Legal Framework and Business

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JNU, JaipurFirst Edition 2013

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Index

ContentI. ...................................................................... II

Case StudyII. .............................................................. 161

BibliographyIII. ........................................................ 166

Self Assessment AnswersIV. ..................................... 169

Book at a Glance

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Contents

Chapter I ....................................................................................................................................................... 1Company Law .............................................................................................................................................. 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction of Company and It’s Basic Concept .................................................................................... 21.2 Distinct Features of a Company ............................................................................................................... 21.3 Distinction Between Company and Partnership ...................................................................................... 31.4 Illegal Association .................................................................................................................................... 31.5 Types of Companies ................................................................................................................................. 4 1.5.1 Primary Produce ...................................................................................................................... 5 1.5.2 Forms of Business Organisation .............................................................................................. 5 1.5.2.1 Sole Proprietorship .................................................................................................... 6 1.5.2.2 Joint Hindu Family Firm ........................................................................................... 6 1.5.2.3 Partnership Form of Organisation ............................................................................. 71.6 Controls and Influence ............................................................................................................................. 9 1.6.1 Beginning of Money Lending .................................................................................................. 91.7 Formation, Incorporation and Commencement of Business of a Company .......................................... 10 1.7.1 Promotion Stage ..................................................................................................................... 10 1.7.2 Incorporation Stage ................................................................................................................ 10 1.7.3 Raising Capital ....................................................................................................................... 10 1.7.4 Commencement of Business .................................................................................................. 101.8 Memorandum and Articles of Association ............................................................................................. 10 1.8.1 Memorandum of Association ..................................................................................................11 1.8.1.1 Name Clause ............................................................................................................11 1.8.1.2 Registered Office Clause ..........................................................................................11 1.8.1.3 Object Clause ...........................................................................................................11 1.8.1.4 Liability Clause ........................................................................................................11 1.8.1.5 Capital Clause ..........................................................................................................111.9 Doctrine of Ultra-vires Transaction ........................................................................................................11 1.9.1 Consequences of an Ultra-vires Transaction ..........................................................................11 1.9.2 Exceptions ...............................................................................................................................111.10 Articles of Association ......................................................................................................................... 121.11 Share Capital ........................................................................................................................................ 121.12 Meetings ............................................................................................................................................... 12 1.12.1 Statutory Meeting ................................................................................................................ 12 1.12.2 Annual General Meeting ...................................................................................................... 13 1.12.2.1 Other Statutory Requirements ............................................................................... 13 1.12.3 Minutes of Meeting .............................................................................................................. 13Summary ..................................................................................................................................................... 14References ................................................................................................................................................... 14Recommended Reading ............................................................................................................................. 14Self Assessment ........................................................................................................................................... 15

Chapter II ................................................................................................................................................... 17Indian Contract Act, 1872 ......................................................................................................................... 17Aim .............................................................................................................................................................. 17Objectives .................................................................................................................................................... 17Learning outcome ........................................................................................................................................ 172.1 Introduction ............................................................................................................................................ 18 2.1.1 Definition ............................................................................................................................... 182.2 Contracts ................................................................................................................................................ 18 2.2.1 Essential Elements of a Valid Contract .................................................................................. 18

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2.2.2 Types of Contract ................................................................................................................... 19 2.2.2.1 Vailidty .................................................................................................................... 19 2.2.2.2 Formation ................................................................................................................ 20 2.2.2.3 Performance ............................................................................................................ 202.3 Communication, Acceptance and Revocation of Proposals .................................................................. 20 2.3.1 Communication When Complete ........................................................................................... 20 2.3.2 Revocation of Proposals and Acceptances ............................................................................. 21 2.3.3 Revocation - How Made ........................................................................................................ 21 2.3.4 Acceptance Must Be Absolute ............................................................................................... 21 2.3.5 Acceptance by Performing Conditions or Receiving Consideration ..................................... 21 2.3.6 Promises, Express and Implied .............................................................................................. 212.4 Contracts, Voidable Contracts and Void Agreements............................................................................. 212.5 Consent .................................................................................................................................................. 22 2.5.1 Free Consent .......................................................................................................................... 22 2.5.1.1 Coercion (under section-15) .................................................................................... 22 2.5.1.2 Undue Influence (under section-16) ........................................................................ 23 2.5.2 Fraud (under Section- 17) ...................................................................................................... 23 2.5.3 Misrepresentation and Fraud (under Section- 18) ................................................................. 23 2.5.4 Mistake (under Section-20, 21 and 22) .................................................................................. 232.6 Agreement Without Consideration ......................................................................................................... 242.7 Agreement in Restraint of Marriage Void .............................................................................................. 242.8 Agreement in Restraint of Trade Void .................................................................................................... 242.9 Agreements in restraint of legal proceedings void ................................................................................. 252.10 Agreements Void for Uncertainty ........................................................................................................ 252.11 Agreements by Way of Wager Void ..................................................................................................... 252.12 Contingent Contract ............................................................................................................................. 26 2.12.1 Rules of Contingent Contract .............................................................................................. 262.13 Quasi Contract ..................................................................................................................................... 272.14 Performance of Contracts .................................................................................................................... 282.15 The Consequences of Breach of Contract ............................................................................................ 302.16 Compensation for Breach of Contract where Penalty Stipulated for various cases ............................ 302.17 Indemnity and Guarantee ..................................................................................................................... 312.18 "Bailment", "bailor" and "bailee" ........................................................................................................ 332.19 Agency, Appointment and Authority of Agents ................................................................................... 36Summary ..................................................................................................................................................... 42References ................................................................................................................................................... 42Recommended Reading ............................................................................................................................. 42Self Assessment ........................................................................................................................................... 43

Chapter III .................................................................................................................................................. 45Sales of Goods Act, 1930 ............................................................................................................................ 45Aim .............................................................................................................................................................. 45Objectives .................................................................................................................................................... 45Learning outcome ........................................................................................................................................ 453.1 Sale of Goods Act-1930 ......................................................................................................................... 463.2 Definition of the Sale of Goods Act-1930 ............................................................................................. 463.3 Formation of the Contract ..................................................................................................................... 463.4 Effects of the Contract ........................................................................................................................... 493.5 Performance of the Contract .................................................................................................................. 513.6 Rights of Unpaid Seller Against the Goods ........................................................................................... 533.7 Suits for Breach of the Contract ............................................................................................................. 553.8 Miscellaneous ........................................................................................................................................ 56Summary ..................................................................................................................................................... 58References ................................................................................................................................................... 58Recommended Reading ............................................................................................................................. 58Self Assessment ........................................................................................................................................... 59

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Chapter IV .................................................................................................................................................. 61The Negotiable Instruments Act, 1881 ..................................................................................................... 61Aim .............................................................................................................................................................. 61Objectives .................................................................................................................................................... 61Learning outcome ........................................................................................................................................ 614.1 Introduction ............................................................................................................................................ 624.2 Short Title............................................................................................................................................... 624.3 Repeal of Enactments ............................................................................................................................ 624.4 Notes, Bills and Cheques ....................................................................................................................... 62 4.4.1 Parties to Notes, Bills and Cheques ....................................................................................... 64 4.4.2 Negotiation ............................................................................................................................. 66 4.4.3 Presentment ............................................................................................................................ 67 4.4.4 Discharge from Liability on Notes, Bills and Cheques ......................................................... 69 4.4.5 Notice of Dishonor ................................................................................................................. 71 4.4.6 Noting and protest .................................................................................................................. 72 4.4.7 Reasonable Time .................................................................................................................... 72 4.4.8 Acceptance and payment for honor and reference in case of need ........................................ 73 4.4.9 Special Rules of Evidence ..................................................................................................... 74 4.4.10 Crossed Cheques .................................................................................................................. 75 4.4.11 Bills in Sets .......................................................................................................................... 75 4.4.12 International Law ................................................................................................................ 76 4.4.13 Penalties in Case of Dishonor of Certain cheque for Insufficiency of Funds in the Accounts ............................................................................... 76Summary ..................................................................................................................................................... 78References ................................................................................................................................................... 78Recommended Reading ............................................................................................................................. 78Self Assessment ........................................................................................................................................... 79

Chapter V .................................................................................................................................................... 81The Consumer Protection Act, 1986 ......................................................................................................... 81Aim .............................................................................................................................................................. 81Objectives .................................................................................................................................................... 81Learning outcome ........................................................................................................................................ 815.1 The Consumer Protection Act, 1986 ...................................................................................................... 82 5.1.1 Short Title, Extent, Commencement and Application ........................................................... 82 5.1.2 Definition ............................................................................................................................... 825.2 The Central Consumer Protection Council ............................................................................................ 855.3 Procedure for Meetings of the Central Council ..................................................................................... 85 5.3.1 Objects of the Central Council ............................................................................................... 85 5.3.1.1 The State Consumer Protection Councils ................................................................ 85 5.3.1.2 The District Consumer Protection Council ............................................................. 86 5.3.1.3 Establishment of Consumer Disputes Redressal Agencies ..................................... 86 5.3.1.4 Jurisdiction of the District Forum ........................................................................... 86 5.3.1.5 Manner in Which Complaint Shall Be Made .......................................................... 86 5.3.2 Procedure on Receipt of Complaint ....................................................................................... 87 5.3.2.1 Appeal ..................................................................................................................... 885.4 Composition of the State Commission .................................................................................................. 88 5.4.1 Jurisdiction of the State Commission .................................................................................... 89 5.4.1.1 Transfer of Cases ..................................................................................................... 89 5.4.1.2 Hearing of Appeal ................................................................................................... 89 5.4.1.3 Composition of the National Commission .............................................................. 895.5 Jurisdiction of the National Commission ............................................................................................... 905.6 Power of and Procedure Applicable to the National Commission ......................................................... 90 5.6.1 Transfer of Cases ................................................................................................................... 90 5.6.2 Appeal .................................................................................................................................... 90

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5.7 Limitation Period ................................................................................................................................... 905.8 Finality of Orders ................................................................................................................................... 91 5.8.1 Enforcement of orders of the District Forum, the

State Commission or the National Commission .................................................................... 915.9 Dismissal of Frivolous or Vexatious Complaints ................................................................................... 915.10 Penalties ............................................................................................................................................... 915.11 Appeal Against Order Passed Under Section 27 .................................................................................. 915.12 Protection of Action Taken in Good Faith ........................................................................................... 925.13 Service of Notice and Others ............................................................................................................... 925.14 Vacancies or Defects in Appointment Not to Invalidate Orders .......................................................... 925.15 Power of the National Commission to Make Regulations ................................................................... 92 5.15.1 Power to Make Rules ........................................................................................................... 935.16 Rules and Rgulations to be Laid Before Each House of Parliament ................................................... 93Summary ..................................................................................................................................................... 94References ................................................................................................................................................... 94Recommended Reading ............................................................................................................................. 94Self Assessment ........................................................................................................................................... 95

Chapter VI .................................................................................................................................................. 97The Information Technology Act 2000 ..................................................................................................... 97Aim .............................................................................................................................................................. 97Objectives .................................................................................................................................................... 97Learning outcome ........................................................................................................................................ 976.1 Introduction ............................................................................................................................................ 986.2 Digital Signature .................................................................................................................................... 986.3 What Does the IT Act Enable? ............................................................................................................... 996.4 Bar of Limitation .................................................................................................................................. 100 6.4.1 Computation of Period of Limitation ................................................................................... 100 6.4.2 Effect of Fraud or Mistake ................................................................................................... 101 6.4.3 Effect of Acknowledgment in Writing ................................................................................. 101 6.4.4 Continuing Breaches and Torts ............................................................................................ 101 6.4.5 Law of Limitation ................................................................................................................ 101 6.4.6 Limitation in Criminal Matters ............................................................................................ 101Summary ................................................................................................................................................... 102References ................................................................................................................................................. 102Recommended Reading ........................................................................................................................... 102Self Assessment ......................................................................................................................................... 103

Chapter VII .............................................................................................................................................. 105Special Contracts ..................................................................................................................................... 105Aim ............................................................................................................................................................ 105Objectives .................................................................................................................................................. 105Learning outcome ...................................................................................................................................... 1057.1 Quasi Contracts .................................................................................................................................... 106 7.1.1 Types of Quasi Contracts ..................................................................................................... 106 7.1.2 Difference between Contracts and Quasi Contracts ............................................................ 1087.2 Contract of Indemnity (Sec. 124) ......................................................................................................... 108 7.2.1 Parties to Indemnity Contract .............................................................................................. 109 7.2.2 Essentials of Contract of Indemnity ..................................................................................... 109 7.2.3 Rights of Indemnity Holder When Sued .............................................................................. 1097.3 Contract of Guarantee (Sec 126) ...........................................................................................................110 7.3.1 Essentials of a Contract of Guarantee ...................................................................................110 7.3.2 Difference between Indemnity and Guarantee .....................................................................111 7.3.3 Kinds of Guarantee ...............................................................................................................112 7.3.4 Rights of Surety ....................................................................................................................113

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7.3.5 Rights of a Creditor Against Surety ......................................................................................114 7.3.6 Discharge of Surety...............................................................................................................1147.4 Bailment Contract .................................................................................................................................115 7.4.1 Duties of Bailor .....................................................................................................................117 7.4.2 Duties of Bailee ....................................................................................................................1177.5 Rights of the Bailor ..............................................................................................................................118 7.5.1 Rights of the Bialee ...............................................................................................................119 7.5.2 Rights of Bailor and Bailee against Wrongdoers ................................................................. 120 7.5.3 Types of Lien ....................................................................................................................... 120 7.5.4 Finder of Lost Goods ........................................................................................................... 122 7.5.5 Termination of Bailment ...................................................................................................... 1237.6 Contract of Pledge ................................................................................................................................ 123 7.6.1 Advantages of Pledge ........................................................................................................... 124 7.6.2 Difference between Pledge and Bailment ............................................................................ 124 7.6.3 Rights and Duties of Pawnee ............................................................................................... 124 7.6.4 Rights and Duties of Pawnor ............................................................................................... 125 7.6.5 Pledge by Non-owners ......................................................................................................... 125Summary ................................................................................................................................................... 127References ................................................................................................................................................. 127Recommended Reading ........................................................................................................................... 127Self Assessment ......................................................................................................................................... 128

Chapter VIII ............................................................................................................................................. 130The Patents Act, 1970 .............................................................................................................................. 130Aim ............................................................................................................................................................ 130Objectives ................................................................................................................................................. 130Learning outcome ...................................................................................................................................... 1308.1 Introduction .......................................................................................................................................... 131 8.1.1 Meaning of “Property’ and ‘Intellectual Property’ .............................................................. 131 8.1.2 Intellectual Property Rights ................................................................................................ 1328.2 The Patents Act, 1970 .......................................................................................................................... 133 8.2.1 Application of Patent ........................................................................................................... 134 8.2.2 Grant of Patents and Rights Conferred Thereby .................................................................. 1368.3 Patents of Addition [Section 54] .......................................................................................................... 140 8.3.1 Term of Patents of addition [Section 55] ............................................................................. 140 8.3.2 Validity of Patents of Addition [Section 56] ........................................................................ 141 8.3.3 Advantages of Patents .......................................................................................................... 1418.4 The Copyright Act, 1957 ...................................................................................................................... 142 8.4.1 Meaning of ‘ Copyright’ ...................................................................................................... 142 8.4.2 Works in which Copyright Subsists and Works in which

Copyright Does not Subsist[Section 13] .............................................................................. 142 8.4.3 Ownership of Copyright and the Rights of the Owner [Section 17] ................................... 145 8.4.4 Term of Copyright ................................................................................................................ 146 8.4.5 Registration of Copyright .................................................................................................... 148 8.4.6 Other Provisions of the Copyright Act of 1957 ................................................................... 149 8.4.7 Nature and Features of Copyright Act ................................................................................. 149 8.4.8 Difference Between Patent and Copyright Act ................................................................... 1508.5 The Design Act, 2000........................................................................................................................... 151 8.5.1 Definition and Meaning ....................................................................................................... 152 8.5.2 Nature and Feature of Design .............................................................................................. 152 8.5.3 Prohibition of Registration of certain Designs under the Act .............................................. 153 8.5.4 Registration of Design ........................................................................................................ 153 8.5.5 Powers and Functions of Controller .................................................................................... 1558.6 The Trade Mark Act, 1999 ................................................................................................................... 156 8.6.1 Meaning of ‘Trade Mark’ ..................................................................................................... 157

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8.6.2 Some important Aspects of the Trade Marks Act of 1999 ................................................... 157Summary ................................................................................................................................................... 158References ................................................................................................................................................ 158Recommended Reading .......................................................................................................................... 158Self Assessment ......................................................................................................................................... 159

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Chapter I

Company Law

Aim

The aim of this chapter is to:

explain distinct features of company•

explain the various basic concepts of company•

classify various forms of companies•

Objectives

The objectives of this chapter are to:

enlist the different features of the company•

enlist various types of companies•

explain the different stages involved in the formation of a company•

Learning outcome

After learning this chapter, you will be able to:

distinguish between company and partnership•

understand different forms of business organisation•

describe formation, incorporation and commencement of business of a company•

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1.1 Introduction of Company and It’s Basic ConceptCompany is an English word, derived from an Old French military term, compaignie (meaning a "body of soldiers"). Thistermwasfirstrecordedintheyear1150),originallytakenfromthelateLatinword"companio"companion(meaning one who eats bread with you).Theusageoftheword'company'tomean'businessassociation'wasrecordedintheyear1553forthefirsttimeandwas later abbreviated to "co." from 1769 onwards.A company is a form of business organisation. It is a collection of individuals and physical assets with a common focusandanaimofgainingprofits.Thiscollectionexistsinlawandtherefore,acompanyisconsidereda"LegalPerson".Acompanycanbedefinedasan"artificialperson",invisible,intangible,createdbyLaw,withadiscretelegalentity,perpetual succession and a common seal. It is not affected by the death, insanity or insolvency of an individual member.IndianCompanyLaw1956’ssection3(1)(i)definedcompanyinthefollowingmanner,“Companyistheorganisation which is formed and registered under this law or any previous law”.

1.2 Distinct Features of a CompanyThe features of a company are discussed below:Separate legal entityIt is the feature of a company that, a company is not just an association of persons, but it has separate legal entity. On incorporation under law, a company is different and distinct from its members in law. This feature was accepted inSalomonvsSalomonforthefirsttimeandCompanyLtd.Salomonwasthedealerandmanufacturerofleatherboot and shoe.

Separate propertyThe property of company is different from its members. It can purchase or sell property without the permission of the shareholders. In other words, assets of the company are not the assets of members. Members do not have the ownership over the assets that the company possesses. Company need not inform its member or the shareholder during the sell or purchase of the assets. Members or the shareholders do not have the rights over the property of the company.

Limited liabilityLimited liability is also another very important feature of a company. It is the reason that a large number of investors invest in limited liability companies. It is the liability of the company and not the liability of its members to repay. Member’s liability is only up to the purchased value of the shares.

Perpetual successionThe life of a company is very stable as compared to a human being’s life. There is no effect of changing, death or insolvency of respected member on the company. Its existence is not affected by member’s existence. Shares can easily be transferred from one member to another, so liquidation of a company is only possible by law.

Common sealAcompanycannotsignonanycontractasitisanartificialpersonandthereforeitworkswithacommonseal.Thiscommonsealisanofficialsignatureofthecompany,thenameofthecompanymustbeengravedonthisseal.Anydocument not bearing the seal of the company may not be accepted to be authentic and may not have any legal force.

Right to Sue: Company can sue other parties like natural person for protecting its assets and properties. Other persons can also charge on the company.

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1.3 Distinction Between Company and PartnershipThe comparative differentiation between a company and a partnership is given below:

Company Partnership

A Company is an association of persons who havecometogetherforaspecificpurpose.The Company has a separate legal entity as soon as it is incorporated under law.

APartnershipfirmissumtotalofpersonswhohavecometogethertosharetheprofitsofthebusiness carried on by the partners. It does not have a separate legal entity

In case of Company the assets and liability belong to the company and not to its members.

Assetsandliabilityofthefirmbelongstothepartners and they are collectively accountable for it.

Shares may be transferred without the permission of the other members.

A partner cannot transfer his shares without the consent of all the other partners.

A public company may have as many members as it desires, subject to minimum of 7 members. A private company cannot have more than 50 members, but need to have minimum 2 members.

In case of partnership, the number of members must not exceed 20 in case of banking business and 10 in other business. There must be minimum 2memberstoformapartnershipfirm.

Decision of majority prevails. In case of partnership, 100% consensus is required for any decision.

On the death of any shareholder, the company's existence does not get terminated.

On the death of any partner, the partnership is dissolved unless there is a provision to the contrary.

Table 1.1 Difference between a company and a partnership

1.4 Illegal AssociationUnder the Companies Act, 1956, not more than 10 persons can come together for carrying on any banking business and not more than 20 persons can come together for carrying on any other of business, unless the association is registered under the Companies Act or any other Indian Law. Any association which does not comply with the above norms is an illegal association. Therefore, a partnership of more than 10 or 20 members, as the case may be, is an illegal association unless it is registered under the Companies Act or any other Indian Law. However, this provision is not applicable in the following cases:

A joint hindu family business comprising of family members only•But where two or more joint hindu families come together for business through partnership, the total number of •members cannot exceed 10 or 20 as the case may be, but in computing the number of persons, minor members of such family are excluded.Anyassociationof charitable, religious, scientific trust or organisation,which is not formedwith a profit•motiveForeign based companies•

When the number of members exceeds the prescribed maximum, members must register it under the Companies Act or any other Indian Law.

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Consequences of Non-registrationAn illegal association is not recognised by law.•An illegal association cannot enter into any contract, cannot sue any members or any outsider, cannot be sued •by any members or outsiders for any of its debts.The members of the illegal association are personally for the obligations of the illegal association.•AmembermaybeliabletoafineofRs.1000.•Any member of an illegal association cannot sue another member in respect of any matter connected with the •association.

1.5 Types of CompaniesCompanies have been categorised into the following types:

Chartered companies: These include those companies which are incorporated under a special charter by the king or sovereign, such as East Indian Company. Such companies are rarely formed now-a-days as trading companies.

Statutory companies: These companies are formed by special acts of Legislatures or Parliament. e.g. the Reserve Bank of India, the Industrial Finance Corporation, Damodar Valley Corporation.

Registered companies: These companies, which are incorporate under the Companies Act, 1956 or were registered under the previous Companies Act.

Limited companies: In these companies, the liability of each member is limited to the extent of a face value of shares held by him. Suppose A takes a share of Rs 10, he remains liable to the extent of that amount. As soon as that amount in paid, he is no more liable.

Unlimited companies: The liability of members of an unlimited company is unlimited. Therefore, the liability of thesemembersissimilartothatoftheliabilityofthepartnersinapartnershipfirm

Guarantee companies: The liability of the members of these companies is limited to the amount they have undertaken tocontributetowardsthecompanyassetsintheeventoftheirwoundup.Thisguaranteedamountislimitedtofixedsumwhichisspecifiedinthememorandum.Chambersofcommercetradeassociationsandsportsclubsareusualguaranteeconcerns.Theobjectiveofthesecompaniesisnottomakeprofitanddistributedividend.

Unlimited companies: These are nothing other than the large partnerships registered under the Companies Act and the members just like partners have unlimited liabilities and they both share contribution, wherein their property are at stake when the company is to be wound up. Such companies are rare these days.

Private companies: A private company means a company which by its articles do the following activities:restricts the right to transfer its shares, if any•limitsthenumberofitsmemberstofifty,excludingpastorpresentemployeesofthecompanywhoarealso•members of the companyprohibits any invitation to the public to subscribe for any shares in our debenturesof the company•

Public companies: Public companies are those companies which are not private companies. All the three restrictions mentioned above are not imposed on such companies.

Government companies: Government companies refer to companies where not less than 51% of the paid up share capital is held by the Central Government or State Government or partly by the Central Government and partly by one or more State Government(s) and also includes a company which is a subsidiary of a Government company.Government companies are also governed by the provisions of the Companies Act. However, the Central Government may direct that certain provisions of the Companies Act, but shall not apply or shall apply only with a few exceptions,

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modificationsandadaptationsasspecifiedtosuchgovernmentcompanies.

Foreign companies: Foreign company means a company incorporated in a country outside India under the law of the other country and has established a place of business in India.

Holding and subsidiary companies: A subsidiary company is controlled by another company with respect to the composition of its Board of Directors or its share capital. A holding company refers to a company controlling one or more subsidiary companies.

The new concept of producer companies: Till today, the Companies Act, 1956 (the Act), recognised only three types of companies, namely:

companies limited by shares•public limited companies �private limited companies �

companies limited by guarantees•unlimited companies•With the enforcement of the Companies (Amendment) Act 2002, (1 of 2003) on 6th of February, a fourth •category of producer companies,' found a place in the Act. For this, a new Part IXA, divided into 12 chapters has been included in the Act. This comprises of 46 sections, interestingly numbered as 581A to 581Z and 581ZA to581ZT.However,thesectionthatdefinesthevarioustypesofcompaniesthatcanbeincorporatedundertheAct remains unaltered.The new concept of producer companies is based on the recommendations of an expert committee led by the •noted economist, Y. K. Alagh. The committee was asked to:

frame a legislation that would enable incorporation of cooperatives as companies and conversion of existing �cooperatives into companiesensure that the proposed legislation accommodated the unique elements of cooperative business with a �regulatory framework similar to that of companies

The new type is termed as ̀ producer company', to indicate that only certain categories of persons can participate •in the ownership of such companies. The members necessarily have to be `primary producers,' that is, persons engaged in an activity connected with or related to primary produce.

