating an electronic record by means of digital signature. [section 2(1)(d)].

Authentication of records: The authentication of the electronic record shall be effected by the use of asymmetric crypto system and hash function which envelop and transform the initial electronic record into another electronic record. [section 3(2)]. Verification of digital signature: Any person by the use of a public key of the subscriber can verify the electronic record. [section 3(3)]. The private key and the public key are unique to the subscriber and constitute a functioning key pair. [section 3(4)]. The idea is similar to locker key in a bank. You have your private key while bank manager has public key. The locker does not open unless both the keys come together match. Electronic records are acceptable unless specific provision to the contrary: Where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is (a) rendered or made available in an electronic form; and (b) accessible so as to be usable for a subsequent reference. [section 4]. - Unless there is specific provision in law to contrary, electric record or electronic return is acceptable. - Soon, it will be possible to submit applications, income tax returns and other returns through internet. Department or Ministry cannot be Compelled to Accept Electronic Record - Section 8 makes it clear that no department or ministry can be compelled to accept application, return or any communication in electronic form. Legal recognition of digital signatures: Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of digital signature affixed in such manner as may be prescribed by the Central Government. - Signed, with its grammatical variations and cognate expressions, shall, with reference to a person, mean affixing of his hand written signature or any mark on any document and the expression signature shall be construed accordingly. [section 5].

Secure digital signature: If, by application of a security procedure agreed to by the parties concerned, it can be verified that a digital signature, at the time it was affixed, was (a) unique to the subscriber affixing it (b) capable of identifying such subscriber (c) created in a manner or using a means under the exclusive control of the subscriber and is linked to the electronic record to which it relates in such a manner that if the electronic record was altered the digital signature would be invalidated, - then such digital signature shall be deemed to be a secure digital signature. [section 15]. Certifying digital signature: The digital signature will be certified by Certifying Authority. The certified authority will be licensed, supervised and controlled by Controller of Certifying Authorities. Why Cyber Law in India? In the 49th year of Indian independence, Internet was commercially introduced in India. The beginnings of Internet were small and the growth of subscribers painfully slow. However, as Internet has grown, the need has been felt to enact the relevant Cyber laws, which are necessary to regulate Internet in India. This need for Cyber laws was propelled by numerous factors. Firstly, India has an extremely detailed and well-defined legal system in place. Numerous laws have been enacted and implemented and the paramount among them is The Constitution of India. We have various laws like Indian Penal Code, 1860, The Indian Evidence At, 1872, The Bankers Book Evidence Act, 1891, The Reserve Bank of India Act, 1934, The Companies Act, 1956, and so on. However, the arrival of Internet signaled the beginning of the rise of new and complex legal issues. It may be pertinent to mention that all the existing laws in place in India were enacted keeping in mind the relevant political, social, economic, and cultural scenario of that time. Nobody then could really visualize the emergence of the Internet. Despite the brilliant acumen of our master draftsmen, the requirements of cyberspace could hardly be anticipated. The advancement of Internet led to the emergence of numerous ticklish legal issues and problems, which necessitated the enactment of Cyber Laws. Secondly, the existing laws of India could not be interpreted in the light of the emerging cyberspace, to include all aspects relating to different activities in cyberspace. Thirdly, none of the existing laws gave any legal validity or sanction to the activities in Cyberspace. For example, the Net is used by a large majority of users for email purposes. Yet, e-mail was not legal in our country. There was no law in the country, which

accorded legal sanctity to e-mail and the electronic format. The judiciary in our country had been reluctant to grant judicial recognition to the legality of e-mail in the absence of any specific law having been enacted by Parliament on the subject. Thus the need arose for enacting Cyber Law in our country. Fourthly, Internet requires an enabling and supportive legal infrastructure in time with the times. This legal infrastructure can only be given by the enactment of the relevant Cyber Laws as the traditional laws have failed to provide it. E-commerce, the biggest future of Internet, can only be possible if necessary legal infrastructure complements the same to enable its vibrant growth. As such, an urgent need was felt for enacting Cyber Law in our country. Definition of Cyber Crime: Cyber crime refers to all the activities done with criminal intent in cyberspace or using the medium of Internet. These could be either the criminal activities in the conventional sense or activities, newly evolved with the growth of the new medium. Any activity, which basically offends human sensibilities, can be included in the ambit of Cyber crimes. Because of the anonymous nature of Internet, it is possible to engage in a variety of criminal activities with impunity, and people with intelligence, have been grossly misusing this aspect of the Internet to commit criminal activities in cyberspace. The field of cyber crime is just emerging and new forms of criminal activities in cyberspace are coming to the forefront each day. For example, child pornography on Internet constitutes one serious cyber crime. Similarly, online pedophiles, using Internet to induce minor children into sex, are as much cyber crimes as any others. Categories of cyber crimes: Cyber crimes can be basically divided in to three major categories: Cyber crimes against persons; Cyber crimes against property; and Cyber crimes against government. 1. Cyber crimes against persons: Cyber crimes committed against persons include various crimes like transmission of child-pornography, harassment of any one with the use of a computer and cyber stalking. The trafficking, distribution, posting, and dissemination of obscene material including pornography, indecent exposure, and child pornography constitute the most important

cyber crimes known today. These threaten to undermine the growth of the younger generation and also leave irreparable scars on the minds of the younger generation, if not controlled. Similarly, cyber harassment is a distinct cyber crime. Various kinds of harassments can and do occur in cyberspace, or through the use of cyberspace. Harassment can be sexual, racial, religious, or of any other nature. Cyber harassment as a crime also brings us to another related area of violation of privacy of citizens. Violation of privacy of online citizens is a cyber crime of a grave nature. Cyber stalking: The Internet is a wonderful place to work, play and study. The net is merely a mirror of the real world, and that means it also contains electronic versions of real life problems. Stalking and harassment are problems that many persons especially women, are familiar within real life. These problems also occur on the Internet, in the form of cyber stalking or online harassment. 2. Cyber crimes against property: The second category of Cyber crimes is Cyber crimes against all forms of property. These crimes include unauthorized computer trespassing through cyberspace, computer vandalism, and transmission of harmful programs and unauthorized possession of computerized information. 3. Cyber crimes against Government: The third category of Cyber crimes is Cyber crimes against Government. Cyber Terrorism is one distinct kind of crime in this category. The growth of Internet has shown that the medium of cyberspace is being used by individuals and groups to threaten international governments as also to terrorize the citizens of a country. This crime manifests itself into Cyber Terrorism when an individual cracks into a government or military maintained website, for the purpose of perpetuating terror. Since Cyber crime is a newly emerging field, a great deal of development has to take place in terms of putting into place the relevant legal mechanism for controlling and preventing cyber crime. The courts in United States of America have already begun taking cognizance of various kinds of fraud and cyber crimes being perpetrated in cyberspace. However, much work has to be done in this field. Just as the human mind is ingenious enough to devise new ways for perpetrating crime, similarly, human ingenuity needs to be canalized into developing effective legal and regulatory mechanisms to

control and prevent cyber crimes. A criminal mind can assume very powerful manifestations if it is used on a network, given the reachability and size of the network. Legal recognition granted to Electronic Records and Digital Signatures would certainly boost E Commerce in the country. It will help in conclusion of contracts and creation of rights and obligations through electronic medium. In order to guard against the misuse and fraudulent activities over the electronic medium, punitive measures are provided in the Act. The Act has recognized certain offences, which are punishable. They are: Tampering with computer source documents (Sec 65) Any person who knowingly or intentionally conceals, destroys or alters or intentionally or knowingly causes another person to conceal, destroy or alter any a. Computer source code when the computer source code is required to be kept by law for the time being in force, b. Computer programme, c. Computer system and d. Computer network. - is punishable with imprisonment up to three years, or with fine which may extend up to two lakh rupees or with both. Hacking with computer system (Sec 66): Hacking with computer system is a punishable offence under the Act. It means any person intentionally or knowingly causes wrongful loss or damage to the public or destroys or deletes or alters any information residing in the computer resources or diminishes its value or utility or affects it injuriously by any means, commits hacking. Such offenses will be punished with three years imprisonment or with fine of two lakh rupees or with both. Publishing of information which is obscene in electronic form (Sec 67): Whoever publishes or transmits or causes to be published in the electronic form, any material which is lascivious or appeals to prurient interest or if its effect is such as to tend to deprave and corrupt persons who are likely, having regard to all relevant circumstances, to read, see or hear the matter contained or embodied in it shall be punished on first conviction with imprisonment for a term extending up to 5 years and with fine which may extend to one lakh rupees. In case of second and subsequent conviction imprisonment may extend to ten years and also with fine which may extend up to two lakh rupees.