1.5.1 Primary Produce

In terms of the Act, it is a produce of farmers arising from agriculture including animal husbandry, horticulture, •floriculture,pisciculture,viticulture,forestry,forestproducts,re-vegetation,beeraisingandfarmingplantationproducts; produce of persons engaged in handloom, handicraft and other cottage industries; by-products of such products; and products arising out of ancillary industries.The 46 new sections respectively deal with incorporation of producer companies i.e. their management, general •meetings,sharecapitalandmembersrights,finance,accountsandaudit,loantomembersandinvestments,penalties, amalgamation, merger or division, resolution of disputes and reconversion of producer company to inter-State cooperative society.

1.5.2 Forms of Business OrganisationBusinessconcernsareestablishedwiththeobjectiveofmakingprofits.Theycanbeestablishedeitherbyonepersonor by a group of persons in the private sector and either by the government or other public bodies in the public sector. A business started by only one person is called Sole Proprietorship. The business started by a group of persons can be either a Joint Hindu Family or Partnership or Joint Stock Company or a Co-operative form of organisation. Thus, there are various forms of business organisation which are as follows:

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1.5.2 .1 Sole ProprietorshipA sole proprietorship or one man’s business is a form of business organisation owned and managed by a single person.He/sheisentitledtoreceivealltheprofitsandbearsallriskofownership.

FeaturesThe business is owned and controlled by only one person.•Theriskisbornebyasinglepersonandhence,hederivesthetotalbenefit.•The liability of the business owner is unlimited, which means his/her personal assets are also liable (to be •attached) for the payment of the liabilities of his/her business.The business firm has no separate legal entity apart from that of the proprietor, so the business lacks•perpetuity.To set up sole proprietorship, no legal formalities are necessary, but there may be legal restrictions on setting •up any particular type of business.Theproprietorhascompletefreedomofactionandcantakedecisionsrelatedtohisfirm.Theproprietormay•take the help of family members involved in the business.

AdvantagesEase of formation: As no legal formalities are required to be observed.•Motivation:Asallprofitsbelongtotheowner,theproprietorwilltakepersonalinterestinthebusiness.•Freedom of action: There is no one to interfere with the authority of the proprietor. This freedom promotes •initiative and self-reliance.Quick decision: No need of consultation or discussion with anybody.•Flexibility: Can adapt to changing needs with comparative ease.•Personal touch: The owner comes into close contact with customers as he himself manages the business. This •helps him to earn goodwill.Business secrecy: Maintaining business secrets is very important in today’s competitive world.•Social utility: Encourages independent living and prevents concentration of economic power.•

DisadvantagesLimited resources: One man’s ability to gather capital will always be limited.•Limited managerial ability•Unlimited liability: Proprietor will be discouraged to expand his business even when there are good prospects •for earning more than what he has been doing for fear of losing his personal property.Lack of continuity: Uncertain future is another limitation of this business type. If the sole proprietor dies, his •business may come to an end.No economies of large scale: as the scale of operations is small, the owner cannot secure the economies and •large scale buying and selling, which may raise the cost of production

1.5.2.2 Joint Hindu Family FirmThe Joint Hindu Family, also known as Hindu Undivided Family (HUF), is a non-corporate form of business organisation which belongs to a Joint Hindu Family. It comes into existence by the operations of law and not out of contract.

FeaturesSuch a business is generally managed by the father or some other senior member within the family, called the •Karta or the Manager.Except the Karta, no other family member has any right of participation in the management of a Joint Hindu •Familyfirm.

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The other members of the family cannot question the authority of the Karta and their only remedy is to get the •family dissolved by mutual agreement.If the Karta has misused the funds of the business, he has to compensate the other co-partners to the extent of •their share in the joint property of the family.For managing the business, the Karta has the power to borrow funds, but the other co-partners are liable only •to the extent of their share in the business. In other words, the authority is limited.The death of any family member will not dissolve the business of the family.•Dissolution of the Joint Hindu Family can take place only though mutual agreement.•

AdvantagesStability: The existence of the HUF does not come to an end with the death of any co-partner, hence there is •stability.Knowledgeandexperience:There isascope foryoungermembersof the family toget thebenefitsof the•knowledge and experience of the elder members of the family.No interference: The Karta has full freedom to take decisions without any interference by any member of the •family.Maximum interest: As the Karta’s liability is unlimited, he takes maximum interest in running the business.•Specialisation:By assigningwork to themembers as per their knowledge and experience, the benefits of•specialisation and division of work may be secured.Discipline:Thefirmprovidesanopportunitytoitsmemberstodevelopthevirtuesofdiscipline,self-sacrifice•and co-operation.Credit Worthiness: This kind of business has more credit worthiness as compared to sole proprietorship.•

DisadvantagesNoencouragement:Asthebenefitofhardworkofsomemembersissharedbyallthemembersofthefamily,•there is no encouragement to work hard.Lazyandinactive:TheKartatakestheresponsibilitytomanagethefirm.Thismayresultintheothermembers•becoming lazy.Members initiative: The Karta alone has the entire control over the business and neither of the other members •caninterferewiththemanagementofthefirm.Thismayhampermembersinitiativeatafewinstances.Duration: The life of the business is shortened if family quarrels take precedence over business interest.•Abuse of freedom: The Karta has the scope to misuse the freedom in managing the business for his/her personal •benefit.

1.5.2.3 Partnership Form of OrganisationGenerally,whenaproprietorfindsitdifficulttohandletheproblemsofexpansion,he/shethinksofinvolvingapartner. In other words, once a business grows beyond the capacity of a sole proprietorship and or a joint hindu family, it becomes unarguably necessary to form partnership. It means that partnership grows out of the limitations ofone-manbusinessintermsoflimitedfinancialresources,limitedmanagerialabilityandunlimitedrisk.Partnershiprepresents the second stage in the evolution of ownership forms.

FeaturesThe following features are needed to be understood:

Simple procedure of formation: The formation of partnership does not involve any complicated legal formalities. •By an oral or written agreement, a partnership can be created. Even the registration of the agreement is not compulsory.Capital: The capital of a partnership is contributed by the partners but it is not necessary that all the partners •should contribute equally. Some may become partners without contributing any capital. This happens when

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suchpartnershavespecialskills,abilitiesorexperience.Thepartnershipfirmcanalsoraiseadditionalfundsbyborrowing from banks and others.Control: The control is exercised jointly by all the partners. No major decision can be taken without the consent •ofallpartners.However,insomefirms,thereareafewpartnerswhodonottakeanactivepartintheconductof the business are called sleeping or dormant partners.Management:Everypartnerhasarighttotakepartinthemanagementofthefirm.Butgenerallythepartnership•dealmayprovidethatoneormorepartnerswilllookafterthemanagementoftheaffairsofthefirm.Sometimes,the deal may provide provisions for division of responsibilities among different partners depending upon their specialisation.Durationofpartnership:Thedurationofthepartnershipmaybefixedbythepartners.Apartnershipforafixed•durationiscalled“partnershipforafixedtermandwhenthefixedperiodisover,thepartnershipcomestoanend.UnlimitedLiability:Theliabilityofeachpartnerinrespectofthefirmisunlimited.Itisalsojoint.Therefore,•anyoneofthepartnercanbeaskedtoclearthefirm’sdebtsincasetheassetsofthefirmareinadequateforit.Noseparatelegalentity:Thepartnershipfirmhasnoindependentlegalexistenceapartfromthatofthepersons•who constitute it. Partnership is dissolved when any of the partners dies or retires. Thus, it lacks continuity.Restriction on transfer of share: A partner cannot transfer his/her share to an outsider without the consent of •other partners.

AdvantagesEase of formation: Partnership can be easily formed without expense and legal formalities. Even the registration •ofthefirmisnotcompulsory.Large resources: When compared to sole-proprietorship, the partnership will have larger resources. Hence, the •scale of operations can be increased if conditions warrant it.Better organisation of business: As the talent, experience, managerial ability and power of judgment of two or •more persons are combined in partnership, there is a scope for better business organsation.Greaterinterestinbusiness:Asthepartnersaretheownersofthebusinessandthebusinessprofitdependson•theefficiencywithwhichtheymanage.Theytakeasmuchinterestaspossibleinbusiness.Prompt decisions: As partners meet very often, they take decisions regarding business policies very promptly. •Thishelpsthefirmintakingadvantageofchangingbusinessconditions.Balance judgement: As partners possess different types of talent necessary for handling the problems of the •firm,thedecisionstakenjointlybythepartnersarelikelytobebalanced.Flexibility: Partnership is free from legal restrictions for changing the scope of its business. The line of business •can be changed at any time with the mutual consent of the partners. No legal formalities are involved in it.Diffusionofrisk:Thelossesofthefirmwillbesharedbyallthepartners.Hence,theshareoflossincaseof•each partner will be less than that sustained in sole proprietorship.Protection to minority interest: Important matters like change in the nature of business, unanimity among partners •is necessary hence, the minority interest is protected.Influenceofunlimitedliability:Theprincipleofunlimitedliabilityhelpsintwoways.theseare:•

first,thepartnerswillbecarefulintheirbusinessdealingsbecauseofthefearoftheirpersonalproperties �becoming liable under the principle of unlimited liability.secondly,ithelpsthefirminraisingloansforthebusinessasthefinancersareassuredoftherealisationof �loans advanced by them.

DisadvantagesGreat risk: As the liability is joint and several, any one of the partners can be made to pay all the debts of the •firm.Thisaffectshissharecapitalinthebusinessandhispersonalproperties.Lack of harmony: Some frictions, misunderstanding and lack of harmony among the partners may arise at any •time which may ultimately lead to the dissolution.

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Limited resources: Because of the legal celing on the maximum number of partners, there is a limit to the amount •of capital that can be raised.Tendency to play safe: Because of the principle of unlimited liability, the partners tend to play safe and pursue •unduly conservative policies.No legal entity: The partnership has no independent existence apart from that of the persons constituting it, i.e., •it is not a legal entity.Instability: The death, retirement or insolvency of a partner leads to the dissolution of the partnership. Further, •evenanyonepartnerifdissatisfiedwiththebusiness,canbringaboutthedissolutionofpartnership.Hencepartnership lacks continuity.Lackofpublicconfidence:Nolegalregulationsarefollowedatthetimeoftheformationofpartnershipand•also there is no publicity given to its affairs. Because of these reasons, a partnership may not enjoy public confidence.Lackofpublicconfidence:Nolegalregulationsarefollowedatthetimeoftheformationofpartnershipandno•publicitygiventoitsaffairs.Soapartnershipmaynotenjoypublicconfidence.

1.6 Controls and InfluenceThemostimportantinfluenceonthetypesofbusinessorganisationinIndiaistheorganisationofbankinginstitutionsinIndia.TheBankinginstitutionshavebeenstronglyinfluencedbysocial,politicalandculturalinfluences,thepoliticalinfluenceculminatinginthenationalisationofallthemajorbanksin1969.

1.6.1 Beginning of Money LendingHistorically however, the banker has been an indispensable pillar of Indian society. It might have been miring in thegoodolddays,whenself,sufficiencywasthelawoftheland.Moneylendinghasbeenatraditionalactivityforseveral centuries in India and recovery procedures have been strict. At times, recovery procedures have been harsh in the agricultural and rural sector in India. However in the present scenario, banks and moneylenders have to be licensed to carry on business in India and they are also regulated by the usury laws.

In India, most modern business organisations, right from a simple company to an imposing conglomerate, traditionally have had their genesis in the Hindu undivided business in most cases. Such businesses being closely held and fiercelyproud,havehesitatedtoapproachtheformalinstitutionsforcredit.Thisfactorhasencouragedsustainedofan informal system of disbursing credit in the form of the unregulated moneylender in India.

The above practice is still prevalent in the country. This has also encouraged the growth of co-operative banking institutions in India. The traditional antipathy amongst Indian business to approach banks may be attributed to the concept of usury or high rate of interest, which was widely prevalent in India. Most experts attribute usury to the state ofinsecurityinIndia,andtheriskinvolvedonaccountofthelowfinancialstatusoftheborrowers.ThisapproachhaspreventedIndianbusinessfromapproachingfinancialinstitutionsforreconstructionandleftbusinessownerstototteronthebrinkofinsolvencyandfinancialruin.

Although the practice of the indigenous banker is in fact dwindling each year as to make the customers adjust to the requirements of the modern banking conditions, it must be presumed that the private banker is not yet extinct. His activities have spread among various classes of small borrowers. Co-operative banking institutions are also playing an important role in reducing the role of the indigenous moneylender.

There are several banking opportunities available to enterprise in India. The above named institutions are operating various schemes of assistance to industrial units such as, Direct Assistance, Indirect Assistance. Another feature influencingthewayinwhichbusinessenterprisesoperate,hasbeentheentryoftheprivatebanks.Thisentryhasbeen led by the entry of the foreign banks such as the Bank of America, Hong Kong & Shanghai Bank, Deutsche Bank, Standard Chartered Bank, Citibank, etc. These banks have employed specialised techniques of risk evaluation andthemonitoringofthefinancialhealthoftheirclients.Theyhavebeenmaintainingentiredepartmentsforthesefeasibility studies and for monitoring domestic enterprises.

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1.7 Formation, Incorporation and Commencement of Business of a CompanyHavingstudieddifferenttypesofcompanies,itisnecessarytohaveadetaileddescriptionoftheformationorflotationof public and private companies in India. The following four steps are involved in formation of a company:

1.7.1 Promotion StageTo start with, a person or a group of persons conceive an idea for formation of a company. These people are called Promoters. Generally, these people are experts in the work of formation. They take decisions regarding the total amount of capital necessary to start with and run the business and also the different types of shares it should be divided into. A number of documents are prepared by them with the assistance from legal experts and Secretary for gettingtheCertificateofIncorporationfromtheRegistraroftheCompanies.

1.7.2 Incorporation StageAcompanyissaidtobeincorporatedwhenitreceivestheCertificateofincorporationfromtheRegistrarofcompanies.Forthispurpose,itisnecessarytofileanumberofdocumentsbythePromotersofthecompanywiththeRegistrar.Following are the documents:

Memorandum of Association•Articles of Association•List of persons who have consented to act as Directors•Consentofdirectorsundertakingtotakeupandpayforqualificationshares•Managing Agency or Secretaries and TresurersAgreement (if any)•

Alongwiththeabovedocuments,stampduty,registrationfeesandfilingfeesaretobepaidtotheregistrar,whoissatisfiedinallmatters.Fromthedateofincorporation,thecompanyissaidtohavebeenregisteredanditisdeemedto have come into existence legally.

1.7.3 Raising CapitalWhena company is incorporatedas apublic company, a copyof theprospectus isfiledwith theRegistrarofCompanies.Theprospectusisissuedtothepubliconaspecifieddate.Theprospectiveinvestorscangetthecopyofprospectusandanapplicationformfreeofchargefromthecompany’sbankersorfromtheregisteredoffice.Theprospectiveinvestorsarerequiredtosubmittheapplicationalongwiththeapplicationmoneytothespecifiedbankers by the company. The bankers will then forward all application to the company and the Directors will proceed toallotsharestotheapplicantsandsharecertificateswillbeissuedtotheminduecourse,onlyaftertheminimumsubscription amount is received,.

1.7.4 Commencement of BusinessApubliccompanycannotbeginitsbusinessevenafteritisincorporated,Itisrequiredtoobtaina‘CertificateofCommencementofBusiness’whichistobeissuedbytheRegistrarafterthefollowingdeclarationsarefiledwithhim by the company. The company is required to pay some prescribed fee:

Prospectus or statement in lieu of prospectus•Noticeofthesituationoftheregisteredofficeofthecompany•Declaration by the company that minimum subscription amount as per prospectus is collected•Declarationbythecompanythatthedirectorshavetakenupandpaidfortheirqualificationshares•declaration by the secretary or a director that all the legal requirements precedent to the commencement of •business have been complied with

1.8 Memorandum and Articles of AssociationMemorandum and Articles of Association are the two most important documents required during the formation of the company, they are explained in detail below:

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1.8.1 Memorandum of AssociationThefirststepintheformationofacompanyistoprepareadocumentcalledtheMemorandumofAssociation.Thisdocumentcontainstheconstitutionofthecompany.Itisusuallydividedintothefollowingfiveclauses:

1.8.1.1 Name ClauseThefirstclauseofthememorandumstatesthenameoftheproposedcompany.Thenameshouldnotbeundesirablein the opinion of the Central Government. Generally, a name is undesirable when it is identical with or closely resembles the name of another company. If the company is with “limited liability” the last word of the name should be limited and in case of private company, private limited (Pvt. Ltd.). This informs person contracting with the company that the liabilities of its member are limited. The Central Government may however, permit a company to drop the word ‘limited’ from its name if:

the company is formed for the promotion of commerce, art, religion, science, charity or any other useful •objectthe company is to apply its income for promoting its objects and prohibit the payment of dividends to its •members

The name of the company must be painted on the outside of every place wherever the company carries on business andprintedoneverybusinessdocumentandofficialletterofthecompany.

1.8.1.2 Registered Office ClauseThesecondclauseofmemorandumstatesthestateinwhichtheregisteredofficeofthecompanyshallbe(is)situated.Afterincorporation,theexactaddressoftheregisteredofficeshouldbesenttotheregistrar.

1.8.1.3 Object ClauseThisclauseisthemostimportantclauseofthecompany.Itspecifiestheactivitiesthatacompanycancarryoutanddifferentiates those activities it cannot carry out.

1.8.1.4 Liability ClauseThe fourth clause has to state the nature of liability that the members incur. The clause will state whether the liability ofthemembersshallbelimited,andifso,whetherlimitedbysharesorbyguaranteeisalsotobeconfirmed.

1.8.1.5 Capital ClauseThe last clause states the amount of capital with which the company is proposed to be registered. it also states the kinds , number and value of shares into which the capital is to be divided.

1.9 Doctrine of Ultra-vires TransactionAnytransactionwhichisoutsidethescopeofthepowersspecifiedintheobjectivesclauseoftheMAandisnotreasonable incidentally or necessary to the attainment of objectives is ultra-vires of the company and therefore void. No rights and liabilities arise out of such transactions on the part of the company and it is a null activity even if every member agrees to it.

1.9.1 Consequences of an Ultra-vires TransactionThe consequences of an ultra-vires transaction are given below:

The company cannot sue any person for enforcement of any of its rights.•No person can sue the company for enforcement of its rights.•The directors of the company may be held personally liable to outsiders for an ultra vires.•

1.9.2 ExceptionsHowever, the doctrine of ultra-vires does not apply in the following cases:

If an act is ultra-vires of powers to the directors but intra-vires to the company because the company is liable.•

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If an act is ultra-vires of the articles of the company but it is intra-vires of the memorandum, the articles can •be altered to rectify the error.If an act is within the powers of the company but is irregularly done, consent of the shareholders will validate •it.Where there is ultra-vires borrowing by the company or it obtains delivery of the property under an ultra-vires •contract, then the third party has no claim against the company on the basis of the loan but he has the right to follow his money or property if it exists as it is and obtains an injunction from the court restraining the company from parting with it provided that he intervenes before money is spent on or the identity of the property is lost.The lender of the money to a company under the ultra-vires contract has a right to make the director personally •liable.

1.10 Articles of AssociationArticles of association is the second important set of documents, which has to be registered along with memorandum in case of some companies. Companies which must have articles which are for unlimited companies, guarantee companies and private companies limited by shares.Articles are internal regulation and bye-laws. Schedule 1 of the Act sets out tables for model forms of articles for different companies.

1.11 Share CapitalThe shares capital of a company is divided into the shares distinguished by its appropriate numbers. The shares shall be a movable property, transferable in the manner provided by the articles of the company and subject to provisions of the Companies Act, 1956. The share capital of a company limited by shares shall be three kinds only, namely:

equity shares•preference shares and•sweat equity shares•

1.12 MeetingsWe are concerned with general meetings of members/share holders. The general meetings of members are of vital importance in the working of a company. Although, the general power of management of a company are vested in the Board of Directors, the consent of members on such major issues has to be obtained in their general meeting asspecifiedinSection293.Otherwisealsoitisfairtoprovideanopportunitytotheshareholderstocometogetherand review the working of the company. Hence the Companies Act has provisions for various types of meetings of the shareholder of a company.

Types of general meetingsStatutory meeting•Annual general meeting•Extraordinary general meeting•

In addition to the above types of meetings, a meeting of a particular class of shareholder may also be held. Such meetings are called “class meetings”.

1.12.1 Statutory MeetingItisthefirstofficialgeneralmeetingoftheshareholders.Allpubliccompanieshavingasharecapitalexceptunlimitedcompanies are required to hold a statutory meeting compulsory. It implies that private companies, unlimited and companies limited by guaranteenot having share capital are not required to hold such meeting. Statutory meeting mustbeheldafteronemonthbutwithinsixmonthsofobtainingthecertificatetocommencebusiness[Sec.165(1)].Unlike other types of general meetings, this meeting is held only once in the lifetime of the company.

The object of the statutory meeting is to provide an opportunity to the members, to acquaint themselves with the assets anddiscussthesuccessoftheflotation.Apreviousnoticeatleast21dayspriorshouldbesenttothemembers.

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In order to enable the members to make the best use of this opportunity the directors are required to prepare and send to every member a document known as the ‘statutory report’at least 21 days before the day on which the meeting is to be held.

1.12.2 Annual General MeetingEvery company must hold a general meeting each year in addition to any other meeting along with its annual general meeting [Sec 166(1)]. It is the most important meeting for the members of a company. It is held every year to review and evaluate the overall progress of the company during a year. The annual general meeting is sometimes also called ordinary general meeting. The following ordinary business must be transacted at the annual general meeting of a public company and a subsidiary thereof [Sec 173 (1)(a)]

the consideration of the Annual Accounts, Balance sheet and the Reports of the Board of Directors and •Auditorsthe declaration of a dividend•the appointment of directors in place of those retiring•theappointmentofandfixationoftheremunerationoftheauditors•

Any other business on agenda except those listed above shall be considered as special business.

1.12.2.1 Other Statutory Requirements

Thefirstannualgeneralmeetingofacompanymustbeheldwithin18monthsfromthedateofitsincorporation.•If such general meeting is held within that period, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation or in the following year. It may be noted that there can be no extension of period beyond18 months in case of this meeting, not even by the Registrar.Subsequentannualgeneralmeetingmustbeheldeachyearwithinsixmonthsoftheendofthecompany’sfinancial•year,buttheintervalbetweenanytwoannualgeneralmeetingsmustnotbemorethanfifteenmonths.TheRegistrar may however, for any special reason extend the above time by a period not exceeding three months.Theannualgeneralmeetingmustbeheldonaworkingdayduringbusinesshoursattheregisteredofficeofthe•companyoratsomeotherplacewithinthecitywheretheregisteredofficeofthecompanyissituated.At least 21 days written notice to call an annual general meeting must be given to every shareholder, directors •and auditor of the company and to every such person on whom the shares of any deceased or insolvent member may have evolved.A copy of the Diretors' annual audited report and Auditor’s report must be annexed to every such notice.•

Extraordinary General MeetingAll general meetings other than the statutory and annual general meeting are called extraordinary general meetings.

1.12.3 Minutes of MeetingTheterm‘minutes’meansaconciseandaccurateofficialbusinessrecordtransactedatcompanymeetings.Itnormallyincludes only the resolutions which are actually passed. It is not necessary to record therein the discussion which preceded the adoption of a resolution. “Minutes are more analogous to a telegram than to a letter”.Section 193 requires every company to keep minutes of the proceedings of both General and Board meetings in books within 30 days of every such meeting. The pages of the minutes books must be consecutively numbered and in no case, should be attached by pasting or adding any extra page. Each page of every such book shall be signed and the last page of the record of proceedings of each meeting in such books shall be dated and signed.The minutes of each meeting shall contain a fair and correct summary of the proceedings there at. The chairman shall, however enjoy an absolute discretion in regard to non-inclusion of any matter in the minutes, which is defamatory to any person, irrelevant or detrimental to the interests of the Board or a Committee of the Board. The minutes must include the names of the Directors present at the meeting and the names of the Directors, if any, dissenting from the resolution passed at the meeting.

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SummaryAcompanycanbedefinedasanartificialperson,invisible,intangible,createdbyLaw,withadiscretelegal•entity, perpetual succession and a common seal.There are various types of companies, they are - chartered company, statutory company, registered company, •unlimited companies, private companies etc.Each type of company has distinct features compared to the other.•Also there are various forms of business organisation like; Sole Proprietorship, Joint Hindu family Business •and Partnership Firm.There are 4 stages involved in formation, incorporation and commencement of business of a company. These •are promotion stage, incorporation stage, raising of capital and commencement of business.There are a number of contents of a company such as Memorandum of association, Articles of Association.•The general meetings of members are of vital importance in the working of a company•Although the general power of management of a company are vested in the Board of Directors, the consent •ofmembersonsuchmajor issues,asspecifiedinSection293,has tobeobtainedintheirgeneralmeeting.Otherwise, it is fair to provide an opportunity to the shareholders to come together and review the working of the company. Hence the companies Act has provided provisions for various types of meetings of the shareholders of a company.There are 3 types of meetings, which include; Statutory meeting, Annual general meeting and Extraordinary •general meeting.

ReferencesCompany law,• [Pdf] Available at: <http://www.icsi.in/Study%20Material%20Executive/CL.pdf> [Accessed 17 June 2013]. COMPANIES ACT, 1956• , [Pdf] Available at: <http://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdf> [Accessed 17 June 2013].Pillai, P. N., 1978. • Legal framework of business organisations, Malaya Law Review, Faculty of Law, University of Singapore. Hannigan, B., 2012. • Company Law, 3rd ed., Oxford University Press.prince2ibms07, 2008. • Introduction to business Law, [Video online] Available at: <http://www.youtube.com/watch?v=viyVBPvFFkQ> [Accessed 17 June 2013].elahge, 2010. • Introduction to Corporate Law, [Video online] Available at: <http://www.youtube.com/watch?v=viyVBPvFFkQ> [Accessed 17 June 2013].

Recommended ReadingDignam, A. & Lowry, J., 2012. • Company Law, 7th ed., Oxford University Press.Mallor, J., Barnes, A. J., Bowers, L. T. & Langvardt, A., 2012. • Business Law, 15th ed., McGraw-Hill/Irwin.Gould, L., 2002. • Legal Framework of Business, United Publishing,Australia.

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Self AssessmentNotice of general meeting should be given at least __________.1.

12 days prior to the appointed date of the meetinga. 18 days prior to the appointed date of the meetingb. 21 days prior to the appointed date of the meetingc. 24 days prior to the appointed date of the meetingd.

Thefirststepintheformationofacompanyistoprepareadocumentcalledthe__________2. Article of Associationa. Promotion stageb. Certificateofincorporationc. Certificatetocommencementofbusinessofcompanyd.

__________isthefirstofficialgeneralmeetingoftheshareholdersofacompany.3. Statutory general meetinga. Annual general meetingb. Extraordinary general meetingc. Default Annual general meetingd.

______________ of the Act sets out tables of model forms of articles for different companies.4. Schedule IVa. Schedule Ib. Governmentc. Directorsd.

Minutes are more analogous to a _________ than to a letter.5. agendaa. telegramb. internetc. telecalld.

Whatdoesthefirstclauseofthememorandumstate?6. the name of the proposed companya. theexactaddressoftheregisteredofficeb. the objects is ultra vires of the companyc. the nature of liability that the members incurd.

Who take the decisions regarding the total amount of capital necessary to run the business?7. Directorsa. Promoterb. Registrarc. Membersd.

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Which companies enjoyed their existence and now there is no such existence?8. Statutory companiesa. Chartered companiesb. Registered companiesc. Unlimited companiesd.

Which is the second most important document in case to be registered?9. Memorandum of associationa. Certificateofincorporationb. Articles of associationc. Certificatetocommencementofbusinessd.

Apubliccompanycannotbeginitsbusinessevenafteritisincorporatedwithoutwhichcertificate?10. Articles of Associationa. Certificatetocommencementthebusinessb. Memorandum of Associationc. Certificateofincorporationd.

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Chapter II

Indian Contract Act, 1872

Aim

The aim of this chapter is to:

explain the Indian Contract Act, 1872•

classify the various factors in Indian Contract Act 1872•

explicate the role of Indian contract act 1872•

Objectives

The objectives of this chapter are to:

explain the nature and various elements of contracts•

enlistvarious phases on the performance of contract•

explain the implementation of this act while entering a contract•

Learning outcome

On studying the complete chapter, you will be able to:

understand the elements of contracts•

identify the various factors in Indian contract Act 1872•

describe vital role of Indian Contract Act, 1872 in various types of contracts•

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2.1 IntroductionIndian Contract Act 1872 is the main source of law regulating contracts in Indian law, as subsequently amended. It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties. The Indian Contract Act 1872 sections 1-75 came into force on 1 September 1872.It applies to the whole of India except the state of Jammu and Kashmir. It is not a complete and exhaustive law on all types of contracts.

2.1.1 Definition

Section2(h)oftheActdefinesthetermcontractas,"anyagreementenforceablebylaw".Therearetwoessentials•of this act:

agreement �enforceability �

Section2(e)definesagreementas"everypromiseandeverysetofpromises,formingtheconsiderationforeach•other."AgainSection2(b)definespromiseinthesewords:"whenthepersontowhomtheproposalismadesignifies•his assent thereto, the proposal is said to be accepted. Proposal when accepted, becomes a promise."

Interpretation –clause: • In this Act, the following words and expressions are used in the following conditions, unless a contrary intention appears from the context:

Whenonepersonsignifieshiswillingnesstodoortoabstainfromdoinganything,toanotherwithaview �to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.Whenthepersontowhomtheproposalismadesignifieshisassentthereto,theproposalissaidtobeaccepted. �A proposal, when accepted, becomes a promise.The person making the proposal is called the promisor and the person accepting the proposal is called the �promise.When, at the desire of the promisor , the promise or any other person is abstained from doing, from doing �something or does something, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.

2.2 ContractsAccording to Section 10, "All agreements are contracts, if they are made by the free consent of the parties, competent to contract, for a lawful consideration with a lawful object, and not hereby expressly to be void."

2.2.1 Essential Elements of a Valid ContractThere must be an agreementAn agreement is a very essential condition of any contract. Every promise and every set of promises, forming the consideration for each other is an agreement. At least there must be two parties to an agreement; one party makes a proposal or an offer, while the other party accepts or rejects the same. The proposal as well as the acceptance should bedefined.Theacceptanceoftheproposalmustalsobeinthemodeprescribedanditmustbecommunicatedtothe offerer.Moreover, the intention of making an agreement should be able to create a legal relationship with clear and certain term. An agreement not enforced by law is said to be void [Sec 2(g)] whereas, an agreement enforceable by law is a contract [Sec 2(h)].

Parties to a contract must be competentThere must be at least two parties for every valid contract and the parties to a valid contract must be competent. Every person is competent to contract:

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who is of the age of majority according to law to which he is subject and•who is of sound mind and•whoisnotdisqualifiedfromcontractingbyanylawtowhichheissubject[Sec11]•

There should be an intention to create a legal relationshipThis is a very important condition of a valid contract. If there is no intention to create any legal relationship, the contract is not valid. Agreements of social, moral, religious nature do not contemplate legal relations. 'To create legal relationship', implies the desire of the parties towards the contract to seek for the help of law court in the case of breach of contract.

There should be free consent of parties to the agreementsFor the purpose of creating a valid contract, the consent of the parties of the agreement must be free. The term ‘consent‘isdefinedinSec13whichstatesthattwoormorepersonsaresaidtohaveconsentwhentheyagreeuponthe same mind on the same subject.

Lawful considerationConsideration is an act done at the request of the promisor by the promise or by any other person. For a valid contract, such consideration must be lawful. The agreement is legally enforceable only when both the parties to it give something and receive something in return.

Legal or lawful objectThe object of the agreement must essentially be legal. The agreement to be entered must relate to a thing which must not be contrary to the provisions of any law in existence.

Compliance with legal formalitiesIt is not necessary that a contract must be in writing. There are certain formalities to be complied within an order to make an agreement legally enforceable e.g., Certain documents are required to be stamped properly, certain documents are required to be registered and in such cases the contract must be in writing.

2.2.2 Types of ContractThere are various types of contracts, they are based on the validity, formation and performance.

2.2.2.1 VailidtyOn the basis of validity, the following types of contracts are found:

Valid contract-• An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law.Void contract-• [Sec2(i)] A void contract is a contract which ceases to be enforceable by law. A contract when originally entered into may be valid and binding on the parties. It may subsequently become void.Voidable contract-• [Sec 2(i)] An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on aggrieved party either to reject the contract or accept it. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party.Illegal contract-• A contract is illegal if it is forbidden by law, or is of such nature that, if permitted would defeat the provisions of any law or is fraudulent or involves or implies injury to a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-ab-initio.Unenforceable contract-• Where a contract is good in substance but because of some technical defect cannot be enforceable contract, it is called an unenforceable contract. These contracts are neither void nor voidable.

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2.2.2.2 FormationOn the basis of formation, the following types of contract are found:

Express contract-• Where the terms of the contract are agreed upon words (written or spoken) at the time of formation, the contract is said to be express contract.Implied contract-• An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is made otherwise than in words, promise is said to be implied.Tacit contract-• Tacit contract is implied contract in itself e.g., taking ticket in the bus, during journey.Quasi contract-• A quasi contract is created by law. Thus, quasi contracts are not contracts strictly as there is no intention of parties to enter into a contract. A legal obligation is imposed on a party who is required to perform it. A quasi contract is based on the principle that a person shall not be allowed to enrich himself at the expense of another.

2.2.2.3 PerformanceOn the basis of performance, the following types of contract are found:

Executed contract-• An executed contract is one in which both the parties have performed their respective obligations.Executory contract-• An executory contract is one where one or both the parties to the contract have still to perform their obligation in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract.Unilateral contract-• A unilateral contract is one in which only one party has to perform his obligation at the timeoftheformationofthecontract,thepartyhavingfulfilledhisobligationatthetimeofthecontractorbeforethe contract, comes into existence.Bilateral contract-• A bilateral contract is one in which the obligation on both the parties to the contract is outstanding at the time of formation of the contract. Bilateral contracts are also known as the contracts with executory consideration.

2.3 Communication, Acceptance and Revocation of ProposalsThe communication of proposals, the acceptance of proposals and the revocation of proposals respectively, are deemed to be made by any act or by omission of the party proposing, accepting or revoking by which it intends to communicate such proposal acceptance or revocation or which has the effect of communicating it.

2.3.1 Communication When CompleteThe communication of a proposal is complete when it comes to the knowledge of the person for whom it is made.The communication of an acceptance is complete as against the

proposer, when it is put in course of transmission to him as as to be out of the power of the acceptor �acceptor, when it comes to the knowledge of the proposer �

The communication of a revocation is complete as against theperson who makes it, when it is put into a course of transmission to the person to whom it is made, so as to �be out of the power of the person who makes itperson to whom it is made, when it comes to his knowledge �

IllustrationA proposes to B to sell a house at a certain price by letter. The communication of the proposal is complete when •B receives the letter.B accepts A’s proposal by a letter sent by post. The communication of the acceptance is complete as against•A when the letter is posted•B, when the letter is received by A•A revokes his proposal by telegram. The revocation is complete as against A when the telegram is dispatched. •

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B revokes his acceptance by telegram. B’s revocation is complete as against B when the telegram is dispatched, and as against A when it reaches him.

2.3.2 Revocation of Proposals and AcceptancesA proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

IllustrationA proposes, by a letter sent by post, to sell his house to B.•B accepts the proposal by a letter sent by post.•A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not •afterwards.B may revoke his acceptance any time before or at the moment when B posts his letter of acceptance, but not •afterwards.

2.3.3 Revocation - How MadeA proposal is revoked by the:

communication of notice of revocation by the proposer to the other party•lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of •a reasonable time, without communication of the acceptancefailureoftheacceptortofulfillaconditionprecedenttoacceptance•death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge of the acceptor •before acceptance

2.3.4 Acceptance Must Be AbsoluteIn order to convert a proposal into a promise, the acceptance must be:

absoluteandunqualified•Expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be •accepted. If the proposal prescribes a manner in which it is to be accepted and the acceptance is not made in such manner the proposer may within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner and not otherwise, but if he fails to do so, he accepts the acceptance.

2.3.5 Acceptance by Performing Conditions or Receiving ConsiderationPerformance of the conditions of a proposal, for the acceptance of any consideration, for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.

2.3.6 Promises, Express and ImpliedSo far as the proposal or acceptance of any promise is made in words, the promise is said to be express. So far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.

2.4 Contracts, Voidable Contracts and Void AgreementsThe contracts, voidable contract and void agreements are explained below:

What agreements are contracts?Agreements and contracts are two different things. Every contract is an agreement, but every agreement is not a contract. The distinguishable feature between the two is the enforcement of the contracts. Agreements which create legal relations are contracts.

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Who are competent to contract?Every person is competent to contract who is of age majority according to the law to which he/she is subject and whoisofsoundmindandisnotdisqualifiedfromcontractingbyanylawtowhichhe/sheissubjected.

What is sound mind for the purposes of contracting?A person is said to be of sound mind for the purposes of making a contract, if, at the time of making it, he/she is capable of understanding it and of forming a rational judgement as to its effect upon his interests.A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

IllustrationA patient in a lunatic asylum who is at intervals of sound mind, may contract during those intervals.•A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or •form a rational judgement as to its effect on his interests, cannot contract whilst till such delirium of drunkenness lasts.

2.5 ConsentTwo or more persons are said to be consent when they agree upon the same thing in the same sense.

2.5.1 Free ConsentIt is essential for the creation of the contract that the parties are ‘Ad Adem’ (i.e., they agree upon the same thing in same sense at the same time and that their consent is free and real).According to section-10 also the agreement are contracts if they are made by free consent of the parties.When there is no consent, there is no contract.Sir Salmond describes it as error in consensus. In such a case or circumstance which interferes with consensus ad adem is a mistake. For e.g., an illiterate women executed a gift deed in favour of her nephew under the impression that he would manage her property. In this case, it was held that there was no consent and the deed was void and inoperative (Bala Devi v/s S. Majumdar).According to section-14, consent is said to be free when it is not caused by:

Coercionasdefinedinsection-15•Undueinfluenceasdefinedinsection-16•Fraudasdefinedinsection-17•Misrepresentationasdefinedinsection-18•Mistakes, subject to the provisions of section-20, 21 and 22•

2.5.1.1 Coercion (under section-15)When a person is compelled to enter into a contract by use of force by the other party or under a threat, coercion is said to be employed.Coercion is 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. For e.g.,

threatens to kill•if he agrees to lend the amount to•the agreement is entered into under coercion•

According to section-19, when consent to an agreement is caused by coercion, the agreement is a contract voidable at the option of the party whose consent was so obtained.

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2.5.1.2 Undue Influence (under section-16)Sometimes a party is compelled to enter into an agreement against his will as a result of unfair persuasions by the other party. This happens when a special kind of relationship exists between the parties and is such that one party isinapositiontoexerciseundueinfluenceovertheother.Undueinfluenceisalsosometimescalled"MoralCoercion".Whenconsenttoanyagreementiscontainedbyundueinfluence,theagreementisacontractvoidableattheoptionof the party whose consent was so obtained.Anysuchcontractmaybesetasideabsolutelyorifthepartywhoisentitledtoavoidit,hasreceivedanybenefitthere under upon such term and conditions as to the court may deem just and equitable.

2.5.2 Fraud (under Section- 17)Fraud" means and includes any of the following acts committed by a party to acontract, or with his connivance, or by his agents, with intent to deceive another party thereto his agent, or to induce him to enter into the contract.

2.5.3 Misrepresentation and Fraud (under Section- 18)

A statement of fact which one party makes in the course of negotiations with a view to inducing the other party •to enter into a contract is known as a representation.It must relate to some fact which is material to the contract.•It may be expressed by words spoken or written or implied from the acts and conduct of the parties.•A representation when wrongly made, either innocently or intentionally, is a misrepresentation.•

2.5.4 Mistake (under Section-20, 21 and 22)Mistake is of two types. These are:Mistake of lawMistake of law is again divided into two more types:

Mistake of law of the countryHere, every person is supposed to know the law of his own country because ignorance of law is no excuse. A party cannot be allowed to avoid the contract on this ground.

Mistake of the law of foreign countryHence, ignorance of the law of the foreign country is a good excuse and the agreement is such a case can be avoided as it is void.

Mistake of factMistake of fact is further divided into:

Unilateral mistakeWhere only one party to the contract is under mistake about the value or quality of the subject matter of the contract. A contract is not voidable merely because it was caused by one of the parties to it. A unilateral mistake is not allowed as a defence in avoiding a contract except in certain cases such as:

mistake as to the identity of the person contracted with•mistake as to the nature of the contract•

The above mentioned 5 factors are under Section 14- affect consent and the consent is said to be not free.Bilateral mistake•Bilateral mistake is a good ground to avoid the contract because both the parties have made the mistake.

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2.6 Agreement Without ConsiderationAgreement without consideration, void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.An agreement made without consideration is void, unless either or all of the following conditions are followed:

it is expressed in writing and registered under the law for the time being in force for the registration of •1*[documents] and is made on account of natural love and affection between parties standing in a, near relation to each other ; or unlessit is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the •promisor, or something which the promisor was legally compellable to do ; or unlessit is a promise, 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 suitsIn any of these cases, such an agreement is a contract.•

Explanation 1- Nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made.

Explanation 2- In agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.

IllustrationA promises, for no consideration, to give to B Rs. 1,000.This is a void agreement.•A, for natural love and affection, promises to give his son, B, Rs. 1,000. A puts his promise to B into writing •and registers it. This is a contract.AfindsB'spurseandgivesittohim.BpromisestogiveARs.50.Thisisacontract.•A supports B's infant son. B promises to pay A's expenses in so doing. This is a contract.•A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs a written promise to pay B Rs. 500 •on account of the debt. This is a contract.A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A's consent to the agreement was freely given. The agreement •is a contract notwithstanding the inadequacy of the consideration.A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies that his consent to the agreement was freely •given.The inadequacy of the consideration is a fact which the Court should take into account in considering whether •or not A's consent was freely given.

2.7 Agreement in Restraint of Marriage VoidEvery agreement in restraint of the marriage of any person, other than a minor, is void.

2.8. Agreement in Restraint of Trade VoidEvery agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Saving of agreement not to carry on business of which goodwill is sold.

Exception 1-One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business,withinspecifiedlocallimits,soaslongasthebuyeroranypersonderivingtitletothegoodwillfromhim,carries on a like business therein, provided that such limitations appear to the Court reasonable, regard being had to the nature of the business.

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2.9 Agreements in restraint of legal proceedings voidEvery agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect •of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce is rights; orEvery agreement which extinguishes the rights of any party thereto, or discharges any party thereto from any •liability,underorinrespectofanycontractontheexpiryofaspecifiedperiodsoastorestrictanypartyfromenforcing his rights, is void to that extent. Saving of contract to refer to arbitration dispute that may arise

Exception 1-This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.

Suits barred by such contractswhensuchacontracthasbeenmade,asuitmaybebroughtforitsspecificperformanceandifasuit,otherthanforsuchspecificperformance,orfortherecoveryoftheamountsoawarded,isbroughtbyonepartytosuchcontractagainst any other such party, in respect of any subject which they have so agreed to refer, the existence of such contract shall be a bar to the suitsaving of contract to refer questions that have already arisen

Exception 2- Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration.

2.10 Agreements Void for UncertaintyAgreements, the meaning of which is not certain, or capable of being made certain, are void.

IllustrationA agrees to sell to B "a hundred tons of oil ". There is nothing whatever to show what kind of oil was intended. a. The agreement is void for uncertainty.AagreestoselltoBonehundredtonsofoilofaspecified'description,knownasanarticleofcommerce.b. There is no uncertainty here to make the agreement void. A, who is a dealer in cocoanut-oil only, agrees to sell to B "one hundred. tons of oil". The nature of A's c. trade affords an indication of the meaning of the words, and A has entered into a contract for the sale of one hundred tons of cocoanut-oil. A agrees to sell to B "all the grain in my granary at Ramnagar". There is no uncertainty here to make the d. agreement void.AagreestosellB"onethousandmaundsofriceatapricetobefixedbyC".Asthepriceiscapableofbeinge. made certain, there is no uncertainty here to make the agreement void.AagreestoselltoB"mywhitehorseforrupeesfivehundredorrupeesonethousand".Thereisnothingtof. show which of the two prices was to be given. The agreement is void.

2.11 Agreements by Way of Wager VoidAgreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made.

Exception in favour of certain prizes for horse-racing.-This section shall not be deemed to render unlawful a subscription or contribution, or agreement to subscribe or contribute, made or entered into for or toward any plate, prizeorsumofmoney,ofthevalueoramountoffivehundredrupeesorupwards,tobeawardedtothewinnerorwinners of any horse-race.

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Section 294A of the Indian Penal Code not affected.- Nothing in this section shall be deemed to legalize any transaction connected with horse-racing, to which the provisions of section 294A of the Indian Penal Code apply.

2.12 Contingent ContractA ‘contingent contract’ is a contract to do or not to do something, if some event collateral to such a contract, does or does not happen (Section-31). Where for e.g., goods are sent on approval, the contract is a contingent one depending on the act of the buyer to accept or reject the goods. There are three essential characteristics of a contingent contract:

Its performance depends upon the happening or non-happening in the future of some event. It is thus, dependent 1. on a future event, which distinguishes a contingent contract from other contracts.The event must be uncertain. If the event is bound to happen and the contract has got to be performed in any 2. case, it is not a contingent contract.The event must be collateral i.e. incidental to contract.3.

Contracts of insurance, indemnity and guarantee are the commonest examples of Contingent contract.•The performance of contingent contract depends on the happening or non-happening of an event collateral to •such contract.The word ‘event’ includes an act and a contract may be contingent for some act of the promisor or a third party. •But, if the performance of the promise depends on the mere will and pleasure of (A), for e.g. (A) promises to pay (B) Rs.100 and if (A) is no promise and therefore it cannot be deemed to depend on a contingency. Similarly, if a promisor says that for a certain service he will pay whatever he thinks reasonable is no promise (Roberts v/s Smith) but a promise to pay what a third party shall determine is valid.

2.12.1 Rules of Contingent ContractThe following are the rules relating to contingent contract:

Contingent contracts depends on the happening of an uncertain future event cannot be enforced until the event •has happened. If the event becomes impossible such contract becomes void. (Section-32)For e.g. (A) contracts to pay (B) a sum of money when (B) marries (C). (C) dies without being married to (B) •the contract becomes void.Where a contingent contract is to be performed if a particular event does not happen, its performance can be •enforced. When the happening of that event becomes impossible (Section-33). For e.g. (A) aggress to pay (B) a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.Ifacontractiscontingentuponhowpersonwillactatanunspecifiedtime,theeventshallbeconsideredto•becomeimpossiblethatheshouldsoactwithinanydefinitetimeorotherwisethanunderfuturecontingencies(Section- 34).For e.g. (A) agrees to pay (B) a sum of money, if (B) marries (C). If (C) marries (D), the marriage of (B) and (C) •must not be considered impossible although it is possible that (D) may die and (C) may afterwards marry (B).Contingentcontracttodoornottodoanything,ifaspecifieduncertaineventhappenswithinafixedtime,•becomes void if the event does not happen or its happenings becomes impossible before the expiry of that time (Section-35).Contingentcontracttodoornottodoanything,ifaspecifieduncertaineventdoesnothappenwithinafixed•time, may be enforced if the event does not happen or its happening becomes impossible before the expiry of that time (Section-35(ii)).For e.g. (A) promises to pay (B) a sum of money if a certain ship does not return within a year. The contract •maybedefinediftheshipdoesnotreturnwithinayearorisburnedwithinayear.Contingent agreement to do or not to do something, if an impossible event happens is void, whether or not the •fact is known to the parties (Section 36).For e.g. (A) agrees to pay Rs. 1000/- if (B) will marry (A)’s daughter to (C). (C) was dead at the time of the •agreement. The agreement is void.

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2.13 Quasi ContractA quasi contract is not a contract at all. It is an obligation which the law creates.Ifapersonreceivesabenefittowhichthelawregardsanotherpersonasbetterentitled,thenheshouldpayforittothe other person, even though there is no contract between the parties. Such a relationship is termed quasi contract because although there is no contract or agreement between the parties they are put in the same position as if there was contracts under the Indian law.A quasi-contract is based on the ground of justice that a person shall not be allowed to enrich himself unjustly on the ground of justice that a person shall not be allowed to enrich himself unjustly at the expense of another. That is why law of quasi-contract is also known as law of Restitution.Strictly speaking a quasi- contract is not a contract at all. A contract is intentionally entered into a quasi contract on the other hand is created by law.Section-68to72dealswithfivekindsofquasi-contractualobligations.Theseareasfollows:

a) Supply of necessaries (Section-68)If a person is incapable of entering into a contract or anyone who is legally bound to support is supplied by another with necessities to suit his condition in life the person who has supplied such necessaries is entitled to be reimbursed from the property of such incapable person. This has already been discussed in connection with minor’s agreement.For e.g. (A) supplies (B) a lunatic with necessaries suitable to his condition in life (A) is entitled to recover expenses from (B)’s property.

b) Payment by an interested person (Section-69)A person who is interested in the payment of money, where another is bound by law to pay and who therefore pays it is entitled to recover from the other.