Failure to comply with orders of the controller by a Certifying Authority or any employee of such authority (Sec 68): Failure to comply with orders of the Controller by any Certifying Authority or by any employees of Certifying Authority is a punishable offence. Such persons are liable to imprisonment for a term not exceeding three years or to a fine not exceeding two lakh rupees or to both. Fails to assist any agency of the Government to decrypt the information (Sec 69): If any subscriber or any person-in-charge of the computer fails to assist or to extend any facilities and technical assistance to any Government agency to decrypt the information on the orders of the Controller in the interest of the sovereignty and integrity of India etc. is a punishable offence under the Act. Such persons are liable for imprisonment for a term, which may extend to seven years. Unauthorized access to a protected system (Sec 70): Any person who secures access or attempts to secure access to a protected system in contravention of the provisions is punishable with imprisonment for a term which may extend to ten years and also liable to fine. Misrepresentation before authorities (Sec 71): Any person who obtains Digital Signature Certificate by misrepresentation or suppressing any material fact from the Controller or Certifying Authority as the case may be punished with imprisonment for a term which may extend two years or with fine up to one lakh rupees or with both. Breach of confidentiality and privacy (Sec 72): Any person in pursuant of the powers conferred under the act, unauthorisedly secures access, to any electronic record, books, register, correspondence, information, document or other material without the consent of the person concerned discloses such materials to any other person shall be punished with imprisonment for a term which may extend to two years, or with fine up to one lakh rupees or with both. Publishing false particulars in Digital Signature Certificate (Sec 73): No person can publish a Digital Signature Certificate or otherwise make it available to any other person with the knowledge that: a. the Certifying Authority listed in the certificate has not issued it; or b. the subscriber listed in the certificate has not accepted it; or c. the certificate has been revoked or suspended

unless such publication is for the purpose of verifying a digital signature created prior to such suspension or revocation. Any person who contravenes the provisions shall be punishable with imprisonment for a term, which may extend to two years or with fine up to rupees one lakh or with both. Publication of Digital Signature Certificate for fraudulent purpose (Sec 74): Any person knowingly creates, publishes or otherwise makes available a Digital Signature Certificate for any fraudulent or unlawful purpose shall be punished with imprisonment for a term which may extend to two years or with fine up to one lakh rupees or with both. Search and Arrest Any Police Officer not below the rank of a Deputy Superintendent of Police or any other officer of the Central Government or a State Government authorised in this behalf may enter any public place, search and arrest without warrant any person found therein who is reasonably suspected or having committed or of committing or of being about to commit any offence under this Act. Civil liabilities, penalties and adjudication: Penalty for damage to computer, computer system etc.(Sec 43): Any person, who, without the permission of the owner or any other person in-charge of a computer, computer system or computer network a. accesses or secures access to such computer, computer system or computer network; b. downloads, copies or extracts any data, computer database or information from such computer, computer system or computer network including information or data held or stored in any removable storage medium; c. introduces or causes to be introduced any computer contaminant or computer virus into any computer, computer system or computer network; d. damages or causes to be damaged any computer, computer system or computer network, data, computer database or any other programmes residing in such computer, computer system or computer network; e. disrupts or causes disruption of any computer, computer system or computer network; f. denies or causes the denial of access to any person authorised to access any computer, computer system or computer network; g. provides any assistance to any person to facilitate access to a computer, computer system or computer network in contravention of the provisions this Act, rules or regulations made under thereunder;

h. charges the services availed of by a person to the account of another person by tampering with or manipulating any computer, computer system or computer network, shall be liable to pay damages by way of compensation not exceeding one crore rupees to the person so affected. Penalty for failure to furnish information, return etc.(Sec 44): Any person who is required under the Act, or rules or regulations made thereunder to a. furnish any document, return or report to the Controller or the Certifying Authority fails to furnish the same, shall be liable to a penalty not exceeding one lakh and fifty thousand rupees for each such failure; b. file any return or furnish any information, books or other documents within the time specified thereof in the regulations fails to file the same in time he shall be liable to a penalty not exceeding five thousand rupees for every day during which such failure continues; c. maintain books of account or records fails to maintain the same he shall be liable to penalty not exceeding ten thousand rupees for everyday during which the failure continues. Income Tax is all income other than agricultural income levied and collected by the central government and shared with the states.

The Consumer Protection Act, 1986 Introduction Most of the manufacturers and traders have been adopting unfair trade practices for the purpose of promoting sale, use of supply of any goods, or for the provision of any services. Unfair practices like false and misleading descriptions about the nature and quality of the goods, exaggerated statements about their power and potency, false weights and measurements etc., have been causing loss or injury to consumers of such goods and services. A number of Acts were enacted by the Government to protect the interests of consumers. For instance, Prevention of Food Adulteration Act, Essential Commodities Act, Sales of Goods Act, Standards of Weights and Measures Act, Monopolies and Restrictive Trade Practices Act, Indian Standard Institution (certification of marks) Act etc. were passed by the Government for the purpose of protecting the interests of the consumers. But these Acts failed to provide the needed protection to the interests of the consumers. To provide for better protection of the interests of the consumers, and to save the consumers from the evils of unfair trade practices, the Government of India enacted

the Consumer Protection Act in 1986. Most of the defects in the Act were removed by amendments to the Act in 1991, 1993 and 2001. Objectives: After studying this unit, you will be able to: Explain the objectives of Consumer Protection Act. Explain the unfair trade practices and restrictive trade practices. Explain the role of Consumer Disputes Redressal Agencies. Explain the functions of Consumer Protection Councils. Rights of Consumer or Objectives of the Act The Consumer Protection Act, 1986 seeks to provide for better protection of the interests of consumers. This Act seeks, inter alia, to promote and protect the basic rights of consumers such as: Right of Protection to Life and Property: The Right to be protected against marketing of goods which are hazardous to life and property. Right to be informed: The Right to be informed about quality, quantity, potency, purity, standard and price of goods to protect the consumers against unfair trade practices. Right to choose: The Right to be assured, wherever possible, access to a variety of goods at competitive prices. Right to be heard: The Right to be heard and to be assured that consumers interests will receive due consideration at appropriate forums. Right to Redress: The Right to seek Redressal against unfair trade practices or unscrupulous exploitation of consumers, and Right to Education: The Right to consumer education. This is based on the basic rights of consumers as defined by the International Organization of Consumers (IOCU) viz. Right to safety, to information, of choice, to be heard, to redressal, to consumer education, to healthy environment and basic needs. These objects are being promoted and protected by the Consumer Protection Councils established at the Central and State level. The Act seeks to provide speedy and simple redressal to consumer disputes. For this purpose a quasi-judicial machinery is being set up at the District, State, and Central level. These quasi-judicial bodies will observe the principles of natural justice. These have been empowered to give reliefs of a specific nature and to award compensation to consumers. Penalties for non-compliance of the

orders given by the quasi-judicial bodies have also been provided. The remedies under this Act are additional supplemental remedies. Sec. 3 of the Consumer Protection Act states that provision of this Act shall be in addition and not in derogation of the provisions of any other law or Act for the time being in force. Advantages of seeking relief under the Consumer Protection Act 1986. Following are the most important advantages of seeking relief before a Consumer Forum instead of approaching Civil Court. While evaluating the comparative benefits we may also consider the remedy available to consumers under the MRTP Act, 1969 against restrictive trade practices and unfair trade practices: Firstly administration of justice under the Consumer Protection Act is totally free. Consumer Courts do not levy court fee in respect of legal proceedings. Secondly consumer courts are expected to delivery speedy justice. Despite criticism on this aspect some of which is justified, one agrees that Consumer Courts certainly score over the Civil Courts. You can be your own lawyer before consumer courts. Though appearance of lawyer is not prohibited consumer courts do not encourage appearance of lawyers and extensive long winded arguments. Procedural simplicity and amiable atmosphere prevailing in consumer courts is more encouraging to any ordinary litigant as compared to lengthy and procedure oriented civil court proceedings. While the provisions of Restrictive Trade Practices and Unfair trade practices cannot be invoked against Central Govt., State Govt., and public sector organisations, the provisions C.P. Act, 1986 can be invoked against Govt. run organisations such as railways, post office, air line, telephone boards, electricity boards, insurance companies, banks. Further Consumer Forum is vested with quasi criminal powers/provisions u.s. 27 of the Act. Definitions: Consumer: Consumer means any person who: (i) Buys any goods for a consideration which has been paid or promised, or partly paid and partly promised, or under a system of deferred payment, or (ii) Hires any services for a consideration which has been paid or promised, or partly paid and partly promised, or under a system of deferred payment i.e., in respect of hire-purchase, transactions, [Sec. 2(d)].

Thus, consumer is a person who (i) buys any goods for a consideration, or (ii) hires or avails any services for a consideration. In addition to buyer(s) of goods or hirer(s) or user(s) of services, any beneficiary of such services, using the goods/services with the approval of purchaser or hirer or user would also be a deemed a Consumer under the Act. The widow of the deceased Policy holder was held as consumer under the Act by the State Commission of A.P. in the case of A vs. LIC of India. The consideration may be either paid or promised, or partly paid and partly promised or under any system of deferred payment. The Act thus covers transactions for the supply of goods and rendering of services. Buyer of goods for consideration: The Act, unlike the Sale of Goods Act, does not insist on money consideration only. Transactions of transfer of services, or barter, or exchange will come within the purview of the Act. The user of such goods, with the approval of the buyer of goods, is also a consumer as per the Act. But according to Section 2(d) of the Act, the term consumer does not include a person who obtains such goods for resale or for any commercial purpose. Thus a purchaser of goods for reselling them or a purchaser of a taxi for plying the same on hire, a purchaser of a V.C.R. for running a video library, or purchaser of machinery for his commercial establishment is not a consumer. However, according to Consumer Protection (Amended) Act 1993, a person who purchases tools or machinery under self-employment scheme is also a consumer. Hirer of services for consideration: Any person who hires services for a consideration is a consumer. Consumer, not only means merely one who hires services for consideration, but also includes a person who is a beneficiary of such services. For example, the user of a telephone, even though he is not himself the subscriber is a consumer under the Act. Services include all kinds of professional services, be it the routine services of a barber or the technical services of a highly qualified person. For example, supply of electricity has been held to be a service and not sale of goods. The services must be of commercial nature in the sense that they must be on payment. The payments may be in cash or kind. It may be made either at once, or partly at once, or partly on credit. The services may be rendered wholly or partly on credit. However, free services or personal service under a contract have been excluded from the protective spell of the Consumer Protection Act. Union of India Vs. Mrs. S. Prakash: It was held that the subscriber of telephone is a consumer as the rental charges paid to the Central Government is the consideration for

the services rendered by the Tele-Communication Department, District Manager, Telephones, Patna Vs. Lalith Kumar Bajla (1989). Mumbai Grahak Panchayat, Vs. Andhra Pradesh Scooters Ltd. The complainant made an advance deposit of Rs.500 with the A.P. Scooters Ltd., booking a scooter. The complaint was not given the refund of the deposit when he demanded the same as per his contract with the opposite party. It was held that the complainant was a consumer, and was entitled to relief asked by him. Ganapathi Vs. Postmaster, Karnataka State: In this case, the remitter of T.M.O.,was held to be a consumer and was awarded a compensation. Cosmopolitan Hospitals Vs. Smt. V.P. Nairs: The National Commission held, that a patient is a consumer and the medical assistance was a service. The Medical Officers service was not a personal service so as to constitute an exception to the application of the Consumer Protection Act. Who are not Consumers? The following persons are not consumers as per the Consumer Protect Act. (a) A person who purchased goods for resale. (b) A person who purchased goods for commercial purpose (c) A person who obtains services without consideration (d) A person who obtains services under a contract of personal service The National Commission, in various cases, had decided that the following are not consumers: Tax-payers to municipality Contractors Applicants for jobs Persons who filed suits in courts, etc. Consumer Dispute: According to Section 2(1)(e) of the Consumer Protection Act, Consumer Dispute means a dispute where the person against whom a complaint has been made denies or disputes the allegations contained in the complaint. Defect: Defect means any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.

From the above definition, it is clear that non-fulfilment of any of the standards or requirements laid down by or under any law for the time being in force or as claimed by the trader in relation to any goods would fall under the ambit of defect. Three types of defects are envisaged (i) manufacturing defect, (ii) design defect (iii) instruction defect. Manufacturing defect: A product is said to have manufacturing defect when it is not built according to specification and is consequently unsafe. For example, there may be negligence on the part of an employee in assembling a part or tightening a nut or a latent defect (hidden flaw) in the raw material out of which the product is made. Design defect: It appears there is no clear standard with reference to standards prescribed by Government or industry, if any, but courts may liberally interpret the provision to test the complaint from the angle of reasonable care in designing a product. Some American Courts have held that a product is defectively designed if the product is more dangerous than the benefits that accrue on account of product design in the eyes of an ordinary consumer. For instance, under Indian conditions if a moped manufacturer does not provide a Saree guard to protect against the possibility of an average woman meeting an accident when loose and of her saree gets in contact with running wheels of moped may be considered as design defect. It is not unreasonable to argue that reasonable and prudent manufacturer should have anticipated or foreseen such a possibility in the Indian context as large number of even working women wear sarees in India. Instruction defect: When a manufacturer fails to provide adequate warning of possible dangers associated with the Product Manual, instruction booklet or on package/label regarding safe use of the product. A drug manufacturer is expected to warn against side effects. It is not a valid defence to argue that manufacturer was not aware of the danger. Following types of evidence is generally relied upon by complainants to establish defect in product: (a) Expert opinion (b) manufacturers record (c) Government and Industry Standards (d) Post accident changes (e) Report of Governmental and other agencies (f) Past record (a) Expert Opinion: Complainant hires a technical expert to testify about the defective characteristics of a product. A manufacturer has to retain highly qualified experts to rebut

the findings of complainants expert and also educate defence lawyer so well that he can the bluff of complainants expert. (b) Manufacturers records: If manufacturers own employees expressed concern about product safety it can be extremely persuasive that product defect existed. (c) Government and Industry Standard: Evidence that manufacturer has failed to meet government or industry standards can be compelling proof of existence of defect and when such standards are mandatory it also amounts to automatic findings of negligence. (d) Post accident changes: Post accident changes may be considered as evidence that original designs were deficient. Though this is a contentious factor as to whether such an evidence is admissible a jury may be influenced by the same. (e) Report of Government and the other agencies: Generally factual findings of an official investigation forms admissible evidence. (f) Past record: Complainant may show that past record of the product proves his claim. Manufacturer has the obligation of proving that other accidents were not similar. Who is liable? Who is liable to pay compensation is indeed an important question. The liability extends from manufacturer to retailer or in other words to everyone in the chain of distribution. Even an occasional seller may be held liable for his own negligence to the extent he should have known or discovered that the product was dangerous to users. In most states in USA strict liability applies only to manufacturers. Therefore, contravention of any of the provisions of enactments such as the Drugs & Cosmetics Act, 1950, Standards of Weights & Measures Act, 1976, the Prevention of Food Adulteration Act, 1955, the Indian Standards Institution (Certification Marks) Act, 1952 etc. or any rules framed under any such enactment or contravention of the conditions or implied warranties under the Sale of Goods Act, 1930 in relation to any goods would also be termed as a defect under the Act. Fault, imperfection or shortcoming in quality, quantity, potency, purity or standard as claimed by the trader in any manner whatsoever in relation to goods is to be determined with reference to the warrants or guarantees expressly given by a trader. Deficiency: Deficiency means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service [Section 2(1)(g)].

The definition of deficiency also has two parts to it like the definition of defect pertaining to services for which standards are prescribed by the law and services for which express warranties or guarantees are given by the persons concerned, say, traders, etc. Goods: Goods means goods as defined in the Sale of Goods Act, 1930 [Section 2(1)9i)]. As per Section 2(7) of the Sale of Goods Act, 1930 Goods means every kind of movable property other than actionable claims and money; and includes stock & 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 or sale. Therefore, most consumer products would come under the purview of this definition. Manufacturer: (i) Manufacturer means a person makes or manufactures any goods or (ii) parts thereof, or ii. does not make or manufacture any goods but assembles parts their of made of manufactured by himself, or iii, puts or cause to be put his own mark on any goods made or manufactured by any other manufacturer and claims such goods to be goods made or manufactured by himself. [Sec. 20(j)]. Service: Service means Service of any description which is made available to potential users and includes the provisions of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, boarding or lodging or both, house construction, entertainment, amusement or other information [Sec.2(O)]. The expression Service includes in its scope provision of facility in connection with telephone provided by Telecommunication Department and houses and plots by Housing & Development Board. Free services and personal services under a control have been excluded from the protective spell of the Act. Thus services must be of commercial nature in the sense that they must be on payment. The payment may be in cash or kind. It may be made either at once or partly at once or partly later i.e., on credit. For services rendered without consideration the complaint cannot be maintained in forum. For example, a medical service rendered by Government hospitals will not come within the scope of Consumer Protection Act. In Consumer Unity and Trust Society Vs. State of Rajasthan (1989), the National Commission while hearing an appeal from the State of Rajasthan, held that complaints against Government hospitals cannot entertained under the Act on the ground that a person receiving treatment in such hospital is not a consumer as the patient does not

higher the services of the hospital; moreover, the treatment provided is free of charge, and therefore, it does not amount to service. In the case of Cosmopolitan Hospitals Vs. Smt. Vasantha P Nair, (1991) and Cosmopolitan Hospitals Vs. Smt. V.P. Santha (1992) the National Commission considered at length whether service rendered by doctors in private hospitals for consideration would come under the purview of `service, whether the medical profession was outside the scope of the Consumer Protection Act, and whether legal representatives of a deceased patient could file a complaint against the hospital alleging negligence. The facts of both cases were similar the widows of the deceased patients alleged the hospital authorities with negligence in the diagnosis and treatment in the first case and in the performance of an operation in the second case. The contentions or the hospital authorities denying the allegation of negligence were that (i) the complainants were not consumers under the Act, and therefore, were not entitled to initiate the proceedings; and (ii) the treatment rendered in the hospital did not constitute service under the Act. Their contention was that the Act ensured protection to consumers against unscrupulous traders selling defective goods or indulging in unfair trade practice and against deficiency in service relating to commercial transactions only and that services rendered to a patient by a medical practitioner, which is a professional service, is of a personal nature and contracts of personal service being outside the purview of the Act, the services rendered in hospitals whether by government or private agencies were not services under the Act. The National Commission upholding the decision of the State Commission held that (i) the complainants who were legal representatives of the deceased were clothed by operation of law with the rights which the deceased had to initiate action against the hospital on the ground of alleged deficiency in service and that those rights had not become extinguished by his death but remained enforceable by his legal representatives. Unless such a broad and pragmatic view is taken, the intention of the legislature in enacting the Consumer Protection Act would be defeated. Therefore, the complainants were consumers and had full locus standi to maintain the complaint petitions before the Forums. (ii) The activity carried on by the hospital constituted service under the Act and did not fall within the exempted category of service rendered under a contract of personal service. The definition of service as given in Section 2(1)(0) of the Act mentions service of any description made available to potential users and only exempts service

rendered free of charge or under a contract of personal service from its ambit. Restricting the scope of the definition to only service relating to commercial transactions would not be warranted, given the intention of the legislature. Thus, there is no substance in the contention that service rendered by hospitals and members of the medical profession for consideration will not constitute service as defined in the Act because it does not relate to a commercial transaction. Quoting its own observations in the case of A.C. Modagi Vs. Cross Well Tailor (1991) the National Commission reiterated that there was a distinction between contract for service and contract of service. Personal service stemmed from a master and servant relationship where the master can order what is to be done and how it shall be done and under which, an employee could be turned out of service by the master at will, and therefore, no occasion would arise for the master to complain above the deficiency in the rendering of service by the employee. Where the hirer of the service is not in a position to exercise any sort of control or supervision over the work of the person rendering the service, there would not be any personal service. In the case of hospitals which provide treatment to patients for payment, there could be no reason to hold that there was any element of personal service in such arrangement. The provisions of the consumer protection act relating to adjudication of consumer disputes and award of reliefs under Sec.14 fully applied to disputes concerning deficiency in the service rendered by hospitals and members of the medical profession also. The following have been held to be services for the purpose of application of the provisions of the Consumer Protection Act: Banking services, Insurance services, Railway services, Airline services, Telephone services, Transport services, Electricity Board services, Private hospitals services, services of intermediate board, tourist services, services proved by Universities, postal department services, Registration department services. The following services are held to be not covered by the Consumer Protection Act: Services provided by Government Hospitals, Service Commission Services, service of Courts etc. Consumer Complaint Complaint means any allegation in writing made by a complainant that : as a result of any unfair trade practice or restrictive trade practice, adopted by a trader, the complainant has suffered loss or damage; the goods mentioned in the compliant suffer from one or more defects; the services mentioned in the complainant suffer from deficiency in any

respect; a trader has charged for the goods mentioned in the complainant a price in excess of the price fixed by or under any law for the time being in force. The complaint is to made with a view to obtaining any relief provided by or under this Act. Who can make a Compliant? A complaint in relation to any goods sold or delivered, or any service provided may be field with quasi-judicial organs constituted under the Consumer Protection Act by any of the following: i) The consumer to whom such goods are sold or delivered or such service provided; ii) Any recognized consumers association registered under law, or iii) The Central or any State Government, and iv) One or more consumers on behalf of many consumers having same interest. Note: Recognized Consumer Association means any voluntary consumer association registered under the Companies Act, 1956 or any other law for the time being in force. To whom the Complaint is to be made: According to the Consumer Protection (Amendment) Act 1993, a complaint can be made in the following quasi-judicial agencies in the following manner. (a)where the value of goods or services and compensation, if any, claimed does not exceed Rs. 20 lakhs, complaint is to be filed with the District Forum; (b)Where the value of goods or services and compensation, if any, claimed exceeds Rs.20 lakhs, but does not exceed Rs.50 lakhs, complaint is to be filed with the State Commission. Where to file a Complaint? A complaint should be filed in a District Forum (subject to pecuniary jurisdiction) within the limits of whose jurisdiction all the opposite parties reside or carry on business, or Any one of the opposite parties resides or carry on business (with the permission of District Forum or acquiescence of the opposite party not residing there) or where the cause of action wholly or in part arises. How to file a Complaint? Procedure for filing a complaint are simply and speedy. a) No fees have been prescribed. b) Complainant or his authorized agent can present the complaint in person. c) Complaint can be sent by post to the appropriate Forum/Commission. How to draft a Complaint: A complaint should contain the following information: a) Name and description and address of the complainant.