For e.g. (A) is the tenant, who pays water charges directly to the water supply department as the landlord is in arrears of water charges. If the water charges are not paid then there is a danger of water being disconnected and therefore the tenant would suffer. Therefore, the tenant is interested in making the payment and therefore he is entitled to recoverfromthelandlordprovidedthatthepaymentismadebonafideanditisnotavoluntaryone.Asthepaymentmust be such as the other party was bound by law to pay.

a) Obligation to pay for a non gratuitous act (Section-70)When a person lawfully does anything for another person and delivers anything to him not intending to do so gratuitouslyandsuchotherpersonenjoysthebenefitthereof,thelatterisboundtomakecompensationtotheformerin respect of or to restore the thing so done or delivered.

For e.g. (A) a tradesman leaves goods at (B)’s house by mistake. (B) claims the goods as his own. He is bound to pay for them to (A).

Underthissectionthreeconditionsmustbesatisfied:The thing must have been done lawfullyi. The person doing the act should not have intended to do it gratuitouslyii. Thepersonforwhomtheactisdonemusthaveenjoyedthebenefitoftheactiii.

Section-70 has no applications to persons incompetent to contract and as such they are under no obligation to compensatetheotherforanybenefitreceivedbythem.

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a) Responsibility of finder of goods (Section-71)Apersonwhofindsgoodsbelongingtoanotherandtakestheminhiscustodyissubjecttothesameresponsibilityas a bailee.He is bound to take as such care of the goods as a man of ordinary prudence would under similar circumstances take of his own goods of the same bulk quality and value.Hemustalsotakeallnecessarystepstofindhisowner.If he does not, he will be guilty of wrongful conversation of the property in goods.Tillthetrueownerisfoundoutthepropertyingoodswillvestinthefinderandhecanretainthegoodsashisownagainst the whole world except the true owner.

Fore.g.(F)picksupadiamondonthefloorof(S)’sshop.Hehandsitoverto(S)tokeepittillthetrueownerisfound. No one appears to claim it inspite of the advertisement in the newspapers. (F) claims the diamond from (S), who refuses to return it. (S) is bound to return the diamond to (F) who is entitled to retain the diamond against the whole world except the true owners.

Thefindercansellthegoodsinfollowingcases:Where the thing found is in danger of perishing1. Where the owner cannot with reasonable diligence be found out2. Wheretheownerisfoundout,butherefusestopaythelawfulchangesofthefinderand3. Wherethelawfulchargesofthefinderinrespectofthethingfoundamountto2/3ofthethingfound.4.

Mistake or Coercion (Section-72)A person to whom money has been paid or anything delivered by mistake or under coercion must return it to the person who paid it by mistake or under coercion. The word coercion in this section is used in the general sense and notasthedefinedinSection-15.

2.14 Performance of ContractsThe performance of contract is explained below:

Obligations of parties to contracts1. The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law.Promises bind the representatives of the promisor in case of the death of such promisors before performance, unless a contrary intention appears from the contract.

IllustrationA promises to deliver goods to B on a certain day of payment of Rs.1,000. A dies before that day. a. A’s representatives are bound to deliver the goods to B, and B is bound to pay the Rs.1,000 to A’s representatives.A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract b. cannot be enforced either by A’s representatives or by B.

Effect of refusal to accept offer of performance2. Where a promisor has made an offer of performance to the promisee and the offer has not been accepted, the promisor is not responsible for nonperformance, nor does he thereby lose his rights under the contract.

Everysuchoffermustfulfillthefollowingconditions:It must be unconditional.a. It must be made at a proper time and place and under such circumstances that the person to whom it is made b. may have a reasonable opportunity of ascertaining that the person by whom it is been made is able and willing there and then to do the whole of what he is bound by his promise to do.

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If the offer is an offer to deliver anything to the promisee, the promise must have a reasonable opportunity c. of seeing that the thing offered is the thing which the promisor is bound by his promise to deliver.An offer to one of several joint promisees has the same legal consequences as an offer to all of them.d.

IllustrationA contract to be delivered to B at his warehouse, on the 1st March, 2007, is of 100 bales of cotton of a particular quality. In order to make an offer of performance with the effect stated in this section, A must bring the cotton to B’s warehouse, on the appointed day, under such circumstances that B may have a reasonable opportunity of satisfying himself that the thing offered is cotton of the quality contracted for, and that there are 100 bales.

By whom contracts must be performed3. If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representatives may employ a competent person to perform it.

IllustrationA promises to pay B a sum of money. A may perform this promise, either by personally paying the money a. to B or by causing it to be paid to B by another and if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so.A promises to paint a picture of B. A must perform this promise personally.b.

Effect of accepting performance from third person4. When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

Time and place for performance5. Timeforperformanceofpromise,wherenoapplicationistobemadeandnotimeisspecifiedwherebythecontract,apromisoristoperformhispromisewithoutapplicationbythepromisee,andnotimeforperformanceisspecified,the engagement must be performed within a reasonable time.

Explanation: The question “what is a reasonable time” is, in each particular case, a question of fact.

Effect of failure to perform at fixed time, in contract in which time is essential6. Whenapartytoacontractpromisestodoacertainthingatorbeforeaspecifiedtime,andfailstodosuchthingatorbeforeaspecifiedtime,thecontractorsomuchofitashasnotbeenperformed,becomesvoidableattheoptionof the promisee, if the intention of the parties was that time should be of essence of the contract.

Effect of such failure when time is not essential: If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specifiedtime;butthepromiseeisentitledtocompensationfromthepromisorforanylossoccasionedtohimbysuch failure.

Effect of acceptance of performance at time other than that agreed upon: If in case of contract voidable on account of the promisor’s failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation of any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of acceptance, he gives notice to the promisor of his intention to do so.

Agreement to do Impossible ActAn agreement to do an act impossible in itself is void.

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Contract to do act afterwards becoming impossible or unlawful: 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.

Compensation for loss through non-performance of act known to be impossible or unlawful: Where one person has promised to be something which he knew or, with reasonable diligence, might have known, and which the promise did not know to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.

2.15 The Consequences of Breach of ContractOn the consequences of breach of contract are as per below:

Compensation of loss or damage caused by breach of contractWhen a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from the breach of it.Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract: When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. Explanation: In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by nonperformance of the contract must be taken into account.

2.16 Compensation for Breach of Contract where Penalty Stipulated for various casesWhen a contract has been broken, if a sum is named in the contract as the amount be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract, reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. breach of the contract.Explanation: A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Exception: When any person enters into any bail bond, recognisance or other instrument of the same nature or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.

Explanation: A person who enters into a contract with the government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.

IllustrationA contract’s with B to pay B Rs.1,000 if he fails to pay B Rs.500 on a given day. A fails to pay B Rs.500 on a. that day. B is entitled to recover from A such compensation, not exceeding Rs.1,000, as the court considers reasonable.A contract’s with B that, if A practices as a surgeon within Calcutta, he will pay B Rs.5,000. A practices as b. a surgeon in Calcutta. B is entitled to such compensation; not exceeding Rs.5,000 as the court considers reasonable.A gives a recognisance binding him in a penalty of Rs.500 to appear in court on a certain day. He forfeits c. his recognisance. He is liable to pay the whole penalty.

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AundertakestorepayBaloanofRs.1,000byfiveequalmonthlyinstallments,withastipulationthat,ind. default, of payment of any installment, the whole shall become due. This stipulation is not by way of penalty, and the contract may be enforced according to its terms.

2.17 Indemnity and GuaranteeContract of indemnity1.

A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity”.

IllustrationA contract’s to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.

Right of indemnity holder when sued2. The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover the following from the promisor:

all damages which he may be compelled to pay in any suit in respect of any matter to which the promise a. to indemnify appliesall costs which he may be compelled to pay in any such suit, if in bringing or defending it, he did not b. contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorised him to bring or defend the suitall sums which he may have paid under the terms of any compromise of any such suit, if the compromise was c. not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit

“Contract of Guarantee”, “Surety”, “Principal Debtor” and “Creditor”3. A “contract of guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default.The person who gives the guarantee is called the “surety”, the person in respect of whose default the guarantee is given is called the “principal debtor”, and the person to whom the guarantee is given is called the “creditor”.A guarantee may be either oral or written.

Consideration for guarantee4. Anythingdone,oranypromisesmade,forthebenefitoftheprincipaldebtor,maybeasufficientconsiderationtothe surety for giving the guarantee.

IllustrationB requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the a. payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliverthegoods.ThisisasufficientconsiderationforC’spromise.A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and b. promises that, if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. ThisisasufficientconsiderationforC’spromise.A sells and delivers goods to B. A afterwards, without consideration, agrees to pay for them in default of c. B. The agreement is void.

Surety’s liability5. The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.

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IllustrationA guarantees to B, the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable not only for the amount of the bills but also for any interest and charges which may have become due on it.

Continuing Guarantee6. A guarantee which extends to a series of transactions, is called, a “continuing guarantee”.

IllustrationA, in consideration that B will employ C in collecting the rents of B’s zamindari, promises B to be responsible, a. to the amount of 5,000 rupees, for the due collection and payment by C of those rents. This is a continuing guarantee.A guarantee’s payment to B, a tea-dealer, to the amount of £100, for any tea he may from time to time b. supply to C. B supplies C with tea to above the value of £100, and C pays B for it. Afterwards, B supplies C with tea to the value of £200. C fails to pay. The guarantee given by A was a continuing guarantee, and he is accordingly liable to B to the extent of £100.Aguarantee’spaymenttoBofthepriceoffivesacksofflourtobedeliveredbyBtoCandtobepaidforinc. amonth.BdeliversfivesackstoC.Cpaysforthem.AfterwardsBdeliversfoursackstoC,whichCdoesnot pay for. The guarantee given by A was not a continuing guarantee, and accordingly he is not liable for the price of the four sacks.

Revocation of continuing guarantee7. A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.Illustration

A, in consideration of B’s discounting, at A’s request, bills of exchange for C, guarantees to B, for twelve a. months, the due payment of all such bills to the extent of 5,000 rupees. B discounts bills for C to the extent of 2,000 rupees. Afterwards, at the end of three months, A revokes the guarantee. This revocation discharges A from all liability to B for any subsequent discount. But A is liable to B for the 2,000 rupees, on default of C.A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills that B shall draw upon him. B b. draws upon C, C accepts the bill. A gives notice of revocation. C dishonours the bill at maturity, A is liable upon his guarantee.

Revocation of continuing guarantee by surety’s death8. The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.

Liability of two persons, primarily liable, not affected by arrangement between them that one shall be 9. surety on other’s default

Where two persons contract with a third person to undertake certain liability, and also contract with each other that one of them shall be liable only on the default of the other, the third person not being a party to such contract, the liabilityofeachofsuchtwopersonstothethirdpersonunderthefirstcontractisnotaffectedbytheexistenceofthe second contract, although such third person may have been aware of its existence.

IllustrationA and B make a joint and several promissory notes to C. A makes it, in fact, as surety for B, and C knows this at the time when the note is made. The fact that A, to the knowledge of C, made the note as surety for B, is no answer, to a suit by C against A upon the note.

Discharge of surety by variance in terms of contract10. Any variance made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.

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IllustrationA becomes surety to C for B’s conduct as manager in C’s bank. Afterwards, B and C contract, without A’s a. consent, that B’s salary shall be raised, and that he/she shall become liable for one-fourth of the losses on overdrafts. B allows a customer to over-draw, and the bank loses a sum of money.A is discharged from his surtyship by the variance made without his consent, and is not liable to make good b. this loss.AguaranteesCagainstthemisconductofBinanofficetowhichBisappointedbyC,andofwhichthec. dutiesaredefinedbyanActoftheLegislature.ByasubsequentAct,thenatureoftheofficeismateriallyaltered. Afterwards, B misconducts himself. A is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect of a duty not affected by the later Act.C agrees to appoint B as his clerk to sell goods at a yearly salary, upon A’s becoming surety to C for B’s d. duly accounting for monies received by him as such clerk. Afterwards, without A’s knowledge or consent, CandBagreethatBshouldbepaidbyacommissiononthegoodssoldbyhimandnotbyafixedsalary.A is not liable for subsequent misconduct of B.

Discharge of surety by release or discharge of principal debtor11. The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.

Surety not discharged when agreement made with third person to give time to principal debtor12. Where a contract to give time to the principal debtor is made by the creditor with athird person, and not with the principal debtor, the surety is not discharged.

Creditor's forbearance to sue does not discharge surety13. Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him, dies not, in the absence of any provision in the guarantee to the contrary, discharge the surety.

Release of one co-surety does not discharge other14. Where there are co-sureties, a release by the creditor of one of them does not discharge the others neither does set free the surety so released from his responsibility to the other sureties.

Surety's right to benefit of creditor's securities15. Asuretyisentitledtothebenefitofeverysecuritywhichthecreditorhasagainsttheprincipaldebtoratthetimewhen the contract of suretyship entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or without the consent of the existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with such security, the surety, the surety is discharged to the extent of the value of the security.

2.18 "Bailment", "bailor" and "bailee"

Definition1. A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned orotherwise disposed of according to the direction of the person delivering them. Theperson delivering the goods is called the "bailor". The person to whom they are delivered is called the "bailee".Explanation: If a person already in possession of the goods of other contracts holds them as a bailee, he thereby becomes the bailee, and the owner becomes the bailor of such goods, although they may not have been delivered by way of bailment.

Delivery to bailee how made2. The delivery to be bailee may be made by doing anything which has the effect ofputting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf.

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Bailor's duty to disclose faults in goods bailed3. The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose thebailee to extraordinary risk; and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.

Care to be taken by bailee4. In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quantity and value as the goods bailed.

Bailee when not liable for loss, etc., of thing bailed5. The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of it described in section 151.

Termination of bailment by bailee's act inconsistent with conditions6. A contract of bailment is voidable at the option of the bailor, if the bailee does any act with regard to the foods bailed, inconsistent with the conditions of the bailment.

Liability of bailee making unauthorised use of goods bailed7. If the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.

Effect of mixture with bailor's consent, of his goods with bailee's8. If the bailee, with the consent of the bailor, mixes the goods of the bailor with his own goods, the bailor and the bailee shall have an interest, in proportion to their respective shares, in the mixture thus produced.

Effect of mixture, without bailor's consent, when the goods can be separated9. If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods and the goods can be separated or divided, the property in the goods remains in the parties respectively; but the bailee is bound to be bear the expense of separation or division, and any damage arising from the mixture.

Effect of mixture, without bailor's consent, when the goods cannot be 10. separatedIf the bailee, without the consent of the bailor, mixes the foods of the bailor with his own goods in such a manner that it is impossible to separate the goods bailed from the other goods, and deliver them back, the bailor is entitled to be compensated by the bailee for the loss of the goods.

Restoration of goods lent gratuitously11. The lender of a thing for use may at any time require its return, if the loan was gratuitous, even through he lent it foraspecifiedtimeorpurpose.Butif,onthefaithofsuchloanmadeforaspecifiedtimeorpurpose,theborrowerhas acted in such a manner that the return of the thing lent before the time agreed upon would cause him losses exceedingthebenefitactuallyderivedbyhimfromtheloan,thelendermust,ifhecompelsthereturnindemnifytheborrowerfortheamountinwhichthelosssooccasionedexceedsthebenefitssoderived.

Return of goods bailed, on expiration of time or a accomplishment of 12. purposeIt is the duty of the bailee to return, or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.

Bailee's responsibility when goods are not duly returned13. If by the fault of the bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time.

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Termination of gratuitous bailment by death14. A gratuitous bailment is terminated by the death either of the bailor or of the bailee.

Bailer entitled to increase or profit from goods bailed15. In the absence of any contract to the contrary, the bailee is bound to deliver to the bailer, or according to his directions, anyincreaseorprofitwhichmayhaveaccruedfromthegoodsbailed.

Bailor's responsibility to bailee16. The bailor is responsible to the bailee for any loss which the bailee may sustain the reason that the bailor was not entitled to make the bailment, or to receive back the goods, or to give directions, respecting them.

Bailment by several joint owners17. If several joint owners of goods bail them, the bailee may deliver them back to, or according to the directions of, one joint owner without the consent of all in the absence of any agreement to the contrary.

Bailee not responsible on redelivery to bailor without title18. If the bailor has no title to the goods, and the bailee, in good faith, delivers themback to, or according to the directions of the bailor, the bailee is not responsible tothe owner in respect of such deliver.

Right of third person claiming goods bailed19. If a person, other than the bailor, claims goods bailed he may apply to the court tostop delivery of the goods to the bailor, and to decide the title to the goods.

When finder of thing commonly on sale may sell it20. When thing which is commonly the subject of sale is lost, if the owner cannot withreasonable diligence be found, or if he refuses upon demand, to pay the lawfulchargesofthefinder,thefindermaysellit:

when the thing is in danger of perishing or of losing the greater part of its value, or•whenthelawfulchargesofthefinder,inrespectofthethingfound,amounttotwo-thirdsofitsvalue.•

Bailee's particular lien21. Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed he has in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.

General lien of bankers, factors, wharfinger, attorneys and policy 22. brokersBankers,factor,wharfingers,attorneysofaHighCourtandpolicybrokersmay,intheabsenceofacontracttothecontrary, retain as a security for a general balance of account, any goods bailed to them; but no other person have a right retain, as a security for which balance, goods, bailed to them, unless is an express contract to that effect.

"Pledge", "Pawnor", and "Pawnee" defined23. The bailment of goods as security for payment of a debt or performance of a promise is called "pledge". The bailor is in this case called "pawnor". The bailee is called "pawnee".

Pawnee's right of retainer24. The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interests of the debt, and all necessary expenses incurred by him in respect to the possession or for the preservation of the goods pledged.

Pawnee's right as to extraordinary expenses incurred25. The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.

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Pawnee's right where pawnor makes default26. If the pawnor makes default in payment of the debt, or performance, at the stipulated time, or the promise, in respect of which the goods were pledged, the pawnee may bring as suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance.If the proceeds of the sale are greater that the amount so due, the pawnee shall pay over the surplus to the pawnor.

Defaulting pawnor's right to redeem27. If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledged is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them; but he must, on that case, pay, in addition, any expenses which have arisen from his default.

Pledge by mercantile agent28. Where a mercantile agent is, with the consent of the owner, in possession of goodsor the documents of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he wereexpressly authorised by the owner of the goods to make the same; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.Explanation: In this section, the expression "mercantile agent" and "documents oftitle" shall have the meanings assigned to them in the Indian Sale of Goods Act, 1930 (3 of 1930).

Pledge by person in possession under voidable contract29. When the pawnor has obtained possession of the other goods pledged by him under a contract voidable under section 19 of section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquired a goods title to the goods, provided he acts in good faith and without notice of the pawnor's defect of title.

Pledge where pawnor has only a limited interest30. Where person pledges goods in which he has only a limited interest, the pledge isvalid to the extent of that interest.

Suit by bailor or bailee against wrong-doer31. If a third person wrongfully deprives the bailee of the use of possession of goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment has been made; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.

2.19 Agency, Appointment and Authority of Agents"Agent" and "principal" defined1.

An "agent" is a person employed to do any act for another, or to represent another in dealing with third persons. The person for whom such act is done, or who is so represented, is called the "principal".

Who may employ agent2. Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.

Who may be an agent3. As between the principal and third persons, any person may become an agent, butno person who is not of the age of majority and sound mind can become an agent, so as to be responsible to the principal according to the provisions in that behalf herein contained.

Consideration not necessary4. No consideration is necessary to create an agency.

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Agent's authority may be expressed or implied5. The authority of an agent may be expressed or implied.

Definitions of express and implied6. An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.

Extent of agent's authority7. An agent, having an authority to do an act, has authority do every lawful thing which is necessary in order to do so such act. An agent having an authority to carry on a business, has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.

Agent's authority in an emergency8. An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss and would be done by a person or ordinary prudence, in his own case, under similar circumstances.

When agent cannot delegate9. An agent cannot lawful employ another to perform acts which he has expressly orimpliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature or agency, a sub-agent must, be employed.

"Sub-agent" defined10. A "sub-agent" is a person employed by, and acting undue the control of, the original agent in the business of the agency.

Representation of principal by sub-agent properly appointed11. Where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal. Agent's responsibility for sub-agent: The agent is responsible to the principal for the acts of the subagent. Sub-agent's responsibility: The sub-agent is responsible for his acts to the agent, but not to the principal, except in cases of fraud, or willful wrong.

Agent's responsibility for sub-agent appointed without12. Authority where an agent, without having authority to do so, has appointed a person to act as a sub-agent stands towards such person in the relation of a principal to an agent, and is responsible for his act both to the principal and to third person; the principal is not represented, by or responsible for the acts of the person so employed, nor is that person responsible to the principal.

Relation between principal and person duly appointed by agent to act in business of agency13. When an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.

Agent's duty in naming such person14. In selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man or ordinary prudence would exercise in his own case; and, if he does this, he is not responsible to the principal for the acts of negligence of the agent so selected.

Right of person as to acts done for him without his authority, effect of ratification15. Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratifyortodisownsuchacts.Ifheratifiesthem,thesameeffectswillfollowasiftheyhadbeenperformedbyhisauthority.

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Ratification may be expressed or implied16. Ratificationmaybeexpressedormaybeimpliedintheconductofthepersononwhosebehalftheactsaredone.

Knowledge requisite for valid ratification17. Novalidratificationcanbemadebyapersonwhoseknowledgeofthefactsofthecaseismateriallydefective.

Effect of ratifying unauthorised act forming part of a transaction18. Apersonratifyinganyunauthorisedactdoneonhisbehalfratifiesthewholeofthetransactionofwhichsuchactformed a part.

Ratification of unauthorised act cannot injure third person19. An act done by one person on behalf of another, without such other person's authority, which, if done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot,byratification,bemadetohavesucheffect.

Termination of Agency20. An agency is terminated by the principal revoking his authority, or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.

Termination of Agency, where agent has an interest in subject-matter21. Where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

When principal may revoke agent's authority22. The principal may, save as is otherwise provided by the last preceding section, revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal.

Revocation where authority has been partly exercised23. The principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arise from acts already done in the agency.

Compensation for revocation by principal, or renunciation by agent24. Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation orrenunciationoftheagencywithoutsufficientcause.

Notice of revocation or renunciation25. Reasonable notice must be given of such revocation or renunciation; otherwise the damage thereby resulting to the principal or the agent, as the case may be, must be made good to the one by the other.

Revocation and Renunciation may be expressed or implied26. Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent respectively.

When termination of agent's authority takes effect as to agent, and as to third persons27. The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him, or, so far as regards third persons, before it becomes known to them.

Agent's duty on termination o agency by principal's death or insanity28. When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him.

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Termination of Sub-agent's authority29. The termination of the authority of an agent causes the termination (subject to therules herein contained regarding the termination of an agent's authority) of the authority of all sub-agents appointed by him.

Agent's duty in conducting principal's business30. An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must makeitgoodtohisprincipal,and,ifanyprofitaccrues,hemustaccountforit.

Skill and Diligence required from agent31. An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business, unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill or misconduct.

Agent's accounts32. An agent is bound to render proper accounts to his principal on demand.

Agent's duty of communicate with principal33. Itisthedutyofanagent,incasesofdifficulty,touseallreasonablediligenceincommunicating with his principal, and in seeking to obtain his instructions.

Right to principal when agent deals, on his own account, in business of agency without principal's 34. consent

Ifanagentdealsonhisownaccountinthebusinessoftheagency,withoutfirstobtainingtheconsentofhisprincipaland acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him.

Principal's right to benefit gained by agent dealing on his own account in business of agency35. If an agent, without the knowledge of his principal, deals in the business 6f the agency on his own account instead ofonaccountofhisprincipal,theprincipalisentitledtoclaimfromtheagentanybenefitwhichmayhaveresultedto him from the transaction.

Agent's right of retainer out of sums received on principal's account36. An agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business, and also such remuneration as may be payable to him for acting as agent.

Agent's duty to pay sums received for principal37. Subject to such deductions, the agent is bound to pay to his principal all sums received on his account.

When agent's remuneration becomes due38. In the absence of any special contract, payment for the performance of any act is not due to the agent until the completion of such act; but an agent may detain moneys received by him on account of goods sold, although the whole of the goods consigned to him for sale may not have been sold, or although the sale may not be actually complete.

Agent not entitled to remuneration for business misconducted39. An agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconducted.

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Agent's lien on principal property40. In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property, whether movable or immovable, of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.

Agent to be indemnified against consequences of lawful acts41. The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him.

Agent to be indemnified against consequences of acts done in good faith42. Where one person employs another to do an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act, though it causes an injury to the rights of third persons.

Non-Liability of employer of agent to do a Criminal Act43. Where one person employs another to do an act which is criminal, the employer isnot liable to the agent, either upon an express or an implied promise, to indemnifyhim against the consequences of that act.

Compensation to agent for injury caused by principal's neglect44. The principal must make compensation to his agent in respect of injury caused to such agent by the principal's neglect or want of skill.

Enforcement and Consequences of agent's contracts45. Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person.

Principal how far bound, when agent exceeds authority46. When an agent does more than he is authorised to do, and when the part of what he does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding as between him and his principal.

Principal not bound when excess of agent's authority is not separable 47. Where an agent does more than he is authorised to do, and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognise the transaction.

Consequences of notice given to agent48. Any notice given to or information obtained by the agent, provided it be given or obtained in the course of the business transacted by him for the principal, shall, as between the principal and third parties, have the same legal consequence as if it had been given to or obtained by the principal.

Agent cannot personally enforce, nor be bound by, contracts on behalf of principal49. In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.

Presumption of contract to the contrary50. Such a contract shall be presumed to exist in the following cases:

where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad•where the agent does not disclose the name of his principal•where the principal, though disclosed, cannot be sued•

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Rights of Parties to a contract made by agent not disclosed51. If an agent makes a contract with a person who neither knows, nor has reason to suspect, that he is an agent, his principal may require the performance of the contract; but the other contracting party has, as against the principal, the same rights as he would have had as against the agent if the agent had been the principal. If the principal discloses himselfbeforethecontractiscompleted,theothercontractingpartymayrefusetofulfillthecontract,ifhecanshowthat, if he had known who was the principal in the contract, or if he had known that the agent was not a principal, he would not have entered into the contract.

Performance of contract with agent supposed to be principal52. Where one man makes a contract with another, neither knowing nor having reasonable ground to suspect that the other is an agent, the principal, if he requires the performance of the contract, can only obtain such performance subject to the rights and obligations subsisting between the agent and the other party to the contract.

Right of person dealing with agent personally liable53. In cases where the agent is personally liable, a person dealing with him may hold either him or his principal, or both of them, liable.

Consequence of Inducing agent or principal to act on belief that principal or agent will be held exclusively 54. liable

When a person who has made a contract with an agent induces the agent to act upon the belief that' the Principal only will be held liable, or induces the principal to act upon the belief that the agent only will be held liable, he cannot afterwards hold liable the agent or principal respectively.

Liability of pretended agent55. A person untruly representing himself to be the authorised agent of another, and thereby inducing a third person to deal with him as such agent, is liable, if his alleged employer does not ratify his acts, to make compensation to the other in respect of any loss or damage which he has incurred by so dealing.

Person falsely contracting as agent not entitled to performance56. A person with whom a contract has been entered into in the character of agent, is not entitled to require the performance of it if he was in reality acting, not as agent, but on his own account.

Liability of principal inducing belief that agent's unauthorised acts were authoriszed57. When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such act and obligations were within the scope of the agent's authority.

Effect, on agreement, of misrepresentation or fraud by agent58. Misrepresentations made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed, by the principals; but misrepresentations made, or frauds, committed, by agents, in matters which do not fall within their authority, do not affect their principals.

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SummaryThe In• dianContractActof1872hasclearlydefinedrulesandregulations.There is always more than one party involved in a contract in the form of promisor and promise.•There has to be some kind of consideration. It is always enforceable by law. Contract consists of communication, •acceptance and revocation of proposal.Once the revocations are proposed and accepted, a contract is made.•It is always an absolute acceptance, promises expressed and implied.•A person of sound mind capable of understanding and forming a judgment can only enter into a contract.•Acontractisalwayswithfreeconsentanditcannotbeenteredintobyforceorinfluenceorbythreat.•Contract is always void if it is without consideration.•Contract entered into by fraud, misrepresentation is void. It cannot be dependent upon uncertain events or •impossible conditions, if a contract is not honoured, the affected party is entitled to compensation, indemnity and guarantee.There is a provision for the agent appointed to ensure the proper discharge of contract on remuneration.•

ReferencesSachdeva, S., 2013. • Types of Contract part 1, [Video online] Available at: <http://www.youtube.com/watch?v=pdZ3JDlYqjU> [Accessed 17 June 2013].icaias, 2011. • Indian Contract Act 1872, [Video online] Available at: <http://www.youtube.com/watch?v=3ZZNadPp5qI> [Accessed 17 June 2013].The Indian Contract Act, 1872• , [Online] Available at: <http://www.vakilno1.com/bareacts/indiancontractact/indiancontractact.html> [Accessed 17 June 2013].Patra, A. C., 1966. • The Indian Contract Act, 1872, Volume 1, Asia Publishing House.Sanjiva, T. V., 2012. • The Indian Contract Act, 1872 (act Ix Of 1872): With The Case-law Thereon, Nabu Press.The Indian Contract Act, 1872• , [Pdf] Available at: <http://220.227.161.86/19698ipcc_blec_law_vol1_chapter1.pdf> [Accessed 17 June 2013].

Recommended ReadingMalik, K. K. & Kulshreshtha, V. D., 1983. • The Indian Contract Act 1872Patra. A. C., 1966. • The Indian Contract Act, 1872.Chitaley, V. V., 1957. • The Indian contract act (9 of 1872) (Corpus Iuris of India)

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Self AssessmentThe term contract is ___________ .1.

enforceable by lawa. enforceable by promisorb. enforceable by governmentc. enforceable by agentd.

All agreements are contracts ___________ .2. if there is free consenta. if it’s a lawful considerationb. if the parties are competentc. if there is lawful consideration, there is free consent and the parties are competentd.

___________ is an obligation that a law creates.3. Contracta. A contingent contractb. Quasi contractc. Contract Indemnityd.

The person who gives the guarantee is called the _________ .4. suretya. promisorb. promiseec. contractord.

An agreement to do an act impossible in itself is ____________ .5. agreementa. contractb. promisec. voidd.

A person employed by, and acting undue the control of, the original agent in the business of the agency 6. _____________ .

sub-agenta. agentb. promisorc. suretyd.

The bailment of goods as security for payment of a debt or performance of a promise is called 7. ___________ .

prawnera. prawneeb. pledgec. promised.

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Bailment is ____________ .8. the delivery of goods by one person to another for some purpose without contracta. the delivery of goods by one person to another for some purpose upon a contractb. the delivery of goods to both the parties by some agencyc. the delivery of goods from prawnor to prawneed.

Contingent contract is a contract to do ___________ .9. something if some event collateral to such contract, dos happena. something urgent collateral to such contractb. something impossible collateral to such contractc. or not to do something if some event collateral to such contract, does or does not happend.

Prawnee is ______________ .10. the bailor, when he preserves goods is called a pawneea. the bailer when sells goods is called a pawneeb. the bailer when retains goods is called a pawneec. the bailer when makes pledge is called a pawneed.

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Chapter III

Sales of Goods Act, 1930

Aim

The aim, of the chapter is to:

explicate various phases of Sales of Goods Act 1930•

explain implementation of Sales Goods Act 1930•

explain various components in Sales Goods Act 1930•

Objectives

The objectives of this chapter are to:

explain the formalities required while transferring property from one party to another•

elucidate the procedures of transferring the property from one party to another•

explicate the importance of the various concepts in Sales Goods Act 1930•

Learning outcome

On reading this chapter, you will be able to:

understand the importance of Sales of Goods Act 1930•

definetheSalesofGoodsAct1930•

describe the guidelines laid in the act in the sale and purchase of goods•

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3.1 Sale of Goods Act-1930History of the Sale of Goods Act-1930Prior to this Act, the law relating to the sale of goods was embodied in the Indian Contract Act, 1872. The law relating to sales of goods is a branch of the Contract Act. The general provisions of the law of Contract Act are applicable to the contract of sale of goods. When goods are exchanged for money, the transaction is a sale. If goods are exchanged for goods, the transaction is called barter. The law relating to sale of goods is contained in the Sale of Goods Act, 1930 which came into force in July 1930. The Sale of Goods Act applies only to movables other than actionableclaimsandmoney.ActionableclaimsaredefinedbytheTransferofPropertyAct;moneyisexcludedfromthedefinitionofgoodsfortworeasons,whichare:

it constitute price, the price for exchange of goods sold1. it is governed by different principles of law due to its being currency2.

A contract for sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. This Act may be called the Sale of Goods Act 1930. It extends to the whole of India except the State of Jammu and Kashmir. It came into force on 1st of July 1930.

3.2 Definition of the Sale of Goods Act-1930In this Act, unless there is anything repugnant in the subject or context,

“buyer” means a person who buys or agrees to buy goods•“delivery” means voluntary transfer of possession from one person to another•goods are said to be in a deliverable state when they are in such state that the buyer would under the contract •be bound to take delivery of them“documentsoftitletogoods”includesabilloflading,dockwarrant,warehousekeeperscertificate,wharfingers•certificate, railway receipt,warrantororder for thedeliveryofgoodsandanyotherdocumentused in theordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented"fault" means wrongful act or default•“future goods" means goods to be manufactured or produced or acquired by the seller after the making of the •contract of sale"goods" means every kind of movable property other than actionable claims and money and includes stock and •shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of salea person is said to be "insolvent" who has ceased to pay his debts in the ordinary course of business, or cannot •pay his debts as they become due, whether he has committed an act of insolvency or not"mercantile agent" means a mercantile agent having in the customary course of business as such agent authority •either to sell goods, or to consign goods for the purposes of sale or to buy goods, or to raise money on the security of goodsprice means the money consideration for sale of goods•property means the general property in goods and not merely a special property•seller means a person who sells or agrees to sell goods•

3.3 Formation of the ContractSale and Agreement to Sell

A contract of Sale of Goods is a contract whereby the seller transfers or agrees to transfer the property i. in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.A contract of Sale may be absolute or conditional.ii. Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the iii.

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contract is called a Sale, but where the transfer of the property in the goods is to take place at a future timeorsubjecttosomeconditionthereaftertobefulfilled,thecontractiscalledanAgreementtoSell.AnAgreementtoSellbecomesaSalewhenthetimeelapsesortheconditionsarefulfilledsubjecttoiv. which the property in the goods is to be transferred.

Contract of Sale how madeA contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. i. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both or for the delivery or payment by installments or that the delivery or payment or both shall be postponed.Subject to the provisions of any law for the time being in force, a contract of Sale may be made in ii. 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.

Existing or future goodsThe goods which form the subject of a contract of sale may be either existing goods, owned or possessed iii. by the seller, or future goods.There may be a contract for the sale of goods, the acquisition of which by the seller depends upon a iv. contingency which may or may not happen.Where by a contract of sale the seller purports to effect a present sale of future goods, the contract v. operates as an agreement to sell the goods.

Goods perishing before making of contractWherethereisacontractforthesaleofspecificgoods,thecontractisvoidifthegoodswithouttheknowledgeofthe 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.

Goods perishing before Sale but after Agreement to SellWherethereisanagreementtosellspecificgoods,andsubsequentlythegoodswithoutanyfaultonthepartoftheseller 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.

Ascertainment of priceThepriceinacontractofsalemaybefixedbythecontractormaybelefttobefixedinmannertherebyi. agreed or may be determined by the course of dealing between the parties.Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the ii. seller a reasonable price. ‘What is a reasonable price’ is a question of fact dependent on the circumstances of each particular case.

Agreement to Sell at valuationWherethereisanagreementtosellgoodsonthetermsthatthepriceistobefixedbythevaluationi. 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, ii. he shall pay a reasonable price therefore.Where such third party is prevented from making the valuation by the fault of the seller or buyer, the iii. party not in fault may maintain a suit for damages against the party in fault.

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Stipulations as to timeUnless 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 are of the essence of the contract or not depend on the terms of the contract.

Condition and warrantyA stipulation in a contract of Sale with reference to goods which are the subject thereof may be a condition i. or a warranty.A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise ii. to right to treat the contract as repudiated.A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise iii. to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.Whether a stipulation in a contract of sale is condition or a warranty depends in each case on the iv. construction of the contract. A stipulation may be a condition, though called a warranty.

When condition to be treated as warrantyWhereacontractofSaleissubjecttoanyconditiontothefulfilledbytheseller,thebuyermaywaivei. 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.Where a contract of Sale is not severable and the buyer has accepted the goods or part thereof, the ii. breachofanyconditiontobefulfilledbythesellercanonlybetreatedasabreachofwarrantyandnotas 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.Nothinginthissectionshallaffectthecaseofanyconditionorwarrantyfulfillmentofwhichisexcusediii. by law by reason of impossibility of otherwise.

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-

an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods i. 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 passan implied warranty that the buyer shall have and enjoy quiet possession of the goodsii. an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third iii. party not declared or known to the buyer before or at the time when the contract is made

Sale by descriptionWhere there is a contract for the Sale of goods by description, there is an implied condition that the goods shall correspondwiththedescription,and,iftheSaleisbysampleaswellasbydescription,itisnotsufficientthatthebulk of the goods corresponds with the sample if the goods do not also correspond with the description.

Implied condition as to quality or fitnessSubject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or conditionastothequalityorfitnessforanyparticularpurposeofgoodssuppliedunderacontractofsale,exceptsas follows:

Where the buyer, expressly or by implication, makes known to the seller the particular purpose for i. which the goods are required, so as to show that the buyer relies on the seller’s skill or judgement, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fitforsuchpurpose.Providedthat,inthecaseofacontractfortheSaleofaspecifiedarticleunderitspatentorothertradeii. name,thereisnoimpliedconditionstoitsfitnessforanyparticularpurpose.

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Where goods are bought by description from a seller who deals in goods of that description (whether iii. 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 iv. which such examination ought to have revealed.Animpliedwarrantyorconditionastoqualityorfitnessforaparticularpurposemaybeannexedbyv. the usage of trade.An express warranty or conditions does not negative a warranty or condition implied by this Act unless vi. inconsistent therewith.

Sale by sample

A contract of Sale is a contract for Sale by sample where there is a term in the contract, express or i. implied, to that effect.In the case of a contract for Sale by sample there are some implied conditions;ii.

that the bulk shall corresponded with the sample in qualitya. that the goods shall have a reasonable opportunity of comparing the bulk with the sampleb. that the goods shall be free from any defect, rendering them un-merchantable, which would not be apparent c. on reasonable examination.

3.4 Effects of the ContractGoods must be ascertainedWhere 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.

Property passes when intended to passWherethereisacontractforthesaleofspecificorascertainedgoodsthepropertyinthemistransferredi. to the buyer at such time as the parties to the contract intend it to be transferred.For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, ii. the conduct of the parties and the circumstances of the case.Unless a different intention appears, the rules contained in Section 20 to 24 are rules for ascertaining the iii. intention of the parties as to the time at which the property in the goods is to pass to the buyer.

Specific goods in a deliverable stateWherethereisanunconditionalcontractfortheSaleofspecificgoodsinadeliverablestate,thepropertyinthegoods 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.

Specific goods to be put into a deliverable stateWherethereisacontractfortheSaleofspecificgoodsandthesellerisboundtodosomethingtothegoodsforthepurpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.

Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain priceWherethereisacontractfortheSaleofspecificgoodsinadeliverablestate,but thesellerisboundtoweigh,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.Sale of unascertained goods and appropriation

Where there is a contract for the Sale of unascertained or future goods by description and goods of i. that description and in a deliverable state are unconditionally appropriated to the contract, either by the

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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.Delivery to carrier- Where, in pursuance of the contract, the seller delivers the goods.ii.

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-

whenhesignifieshisapprovaloracceptancetothesellertodoesnototheractadoptingthetransactioni. if he does not signify his approval or acceptance to the seller but retains the goods without giving notice ii. ofrejection,then,ifatimehasbeenfixedforthereturnofthegoods,ontheexpirationofsuchtime,and,ifnottimehasbeenfixed,ontheexpirationofareasonabletime.

Reservation of right of disposalWherethereisacontractforthesaleofspecificgoodsorwheregoodsaresubsequentlyappropriatedtoi. the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of thegoodsuntilcertainconditionsarefulfilled.Insuchcase,notwithstandingthedeliveryofthegoodsto a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goodsdoesnotpasstothebuyeruntiltheconditionsimposedbythesellerarefulfilled.Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill ii. 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.Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange iii. 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.

Risk Prima facie passes with propertyUnless otherwise agreed, the goods remain at the seller’s 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 buyer’s 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..

Sale by person not the ownerSubject 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 seller’s 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.

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Sale by one of joint ownersIf 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.

Sale by person in possession under voidable contractWhen the seller of goods 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 seller’s defect of title.

Seller or buyer in possession after saleWhere a person, having sold goods, continues or is in possession of the goods or of the documents of title i. to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods 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 goods to make the same.Where a person, having bought or agreed to buy goods, obtains with the consent of the seller, possession of ii. 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 goods shall have effect as if such lien or right did not exist.

3.5 Performance of the ContractThe performance of the contract is as per below:

Duties of seller and buyerIt 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.

Payment and delivery are concurrent conditionsUnless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of the goods.

DeliveryDelivery 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.

Effect of part deliveryA 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 goods, with an intention of severing it from the whole, does not operate as a delivery of the remainder.

Buyer to apply for deliveryApart from any express contract, the seller of goods in not bound to deliver them until the buyer applies for delivery.Rules as to delivery

Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is i. 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.

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Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending ii. themisfixed,thesellerisboundtosendthemwithinareasonabletime.Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller iii. 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.Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a iv. reasonable hour is a question of fact.Unless otherwise agreed, the expense of and incidental to putting the goods into a deliverable state shall v. be borne by the seller.

Delivery of wrong quantityWhere the seller delivers to the buyer a quantity of good less than he contracted to sell, the buyer may i. reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate.Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell the buyer ii. 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.Where the seller delivers to the buyer the goods he contract to sell mixed with goods of a different iii. 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.The provisions of this section are subject to any usage of trade, special agreement or course of dealing iv. between the parties.

Installment deliveriesUnless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments.i. Where there is a contract for the sale of goods to be delivered by stated installments which are to be ii. separately paid for, and the seller makes no delivery or defective delivery in respect of one or more installments, or the buyer neglects or refuses to take delivery of or pay for one or more installments, 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.

Delivery to carrier or wharfingerWhere, in pursuance of a contract of sale, the seller is authorised or required to send the goods to he buyer, i. delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission tothebuyer,ordeliveryofthegoodstoawharfingerforsafecustody,isprimafaciedeemedtobeadelivery of the goods to the buyer.Unless otherwise authorised by the buyer, the seller shall makes such contract with the carrier or ii. wharfingeronbehalfofthebuyerasmaybereasonablehavingregardtothenatureofthegoodsandtheother circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in course oftransitorwhilstinthecustodyofthewharfinger,thebuyermadedeclinetotreatthedeliverytothecarrierorwharfingerasadeliverytohimself,ormayholdthesellerresponsibleindamages.Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, iii. 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.

Risk where goods are delivered at distant placeWhere 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.

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Buyer’s right of examining the goodsWhere goods are delivered to the buyer which he has not previously examined, he is not deemed to have i. 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.Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, ii. 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,

Buyer not bound to return rejected goodsUnless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right sotodo,heisnotboundtoreturnthemtotheseller,butitissufficientitheintimatestothesellerthatherefusesto accept them.

Buyer not bound to return rejected goodsUnless 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.

Liability of buyer for neglecting or refusing delivery of goodsWhen 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.

3.6 Rights of Unpaid Seller Against the Goods"Unpaidseller"-Definition•The seller of goods is deemed to be an "unpaid seller" within the meaning of this Act•

When the whole of the price has not been paid or tendered. �When a bill of exchange or other negotiable instrument has been received as conditional payment and the �conditionsonwhichitwasreceivedhasnotbeenfulfilledbyreasonofthedishonouroftheinstrumentorotherwise.

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.

Unpaid seller’s rights•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 lien on the goods for the period while he is in possession of them, �in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the �possession of them.a right of re-sale as limited by this Act. �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 co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer.

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Seller’s lien•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 :-where the goods have been sold without any stipulations as to credit.a. where the goods have been sold on credit, but the term of credit has expiredb. where the buyer becomes insolventc. The seller may exercise his right of lien notwithstanding that he in possession of the goods as agent or �bailee for the buyer.

Part deliveryWhere 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.

Termination of lien•The unpaid seller of goods losses his lien thereon – �when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without a. reserving the right of disposal of the goods.when the buyer or his agent lawfully obtains possession of the goods,b. by waiver thereof.c. 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.

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.

Duration of transitGoods are deemed to be in course of transit from the time when they are delivered to a carrier or other i. 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.If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed ii. destination, the transit is at an end.If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges iii. 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.If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the iv. transit is not deemed to be at an end, even if the seller has refused to receive them back.When goods are delivered to a ship chartered by the buyer, it is a question depending on the circumstances v. of the particular case, whether they are in the possession of the master as a carrier or as agent of the buyer.Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that vi. behalf, the transit is deemed to be at an end.Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder vii. 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.

How stoppage in transit is effected•The unpaid seller may exercise his right to stoppage in transit either by taking actual possession of the i. goods, or by giving notice of his claim to the carrier or other bailee in whose possession the goods are.

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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.Whether notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of ii. 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.

Effect to sub-sale or pledge by buyer•Subject to the provisions of this Act, the unpaid seller’s right of lien or stoppage in transit is not affected i. by any sale or other disposition of the goods 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 ii. 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 seller’s 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 seller’s right of lien or stoppage in transit can only be exercised subject to the rights of the transfereeWhere the transfer is by way of pledge, the unpaid seller may require the pledge to have the amount iii. securedbythepledgesatisfiedinthefirstinstance,asfaraspossible,outofanyothergoodsorsecuritiesof the buyer in the hands of the pledge and available against the buyer.

Sale not generally rescinded by lien or stoppage in transit•Subject to the provisions of this section, a contract of sale is not rescinded by the mere exercise by an i. unpaid seller of his right of lien or stoppage in transit.Where the goods are of a perishable nature, or where the unpaid seller who has exercised his right of ii. 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, butthebuyershallnotbeentitledtoanyprofitwhichmayoccuronthere-sale.Ifsuchnoticesarenotgiven, the unpaid seller shall not be entitled to recover such damages and the buyer shall be entitled to theprofit,ifany,onthere-sale.Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells the goods, the iii. 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.Where the seller expressly reserves a right of re-sale in case the buyer should make default, and on, the iv. 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.

3.7 Suits for Breach of the ContractSuit for price•

Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully i. 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.Where under a contract of sale the price is payable on a day certain irrespective of delivery and the ii. 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.

Damages for non-acceptance•Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him i. for damages for non-acceptance.

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Damages for non-delivery•Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the i. seller for damages for non-delivery.

Specificperformance•SubjecttotheprovisionsofChapterIIoftheSpecificReliefAct,1877,inanysuitforbreachofcontracti. todeliverspecificorascertainedgoods,theCourtmay,ifitthinksfit,onetheapplicationoftheplaintiff,byitsdecreedirectthatthecontractshallbeperformedspecifically,withoutgivingthedefendanttheoption 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.

Remedy for breach of warranty•Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any a. 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-Set up against the seller the breach of warranty in diminution or extinction of the price; ora. Sue the seller for damages for breach of warrantyb. The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent c. him from suing for the same breach of warranty if he has suffered further damage.

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 both �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.

Interest by way of damages and special damages•Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages i. 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.Intheabsenceofacontracttothecontrary,theCourtmayawardinterestatsuchrateaitthinkfitoneii. the amount of the price-

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 a. the date on which the price was payable.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 b. the seller- from the date on which the payment was made.

3.8 MiscellaneousExclusion 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 �negative 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.

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.

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Auction sale•In the case of sale by auction

where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate i. contract of sale.the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other ii. customary manner, and, until such announcement is made, any bidder may retract his bid.a right to bid may be reserved expressly by or on behalf of the seller and, where such rights is expressly iii. 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,wherethesaleisnotnotifiedtobesubjecttoarighttobidonbehalfoftheseller,itshallnotbelawfuliv. 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.thesalemaybenotifiedtobesubjecttoareservedorupsetprice.v. if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the vi. buyer.

In contracts of sale, amount of increased or deceased to tax to be added or deducted•Unless a different intention appears from the terms of the contract, in the event of any tax of the nature i. described in sub-sectionbeing imposed, increased, decreased or remitted in respect of any goods after the making of any contract ii. 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.

if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of a. 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, andif such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid b. 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

The provisions of sub-section (1) apply to the following taxes, namely:-iii. any duty of customs or excise on goods.a. any tax on the sale or purchase of goods.b.

SavingsNothing in this Act or in any repeal effected thereby shall affect or be deemed to affect.i.

any right, title, interest, obligations or liability already acquired, accrued or incurred before the commencement a. of this Act, orany legal proceedings or remedy in respect of any such right, title, interest, obligation or liability, orb. anything done or suffered before the commencement of this Act, orc. any enactment relating to the sale of goods which is not expressly repealed by this Act, ord. any rule of law not inconsistent with this Act.e. ii. The rules of insolvency relating to contracts for the sale of goods shall continue to apply thereto,

notwithstanding anything contained in this Act.iii. 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.

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SummaryIn the Sale of Goods Act there is always a seller, a buyer, deliver and goods.•There cannot be a sale unless all these factors are present.•Whenever there is a sale, there is an agreement to sell. In turn to have an agreement, there has to be contract to •sell. This contract should essentially contain a Price and Warranty.There are certain obligations of the buyer and seller like payment and delivery. Where the buyer has a right •examine the goods, the seller has a right to get payment.The Act deals with situations like non-payment, part delivery or non-delivery, right to stoppage at transit, etc. •Boththepartiescanfilesuitsfordamages,non-acceptance,nondeliveryetc.