b) Name, description and address of the opposite party or parties. c) The facts relating to complaint and when and where it arose. d) Documents, if any, in support of the allegation contained in the complaint. e) The relief which the complainant is seeking. The complaint should be signed by the complainant or his authorized agent. Unfair Trade Practices The Consumer Protection Act has adopted the definition of Unfair Trade Practices as given in the MRTP Act. Section 36-A of the Monopolies and Restrictive Trade Practices Act, 1969, amended in 1993 explains what unfair trade practice means. Unfair trade practice methods are listed in section 36-A. Where the methods listed in section 36-A are adopted for the purpose of promoting the sale, use or supply of any goods, or for the provision of any services and thereby some loss or injury is caused to the consumers of such goods or services, it is an unfair trade practice. The practices mentioned in section 36-A are grouped into the following five categories. 1. Misleading Advertisement and False Representation: These include: (a) Falsely representing that the goods are of a particular standard, quality, quantity, grade, composition, style or model. (b) Falsely representing that the services are of a particular standard, quality or grade (c) Falsely representing that the re-built, second-hand, renovated, reconditioned or old goods as new goods. (d) Representing that the goods or services have sponsorship, approval, performance, characteristic, accessories, uses or benefits which such goods or services do not have. (e) Representing that the seller or the supplier has a sponsorship or approval or affiliation which he does not have. (f) Making a false or misleading representation concerning the need, for, or the usefulness of any goods or services. (g) Giving to the public any warranty or guarantee of the performance or length of life of a product which is not based on adequate test. (h) Making a materially misleading representation to the public concerning the price at which a product or like products of goods have been or are ordinarily sold. (i) Giving false or misleading facts disparaging the goods, services or trade of another person.

The mode of representation or statement to the public may be by any method. It will be enough if the statement comes to the knowledge of the buyer of those goods etc. The representation may appear on the article or on its wrapper or container or on anything on which the article is mounted. 2. Sale offer of bargain price: This includes advertising for supply, at a bargain price, goods or services that are not intended to be offered for supply at the price for a reasonable period or reasonable quantities. 3. Schemes offering Gifts or Prizes: This category includes: (a) offering gifts or prizes or other items with the intention of not providing them and conducting promotional contests; (b) the conduct of any contest, lottery or game of chances, etc. 4. Non-compliance of prescribed Standards: This category includes cases where goods are sold for use by consumers knowing or having reason to believe that they do not comply with the standards prescribed by some competent authority. The prescribed standard may relate to performance, composition, contents, design, construction, finishing or packing as are necessary to prevent or reduce the risk of injury to the person using the goods. 5. Hoarding, destruction or refusal: The fifty and last category of unfair trade practices includes cases of hoarding, destruction of goods or refusal to sell goods or services so as to raise the cost of those or similar goods. Ingredients of Unfair Trade practices: (a) The trade practices must consist of any of the practices listed as above. (b) The purpose of such trade practice must be to promote the sale, use or supply of any goods or provision of any services. (c) The trade practices must have caused loss or injury to the consumer whether by Eliminating or restricting competition. Restrictive Trade Practice Sec. 2(nn) of the Consumer Protection Act defines Restrictive Trade Practice as any trade practice which requires a consumer to buy, hire or avail of any goods or, as the case may be, services as a condition precedent for buying, hiring, or availing of other goods or services. While the restrictive trade practice covered under C.P. Act relates to tie up sales of slow moving goods with fast moving goods, Sec.2 (0) of MRTP Act as a wider ambit which covers all practices which prevents distort or restrict competition and

obstructs free flow of goods and services or obstruct free flow of capital and resources into production. Restrictive Trade Practices (RTP under MRTP Act 1969) Restrictive Trade practices are those trade practices which have the effect of preventing, distorting or restricting competition in any manner and in particular acts intended to result in: Obstruction of Capital and Resources into stream of production. Manipulation of price or to abstract production, distribution/supply of goods or provision of services. Agreement falling within the scope of Sec.33(of the MRTP Act) which are deemed as Registrable Agreements relating to Restrictive Trade Practices. Consumer Disputes Redressal Agencies For the purpose of speedy and simple settlement of Consumers disputes section 9 of the Act, 1986 provides for the establishment of the following three Consumer Disputes Redressal Agencies. A Consumer Disputes Redressal Forum to be known as the District Forum established by the State Government in each district of the State of notification. A Consumer Disputes Redressal Commission to be known as State Commission established by the State Government, with the prior approval of the Central Government, in the State by notification and A National Consumer Disputes Redressal Commission to be known as National Commission established by the Central Government by Notification. Thus, the Act envisages a hierarchy of three Redressal Forums: (1) District Forums, (2) State Commission and (3) National Commission. These are quasi-judicial bodies. District Forum: District Forum means a Consumer Disputes Redressal Forum, established under Section 9 (2) of the Consumer Protection Act, 1986. This is established by the State Government in each district of the State by means of a notification. If reasonable and necessary, the State Government can establish more than one district forum in a district. As per the amended Act, 1993, permission of the Central Government is not necessary for establishing a district forum. Composition of the District Forum: According to section 10 of the Act, each district forum shall consist of : (i) a person who is, or has been or is qualified to be a District

Judge shall be nominated by the State Government and shall be the President of the Forum, (ii) a person of eminence in the field of education, trade, or commerce, law etc., and (iii) a lady social worker. Appointments to the State Commission shall be made by the State Government on the recommendation of a Selection Committee consisting of the President of the State Committee, the Secretary-Law Department of the State and Secretary in charge of Consumer Affairs in the state. Every member of the District Forum shall hold office of a term office 5 years or up to the age of 65 years, whichever is earlier. Of course, a member may resign by giving a notice in writing to the State Government where upon the vacancy will be filled up by the State Government. The salary of honorarium and other allowances payable to the members and their conditions of service may be prescribed by the State Government. A member shall not be eligible for re-appointment. Pecuniary and Territorial Jurisdiction of the District Forum: Section 11 provides for the jurisdiction of the District Forum under two criteria: Pecuniary and Territorial. The district forum enjoys jurisdiction to entertain complaints where the value of goods or the services and the compensation, if any, claimed, does not exceed Rs.20 lakhs. A complaint can be filed either at the place where the opposite party resides or carry on business or at the place where the cause of action arises. In case of action arises also at the place where the product is sold. In the case, Consumer Education and Research Society Vs. Canara Bank, it was held that a banking company to be proceeded against the district forum where its branch was located. Manner of making a Complaint: A complaint, in relation to any goods sold or delivered, or any service period, may be filed with a District Forum by any of the following: The consumer to whom such goods are sold or delivered, or such services provided, any recognised consumer association, whether the consumer is a member of such association or not, the Central or the State Governments, any consumer of consumers on behalf of a number of consumers. Procedure on Receipt of Complaint: The District Form has to observe the following procedure as detailed in section 13 of the Act. i) The first step on receiving a complaint is to refer a copy of the complaint to the opposite party directing him to give his version of the case within a period of 30 days. When the opposite party denies or disputes the allegations contained in the complaint, or

omits or fails to take any action to represent his case within the 30 days or extended period of 15 days, a dispute arises, the District Form shall proceed to settle the consumer dispute. After these preliminary steps, the Forum has to follow the procedure prescribed in section 13 of the Act. ii) The complaint may relate to the defects of goods. The term defect means any fault, imperfection or short coming in the quality, quantity, purity, or standard which is required to be maintained by any law in force or which the trader claimed that his goods possessed. If the alleged defect in the goods is such that his goods possessed. If the alleged defect in the goods is such that it cannot be determined without proper analysis or test of the goods, the Forum should obtain a sample of goods from the complainant. The sample of goods should be protected by a seal. The sample of goods received must be sent to appropriate laboratory along with a direction that the goods should be tested or analysed for the alleged defect. The time allowed for the laboratory is 45 days. The Direct Form/State Commission may require the complainant to deposit with it such amount as may be specified towards payment of fees to the appropriate laboratory for the purpose of carrying out the necessary analysis or tests [Section 13(1)(d)]. The amount so deposited shall be remitted by them to the appropriate laboratory to enable it to carry out the analysis and send the report. iii) On receipt of the report from the laboratory, the Forum should send a copy of it to the opposite party along with such remarks, as the District Forum may feel necessary. iv) If any party disputes the correctness of the report or the correctness of the methods of analysis, the Form shall require him to submit his objections in writing. v) Before issuing any final order in the matter, the Forum will provide an opportunity to both parties to present their views about the report. The Forum shall proceed to settle the dispute on the basis of allegations, counter allegations and the evidence produced by the parties in support of their case. Where the opposition party does nothing in response to the complaint, the matter may be decided on the basis of the evidence produced by the complainant. The proceedings of the Forum in compliance with the procedure laid down by the Act are to be regarded as valid. The validity cannot be questioned on the ground that the principles of natural justice have not been complied with. Limitation Period for filing of Complaint: Section 24A provides that the District Forum, the State Commission or the National Commission shall not admit a complaint unless it is filed within one year from the date on which the cause of action has arisen. However, where the complainant satisfies the Forum/Commission as the case may be,