ReferencesSale of Goods Act, 1930• , [Online] Available at: <http://www.lawzonline.com/bareacts/sale-of-goods-act/Sale-of-Goods-Act.html> [Accessed 17 June 2013].T• he Sale of Goods Act, 1930, [Pdf] Available at: <http://dspace.jgu.edu.in:8080/dspace/bitstream/10739/67/1/Chapter%2016.pdf> [Accessed 17 June 2013].Aggarawala, O. P., 1973. • The Sale of Goods Act, 1930, 9th ed., Georg Thieme Verlag.Kapoor. G. S., 1973.• The Sale of Goods Act, 1930, New Age International.Dr. Jain, V. K., 2012.• Sale of goods act, [Video online] Available at: <http://www.youtube.com/watch?v=GsskI9-gYBk> [Accessed 17 June 2013].Gupta, N., 2013. • Lec 8 chapter sale of goods act 1930, [Video online] Available at: <http://www.youtube.com/watch?v=m8jgPoUqTZY> [Accessed 17 June 2013].

Recommended Reading2008• . EBC Sale of Goods Act, 1930, 24th ed., Eastern Book Co.Khan Sabri, S. M., T• he sale of goods act, 1930, with Sales tax act, 1951, and other relevant acts,1969. Khyber Law Publishers. The Indian Sale of Goods Act,• 1930, Butterworth Publisher.

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Self AssessmentInstallment deliveries are where __________1.

the buyer refuses to accept deliverya. the buyer accepts deliveryb. the buyer is not bound to accept deliveryc. there is no installmentd.

The unpaid seller of goods loses his lien thereon if _____________2. delivery in timea. delivery without reserving the rightb. delayed deliveryc. delivery is stoppedd.

The main aim of bank is to exchange ___________3. money for moneya. money for goodsb. goods for goodsc. property for moneyd.

The sale of goods act is applicable for which of the following?4. Actionable claima. Movable property claimb. Claim for moneyc. Claim for propertyd.

Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on which of the 5. following?

Remaindera. Goods on wholeb. Paid part of goodsc. Nothing, related to the goodsd.

Price means the money consideration for which of the following?6. Storing of goodsa. Accepting of goodsb. Purchase of goodsc. Sale of goodsd.

When does an agreement to sell becomes a sale?7. Thebuyerfindsasellera. There is a purchaseb. The property in the goods is to be transferredc. The goods is stored for selld.

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____________ means voluntary transfer of possession from one person to another.8. Deliverya. Saleb. Purchasec. Released.

As soon as the property in goods is transferred to the buyer _________.9. the risk prima facie passes with the propertya. the price passes on to the buyerb. the seller receives the price of the goodsc. the buyer and seller exchange the goodsd.

When is the seller of goods deemed to be an "unpaid seller?10. When the buyer refuses to paya. When the seller sell free of costb. When the whole of the price has not been paidc. Whenpriceisnotfixedforthegoodsd.

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Chapter IV

The Negotiable Instruments Act, 1881

Aim

The aim of the chapter is to:

introduce various forms of payment through negotiable instruments•

explain the importance of negotiable Instruments act 1881•

explicate various type of negotiable instruments•

Objectives

The objectives of this chapter are to:

explain the terms under negotiable Instrument Act 1881•

describe the procedure of various modes of exchange of instruments•

explicate the importance of Instruments act 1881•

Learning outcome

After reading the chapter, you will be able to:

understand the various terms under Negotiable act 1881•

describe the importance of negotiable instruments•

distinguish between the types of negotiable instruments•

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4.1 IntroductionThe Act was originally drafted in 1866 by the India Law Commission and introduced in December, 1867 in the Council and it was referred to a Select Committee. Objections were raised by the mercantile community to the numerous deviations from the English Law which it contained. The Bill had to be redrafted in 1877. After the lapse ofasufficientperiodforcriticismbytheLocalGovernments,theHighCourtsandthechambersofcommerce,theBillwasrevisedbyaSelectCommittee.InspiteofthisBillcouldnotreachthefinalstage.In1880,bytheOrderof the Secretary of State, the Bill had to be referred to a new Law Commission.

On the recommendation of the new Law Commission, the Bill was re-drafted and again it was sent to a Select Committee which adopted most of the additions recommended by the new Law Commission.The draft thus prepared for the fourth time was introduced in the Council and was passed into law in 1881 being the Negotiable Instruments Act, 1881 (26 of 1881).

4.2 Short TitleThis Act may be called the Negotiable Instruments Act, 1881. Local extent, saving of usage relating to hundis, etc., are included.

Commencement.-It extends to the whole of India but nothing herein contained affects the Indian Paper Currency Act, 1871 (3 of 1871), section 2, or affects any local usage relating to any instrument in an oriental language; provided that such usages may be excluded by any words in the body of the instrument, which indicate and intention that thelegalrelationsofthepartiestheretoshallbegovernedbythisAct;anditshallcomeintoforceonthefirstdayof March, 1882.

4.3 Repeal of Enactments[Rep. by the Amending Act, 1891 (12 of 1891), sec. 2 and Sch. I, Pt. I]

4.4 Notes, Bills and ChequesPromissory noteA "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.

IllustrationI promise to pay B on order Rs. 500".a. "I acknowledge myself to be indebted to B in Rs. 1, 000, to be paid on demand, for value received."b. "Mr. B, paids. 1,000."c. "I promise to pay B Rs.500 and all other sums which shall be due to him."d. IpromisetopayBRs.500firstdeductingthereoutanymoneywhichhemayoweme."e. "I promise to pay B Rs.500 seven days after my marriage with C."f. "I promise to pay B Rs.500 on D's death, provided D leaves me enough to pay that sum."g. "I promise to pay B Rs.500 and to deliver to him my black horse on 1st January next."h. The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked i. (c), (d), (e), (f), (g) and (h) are not promissory notes.

Bills of Exchange: A Bill of Exchange is an instrument in writing containing an unconditional order, i. 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.

A promise or order to pay is not "conditional", within the meaning of this section and section 4, by reason of the time for payment of the amount or any installment thereof being expressed to be on the lapse of certain period after theoccurrenceofaspecifiedeventwhich,accordingtotheordinaryexpectationofmankind,iscertaintohappen,although the time of its happening may be uncertain.

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The sum payable may be "certain", within the meaning of this section and section and section4, although it includes future indicated rater of change, or is according to the course of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an installment, the balance unpaid shall become due.

The person to whom it is clear that the direction is given or that payment is to be “certain person” within the meaning of this section and section 4, although he is mismatched or designated only by description.

Cheques:A''cheque"isabillofexchangedrawnonaspecifiedbankerandnotexpressedtobepayableotherwisethan on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Drawer, draweeThe maker of a bill of exchange or Cheque is called the "drawer"; the person thereby directed to pay is called the "Drawee".

"Drawee in case of need": When the bill or in any endorsement thereon the name of any person is given in •addition to the drawee to be resorted to in case of need such person is called a "drawee in case of need"."Acceptor": After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than •one, upon one of such part, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the "acceptor"."Acceptor for honour": [When a bill of exchange has been noted or protested for non-acceptance or for better •security], and any person accepts it supra protest for honour of the drawer or of any one of the endorser, such person is called an "acceptor for honour"."Payee": The person named in the instrument, to whom or to whose order the money is by the instrument directed •to be paid, is called the "payee"."Holder": The "holder" of a promissory note, bill of exchange or cheque means any person entitled in his own •name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss •or destruction."Holder in due course": "Holder in due course" means any person who for consideration became the possessor •of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorse thereof, if [payable toorder]beforetheamountmentionedinitbecamepayable,andwithouthavingsufficientcausetobelievethatany defect existed in the title of the person from whom he derived his title."Payment in due course": "Payment in due course" means payment in accordance with the apparent tenor of •the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned."Inland instrument": A promissory note, bill of exchange or cheque drawn or made in [India] and made payable •in, or drawn upon any person resident in, [Indian] shall be deemed to be an inland instrument."Foreign instrument": Any such instrument not so drawn, made or made payable shall be deemed to be a foreign •instrument."Negotiable instrument": A "negotiable instrument" means a promissory note, bill of exchange or cheque payable •either to order or to bearer.

IllustrationA promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable to a a. particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or b. on which the only or last endorsements is an endorsement is an endorsement in blank.

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Negotiation: When a promise note, bill of exchange or cheque is transferred to any person, so as to continue •the person the holder thereof, the instrument is said to be negotiated.Endorsement: When the marker or holder of an negotiable instrument signs the same, otherwise than as such •maker, for the purpose of negotiation, one 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 a negotiable instrument, he is said to indorse the same, and is called the endorser.Endorsement in blank and in full-endorsee: If the endorser signs his name only, the endorsement is said to be •"in blank", and if he adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specifiedperson,theendorsementissaidtobe"infull",andthepersonsospecifiediscalledthe"endorsee"ofthe instrument.

TheprovisionsofthisActrelatingtoapayeeshallapplywiththenecessarymodificationstoanendorsee.

Ambiguous instruments: Where an instrument may be construed either as a promissory note or bill of exchange, •the holder may at his election treat it as either and the instrument shall be thenceforward treated accordingly.Whereamountisstateddifferentlyinfiguresandwords:Iftheamountundertakenororderedtobepaidisstated•differentlyinfiguresandinwords,theamountstatedinwordsshallbetheamountundertakenororderedtobe paid.Instrumentspayableondemand:Apromissorynoteorbillofexchange,inwhichnotimeforpaymentisspecified,•and, a cheque, are payable on demand.Inchoate stamped instruments: Where one person signs and delivers to another a paper stamped in accordance •with the law relating to negotiable instruments then in force in [India], and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to makeorcomplete,asthencasemaybe,uponitanegotiableinstrument,instrument,foranyamountspecifiedtherein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount, provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid there under."At sight", "On presentment", "After sight": In a promissory note or bill of exchange the expressions "at •sight" and "on presentment" means on demand. The expression "after sight" means, in a promissory note, after presentment for sight, and, in a bill of exchange after acceptance, or noting for non-acceptance, or nothing for non-acceptance, or protest for non-acceptance. "Maturity": The maturity of a promissory note or bill of exchange is the date at which it falls due.•Days of grace.-Every promissory note or bill of exchange which is not expressed to be payable on demand, at •sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable.When day of maturity is a holiday: When the day on which a promissory note or bill of exchange is at maturity •is a public holiday, the instrument shall be deemed to be due on the next preceding business day.

4.4.1 Parties to Notes, Bills and Cheques

Capacity to make, etc., promissory notes, etc.Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.A minor may draw, indorse, deliver and negotiate such instruments to as to bind all parties except himself.

Liability of agent signingAn agent who sign his name to a promissory note, bill of exchange or cheque without indicating thereon that he signs as agent, or that he does not intend thereby to incur personal responsibility, is liable personally on the instrument, except to those who induced him to sign upon the belief that the principal only would be held liable.

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Liability of legal representative signingA legal representative of a deceased person who signs his name to a promissory note, bill of exchange or cheque is liable personally thereon unless he expressly limits his liability to the extent of the assets received by him as such.

Liability of drawerThe drawer of a bill of exchange or cheque is bound in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour has been give to, or received by, the drawer as hereinafter provided.

Liability of drawee of chequeThedraweeofachequehavingsufficientfundsofthedrawerinhishandsproperlyapplicabletothepaymentofsuch cheque must pay the cheque when duly required so to do, and, in default of such payment, must compensate the drawer for any loss or damage caused by such default.

Liability of maker of note and acceptor of billIn the absence of contract to the contrary, the maker of a promissory note and the acceptor before maturity of a bill of exchange are bound to pay the amount thereof at maturity according to the apparent tenor of the note or acceptance respectively, and the acceptor of a bill of exchange at or after maturity is bound to pay the amount thereof to the holder on demand.

Only drawee can be acceptor except in need for honourNo person except the drawee of a bill of exchange, or all or some of several drawees, or a person named therein as a drawee in case of need, or an acceptor for honour, can bind himself by an acceptance.

Acceptance by several drawee not partnersWhere there are several drawees of a bill of exchange who are not partners, each of them can accept if for himself, but non of the them can accept it for another without his authority.

Liability of endorserIn the absence of a contract to the contrary, whoever indorses and delivers a negotiable instrument before maturity, without in such endorsement, expressly excluding or making conditional his own liability, is bound thereby to every subsequent holder, in case of dishonour by the drawee, acceptor or maker, to compensate such holder for any loss or damage caused to him by such dishonor, provided due notice of dishonour has been given to, or received by, such endorser as hereinafter provided.Every endorser after dishonour is liable as upon an instrument payable on demand.

Liability of prior parties to holder in due courseEvery prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied.

Maker, drawer and acceptor principalsThe maker of a promissory note or cheque, the drawer of bill of exchange until acceptance, and the acceptor are, in the absence of a contract to the contrary, respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as sureties for the maker, drawer or acceptor, as the case may be.

Surety shipWhen the holder of an accepted bill of exchange enters into any contract with the acceptor which, under section 134 or 135 of the Indian Contract Act, 1872 (9 of 1872), would discharge the other parties, the holder may expressly reserve his right to charge the other parties, and in such case they are not discharged.

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Discharge of endorser's liabilityWhere the holder of a negotiable instrument, without the consent of the endorser, destroys or impairs the endorser's remedy against a prior party, the endorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity.

Acceptor bound, although endorsement forgedAn acceptor of a bill of exchange already indorsed is not relieved from liability by reason that such endorsement is forged, if he knew or had reason to believe the endorsement to be forged when he accepted the bill.

Acceptance of bill drawn in fictitious namenacceptorofabillofexchangedrawninafictitiousnameandpayabletothedrawer’sorderisnot,byreasonthatsuchnameisfictitious,relievedfromliabilitytoanyholderinduecourseclaimingunderanendorsementbythesame hand as the drawer’s signature, and purporting to be made by the drawer.

Negotiable instrument made, etc., without considerationA negotiable instrument made, drawn, accepted, indorsed, or transferred without consideration, or for a consideration which fails, creates no obligation of payment between the parties to the transaction. But if any such party has transferred the instrument with or without endorsement to a holder for consideration, such holder, and every subsequent holder deriving title from him, may recover the amount due on such instrument from the transferor for consideration or any prior party thereto.

Partial absence or failure of money-considerationWhen the consideration for which a person signed a promissory note, bill of exchange or cheque consisted of money, and was originally absence in part relation with such signer id entitled to receive from him is proportionally reduced.The drawer of a bill of exchange stands in immediate relating with the acceptor. The maker of a promissory note, bill of exchange or cheque stands in immediate relation with the payee, and the endorser with his endorsee. Other signers may by agreement stand in immediate relation with a holder.

Partial failure of consideration not consisting of moneyWhere a part of the consideration for which a person signed a promissory note, bill of exchange or cheque, though not consisting of money, is ascertainable in money without collateral enquiry, and there has been a failure of that party, the sum which a holder standing in immediate relation with such signer is entitled to receive from him is proportionally reduced.

4.4.2 NegotiationDeliveryThe making, acceptance or endorsement of a promissory note, bill of exchange or cheque is completed by delivery, actual or constructive.As between parties standing in immediate relation; delivery to be effectual must be made by the party making accepting or indorsing the instrument, or by a person authorised by him in that behalf.As between such parties and any holder of the instrument other than a holder in due course, it may be shown that the instrument was delivered conditionally or for a special purposes only, and not for the purpose of transferring absolutely the property therein.A promissory note, bill of exchange or cheque payable to bearer is negotiable by the deliver thereof.

Negotiation by deliverySubject to the provisions of section 58, a promissory note, bill of exchange or cheque payable to bearer is negotiable by deliver thereof.Exception.-a promissory note, bill of exchange or cheque delivered on condition that it is not to take effect except in a certain event is not negotiable (except in the hands of a holder for value without notice of the condition) unless such event happens.

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IllustrationA, the holder of a negotiable instrument payable to bearer, which is in the hands of A's banker, who is at the time the banker of B, directs, the banker to transfer the instrument to B's credit in the banker's account with B. The banker does so, and accordingly now possesses the instrument as B's agent. The instrument has been negotiated, and B has become the holder of it.

Negotiation by endorsementsSubject to the provisions of section 58, a promissory note, bill of exchange or cheque [payable to order], is negotiable by the holder by endorsement and delivery thereof.

Effect of endorsementThe of a negotiable instrument followed by delivery transfers to the indorsee the property therein with the right of further negotiation; but the indorsement may be express words, restrict or exclude such right, or may merely constitute the indorsee an agent to indorse the instrument, or to receive its contents for the indorser, or for some otherspecifiedperson.

Who may negotiateEvery sole maker, drawer, payee or indorsee, or all of several joint makers, drawers, payee or indorsees, of a negotiable instrument may, if the negotiability of such instrument has not been restricted or excluded as mentioned in section 50, endorse and negotiate the same.

Instrument indorsed in blankSubject to the provisions hereinafter contained crossed cheques, a negotiable instrument indorsed in blank is payable to the bearer thereof even although originally payable to order.

Endorsement for part of sum dueNo writing on a negotiable instrument is valid for the purpose of negotiation of such writing purports to transfer only a part of the amount appearing to be due on the instrument; but where such amount has been partly paid a note to that effect may be indorsed on the instrument, which may then be negotiated for the balanceviii. Legal representative cannot by delivery only negotiate instrument indorsed by deceased person cannot negotiate by delivery only a promissory note, bill of exchange or cheque payable to order and indorsed by the deceased but not delivered.

Instrument obtained by unlawful means or for unlawful considerationWhen a negotiable instrument has been lost, or has been obtained form any maker, acceptor or holder thereof by means of offence or fraud, or for an unlawful consideration, no possessor or indorsee who claims through the person who found or so obtained the instrument is entitled to receive the amount due thereon from such maker, acceptor or holder, or from any party prior to such holder, unless such possessor or indorsee is, or some person through whom he claims was, a holder thereof in due course.

4.4.3 PresentmentPresentment for acceptanceAbillofexchangepayableaftersightmust,ifnotimeorplaceisspecifiedthereinforpresentment,bepresentedto the draweee thereof for acceptance, if he can, after reasonable search, be found , by a person entitled to demand acceptance, within a reasonable time after it is drawn, and in business hours on a business day, in default of such presentment, on party thereto is liable thereon to the person making such default.

If the drawee cannot, after reasonable search, be found, the bill is dishonoured.

If the bill is directed to the drawee at a particular place, it must be presented at that place, and if art the due date for presentment he cannot, after reasonable search, be found thereon, the bill is dishonoured.Presentment of promissory note for sight must be presented to the maker thereof for sight (if he can after reasonable search be found) by a person entitled to demand payment, within a reasonable time after it is made and in business hours on a business day. In default of such presentment, no party thereto is liable thereon to the person making such default.

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Presentment for paymentPromissory notes, bill of exchange and cheques must be presented for payment to the maker, acceptor or drawee thereof respectively, by or on behalf or the holder as hereinafter provided. In default of such presentment, the other parties thereto are not liable thereon to such holder.Whereauthorisedbyagreementorusage,apresentmentthroughthepostofficebymeansofaregisteredletterissufficient.

Exception:Whereapromissorynoteispayableondemandandisnotpayableataspecifiedplace,nopresentmentis necessary in order to charge the maker thereof.Notwithstanding anything contained in section 6, where an electronic image of a truncated cheque is presented for payment, the drawee bank is entitled to demand any further information regarding the truncated cheque from the bank holding the truncated cheque in case of any reasonable suspicion about the genuineness of the apparent tenor of instrument, and if the suspicion is that of any fraud, forgery, tampering or destruction of the instrument, it is entitled tofurtherdemandthepresentmentofthetruncatedchequeitselfforverification;providedthatthetruncatedchequeso demanded by the drawee bank shall be retained by it, if the payment is made accordingly.

Honours for presentmentPresentment for payment must be made during the usual hours of business and, if at a banker’s, within banking hours.

Presentment for payment of instrument payable after date or sight.Apromissorynoteorbillofexchange,madepayableata specifiedperiodafterdateor sight thereof,mustbepresented for payment at maturity.

Apromissorynotepayablebyinstallmentsmustbepresentedforpaymentonthethirddayafterthedatefixedforpayment of each installment; and non-payment on such presentment has the same effect as non-payment of a note at maturity.

Presentment for payment of instrument payable at specified place and not elsewhereApromissorynote,billofexchangeorchequemade,drawnoracceptedpayableataspecifiedplaceandnotelsewheremust, in order to charge any party thereto, be presented for payment at that place.

Instrument payable at specified placeApromissorynoteorbillofexchangemade,drawnoracceptedpayableataspecifiedplacemust,inordertochargethe maker or drawer thereof, be presented at the place.

Presentment when maker, etc., has no known place of business or residenceIfthemaker,draweeoracceptorofanegotiableinstrumenthasnoknownplaceofbusinessorfixedresidence,andnoplaceisspecifiedintheinstrumentforpresentmentforacceptanceorpaymentsuchpresentmentmaybemadeto him in person wherever he can be found.

Presentment of cheque to charge drawer[Subject to the provisions of section 84] a cheque must, in order to charge the drawer, be presented at the bank upon which it is drawn before the relation between the drawer and his banker has been altered to the prejudice of the drawer.

Presentment of cheque to charge any other personA cheque must, in order to charge any person except the drawer, be presented within a reasonable time after delivery thereof by such person.

Presentment of instrument payable on demandSubject to the provisions of section 31, a negotiable instrument payable on demand must be presented for payment within a reasonable time after it is received by the holder receives it.

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Presentment by or to agent, representative of deceased, or assignee of insolventPresentment for acceptance or payment may be made to the duly authorised agent of the drawee, maker or acceptor, as the case may be, or, where the drawee, maker or acceptor has died, to his legal representative, or, where he has been declared an insolvent, to his assignee.

When presentment unnecessaryNo presentment for payment is necessary, and the instrument is dishonoured at the due date for presentment, in any of the following cases:

if the maker, drawee or acceptor intentionally prevents the presentment of the instrument•if the instrument being payable at his place of business, he closes such place on a business day during the usual •business hoursiftheinstrumentbeingpayableatsomeotherspecifiedplace,neitherhenoranypersonauthorisedtopayit•attends at such place during the usual business hoursiftheinstrumentnotbeingpayableatanyspecifiedplace,hecannotafterduesearchbefound:•

as against any party sought to be charged therewith, if he has engaged to pay notwithstanding non- �presentmentas against any party if, after maturity, with knowledge that the instrument has not been presented.- he �makes a part payment on account of the amount due on the instrument, or promises to pay the amount due therein whole or in part, or otherwise waives his right to take advantage of any default in presentment for paymentas against the drawer, if the drawer could not suffer damage from the want of such presentment �

Liability of banker for negligently dealing with bill presented for paymentWhenabillofexchange,acceptedpayableataspecifiedbank,hasbeendulypresentedthereforpaymentanddishonoured, if the banker so negligently or improperly keeps, deals with or delivers back such bill as to cause loss to the holder, he must compensate the holder for such loss.

4.4.4 Discharge from Liability on Notes, Bills and ChequesDischarge from liabilityThe maker, acceptor or indorser respectively of a negotiable instrument is discharged from liability thereon-

BY cancellation.-to a holder thereof who cancels such acceptor’s or indorser’s name with intent to discharge a. him, and to all parties claiming under such holderBy release- to a holder thereof who otherwise discharges such maker, acceptor or indorser, and to all parties b. deriving title under such holder after notice of such dischargeBy payment- to all parties thereto, if the instrument is payable to bearer, or has been indorsed in blank, and c. such maker, acceptor or indorser makes payment in due course of the amount due thereon

Discharge by allowing drawee more than forty-eight hours to acceptIf the holder of a bill of exchange allows the drawee for more than [forty eight] hours, exclusive of public holidays, to consider whether he will accept the same, all previous parties not consenting to such allowance are thereby discharged from liability to such holder.

When cheque not duly presented any drawer damaged therebywhere a cheque is not presented for payment within a reasonable time of its issue, and the drawer or person a. on whose account it is drawn had the right, at the time when presentment ought to have been made, as between himself and the banker, to have the cheque paid and suffers actual damage through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of the banker to a large amount than he would have been if such cheque had been paidin determining what is a reasonable time, regard shall be had to the nature of the instrument, the usage of b. trade and of bankers, and the facts of the particular case

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the holder of the cheque as to which such drawer or person is so discharged shall be a creditor, in lieu of c. such drawer or person, of such banker to the extent of such discharge and entitled to recover the amount from him

IllustrationA draws a cheque for Rs. 1,000, and, when the cheque ought to be presented, has funds at the bank to meet it. The bank fails before the cheque is presented. The drawer is discharged, but the holder can prove against the bank for the amount of the cheque.A draws a cheque at Umballa on a bank in Calcutta. The bank fails before the cheque could be presented in ordinary course. A is not discharged, for he has not suffered actual damage through any delay in presenting the cheque.

Cheque payable to orderwhere a cheque payable to order purports to be endorsed by or on behalf of he payee, the drawee is discharged a. by payment in due coursewhere a cheque is originally expressed to be payable to be payable to bearer, the drawee is discharged by b. payment in due course to the bearer thereof, notwithstanding any endorsement whether in full or in blank appearing thereon, and notwithstanding that any such endorsement purports to restrict of exclude further negotiation

Drafts drawn by one branch of a bank on another payable to order where any draft, that is an order to pay money, drawnbyoneofficeofabankuponanotherofficeofthesamebankforasumofmoneypayabletoorderondemand,purports to be endorsed by or behalf of the payee, the bank is discharged by payment in due course.