that he had sufficient cause for not filling the complaint within one year, such complaint may be entertained by it after recording the reasons for condoning the delay. Administrative Control: Section 24-B provides that the National Commission shall have administrative control over all the State Commission in the matter of calling for periodical returns regarding the institution, pendency and disposal of cases, issuance of instructions regarding adopting of uniform procedure in hearing of matters, serving copies of documents, translation of judgements etc. and generally over-seeing the functioning of the State Commission/ District fora to ensure that the objects and purposes of the Act are served in the best possible manner. The State Commission shall have administrative control over all the District fora within its jurisdiction in all the above-referred matters. Findings of the Forum: If the Forum is convinced that the goods are really defective, or that the complaint about the service is proved, the Forum shall have to order the opposite party to do one or more of the following things. - To remove the defect pointed out by the laboratory from the goods in question. - To replace the goods with new goods of a similar description, which should be free from any defect. - To return to the complainant the price of the goods, or the charges of services paid by the complainant. - To pay such amount as may be awarded compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party. - To remove the defects or deficiencies in the services in question. - To discontinue the unfair trade practice or the restrictive trade practice or not to repeat them - Not to offer the hazardous goods for sale. - To withdraw the hazardous goods from being offered for sale. - To provide for adequate costs to parties. The order for the District Forum shall be signed by its president and the member or members who conducted the proceedings. In case of difference of opinion, the order of the majority of the members shall be the order of the Forum. Enforcement of orders: The orders of District Forum are enforceable in the manner of an order or decree made by a civil court, in a civil suit. If the forum is not able to execute

its order, it may forward the same to the court for execution. The court to which the order is sent, shall then execute the orders as if it were a decree or order sent to it for execution. Appeal: Any person aggrieved by an order made by the District Forum may prefer an appeal against such order to the State Commission within a period of 30 days from the date of the order. The period of 30 days would be computed from the date of receipt of the order by the applicant. The appeal to the State Commission is to be made in such form and manner as may be prescribed. Where no appeal has been preferred, the orders of a District Forum shall be final. In Kohinor Carpets. Vs. Rajendra Arora, Haryana, it was held that a penalty become final in the absence of any appeal against it. Penalties: Every trade or a person against whom complaint is made is bound to comply with the order of the District Forum. If a trader fails to comply with the order, he shall be punishable. - With imprisonment for a minimum duration of one month and maximum of 3 years, or - With minimum fine of Rs.2000 and maximum of Rs.10,000 or - Both, with imprisonment and fine as mentioned above. Powers of the District Forum: For the purposes of settling the disputes under Section 13, the District Forums have been vested with the same powers as are vested in a civil court under the code of Civil Procedure, 1908. Such powers are enjoyed by the Forum in respect of the following matters. The summoning and enforcing the attendance of any defendant or witness and examining the witness on oath. The discovery and production of any document or other material object producible as evidence. The reception of evidence on affidavits. The requisitioning of the report of the concerned analysis or test from the appropriate laboratory or other relevant source. Issuing of ay commission for the examination of any witness. dismiss a complaint which appears to have been filed frivolously or with a view to cause vexation, order the complainant to make payment of cost, not exceeding Rs.10,000 to the (under the Sec.26 of the Act) opposite party. The authorized officer may seize such books, papers, documents or commodities as are required for the purpose of this Act.

The Officer has a right to exercise power of entry and search of any premises of the opposite party. Isaac Mathew Vs. Maruti Udyog Ltd.: A car which was damaged and was subsequently repaired and supplied as new car was ordered to be replaced and some compensation for inconvenience was also allowed. Kailash Kumari Vs. Narandra Electronics: A defective television was orders to be replaced along with compensation. Vinod Seth Vs. Rathan Road Lines: The carrier was held liable for loss of goods and for mental agony. Bnany Vs. Shenoy, K.S.R.T.C. Karnataka: The passenger who could not be conveyed to his destination owing to road obstruction was allowed to recover from the bus operators his ticket money to and from. State Commission State Commission is a Consumer Disputes Redressal Commission: established by the State Government with the prior approval of the Central Government, in the State notification under Section 9(b) of the Consumer Protection Act. Composition of the State Commission: According to section 16(1) of the Act, each State Commission shall consist of the following: - A person who is or has been a judge of High Court shall be appointed, on the recommendation of a Selection Committee, by the State Government and shall be its president. - Two other members, who shall be persons of ability, integrity, and standing. They shall have adequate knowledge or experience of or have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs or administration. One of such members shall be a woman. The provision to this clause states that every appointment made under this clause shall be made by the State Government on the recommendation of a Selection Committee consisting of the President of the State Commission, Secretary Law Department of the State and Secretary in charge of Consumer Affairs in the State. Under Section 16(2), the State Government has the power to decide on the salary or honorarium and other allowances payable to the members of the State Commission and the other terms and conditions of service. Every member of the State Commission shall hold office for a term of 5 years or up to the age of 67 years, whichever is earlier and shall not be eligible for re-appointment.

Pecuniary and Territorial Jurisdiction: According to Section 17 of the Act, subject to the other provision of this Act, the State Commission shall have jurisdiction in the following matters. To entertain complaints where the value of the goods or services and compensation, if any, claimed exceeds Rs. 20 lakhs, but does not exceed Rs.50 lakhs. To entertain appeal against the orders of any District Forum within the State, and To call for the records and pass appropriate orders in any consumer dispute which is pending before and has been decided by any District Forum within the state. Therefore, the State Commissions jurisdiction may be original, appellate or revisional. In respect of (3) above, the State Commission may reverse the orders passed by the District Forum on any question of fact or law or correct or error of fact of law made by the Forum. In respect of the original jurisdiction of the State Commission Section 17 only prescribes pecuniary limits. No territorial limits have been fixed for the exercise of original jurisdiction under the Act though the provision contained in Section 11(2) of the Act apply matis mutandis in the matter of entertaining original complaints by the State Commission has was held National Commission of Indian Airlines Vs. Consumer Education and Research Society (1992). Territorial jurisdiction of the State Commission, therefore, extends to the territorial limit of the State. In the exercise of its appellate jurisdiction, the State Commission may entertain appeals only against the orders of any District Forum with the State. Similar condition also applies in respect of the State Commissions power to revise orders of the District Forumonly orders of the District Forum within the State may be subject to revision by the State Commission. Procedure applicable to State Commission: The procedure prescribed for the working of District Forums by Sections 12, 14 and rules framed under these sections, with suitable modifications, is also applicable to State Commission. Findings of the State Commission: According to Section 13 of the Act, if the State Commission is convinced that the goods are really defective or that the compliant about the service is proved the State Commission shall issue an order to the opposite party to take one or more of the following things: To remove the defect pointed out by the appropriate laboratory from the goods in question.

To replace the goods with new goods of similar description which shall be free from any defect. To return to the complainant the price of goods or the service charges paid by the complainant. To pay such amount as may be awarded by it as compensation to the negligence of the opposite party. Appeal: Any person aggrieved by an order made by the State Commission may prefer an appeal against such order to the National Commission within a period of 30 days from the date of the order. The appeal must be made in such form and manner as may be prescribed. National Commission may, however, entertain an appeal after the expiry of the said period of 30 days if it is satisfied that there was sufficient cause for not filing it within that period. Where no appeal has been preferred, the order of the state commission shall be final. However, the order of State Commission on appeal made against the order of a District Forum shall not be entertained by the National Commission. Enforcement of Orders: The orders of a State Commission are enforceable in the manner of an order or decree made by a Civil Court in a civil suit. If the State Commission is not able to execute its order, it may forward the same to the civil court for execution. Penalties: Every trader or a person against whom complaint is made is bound to comply with the order of the State Commission. If a trader fails comply with the order, he shall be punishable as under: - With imprisonment for a minimum period of one month and maximum of 3 years; or - With minimum fine of Rs.2000 and maximum of Rs.10,000 or - Both with imprisonment and fine as stated above. National Commission: In exercise of the powers conferred under sec 9(c) of The Consumers Protection Act, the Central Government established a National Consumer Disputes Redressal Commission to be known as the National Commission by notification. Composition of the National Commission: According to section 20(1) of the Act, the National Commission shall consist of the following: (a) A person who is or has been a judge of the Supreme Court shall be appointed by the Central Government in consultation with the Chief Justice of India. He shall be its president.

(b) Four other members shall be person of ability, integrity and standing. They shall have adequate experience of or have shown capacity in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration. One of them shall be a woman. The Selection Committee shall consist of a Judge of the Supreme Court to be nominated by the Chief Justice of India, the secretary in the Department of Legal Affairs and the Secretary incharge of consumers Affairs in the Government of India. A sitting judge of the Supreme Court can be appointed only after consulting the Chief Justice of the Supreme Court. Every member of the National Commission shall hold office for a term of 5 years of upto 70 years of age whichever is earlier and shall not be eligible for reappointment. Every appointment made under this clause by the Central Government shall be made on the recommendation of a Selection Committee consisting of a Judge of a Supreme Court to be nominated by the Chief Justice of India, the Secretary in the Department of Legal Affairs and the Secretary in charge of Consumer Affairs in the Government of India. Section 20(2) gives power to Central Government to fix the salary/ honorarium and other allowances payable to the members as well as the other terms and conditions of their service. Every member of the National Commission shall hold office for term of five years or up to seventy years of age, whichever is earlier and shall not be eligible for reappointment. Jurisdiction of the National Commission: The jurisdiction of the National Commission shall be as under: It can entertain complaints where the value of goods or service and compensating, if any, claimed exceeds Rs.50 lakhs. It can entertain appeals against the orders of any State Commission, and It can call for the records and pass appropriate orders in any consumer dispute pending before or has been decided by any State Commission. It can do so where the State Commission has exercised jurisdiction not vested in it by law or has acted in the exercise of its jurisdiction illegally or with material irregularity. Therefore, the jurisdiction of the National Commission could also be categorized as original, appellate and revision as that of the State Commission. Procedure applicable to the National Commission: The National Commission shall, in the disposal of any complaints or of any proceedings before it, have the powers of a Civil Court. It shall follow such procedure as may be prescribed by the Central Government. The procedure to be followed by the National Commission has been prescribed by the

Consumer Protection Rules, 1987 made by the Central Government. The procedure to be followed is as under: A complaint containing the following particulars shall be presented by the complainant in person or by his agent to the National Commission or be sent by registered post to the National Commission: a) The name, description and the address of the complainant. b) The name, description and address of the opposite party or parties. c) The facts, relating to complaint, and when and where it arose. d) Documents in support of the allegations contained in the complaint e) The relief which complainant claims. Procedure on receipt of complainant: The National Commission on receipt of a complaint, has to observe the following procedures as outlined in section 13 of the Act: A. Refer a copy of the complaint to the opposite party directing him to give his version of the case within a period of 30 days or such extended period not exceeding 15 days. B. Where the opposite party, on receipt of a complaint copy, denies or disputes the allegation contained in the complaint, the omits or fails to take any action to represent his case within the time given by the National Commission, the National Commission shall proceed to settle the consumer dispute in the manner provided by the Act. C. If the complaint relates to some defects in the goods, which cannot be determined without proper analysis or test of the goods, the National Commission shall obtain a sample of the goods from the complainant and refer the sample to the appropriate laboratory for analysis or test. D. The appropriate laboratory has to analyse or test the sample received to find out whether such goods suffer from any defect alleged in the complaint, within 45 days of the receipt of the reference or with such extended period as may be grated by the Commission the laboratory shall submit its report to the National Commission. E. On receipt of the report from the appropriate laboratory, the National Commission shall forward a copy of the report along with such remarks as the National Commission may feel appropriate to the opposite party. F. If any of the parties dispute the correctness of the findings of the laboratory, or disputes the correctness of the methods of analysis or test adopted by the laboratory, the National Commission shall require the opposite party or the complaint to state in writing his objections in regard to the report made by the laboratory.

G. The National Commission, before issuing any final order in the matter, will provide an opportunity to both parties to present their views about the report of the laboratory. On the date of hearing, it shall be obligatory on the parties or their agents to appear before the National Commission. Where the complainant or his agent fails to appear before the National Commission on the date of hearing, the National Commission may in its discretion, either dismiss the complaint for default or decide its merits. Where the opposite party or its agent fails to appear on the date of hearing, the National Commission may decide the complaint ex parte. Findings of the National Commission: If the National Commission is convinced that the goods were really defective or that the complaint about the service is proved, it shall order the opposite party to do one or more of the following things: - To remove the defect pointed out by the appropriate laboratory from the goods. - To replace the goods with new goods of a similar description, which shall be free from any defect. - To return to the complainant the price of the goods or the charges for services paid by the complainant. - To pay to the complainant a sum of money by way of compensation for any loss or injury suffered by the consumer due to the negligence of the opposite party. - To remove the defects or deficiencies in the services in question. - To discontinue the unfair trade practice or the restrictive trade practice or not to repeat them. - Not to offer the hazardous goods for sale. - To withdraw the hazardous goods from being offered for sale. - To provide for adequate costs to parties. Appeal: An appeal against the orders of the National Commission can lie to the Supreme Court. An appeal to the Supreme Court can be made within a period of 30 days from the date of the order of National Commission. The Supreme Court may permit an appeal even after the expiry of the prescribed period if there was a sufficient cause for not being able to file an appeal in time. Finality of the Orders: Where no appeal has been filed against the order of the National commission, the same shall be final. Enforcement of Orders: Every order made by the National Commission may be enforced in the same manner as a decree or order made by a Civil Court.

Penalties: Every trader or a person against whom complaint is made is bound to comply with the order of the National Commission. If a trader or a person fails to comply with the order he shall be punishable. - With imprisonment for a minimum period of one month and maximum of 3 years, or - With minimum fine of Rs.2000 and maximum of Rs.10,000 or - Both, (with imprisonment and fine as stated above) According to Section 19 of the Consumers Protection Act, a person aggrieved by an order of the State Commission can prefer an appeal against such order to the National Commission within 30 days from the date of the order in such form and manner as may be prescribed. The procedure for hearing the appeal is laid down by the Consumer Protection Rules, 1987. Procedure for hearing an appeal 1. A Memorandum shall be presented by the appellant or his agent to the National Commission in person or be sent by registered post to the Commission. 2. The Memorandum shall be in legible hand writing, preferably typed. The memorandum shall include grounds of appeal without any argument or narrative. The grounds must be numbered consecutively. 3. The Memorandum shall be accompanied by a certified copy of the order the State Commission appealed against. It shall also be accompanied by any of the documents as may be required to support grounds of objection stated in the Memorandum. 4. The appellant shall submit six copies of the memorandum to the Commission for office use. 5. On the date of hearing, all the parties or agents must appear before the National Commission. 6. The appellant shall not, except by leave of the National Commission, urge or be heard in support of any ground of objection not set forth in the Memorandum but the National Commission, in deciding the appeal, may not confine to the grounds of objection set forth in the Memorandum. Provided that the Commission shall not rest its decision on any other ground than those specified in the Memorandum unless the party who may be affected thereby, has been given an opportunity of being heard by the National Commission. 7. The National commission may, on such terms as it deems fit and at any stage of the proceedings, adjourn the hearing of the appeal, but not more than one adjournment shall

ordinarily be given and the appeal should be decided, as far as possible, within 90 days from the first date of hearing. 8. The order of the National Commission shall be communicated to the parties concerned free of cost. Appeal: An appeal to the Supreme Court, against the order of the National Commission in case of an appeal to it, cannot be made as per law. An appeal lies to the Supreme Court from an order passed by the National Commission Order XX(F) of the Supreme Court Rules, 1966 provides the following procedure for filing of appeals to the Supreme Court: 1. Subject to the provisions of Section 4,5, and 12 of the Limitation Act, 1963, the petition of appeal from the order of the National Commission shall be presented by an aggrieved person within 30 days from the date of the order sought to be appealed against. However, in computing the said period of 30 days, the time required for obtaining a copy of such order shall be excluded. 2. Petition of appeal shall recite succinctly and clearly all the relevant facts leading up to the order from which appeal is sought. The appeal petition shall also set forth in brief, objections to the order appealed from and other grounds relied upon in support of the appeal. The petition shall further state the date of the order appealed from as well as the date on which it was received by the appellant. 3. The petition of appeal shall be accompanied by the following: (i) an authenticated copy of the order in appeal. (ii) at least 7 spare sets of petition and the papers filed with it. If the appeal is registered, it is put up for hearing ex-parte before the Court. The Court may dismiss it either summarily or direct issue of notice to all concerned parties or make such order as the circumstances of the case may require. A fixed court fee of Rs.350 shall be paid on the petition of appeal. For the purpose of settling the disputes, under section 13 of the Consumer Protection Act, State Commission or National Commission shall have the same powers as are vested in the Civil Court under the Civil Procedures Code in the following matters: The summoning and enforcing the attendance of any defendant and witness and examining the witness on oath. The discovery and production of any document or other material object producible as evidence. The reception of evidence of affidavits.

The requisition of the report of the concerned analysis or test from the appropriate laboratory or other relevant source. Issuing of any commission for the examination of any witness, and Dismissal of frivolous or vexatious complaints. Consumer Protection Rules, 1987 framed by the Central Government have given additional powers to the National Commission and State Commission: They are: 1. The National Commission or the State Commission shall have power to require any person: (a) to produce before and allow to be examined and kept by an officer of the National commission or the State Commission such books, accounts documents or commodities in the custody or under the control of the person so required described in the requisition. (b) to furnish to an office so specified such information as may be required for the purpose of this Act. 2. Where during any proceedings under this Act, the National Commission of the State Commission has any ground to believe that any book, paper, commodity or document which may be required to be produced in such proceedings are being or may be destroyed, mutilated, altered, falsified or secreted, it may be written order authorise any officer to exercise the power of entry and search of any premises. Such authorised officer may also seize such books, papers, documents or commodities as are required for the purpose of this Act. Consumer Protection Councils The objects of the Consumer Protection Act are sought to be promoted and protected by the consumer protection councils established at the Central and State levels. The consumer protection council established at Central level is known as Central Council. The consumer protection council established at State level is known as State Council. Central Council The Central Government has constituted a Central Protection Council by notification with effect from 1-6-1987. As per the Consumer Protection Rules the Central Council consists of 150 members. They are: The Minister-in-charge of Department of Civil Supplies in the Central Government. He shall be the Chairman of the Central Council. The Minister of State or Deputy Minister in the Department of Civil Supplies in the Central Government. He shall be the Vice-Chairman of the council.

The Minister of Food and Supplies in States. Eight Members of Parliament- Five from the Lok Sabha and three from Rajya Sabha. The Commissioner of scheduled castes and scheduled tribes. 10 representatives of women 20 representatives of farmers, trade and industries. 15 persons capable of representative consumer interests. 35 representatives of the consumer organization or consumers. The Secretary of the Department of Civil Supplies. He shall be the Member Secretary of the Central Council. Procedure of the Central Council: The Central Council shall meet as and when necessary. At least one meeting of the council shall be held every year. The Central Council shall meet as at such time and place as the Chairman may think fit. It shall observe such procedure in regard to the transaction of its business as may be prescribed. For the purpose of performing its functions under the Act, the Central Council may constitute from amongst its members necessary working groups. Every working group shall perform such functions as are assigned to it by the Central Council. The findings of such working groups shall be placed before the Central Council for its consideration. The resolutions passed by the Central Council shall be recommendatory in nature. Objects of the Central Council: Section 6 of the Consumers Protection Act, 1986 lays down the objects of the Central Council. The objects of the Central Council shall be to promote and protect the right of the consumers. The right to be protected against the marketing of goods which are hazardous to life and property: For example, adulterated goods are dangerous to life as well as to property. The consumer is assured by this Act that if he has been victimized into purchasing goods which have injured his person or property, he will have simple, speedy and effective remedy under the hierarchy constituted under the Act. The subject matter of dangerous goods is generally taken care of under law of Torts. All such matters can now be taken before the authorities constituted under the Act. It has become an established principle that a producer sending goods into the market would be liable to the ultimate user if his person or property is injured in the normal use of goods. The right to informed about the quality, quantity, potency, purity, standard and price of goods so as to protect consumer against unfair trade practices: This is intended to save the consumer from unfair trade practices like false and misleading descriptions about the nature and quality of the goods, and exaggerated statements about their power and