Parties not consenting discharged by qualified or limited acceptanceIftheholderofabillofexchangeacquiescesinqualifiedacceptance,oronelimitedtopartofthesummentionedinthe bill, or which substituted a different place or time for payment or which, where the drawees are not partners, is not signed by all the drawees, all previous parties whose consent is not obtained to such acceptance are discharged as against the holder and those claiming under him, unless on notice given by the holder they assent to such acceptance.

An acceptance is qualifiedwhere it is conditional, declaring the payment to be dependent or the happening of an event therein stateda. where it undertakes the payment of part only of the sum ordered to be paida. where,noplaceofpaymentbeingspecifiedontheorder,itundertakesthepaymentataspecifiedplace,b. andnototherwiseorelsewhere,orwhereaplaceofpaymentbeingspecifiedintheorder,itundertakesthepayment at some other place and not otherwise or elsewherewhere it undertakes the payment at a time other than that at which under the order or would be legally duec.

Affect of material alterationAny material alteration of a negotiable instrument renders the same void as against anyone who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties

Alteration by endorsee:- And any such alteration, if made by an endorsee, discharges his endorser from all liability to him in respect of the consideration thereof.The provisions of this section are subject to those of sections 20, 49, 86 and 125.

Acceptor or endorser bound notwithstanding previous alterationAn acceptor or endorser of a negotiable instrument is bound by the acceptance or endorsement notwithstanding any previous alteration of the instrument.

Extinguishments of rights of action on bill in acceptor’s handsIf a bill of exchange which has been negotiated is, at or after maturity, held by the acceptor in his own right, all rights of action thereon are extinguished.

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4.4.5 Notice of DishonorDishonor by non- acceptanceA bill of exchange is said to be dishonored by non-acceptance when the drawee, or one of several drawee not being partners, makes default in acceptance upon being duly required to accept the bill, or where presentment is excused and the bill is not accepted.

Wherethedraweeisincompetenttocontract,ortheacceptanceisqualifiedthebillmaybetreatedasdishonored.

Dishonors by non-paymentA promissory note, bill of exchange or cheque is said to be dishonored by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.

By and to whom notice should be givenWhen a promissory note, bill of exchange or cheque is dishonored by non-payment, the holder thereof, or some party thereto who remains liable thereon, must given notice that the instrument has been so dishonored to all other parties whom the holder seeks to make severally liable thereon, and to some one of several partied whom he seeks to make jointly liable thereon.Nothing in this section renders it necessary to give notice to the maker of the dishonored promissory note, or acceptor of the dishonored bill of exchange or cheque.

Mode in which notice may be givenNotice of dishonor may be given to a duly authorised agent of the person to whom it is required to be given, or , where he has died, to his legal representative, or, where he has been declared an insolvent, to his assignee, maybe oral or written, may, if written, be sent by post, and may be in any form, but it must inform the party to whom it is given, either in express terms or by reasonable intendment that the instrument has been dishonored, and in what way, and that he will be held liable thereon, and it must be given within a reasonable time after dishonor, at the place of business or ( in case such party has no place of business) at the residence of the party for whom it is intended.

Party receiving must transmit notice of dishonorAny party receiving notice of dishonor must in order to render any prior party liable to himself, give notice of dishonor to such party within a reasonable time , unless such party otherwise receives due notice as provided by section 93.

Agent for presentmentWhen the instrument is deposited with an agent for presentment, the agent is entitled to the same time to give notice to his principal as if he were the holder giving notice of dishonor, and the principal is entitled to a further like period to give notice of dishonor.

When party to whom notice given is deadWhen the party to whom notice of dishonor is dispatched is dead, but the party dispatching the notice is ignorant ofhisdeath,thenoticeissufficient.

When notice of dishonor is unnecessaryNotice of dishonor is necessary:

when it is dispensed with by the party entitled theretoa. in order to charge the drawer, when he has countermanded paymentb. when the party charged could not suffer damage for want of noticec. when the party entitled to notice cannot after due search be found, or the party bound to give notice is, for d. any other reason, unable without any fault of his own to give itto charge the drawers, when the acceptors is also a drawere. in the case of a promissory note which is not negotiablef. when the party entitled to notice, knowing the facts, promise unconditionally to pay the amount due on the g. instrument

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4.4.6 Noting and protestNotingWhen a promissory note or bill of exchange has been dishonored non-acceptance or non-payment, the holder may cause such dishonor to be noted by a notary public upon the instrument, or upon a paper attached thereto, or partly upon each.

Such note must be made within a reasonable time after dishonor, and must specify the date of dishonor, the reason, if any, assigned for such dishonor, or, if the instrument has not been expressly dishonored, the reason why the holder treats it as dishonored, and the notary’s charges.ProtestWhen a promissory note or bill of exchange has been dishonored by non-acceptance or non-payment, the holder may,withinareasonabletime,causesuchdishonortobenotedandcertifiedbyanotarypublic.Suchdishonortobenotedandcertifiedbyanotarypublic.Suchcertificateiscalledaprotest.

Protest for bitter security.- When the acceptor of a bill of exchange has become insolvent, or his credit has been publicly impeached, before the maturity of the bill, the holder may, within a reasonable time, cause a notary public to demand better security of the acceptor, and on its being refused may, with a reasonable time, cause such facts to benotedandcertifiedasaforesaid.Suchcertificateiscalledaprotestforbettersecurity.

Contents of protestA protest under section 100 must contain:

either the instrument itself, or a literal transcript of the instrument and of everything written or printed •thereupon;the name of the person for whom and against whom the instrument has been protested;•a statement that payment or acceptance, or better security, as the case may be, has been demanded of such person •by the notary public; the terms of his answer, if any, or a statement that he could not be found;when the note or bill has been dishonored, the place and time of dishonor, and, when better security has been •refused, the place and time of refusal;the subscription of the notary public making the protest;•in the event of an acceptance for honor or of a payment for honor, the name of the person by whom, of the person •whom, and the manner in which, such acceptance or payment was offered and effected.

Notice of protestWhen a promissory note or bill of exchange is required by law to be protested; notice of such protest must be given instead of notice of dishonor, in the same manner and subject to the same conditions; but the notice may be given by the notary public who makes the protest.

Protest of non-payment after dishonor by non-acceptanceAll bills of exchange drawn payable at some other place than the place mentioned as the residence of the drawee, and which are dishonored by non-acceptance, may, without further presentment to the drawee, be protested for non-payment,intheplacespecifiedforpayment,unlesspaidbeforeoratmaturity.

Protest of foreign billsForeign bills of exchange must be protested for dishonor when such protest is required by the law of the place where they are drawn.

4.4.7 Reasonable Time

In determining what is a reasonable time for presentment for acceptance or payment, for giving notice of dishonor •and for noting, regard shall be had to the nature of the instrument and the usual course of dealing with respect to similar instruments; and., in calculating such time, public holidays shall be excluded.Reasonable time of giving notice of dishonor.•

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If the holder and the party to whom notice of dishonor is give carry on business or live (as the case may be) in •different places, such notice is given within a reasonable time if it is dispatched by the next post or on the day next after the day of dishonor.If the said parties carry on business or live in the same place, such notice is given within a reasonable time if it •is dispatched in time to reach its destination on the day next after the day of dishonor.

Reasonable time for transmitting such noticeA party receiving notice of dishonor, who seeks to enforce his right against a prior party, transmits the notice within a reasonable time if he transmits it within the same time after its receipt as he would have had to give notice if he had been the holder.

4.4.8 Acceptance and payment for honor and reference in case of need

Acceptance for honourWhen a bill of exchange has been noted or protested for non-acceptance or for better security, any person not being a party already liable thereon may, with the consent of the holder, by writing on the bill accept the same for the honour of any party thereto.

How acceptance for honour must be madeA person desiring to accept for honour must, 1[by writing on the bill under his hand], declare that he accepts under protest the protested bill for the honour of the drawer or of a particular endorser whom he names, or generally for honour.

Acceptance not specifying for whose honor it is madeWhere the acceptance does not express for whose honor it is made for the honor of the drawer.

Liability of acceptor for honorAn acceptor for honor binds himself to all parties subsequent to the party for whose honor he accepts to pay the amount of the bill if the drawee do not; and such party and all prior parties are liable in their respective capacities to compensate the acceptor for honor for all loss or damage sustained by him in consequence of such acceptance.But an acceptor for honor is not liable to the holder of the bill unless it is presented, or (in case the address given by such acceptor on the bill is a place other than the place where the bill is made payable) forwarded for presentment, not later than the day next after the day of its maturity.

When acceptor for honor may be chargedAn acceptor for honor cannot be charged unless the bill has at its maturity been presented to the drawee for payment, and has been dishonored by him, and noted or protested for such dishonor.

Payment for honourWhen a bill of exchange has been noted or protested for non-payment, any person may pay the same for the honour of any part liable to pay the same; provided that the person so paying [or his agent in that behalf] has previously declared before a notary public the party for whose honour he pays, and that such declaration has been recorded by such notary public.

Right of payer for honorAny person so paying is entitled to all the rights in respect of the bill, of the holder at the time of such payment, and may recover from the party for whose honor he pays all sums so paid, with interest thereon and with all expenses properly incurred in making such payment.

Drawee in case of needWhere a drawee in case of need is named in a bill of exchange, or in any endorsement thereon, the bill is not dishonored until it has been dishonored by such drawee.

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Rules as to compensationThe compensation payable in case of dishonour of promissory note, bill of exchange or cheque, by any party liable to the holder or any indorsee, shall be determined by the following rules:

The holder is entitled to the amount due upon the instrument together with the expense property incurred a. in presenting, noting and protesting it;When the person charged resides at a place different from that at which the instrument was payable, the b. holder is entitled to receive such sum at the current rate of exchange between the two places;An endorser who, being liable, has paid the amount due on the same is entitled to the amount so paid with c. interest at [eighteen per centum] per annum from the date of payment until tender or realisation thereof, together with all expenses caused by the dishonour and payment.When the person charged and such endorser resides at different places, the endorser is entitled to receive d. such sum at the current rate of exchange between the two places;The party entitled to compensation may draw a bill upon the party, liable to compensate him, payable at e. sight or on demand, for the amount due to him, together with all expenses properly incurred by him. Such bill must be accompanied by the instrument dishonoured and the protest thereof (if any). If such bill is dishonoured , the party dishonoring the same is liable to make compensation thereof in the same manner as in the case of the original bill.

4.4.9 Special Rules of EvidencePresumptions as to negotiable instruments of considerationUntil the contrary is proved, the following presumptions shall be made:

of consideration-that every negotiable instrument was made or drawn for consideration, and that every a. such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for considerationas to date- that every negotiable instrument bearing a date was made or drawn on such dateb. as to time of acceptance- that every accepted bill of exchange was accepted within a reasonable time after c. its date its date and before its maturityas to time of transfer.- that every transfer of a negotiable instrument was made before its maturityd. as to order of endorsements - that the endorsements appearing upon a negotiable instrument were made in e. the order in which they appear thereonas to stamps-that a lost promissory note, bill of exchange or cheque was duly stampedf. that holder is a holder in due course - that the holder of a negotiable instrument is a holder in due course; g. provided that, where the instrument has been contained from its lawful owner, or form any person in lawful custody thereof, by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him

Presumption on proof of protestIn a suit upon an instrument which has been dishonored, the Court shall, on proof of the protest, presume the fact of dishonor, unless and until such fact is disproved

Estoppels against denying original validity of instrumentNo maker of a promissory note, and no drawer of a bill of exchange or cheque, and no acceptor of a bill of exchange for the honor of the drawer shall, on proof of the protest, presume the fact of dishonor, unless and until validity of the instrument as originally made or drawn

Estoppels against denying capacity of payee to endorseNo maker of a promissory note and no acceptor of a bill of exchange or cheque, and no acceptor of a bill of exchange [payable to order] shall, in suit thereon by a holder in due course, be permitted to deny the payee's capacity, at the rate or the note or bill, to endorse the same.

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Estoppels against denying signature or capacity of prior partyNo. endorser of a negotiable instrument shall, in a suit thereon by a subsequent holder, be permitted to deny the signature or capacity to contract to contract of any prior party to the instrument.

4.4.10 Crossed ChequesWhere a cheque bears across its face an addition of the words "and company" or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words "not negotiable". That addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally.

Where a cheque bears across its face an addition of the name of a banker, either with or without the words "not negotiable", that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker.

Where a cheque is uncrossed, the holder may cross it generally or specially. Where a cheque is crossed generally, the holder may cross it specially. Where a cheque is crossed generally or specially, the holder may add the words "not negotiable". Where a cheque is crossed specially, the banker to whom it is crossed may again cross it specially to another banker, his agent, for collection

Payment of cheque crossed generallyWhere a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker.

Payment of cheque crossed speciallyWhere a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed, or his agent for collection.

Where a cheque is crossed specially to more than one banker, except when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse payment thereof.

Payment in due course of crossed chequeWhere the banker on whom a crossed cheque is drawn has paid the same in due course, the banker paying the cheque, and (in case such cheque has come to the hands of the payee) the drawer thereof, shall respectively be entitled to the same rights, and be placed in the same position in all respects, as they would respectively be entitled to and placed in if the amount of the cheque had been paid to and received by the true owner thereof.

Payment of cheque crossed specially more than onceAny banker paying a cheque crossed generally otherwise than to a banker or a cheque crossed specially otherwise than to the banker to whom the same is crossed, or his agent for collection, being a banker, shall be liable to the true owner of the cheque for any loss he may sustain owing to the cheque having been so paid.

Cheque bearing "not negotiable"A person taking a cheque crossed generally or specially, bearing in either case the words "not negotiable", shall not have and shall not be capable of giving, a better title to the cheque than that which the person from whom he took it had.

Non-liability of banker receiving payment of chequeA banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.

4.4.11 Bills in SetsSet of billsBills of exchange may be drawn in parts, each part being numbered and containing a provision that it shall continue payable only so long as the others remain unpaid. All the parts together make a set; but the whole set constitutes

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only one bill, and is extinguished when one of the parts if a separate bill, would be extinguished.Exception:- When a person accepts or indorses different parts of the bill in favour of different persons, he hand the subsequent endorsers of each are liable on such part as if it were a separate bill.

Holder of first acquired part entitled to allAsbetweenholdersinduecourseofdifferentpartsofthesameset,hewhofirstacquiredtitletohispartisentitledto the other parts and the money represented by the bill.

4.4.12 International LawLaw governing liability of maker, acceptor or endorser of foreign instrumentIn the absence of a contract to the contrary, the liability of the maker of drawer of a foreign promissory note, bill of exchange or cheque is regulated in all essential matters by the law of the place where he made the instrument, and the respective liabilities of the acceptor and endorser by the law of the place where the instrument is made payable.

Law of place of payment governs dishonoursWhere a promissory note, bill of exchange or cheque is made -payable in a different place from that in which it is made or endorsed, the law of the place, where it is made payable determines what constitutes dishonour and what noticeofdishonourissufficient.

Instrument made, etc. out of India, but in accordance with the law of IndiaIf a negotiable instrument is made, drawn accepted or endorsed [outside India], but in accordance with the [law of India] the circumstance that any agreement evidenced by such instrument is invalid according to the law of the country wherein it was entered into does not invalidate any subsequent acceptance or endorsement made thereon [within India].

4.4.13 Penalties in Case of Dishonor of Certain cheque for Insufficiency of Funds in the AccountsDishonour of cheque for insufficiency, etc., of funds in the accountsWhere any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficienttohonourthechequeorthatitexceedstheamountarrangedtobepaidfromthataccountbyanagreementmade with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for 2["a term which may extend to two year"], or with finewhichmayextendtotwicetheamountofthecheque,orwithbothProvided that nothing contained in this section shall apply unless-

the cheque has been presented to the bank within a period of six months from the date on which it is drawn a. or within the period of its validity, whichever is earlierthe payee or the holder induce course of the cheque, as the case may be, makes a demand for the payment of b. the said amount of money by giving a notice, in writing, to the drawer, of the cheque, ["within thirty days"] of the receipt of information by him from the bank regarding the return of the cheques as unpaidthe drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the c. casemaybe,totheholderinduecourseofthecheque,withinfifteendaysofthereceiptofthesaidnoticedefence which may not be allowed in any prosecution under section 138d.

It shall not be a defence in a prosecution of an offence under section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section.

Offences by companiesIf the person committing an offence under section 138 is a company, every person who, at the time the offence a. was committed, was in charge of, and was responsible to the company for the conduct of the 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 proceeded against and punished accordingly. Provided that nothing contained in this

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sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.Provided further that where a person is nominated as a Director of a company by virtue of his holding any b. officeoremploymentintheCentralGovernmentorStateGovernmentorafinancialcorporationownedorcontrolled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed c. by a company and it is proved that the offence has been committed with the consent or connivance of, or isattributeto,anyneglectonthepartof,anydirector,Manager,secretary,orotherofficeofthecompany,suchdirector,manager,secretaryorotherofficershallalsobedeemedtobeguiltyofthatoffenceandshallbe liable to be proceeded against and punished accordingly.

Cognizance of offencesNot withstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974):

No court shall take cognizance of any offence punishable under section 138 except upon a complaint, in a. writing, made by the payee or, as the case may be, the holder in due course of the chequeSuch complaint is made within one month of the date on which the cause of action arises under clause (C) b. of the proviso to section 138Nocourt inferior to thatofaMagistrateoraJudicialMagistrateof thefirstclassshall tryanyoffencec. punishable under section 138Bank's slip prima facie evidence of certain facts.d.

The Court shall, in respect of every proceeding under this Chapter, on production of bank's slip or memo having thereontheofficialmarkdenotingthatthechequehasbeendishonoured,presumethefactofdishonourofsuchcheque, unless and until such fact is disproved.

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SummaryThe Negotiable Instrument is an instrument when it is, by legally recognized custom of trade or by law, •transferrable by delivery or by endorsement and delivery, without notice to the party.Bill of Exchange, Promissory note, Cheques are some types of negotiable instruments.•The person who is holding the instrument must be entitled to possess the instrument in his own name.•The person who utilises the various facilities of the negotiable instruments he is deemed to be entering into a •negotiating with a third party.The instrument can be negotiated by delivery or by endorsement and delivery.•TheActisdividedintodifferentchapterwhichdealswiththedifferentfunctionslikedefinitions,partiesto•notes, bills, cheques, negotiation, presentment, payment and interest, discharge from liabilities on notes, bills, cheques, notice of dishonor, noting and protest, acceptance, compensation penalties, etc.

ReferencesThe Negotiable Instruments Act, 1881,• [Pdf] Available at: <http://220.227.161.86/19699ipcc_blec_law_vol1_chapter2.pdf> [Accessed 20 June 2013].NEGOTIABLE INSTRUMENTS ACT, 1881,• [Pdf] Available at: <http://www.ddegjust.ac.in/studymaterial/mcom/mc-207-f.pdf> [Accessed 18 June 2013].Deshmukh, H., 2012. • The Negotiable Instruments Act ,1881. [Video online] Available at: <http://www.youtube.com/watch?v=_8dnnizCq0g> [Accessed 20 June 2013].Deshmukh, H., 2012. • The Negotiable Instruments Act ,1881. [Video online] Available at: <http://www.youtube.com/watch?v=_8dnnizCq0g&list=PLQX0X69EeWM3lfrQPUAzp9bKClowJJ_W7> [Accessed 20 June 2013].The Negotiable Instruments Act, 1881• . Universal Law Publishing.Sanjiva Row, T. V., 2009. • The Negotiable Instruments Act, 1881. General Books LLC.

Recommended ReadingSanjiva, T. V., • The Negotiable Instruments Act, 1881.1988 Law Book Co; 9th ed., Vyas, R. R., 1998. • The Negotiable Instruments Act, 1881 (XXVI of 1881): With exhaustive commentary and case laws on dishonour of cheques, 2nd ed., Snow White Publications.Singh, A., 1980. • The negotiable instruments act, 1881: Act No. XXVI of 1881, 1980 Eastern Book Co.

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Self AssessmentWhich of the following is an promissory note?1.

An instrument in writing not signed by the makera. An instrument signed by the maker but not in writingb. An instrument in writing signed by the makerc. An instrument in writing signed by any persond.

Cheque is an instrument____________2. drawn by any bankera. payable on demandb. payable at any timec. drawn by the makerd.

A bill of exchange is said to be dishonoured by non-acceptance when the drawee is_________3. not competenta. partnerb. dishonestc. not being partnerd.

A protest under section 100 must contain which of the following?4. either the instrument itself or a literal transcript of the instrument.a. the nature of the person for whom the instrument has been protested.b. either the instrument itself or a literal transcript of the instrument and The nature of the person for whom c. the instrument has been protestedall the evidence to protestd.

No court shall take cognizance of any offence punishable under which section?5. section 138a. section 140b. section 220c. section 52d.

Any person so paying is entitled to all the _____________6. rights in respect of the bill, of the holdera. liabilities in respect of the bill of the holderb. property of the goodsc. goods in wholed.

When a bill of exchange has been noted or protested for non-payment, any person may pay the same for the 7. honour of any part liable

providedthatthepersonsopayinghasnotifiedthedrawera. provided that the person so paying has previously declared before a notary publicb. provided that the person so paying has declared before the judgec. provided that the person so paying has declared to endorserd.

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Bills of exchange may be drawn in parts, each part being numbered and containing a provision that 8. it shall continue payable only so long as the others remain unpaida. it shall continue payable only so long as the others remain paidb. it shall be discontinuedc. it shall be restrictedd.

Dishonourofchequeforinsufficiencyis9. penalizeda. cancelledb. a crimec. not voidd.

After the drawee of a bill has signed his assent upon the bill,10. he is called the endorseea. he is called the makerb. he is called the acceptorc. he is called the bankerd.

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Chapter V

The Consumer Protection Act, 1986

Aim

The aim of the chapter is to:

elucidate the meaning of Information Technology and the complications arising due to misuse•

specify the importance of various authorities under this act•

explain the vital role of the Consumer Protection Act 1986•

Objectives

The objectives of this chapter are to:

explain the essential terms under the Consumer Protection Act 1986•

classify various authorities under the Consumer Protection Act 1986•

explain the various terms in the Consumer Protection Act 1986•

Learning outcome

After reading this chapter, you will be able to:

understand various terms under the Consumer Protection Act 1986•

identify essential authorities under the Consumer Protection Act 1986t•

describe the importance of the Consumer Protection Act 1986•

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5.1 The Consumer Protection Act, 1986The Consumers protection Act 1986 is explained as per below:

5.1.1 Short Title, Extent, Commencement and Application

This Act may be called the Consumer Protection Act, 1986.•It extends to the whole of India except the State of Jammu and Kashmir.•Itshallcomeintoforceonsuchdate1astheCentralGovernmentmay,bynotificationappointanddifferent•dates may be appointed for different States and for different provisions of this Act.SaveasotherwiseexpresslyprovidedbytheCentralGovernmentbynotification,thisActshallapplytoall•goods and services.

5.1.2 DefinitionIn this Act, unless the context otherwise requires

"appropriate laboratory" means a laboratory or organisation:•recognised by the Central Governmenta. recognised by a State Government, subject to such guide¬lines as may be prescribed by the Central b. Government in this behalf;any such laboratory or organisation established by or under any law for the time being in force, which is c. maintained,financedoraidedbytheCentralGovernmentoraStateGovernmentforcarryingoutanalysisor test of any goods with a view to determining whether such goods suffer from any defect

"branchoffice"means:•any establishment described as a branch by the opposite partya. any establishment carrying on either the same or substantially the same activity as that carried on by the b. headofficeoftheestablishment

"complainant" means:•a consumer;a. any voluntary consumer association registered under the Companies Act, 1956 (1of 1956)or under any other b. law for the time being in forcethe Central Government or any State Governmentc. one or more consumers, where there are numerous consum¬ers having the same interest;d. in case of death of a consumer, his legal heir or representative; who or which makes a complainte.

"complaint" means any allegation in writing made by a complainant that:•an unfair trade practice or a restrictive trade practice has been adopted by any trader or service providera. the goods bought by him or agreed to be bought by him; suffer from one or more defectsb. theserviceshiredoravailedoforagreedtobehiredoravailedofbyhimsufferfromdeficiencyinanyc. respecta trader or service provider, as the case may be, has charged for the goods or for the service mentioned in d. the com¬plaint a price in excess of the price:fixedbyorunderanylawforthetimebeinginforce �displayed on the goods or any package containing such goods �displayed on the price list exhibited by him by or under any law for the time being in force �agreed between the parties �

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goods which will be hazardous to life and safety when used or being offered for sale to the public:e. in contravention of any standards relating to safety of such goods as required to be complied with, by or �under any law for the time being in forceif the trader could have known with due diligence that the goods so offered are unsafe to the public �services which are hazardous or likely to be hazardous to life and safety of the public when used, are being f. offered by the service provider which such person could have known with due diligence to be injurious to life and safety

"consumer" means any person who•buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or a. under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; orhires or avails any services for a consideration which has been paid or promised or partly paid and partly b. promised,orunderanysystemofdeferredpaymentandincludesanybeneficiaryofsuchservicesotherthanthe person who 'hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval ofthefirstmentionedpersonbutdoesnotincludeapersonwhoavailsofsuchservicesforanycommercialpurposes

"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" 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 under any contract, express or implied or as is claimed by the trader in any manner whatsoever in relation to any goods"deficiency"meansanyfault,imperfection,shortcomingorinadequacyinthequality,natureandmannerof•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"District Forum" means a Consumer Disputes Redressal Forum established under clause (a) of section 9•"goods"meansgoodsasdefinedintheSaleofGoodsAct,1930(3of1930)•“manufacturer” means a person who•

makes or manufactures any goods or part thereof; ora. does not make or manufacture any goods but assembles parts thereof made or manufactured by others; orb. puts or causes to be put his own mark on any goods made or manufactured by any other manufacturer;c.