potency. In all cases of unfair trade practices or restrictive trade practices, the consumer would have the option of either apply to Monopolies Commission under the Monopolies and Restrictive Trade Practices Act, 1969 or the Redressal Agencies constituted under the Consumer Protection Act., viz., (a) District Forum, (b) State Commission, (c) National Commission. The right to be assured, wherever, possible, access to variety of goods at competitive price: The Central Council constituted under this Act has been charged with the responsibility or bringing about the organization of markets and market practices in such a way that all dealers are supplied with a variety of goods for the benefit of consumer and that the goods with a variety are being offered at competitive prices. It is only then that the consumer will have success to variety and will be able to enjoy the benefit of competitive prices. The right to be heard and to be assured that consumers interest will receive due consideration at appropriate Forums: The Central Council is charged with the responsibility of assuring the consumers that they would be heard of right by the appropriate Forums and the consumers will receive due attention and consideration from such Forums. The right to seek redressal against unfair trade practices, or unscrupulous exploitation of consumers: Three redressal agencies have been established to provide simple and speedy redressal to consumer disputes. These agencies have been empowered to give relief of specific nature and to award compensation to consumers. They will observe the principles of natural justice. Their orders are final unless appealed. The right to consumer education: The consumer has been given the right to education by Sec. 6 of the Consumer Protection Act, 1986. The Central Council has been charged with the responsibility to provide the people proper education in terms of their remedies under Act. Peoples awareness is likely to prove a better for putting the trade on sum level of discipline that of Governments Control. State Council The objects of every state council shall be the same as those of the Central Council. The objects of every State Councils shall be to promote and protect within the state the rights of consumers as laid in Section 6 of the Consumer Protection Act. Section 7 provides for the establishment of State Consumer Protection Councils by any State Government (by notification) to be known as Consumer Protection Council for (name of the state). The State Council shall consist of a Minister-in-charge of Consumer

Affairs in the State Government who shall be its Chairman and such number of other official or non-official members representing such interests as may be prescribed by the State Government. The State Council shall meet as and when necessary but not less than two meetings shall be held every year. The procedure to be observed in regard to the transaction of its business at such meetings shall be prescribed by the State Government. Consumer Protection Council Vs. National Dairy Development Board: The complainant wanted to know in what way the Dairy Board and using the imported palm oil. The board was refusing to give the information on the ground that the disclosure was against the public interest. Without that information the complainant was to able to make out his case. It was held that the consumer had the right to the requisite information. INTELLECTUAL PROPERTY RIGHTS Copyright Copyright, one of the form of intellectual property law, offers exclusive rights for protecting the authorship of original & creative work like dramatic, musical and literary in nature. Symbolized as "", here the term 'exclusive rights' mean that the holder has the right to determine who will be credited with the work, who will perform the work and who will be benefited financially from it. However, copyright does not extend any protection to the facts, methods of operation, system, ideas except to the ways in which they can be expressed. Being a copyrighted item does not mean that other person can't use or write on subject matter of particular item. For e.g, if a person has written on a new motor cycle and he has copyrighted his article then it means that other person can't use that article but he is free to write his thoughts on the similar motor cycle. Copyright holder does not hold the rights by themselves. Instead of it they relinquish it to publishers or big companies by entering into the contractual agreement. Generally copyright is enforceable as a civil cases but in some jurisdiction, there are criminal infringement statutes. Criminal Sanctions are made for targeting the counterfeiting work. There are innumerable factors which determine the length of the duration term. Like the nature of work, the status of work i.e, whether it is published or unpublished and finally whether the work has been created by single person or group. Generally in various part of the world, the copyright has been granted for whole life of the author plus for 50 or 70 years. IndianCopyrightAct,1957 The Indian copyright act facilitates the owner for reproducing or reusing their

copyrighted items, to prepare its derivate, to public their work and to distribute copies of their creative items. Copyright aims to protect the work of creator, transformed in a tangible form of expression. It includes art work, plays, movies, shows, various types of music, sound and songs, books, manuscripts, written work and all types of images, photos, pictures, drawings, graphics. Copyright Registration Copyright comes into effect as soon as the work is done and no formalities are required to be follow. However, certificate of copyright registration and entries made there upon serves as the prima facie evidence, at the time of any dispute, in the court. But there is a procedure exist for registering the both published/unpublished work in the Register of Copyrights, maintained in the Copyright Office of the Department of Education. If the work has been registered as the unpublished in the Register of Copyright but subsequently it is published then the requisite changes can be make by the applicant in the Register of Copyright with addition to prescribed fees. Procedure of Copyright It is required to be in written form duly signed and authenticated by assignor or by his authorized agent. It should legibly specified the amount of work and rights which are assigned to the other person. To avoid emergence of conflict in near future, time with duration and territorial area should be explicitly mentioned. It should clearly specify the royalty which is required to be paid to author or his legal representative. The mentioned assignment should be clearly subject to termination, extension on terms & conditions duly agreed and signed by both parties. There are some acts which have been put under the head of 'copyright infringements' *Preparing infringing copies for the purpose of selling or hiring or let them to be hire by third party. *Authorizing for the performance of work in such public places where such performance gives result to the copyright infringement. *Making distribution of the infringe copies for trading with a motto of affecting prejudicially the copyright owner interests. *Public exhibiting the infringing copies for the purpose of trade. *Importing the infringing copies into the India. Advantages of Copyright

Copyright helps in protecting the original published/unpublished work, that can be fall under the different heads of literature, musical, dramatic, artistic and intellectual. If we say the economic and social development of the nation relies upon the creativity skills of its people, then there would be no exaggeration. Copyright helps in making a protective shield, which is conducive for the growth rate of writers, artists, producers, musicians, cinematographic artists and induce them towards indulging into more creative work. By copyrighted their creation, copyright holder can enjoys following rights *One can use, re use, reproduce the copies and can sell the copies. *One can import or export whole or part of work. *One is free to create any derivative work. *One can publicly demonstrate its work. *One can sell or pass its rights to other person. *One can indulge in transmitting or displaying work by radio or video. Copyright Protection for Foreign Work In case of the foreign work, only those work of nations are protected in India which are the member of the Berne Convention for the Protection of Literary and Artistic Works, Universal Copyright convention and the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement through the International Copyright Order. Similarly to grant protection to the Indian work in throughout the world, India has also entered into the below international conventions on copyright and neighboring (related) rights *Berne Convention for the Protection of Literary and Artistic works. *Universal Copyright Convention. *Multilateral Convention with the motto of protecting the producers of phonograms against the phonograms duplication done unauthorizedly. *Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS). Copyright Law Administrating Body

The Indian Government has established Copyright Enforcement Advisory Council (CEAC) as an apex body for dealing in copyright related issues. No special courts have been set up for hearing cases pertaining to copyright related matters. The act facilitates the person to either contact directly to the board or take the help of normal courts regarding copyright issues. The board is not only taking care of infringe cases but also govern all the issues related to copyright in India. The Copyright Board is quasi judiciary in nature and it comprises of 2 or more but less than 14 members. The chairman of the board enjoys the same level that of High Court Judge. Registered Copyright Societies in India *Society for Copyright Regulation of Indian Producers for Film and Television *The Indian Performing Right Society Limited *Phonographic Performance Limited Patent A patent is termed as the exclusionary rights given by the government or the authorized authority to its inventor for a particular duration of time, in respect of his invention. It is the part of the intellectual property right, which connotes with all those rights which are granted to any person for protecting its invention, process, discovery, composition or new useful development etc. from its further usage without any authentication. If more than two persons have jointly applied for patent license, both will own the patent separately. The original word 'patent' has come up from the latin term 'patere', which means 'to lay open' or 'available for public usage'. Sometimes it is also related to the term 'letters patent', which marks to the royal decree granting exclusive rights to patentee. Unlike copyright, patent is not granted on giving mere suggestion or idea. An idea of mere manufacturing machine does not comes under the purview of obtaining patent. The roots of patents can be tracked back into the ancient Greek cities, where one person found out the new recipe and was given 1 year exclusive right of making food. The modern sense of patents were originated in 1474, when the Republic of Venice issued a decree and made it mandatory to communicate all new discovered products to the Republic, after they have been put into practice. The decree was enacted to prevent the usage of same products by the other persons. With the statues of monopolies, under the kingship of James I in 1623, a declaration was made which made it obligatory to patent

the 'projects of new invention'. Afterwards, in the regime of Queen Anne (1702-1714), the writing description of new invention has been enacted by the lawyers of English court. These developments laid down the foundation of United States modern patent laws. In Italy, first patent was issued by the Republic of Florence in 1421. Oftentimes patents are wrongfully understood as a right to use the invention. Reversely, it is the right which excludes other persons from using, making or importing the particular product or invention but for a fixed duration of tenure. The patent provides the protection period of usually 20 years from the date of filling the application, which can vary in throughout the world. Like of a property right, patent rights can also be sold, mortgaged, licensed, transferred to a third party. One can completely write off/abandon patent rights granted to him. The ability to transfer the patent rights to a third party, increases its liquidity. After obtaining patent license, more often inventors sell it off to third parties. Then third parties use it as they themselves have originally made the patented inventions. However, patent doesn't give any exploitation rights to patent holder. Many new inventions are the outcome of improvement done on prior one. For e.g, an inventor uses the patented keyboard designs and adds new features onto it and obtains patent on its improvised version. In future, he can build his new keyboard design only after getting approval from the patent holder of the original keyboard design, if the prior patent is still in force. On the other side, owner of the improved keyboard design can patent his invention and excludes its original patent holder from usage of its invention. Generally both natural person or an whole entity can apply for a patent. However, it is somehow necessitated in almost all nations, to give the name of inventor(s) in the public record and what is the procedure they have followed in acquiring the exclusive rights for inventions. To successfully enacting the patent laws within its national territorial, every country has their own patent offices. For requesting the patent license, a written application is needed to be file in the patent office within jurisdiction for granting the patent license for the particular geographical area over which its is required. The application contains a description of making and usefulness of the intended patent product. The written description filed by the applicant is known as the patent specification. It contains the specifications of figures, biological composition or computer code, as a reference to the subject matter of patent application. The specification provided is sometimes accustomed with the illustrative drawings of invention. In some nations, like the USA, applicant is required to detail the best and effective method of making and practicing the invention. In the end of the application, the patent application is required to mention about the claims. The procedure of granting patents and the rules abide on the patentee are different in every country as per their national laws and international treaties. Therefore, patents are

sometimes characterized as the territorial in nature. In many nations, certain areas such as business methods and mental work do not come under the purview of patent. Like the United States of America, covers the research work under patent head and it may be termed as infringement with the discovery of any new invention, which is headed towards by using the already patented invention. But Australian patent law rules out infringement exceptions for those who conduct research on the invention. Many nations have implemented their patent law which except its inventor exclude other people from usage, selling, manufacturing or importing the patented invention. Generally patent is enforceable in civil lawsuits. Like in USA, hearing for patent infringement case is undertaken in the United States federal court. Usually patent holder gets monetary compensation from any past patent infringement and seeks for injunction, which in turns prohibit the other party to involve in any infringement case in nearby future. In case of infringement, patent holder needs to establish that the infringer has actually undergone in practicing patented invention. One of the drawback from patent holder part in complete asserting of patent in civil cases, is the ability of accused infringer to challenge the validity of patent and its holder. There are innumerable examples in which patents have been declared invalid during the civil court litigation. The set of rules for patent legislation on the basis of which respective patent can be declared invalid, vary from one nation to another. For facilitating the efficient use of patent on the global map, the Patent Law Treaty or PLT has been signed in this direction by 53 nations and 1 intergovernmental organization-the European Patent Organization. The treaty was signed on 1st June 2000 in Geneva, Switzerland. Its purpose is to easier the official procedures required to be followed while obtaining the filling date for patent application, the form and content of application. But due to its restrictions to some of the formalities, it has confined only to a particular class group. Therefore, the term 'Substantial Patent Law Treaty'(SPLT) has come into effect which is used interchangeably with the PLT. Whereas the PLT is confined only to some formalities, the SPLT goes further in harmonizing substantive requirements of novelty, inventive step, utility, sufficient disclosure etc. Classification of Patent Application On the basis of filling the application in the office, patent application can be classified under following heads *National Patent Application : These are filed in the national patent office to obtain patent license from that country. One can directly file the application, or it may be from regional office or it can be an

international application under the Patent Corporation Treaty, after entering into the national boundary. *Regional Patent Application : Such applications have their effect in number of countries. The European Patent Office (EPO) grants patent which can be effective in few or all nations coming under the head ' European Patent Convention' (EPC). As one patent application allows access into the number of nations, it results into the curtailing of cost, which would otherwise be incurred in obtaining license separately in different nations. *International Patent Application: The Patent Corporation Treaty (PCT) is operated by the World Intellectual Property Organization (WIPO). The PCT allows applicant to file single patent application in only 1 language. Known as an international application, this enables in granting patent license in any of the nation comes under the PCT. The WIPO completes all the patent application formalities in a centralized manner. After filing of patent application, examination is done by an International Searching Authority (ISA), which in turns will generate International Search Report (ISR) along with a written opinion about patentability of invention. The ISA handed over ISR to the applicant after the 9 months of first filing of application and 16 months after priority date in case of subsequent filing. If the ISR is not in English, it is translated into English for publication purpose. The international application is required to be published after 18 months of filing date or priority date by the International Bureau (IB) of WIPO, situated in Geneva, Switzerland. Proceeding the patent application via PCT treaty allows patent license in large number of countries. Advantages of Patent *Patents assist in powering the research and development. Many corporations have huge budget set aside for extensive research and developments. Without the covering shell of patent, extensive spending of R&D would be less or go insignificant, which will limit the chances of technological growth. Such companies would hesitate in spending bulk amount on research activities, as any other third person can easily exploit their new developments. *With an accordance to the meaning of 'patent', it allows and encourages the holder to publicly disclose the innovations in public domain for societal needs. If patent holder will not get any legal protection, then they would tend to keep their invention as a secret, as any disclosure would amount to the loss of license holder rights. *Such companies which involve high fixed cost and low marginal cost, like computer processors software, pharmaceuticals, face high commercialization cost of testing ,

setting up of factory etc. Unless such companies do not have any protective shield for competing with marginal cost, they will hesitate in moving ahead. Patent allows them to purely concentrate on manufacturing process. *It allows inventor to maintain monopoly on the invention for a specified period of time. Generally a patent application must possessed of one or two claims, which are new, innovative and commercially viable. Trademark The trademark or trade mark, symbolized as the and , is the distinctive sign or indication which is used for signifying some kind of goods or/and services and is distinctively used across the business organization or by an individual for identifying and uniquely classifying the source or their products and/or services among consumers and making a distinction of its products or services from the other entities. One of the part of the intellectual property law, trademark signifies to the name, word, phrase, logo, image, design, symbol or combination of any or all of these elements. The trademark grants rights to the owner which in turns may take or can commence legal proceedings in case of infringement of trademark. However registration is not compulsory in trademark. The owner of common law trademark can also file the suit but in case of the unregistered mark, the protection granted will only be confined only to that geographical area within which it has been used or in that area into which it is expected to be expand. Informally the term 'trademark' is used for distinguishing those characteristics or attributes which helps in identifying any individual. When the word 'trademark' is used in context of services rather than products, it may called service mark. When the trademark is used for describing the product or service, instead of making a distinction from the third parties then it is popularly called generalized trademark. As any sign which is attributed of doing the essential required functions of the trademark may be headed under the term 'trademark'. It may include various non-conventional signs like shapes(three dimensional trademarks), smells, sounds, moving images, taste, color and even texture. The extent to which these non conventional trade marks are recognized or even protected varies from one jurisdiction to another. Advantages of Trademarks The trademark owner is conferred upon the 'exclusionary rights' which says that the owner enjoys the right of using the registered trademark and can indicate it by using the symbols- and in relation of those goods and services for which the owner has registered the trademark. At the time of any infringement, the owner can take upon the

case in the court. Trademark provides the guarantee for the unchanged quality and helps in creating and advertising the products and services in public. International Trademark Laws Due to the increasing globalization of trading activities, it becomes necessary to integrate the trademark law and policy, nucleus of which must be constancy in its various activities. The following trademark laws have candidly enable the industrial market across the world to save their time and resources by allowing the centralized filing system and completion of various procedures related to it. Agreement on Trade-Related Aspects of Intellectual Property Rights: Administered by the World Trade Organization (WTO), the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is the international agreement which laid down the minimum standards for different parts of the intellectual property (IP) regulation. In the year 1994, the said agreement was negotiated at the end of the Uruguay round of the general agreement on tariffs and trade (GATT). The TRIPS encompasses of the various requirements which laws in different countries are required to abide for along with the specification of the procedures, remedies and disputes. In the Article 15(1) of TRIPS, 'sign', this has been used in part or form of the trademark in the trademark legislation of various jurisdiction in throughout the world. The Madrid system for the international registration of marks : The madrid system is seen as the pivotal international ystem for enabling the trademark registration in more than one jurisdiction. It offers the centrally administered system for achieving the trademark registrations in the jurisdiction of member nations by extending and facilitating the protection of the international registration obtained through the World Intellectual Property Organization. The international registration is said to be based on the application or registration which is acquired by the trademark applicant within its home jurisdiction. The foremost benefit derived from the madrid system is that it facilitates the trademark owner in obtaining trademark protection in multiple jurisdictions by filing the application only in 1 jurisdiction on the payment of one set of fees. This system allows the applicant to make amendments and complete registration process across all the jurisdictions by applying through the single administrative process. Moreover, it is easy to extend the international registration coverage to the other member jurisdictions at any given point of time. Trademark Law Treaty: The trademark law treaty aims to establish the system through which jurisdictions of member nations agree for standardizing the various procedural requirements of the registration process in connection to the trademark.

The Communal Trademark System: It is the super national trademark system which is prevalent in the European union. Trademark Laws in India The Indian trademark law defines the trademark as the signature, device, word, invented word, letter, numeral, brand, name written in the particular style, the shape of goods other than those for which the mark is intended to be used, or any combination thereof or the combination of colors etc. Except in certain cases, the trademark may also signified by the name of living or dead person. The trademark helps in making an identification of the goods and services along with its origin. It helps the trademark holder to advertise its products or/and services and also creates a good image in the mind of its final consumer but the trademark chosen should be capable of making a distinction between the goods or services of different people. Furthermore, it should not be deceptively identical to the existing ark of the other person and should not be such that which is restricted in the act. In India, any person who claims to be the trademark proprietor can apply for the trademark registration of the goods and services. For registration, the application can be filed in the Trademark Office, in whose jurisdiction the principal place of your business falls. If the principal office is not situated in India then the applicant can file the application in the trademark office in whose jurisdiction the lawyer appointed by the applicant is situated. In case it is the company which is yet to be formed then anyone can apply for the registration on the behalf of the company. It is prudent to make a proper search in the trademark office for ensuring that your registration may not be canceled due to the similarity of the proposed mark to the already existing one. In India, the registration term of the trademark is 10 years whichcanberenewedfurtherfornext10yearsbypayingtherenewalfees. In India, only the trademark proprietor whose trademark has been registered can put the symbol into use. If any use the symbol without the registration of mark he/she will be held under illegal use of the trademark. If anyone is engage in selling or providing services by using the false trademark he/she will be entitle to the penalty of minimum 6 months which may extend to maximum of 3 years and with the fine of not less than Rs.50,000 and which can extend to Rs.2,00,000.

PART A 1.who is consumer?

2. what is meant by consumer protection? 3.what is mean by cyber Law? 4. what is meant by Intellectual Property Right? 5. What is Pattent? 6. what is copy right? 7. what is Trade marek? PART B 1. what are all the rights of a consumer? 2. Explain the Procedure for the consumer grievences redressal. 3. Explain the types of consumer redressal Machinaries and forums. 4. What is Intellectual Property Right? Explain its types 5.What is cyber crime? Explain the various cyber crimes