"member" includes the President and a member of the National Commission or a State Commission or a District •Forum, as the case may be"National Commission" means the National Consumer Disputes Redressal Commission established under •clause (c) of section 9"notification"meansanotificationpublishedintheOfficialGazette•"person" includes,•

afirmwhetherregisteredornota. a Hindu undivided familyb. a co-operative societyc. every other association of persons whether registered under the Societies Registration Act, 1860 (21 of d. 1860) or not

"prescribed" means prescribed by rules made by the State Government, or as the case may be, by the Central •Government under this Act

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“regulation” means the regulations made by the National Commission under this Act•“restrictive trade practice” means a trade practice which tends to bring about manipulation of price or conditions •ofdeliveryortoaffectflowofsuppliesinthemarketrelatingtogoodsorservicesinsuchamannerastoimposeontheconsumersunjustifiedcostsorrestrictionsandshallinclude,

delay beyond the period agreed to by a trader in supply of such goods or in providing the services which a. has led or is likely to lead to rise in the priceany trade practice which requires a consumer to buy, hire or avail of any goods or, as the case may be, b. services as condition precedent to buying, hiring or availing of other goods or services

"service" means service of any description which is made available to potential users and includes, but not •limitedto,theprovisionoffacilitiesinconnectionwithbanking,financinginsurance,transport,processing,supply of electrical or other energy, board or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service“spurious goods and services” mean such goods and services which are claimed to be genuine but they are •actually not so"State Commission" means a Consumer Disputes Redressal Commission established in a State under clause •(b) of section 9"trader" in relation to any goods means a person who sells or distributes any goods for sale and includes the •manufacturer thereof, and where such goods are sold or distributed in package form, includes the packer thereof"unfair trade practice" means a trade practice which, for the purpose of promoting the sale, use or supply of any •goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely,

the practice of making any statement, whether orally or in writing or by visible representation which,a. falsely represents that the goods are of a particular standard, quality, quantity, grade, composition, style or �modelfalsely represents that the services are of a particular standard, quality or grade �falsely represents any re-built, second-hand, renovated, reconditioned or old goods as new goods �represents that the goods or services have sponsorship, approval, performance, characteristics, accessories, �usesorbenefitswhichsuchgoodsorservicesdonothavegivestothepublicanywarrantyorguaranteeoftheperformance,efficacyorlengthoflifeofaproductor �of any goods that is not based on an adequate or proper test thereofmaterially misleads the public concerning the price at which a product or like products or goods or services, �have been or are, ordinarily sold or provided, and, for this purpose, a representation as to price shall be deemed to refer to the price at which the product or goods or services has or have been sold by sellers or providedbysuppliersgenerallyintherelevantmarketunlessitisclearlyspecifiedtobethepriceatwhichthe product has been sold or services have been provided by the person by whom or on whose behalf the representation is madepermits the publication of any advertisement whether in any news¬paper or otherwise, for the sale or supply b. at a bargain price, of goods or services that are not intended to be offered for sale or supply at the bargain price, or for a period that is, and in quantities that are, reasonable, having regard to the nature of the market in which the business is carried on, the nature and size of business, and the nature of the advertisementPermits the offering of gifts, prizes or other items with the intention of not providing them as offered or c. creating impression that something is being given or offered free of charge when it is fully or partly covered by the amount charged in the transaction as a whole and the conduct of any contest, lottery, game of chance or skill, for the purpose of promoting, directly or indirectly, the sale, use or supply of any product or any business interestpermits the sale or supply of goods intended to be used, or are of a kind likely to be used, by consumers, d. knowing or having reason to believe that the goods do not comply with the standards prescribed by competent

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authorityrelatingtoperformance,composition,contents,design,constructions,finishingorpackagingasare necessary to prevent or reduce the risk of injury to the person using the goodspermits the hoarding or destruction of goods, or refuses to sell the goods or to make them available for sale e. or to provide any service, if such hoarding or destruction or refusal raises or tends to raise or is intended to raise, the cost of those or other similar goods or servicesmanufacture of spurious goods or offering such goods for sale or adopts deceptive practices in the provision f. of services

5.2 The Central Consumer Protection CouncilTheCentralGovernmentmay,bynotification,establishwitheffectfromsuchdateasitmayspecifyinsuch•notification,aCounciltobeknownastheCentralConsumerProtectionCouncil(hereinafterreferredtoastheCentral Council)The Central Council shall consist of the following members, namely,•

the Minister in charge of Consumer Affairs in the Central Government, who shall be its Chairman, and �suchnumberofotherofficialornon-officialmembersrepresentingsuchinterestsasmaybeprescribed �

5.3 Procedure for Meetings of the Central CouncilThe Central Council shall meet as and when necessary, but at least one meeting of the Council shall be held •every year.TheCentralCouncilshallmeetatsuchtimeandplaceastheChairmanmaythinkfitandshallobservesuch•procedure in regard to the transaction of its business as may be prescribed.

5.3.1 Objects of the Central Council

the right to be protected against the marketing of goods and services which are hazardous to life and property•the right to be informed about the quality, quantity, potency, purity, standard and price of goods or services, as •the case may be so as to protect the consumer against unfair trade practicesthe right to be assured, wherever possible, access to a variety of goods and services at competitive prices•the right to be heard and to be assured that consumers' interests will receive due consideration at appropriate •forumsthe right to seek redressed against unfair trade practices or restrictive trade practices or unscrupulous exploitation •of consumers; andthe right to consumer education•

5.3.1.1 The State Consumer Protection Councils

TheStateGovernmentmay,bynotification,establishwitheffect fromsuchdateas itmayspecify insuch•notification,aCounciltobeknownastheConsumerProtectionCouncilfor(hereinafterreferredtoastheStateCouncil).The State Council shall consist of the following members, namely,•

the Minister in-charge of consumer affairs in the State Government who shall be its Chairmana. suchnumberofotherofficialornon-officialmembersrepresentingsuchinterestasmaybeprescribedbyb. the State Government

The State Council shall meet as and when necessary but not less than two meetings shall be held every year.•TheStateCouncilshallmeetatsuch timeandplaceas theChairmanmaythinkfitandshallobservesuch•procedure in regard to the transaction of its business as may be prescribed by the State Government.The objects of every State Council shall be to promote and protect within the State the rights of the consumers •laid down in clauses (a) to (f) of section 6.

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5.3.1.2 The District Consumer Protection Council

TheStateGovernmentshallestablishforeverydistrict,bynotificationacounciltobeknownastheDistrict•ConsumerProtectionCouncilwitheffectfromsuchdateasitmayspecifyinsuchnotification.The District Consumer Protection Council (hereinafter referred to as the District Council) shall consist of the •following members, namely,

the Collector of the district (by whatever name called), who shall be its Chairman; anda. suchnumberofotherofficialandnon-officialmembersrepresentingsuchinterestsasmaybeprescribedb. by the State Government

The District Council shall meet as and when necessary but not less than two meetings shall be held every •year.ThedistrictcouncilshallmeetassuchtimeandplacewithinthedistrictastheChairmanmaythinkfitand•shall observe such procedure in regard to the transaction of its business as may be prescribed by the State Government.The objects of every District Council shall be to promote and protect within the district the rights of the consumers •laid down in clauses (a) to (f) of section 6.

5.3.1.3 Establishment of Consumer Disputes Redressal AgenciesThere shall be established for the purpose of this Act, the following agencies, namely,

A Consumer Disputes Redressal Forum to be known as the "District Forum" establishment by the State •GovernmentineachdistrictoftheStatebynotification[ProvidedthattheStateGovernmentmayifitdeemsfit,establish more then one District Forum in a district.A Consumer Disputes Redressal Commission to be known as the "State Commission" established by the State •GovernmentintheStatebynotification.ANationalConsumerDisputesredressalCommissionestablishedbytheCentralGovernmentbynotification.•

5.3.1.4 Jurisdiction of the District Forum

Subject to other provisions of this Act, the District Forum shall have jurisdiction to entertain complaints where the •value of the goods or services and the Compensation if any, claimed [does not exceed rupees twenty lakhs].A complaint shall be instituted in a District Forum within the local limits of whose jurisdiction,•

The opposite party or each of the opposite parties, where there are more than one, at the time of the institution a. ofthecomplaint,actuallyandvoluntarilyresidesor[carriesonbusinessorhasabranchoffice,or]personallyworks for gain; orAny of the opposite parties where there are more then one, at the time of the institution of the complaint, b. actuallyandvoluntarilyresides,or2[carriesonbusinessorhasabranchoffice],orpersonallyworksforgain, provided that in such case either the permission of the District Forum is given, or the opposite parties whodonotreside,or[carryonbusinessorhaveabranchoffice],orpersonallyworksforgain,asthecasemay be, acquiesce in such institution; orThe cause of action, wholly or in part arisesc.

5.3.1.5 Manner in Which Complaint Shall Be Made

A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any service provided •oragreedtobeprovided,maybefiledwithaDistrictForumby,

the consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service a. provided or agreed to be providedany recognised consumer association whether the consumer to whom the goods sold or delivered or agreed b. to be sold or delivered or service provided or agreed to be provided is a member of such association or not; or one or more consumers, where there are numerous consumers having the same interest, with the permission c. oftheDistrictForum,onbehalfof,orforthebenefitof,allconsumerssointerested;or

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the Central Government or the State Government, as the case may be, either in its individual capacity or as d. a representative of interests of the consumers in general

Everycomplaintfiledundersub-section(1)shallbeaccompaniedwithsuchamountoffeeandpayableinsuch•manner as may be prescribed.On receipt of a complaint made under sub-section (1), the District Forum may, by order, allow the complaint •to be proceeded with or rejected.Where a complaint is allowed to be proceeded with under sub-section (3), the District Forum may proceed with •the complaint in the manner provided under this Act.

Provided that where a complaint has been admitted by the District Forum, it shall not be transferred to any other court or tribunal or any authority set up by or under any other law for the time being in force.

5.3.2 Procedure on Receipt of Complaint

The District Forum shall, on receipt of a complaint, if it relates to any goods,•refer a copy of the complaint to the opposite party mentioned in the complaint directing him to give his a. versionofthecasewithinaperiodofthirtydaysorsuchextendedperiodnotexceedingfifteendaysasmaybe granted by the District Forumwhere the opposite party on receipt of a complaint referred to him under clause (a) denies or disputes the b. allegations contained in the complaint, or omits or fails to take any action to represent his case within the time given by the District Forum, the District Forum shall proceed to settle the consumer dispute in the mannerspecifiedinclauses(c)to(g)where the complaint alleges a defect in the goods which cannot be determined without proper analysis or c. test of the goods, the District Forum shall obtain a sample of the goods from the complainant, seal it and authenticate it in the manner prescribed and refer the sample so sealed to the appropriate laboratory along with a direction that such laboratory make an analysis or test whichever may be necessary, with a view to findingoutwhethersuchgoodssufferfromanydefectallegedinthecomplaintorfromanyotherdefectandtoreportitsfindingsthereontotheDistrictForumwithinaperiodofforty-fivedaysofthereceiptofthe reference or within such extended period as may be granted by the District Forumbefore any sample of the goods is referred to any appropriate laboratory under clause (c), the District d. ForummayrequirethecomplainanttodeposittothecreditoftheForumsuchfeesasmaybespecified,forpayment to the appropriate laboratory for carrying out the necessary analysis or test in relation to the goods in questionthe District Forum shall remit the amount deposited to its credit under clause (d) to the appropriate laboratory e. to enable it to carry out the analysis or test mentioned in clause (c) and on receipt of the report from the appropriate laboratory, the District Forum shall forward a copy of the report along with such remarks as the District Forum may feel appropriate to the opposite partyfanyofthepartiesdisputesthecorrectnessofthefindingsoftheappropriatelaboratory,ordisputesthef. correctness of the methods of analysis or test adopted by the appropriate laboratory, the District Forum shall require the opposite party or the complainant to submit in writing his objections in regard to the report made by the appropriate laboratorythe District Forum shall thereafter give a reasonable opportunity to the complainant as well as the opposite g. party of being heard as to the correctness or otherwise of the report made by the appropriate laboratory and also as to the objection made in relation thereto under clause (f) and issue an appropriate order under section 14

The District Forum shall, if the complaint received by it under section 12 relates to goods in respect of which •theprocedurespecifiedinsub-section(1)cannotbefollowed,orifthecomplaintrelatestoanyservices,

refer a copy of such complaint to the opposite party directing him to give his version of the case within a a. periodofthirtydaysorsuchextendedperiodnotexceedingfifteendaysasmaybegrantedbytheDistrictForum

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where the opposite party, on receipt of a copy of the complaint, referred to him under clause (a) denies b. or disputes the allegations contained in the complaint, or omits or fails to take any action to represent his case within the time given by the District Forum, the District Forum shall proceed to settle the consumer disputeon the basis of evidence brought to its notice by the complainant and the opposite party, where the opposite �party denies or disputes the allegations contained in the complaint, oron the basis of evidence brought to its notice by the complainant where the opposite party omits or falls to �take any action to represent his case within the time given by the Forum

No proceedings complying with the procedure laid down in sub-sections (1) and (2) shall be called in question •in any court on the ground that the principles of natural justice have not been complied with.For purposes of this section, the District Forum shall have the same powers as are vested in a civil court under •the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect of the following matters, namely,

the summoning and enforcing attendance of any defendant or witness and examining the witness on oatha. the discovery and production of any document or other material object producible as evidenceb. thereceptionofevidenceonaffidavitsc. the requisitioning of the report of the concerned analysis or test from the appropriate laboratory or from d. any other relevant sourceissuing of any commission for the examination of any witness; ande. any other matter which may be prescribedf. Every proceeding before the District Forum shall be deemed to be a judicial proceeding within the meaning g. of sections 193 and 228 of the Indian Penal Code (45 of 1860), and the District Forum shall be deemed to be a civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974).

Where the complainant is a consumer referred to in sub-clause (iv) of clause (b) of sub-section (1) of section 2, •the provisions of rule 8 of Order I of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908) shall applysubjecttothemodificationthateveryreferencethereintoasuitordecreeshallbeconstruedasareferenceto a complaint or the order of the District Forum thereon.

5.3.2.1 AppealAny 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 thirty days from the date of the order, in such form and manner as may be prescribed provided that the State Commission may entertain an appeal after the expiry of the said period of thirty days if it is satisfiedthattherewassufficientcausefornotfilingitwithinthatperiod.

5.4 Composition of the State CommissionEach State Commission shall consist of,

a person who is or has been a Judge of a High Court, appointed by the State Government, who shall be its •President Provided that no appointment under this clause shall be made except after consultation with the Chief Justice of the High Courttwo other members, who shall be persons of ability, integrity and standing and 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 whom shall be a woman, provided that every appointment made under this clause shall be made by the State Government on the recommendation of a selection committee consisting of the following, namely,

President of the State Commission - Chairmana. Secretary of the Law Department of the State - Memberb. Secretary, in-charge of Department dealing with consumer affairs in the State - Memberc.

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The salary or honorarium and other allowances payable to, and the other terms and conditions of service of the •members of the State Commission shall be such as may be prescribed by the State Government.EverymemberoftheStateCommissionshallholdofficeforatermoffiveyearsoruptotheageofsixty-seven•years, whichever is earlier and shall not be eligible for re-appointment.Notwithstanding anything contained in sub-section (3), a person appointed as a President or as a member before •thecommencementoftheConsumerProtection(Amendment)Act,1993,shallcontinuetoholdsuchofficeasPresident or member, [as the case may be, till the completion ] of his term.

5.4.1 Jurisdiction of the State CommissionSubject to the other provisions of this Act, the State Commission shall have jurisdiction

to entertain the following:a. complaintswherethevalueofthegoodsorservicesandcompensation,ifany,claimedexceedsrupeesfiveb. lakhs but does not exceed rupees twenty lakhsappeals against the orders of any District Forum within the Statec.

to call for the records and pass appropriate orders in any consumer dispute which is pending before or has been •decided by any District Forum within the State where it appears to the State Commission that such District Forum has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested or has acted in exercise of its jurisdiction illegally or with material irregularity.

5.4.1.1 Transfer of CasesOn the application of the complainant or its own motion, the State Commission may, at any stage of the proceeding, transfer any complaint pending before the District Forum to another District Forum within the State if the interest of justice so requires.

5.4.1.2 Hearing of AppealAnappealfiledbeforetheStateCommissionortheNationalCommissionshallbeheardasexpeditiouslyaspossibleandanendeavourshallbemadetofinallydisposetheappealwithinaperiodofninetydaysfromthedateofitsadmission.

Provided that no adjournment shall be ordinarily granted by the State Commission or the National Commission, as thecasemaybe,unlesssufficientcauseisshownandthereasonsforgrantofadjournmenthavebeenrecordedinwriting by such Commission.

Provided further that the State Commission or the National Commission, as the case may be, shall make such orders as to the costs occasioned by the adjournment as maybe provided in the regulations made under this Act.Providedalso,thatintheeventofanappealbeingdisposedofaftertheperiodsospecified,theStateCommissionor, the National Commission, as the case may be, shall record in writing the reasons for the same at the time of disposing of the said appeal.

5.4.1.3 Composition of the National Commission

The National Commission shall consist of,•a person who is or has been a Judge of the Supreme Court, to be appointed by the Central Government, a. who shall be its President.not less than four, and not more than such number of members, as may be prescribed, and one of whom b. shallbeawoman,whoshallhavethefollowingqualifications,namely,benotlessthanthirty-fiveyearsofage; �possess a bachelor's degree from a recognised university; and �be persons of ability, integrity and standing and have adequate knowledge and experience of at least ten �years in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration

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providedfurtherthatapersonshallbedisqualifiedforappointment,ifhe,has been convicted and sentenced to imprisonment for an offence which, in the opinion of the Central �Government, involves moral turpitude; oris an undischarged insolvent; or �is of unsound mind and stands so declared by a competent court; or �has been removed or dismissed from the service of the Government or a body corporate owned or controlled �by the Government; orhas,intheopinionoftheCentralGovernment,suchfinancialorotherinterestasislikelytoaffectprejudicially �the discharge by him of his functions as a member; orhassuchotherdisqualificationsasmaybeprescribedbytheCentreGovernment �

5.5 Jurisdiction of the National CommissionSubject to the other provisions of this Act, the National Commission shall have jurisdiction

to entertain•complaints where the value of the goods or services and compensation, if any, claimed exceeds rupees a. twenty lakhs; andappeals against the orders of any State Commissionb.

to call for the records and pass appropriate orders in any consumer dispute which is pending before or has been •decided by any State Commission where it appears to the National Commission that such State Commission has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested, or has acted in the exercise of its jurisdiction illegally or with material irregularity

5.6 Power of and Procedure Applicable to the National CommissionThe National Commission shall, in the disposal of any complaints or any proceedings before it, have

thepowersofacivilcourtasspecifiedinsub-sections(4),(5)and(6)ofsection13•the power to issue an order to the opposite party directing, him to do any one or more of the things referred •to in clauses (a) to (i) of sub-section (1) of section14, and follow such procedure as may be prescribed by the Central Government

5.6.1 Transfer of CasesOn the application of the complainant or of its own motion, the National Commission may, at any stage of the proceeding, in the interest of justice, transfer any complaint pending before the District Forum of one State to a District Forum of another State or before one State Commission to another State Commission.

5.6.2 AppealAny person aggrieved by an order made by the National Commission in exercise of its power conferred by sub-clause (i) of clause (a) of section 21, may prefer an appeal against such order to the Supreme Court within a period of thirty days from the date of the order.Provided that the Supreme Court may entertain an appeal after the expiry of the said period of thirty days if it is satisfiedthattherewassufficientcausefornotfilingitwithinthatperiod.

5.7 Limitation PeriodThe District Forum, the State Commission or the National Commission shall not admit a complaint unless it is •filedwithintwoyearsfromthedateonwhichthecauseofactionhasarisen.Notwithstandinganythingcontainedinsub-section(1),acomplaintmaybeentertainedaftertheperiodspecified•in sub-section (1), if the complainant satisfies theDistrict Forum, theStateCommission or theNationalCommission,asthecasemaybe,thathehadsufficientcausefornotfilingthecomplaintwithinsuchperiodprovided that no such complaint shall be entertained unless the National Commission, the State Commission or the District Forum, as the case may be, records its reasons for condoning such delay.

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5.8 Finality of OrdersEvery order of a District Forum, State Commission or the National Commission shall, if no appeal has been preferred againstsuchorderundertheprovisionsofthisAct,befinal.

5.8.1 Enforcement of orders of the District Forum, the State Commission or the National CommissionEnforcement of orders of the District Forum, the State Commission or the National Commission

Where an interim order made under this Act, is not complied with the District Forum or the State Commission •or the National Commission, as the case may be, may order the property of the person, not complying with such order to be attached.No attachment made under sub-section (1) shall remain in force for more than three months at the end of which, •if the non-compliance continues, the property attached may be sold and out of the proceeds thereof, the District ForumortheStateCommissionortheNationalCommissionmayawardsuchdamagesasitthinksfittothecomplainant and shall pay the balance, if any, to the party entitled thereto.Where any amount is due from any person under an order made by a District Forum, State Commission or •the National Commission, as the case may be, the person entitled to the amount may make an application to the District Forum, the State Commission or the National Commission, as the case may be, and such District ForumortheStateCommissionortheNationalCommissionmayissueacertificateforthesaidamounttotheCollector of the district (by whatever name called) and the Collector shall proceed to recover the amount in the same manner as arrears of land revenue.

5.9 Dismissal of Frivolous or Vexatious ComplaintsWhere a complaint instituted before the District Forum, the State Commission or, as the case may be, the National Commission is found to be frivolous or vexatious, it shall, for reasons to be recorded in writing, dismiss the complaint and make an order that the complainant shall pay to the opposite party such cost, not exceeding ten thousand rupees, asmaybespecifiedintheorder.

5.10 PenaltiesWhere a trader or a person against whom a complaint is made 2[or the complainant] fails or omits to comply •with any order made by the District Forum, the State Commission or the National Commission, as the case may be, such trader or person [or complainant] shall be punishable with imprisonment for a term which shall notbelessthanonemonthbutwhichmayextendtothreeyears,orwithfinewhichshallnotbelessthantwothousand rupees but which may extend to ten thousand rupees, or with both.Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the District Forum •or the State Commission or the National Commission, as the case may be, shall have the power of a Judicial MagistrateofthefirstclassforthetrialofoffencesunderthisAct,andonsuchconfermentofpowers,theDistrictForum or the State Commission or the National Commission, as the case may be, on whom the powers are so conferred,shallbedeemedtobeaJudicialMagistrateofthefirstclassforthepurposeoftheCodeofCriminalProcedure, 1973.All offences under this Act may be tried summarily by the District Forum or the State Commission or the •National Commission, as the case may be.

5.11 Appeal Against Order Passed Under Section 27Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974), an appeal under •section 27, both on facts and on law, shall lie from,

the order made by the District Forum to the State Commissiona. the order made by the State Commission to the National Commission; andb. the order made by the National Commission to the Supreme Courtc.

Except as aforesaid, no appeal shall lie to any court from any order of a District Forum or a State Commission •or the National Commission

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Every appeal under this section shall be preferred within a period of thirty days from the date of an order of a •District Forum or a State Commission or, as the case may be, the National Commission

5.12 Protection of Action Taken in Good FaithNo suit, prosecution or other legal proceedings shall lie against the members of the District Forum, the State CommissionortheNationalCommissionoranyofficerorpersonactingunderthedirectionoftheDistrictForum,the State Commission or the National Commission for executing any order made by it or in respect of anything, whichisingoodfaithdoneorintendedtobedonebysuchmember,officerorpersonunderthisActorunderanyrule or order made thereunder.

5.13 Service of Notice and OthersAll notices, required by this Act to be served, shall be served in the manner hereinafter mentioned in sub-section •(2).The service of notices may be made by delivering or transmitting a copy thereof by registered post acknowledgement •due addressed to opposite party against whom complaint is made or to the complainant by speed post or by such courier service as are approved by the District Forum, the State Commission or the National Commission, as the case may be, or by any other means of transmission of documents (including FAX message).When an acknowledgement or any other receipt purporting to be signed by the opposite party or his agent or by •the complainant is received by the District Forum, the State Commission or the National Commission, as the case may be, or postal article containing the notice is received back by such District Forum, State Commission or the National Commission, with an endorsement purporting to have been made by a postal employee or by any person authorised by the courier service to the effect that the opposite party or his agent or complainant had refused to take delivery of the postal article containing the notice or had refused to accept the notice by any othermeansspecifiedinsub-section(2)whentenderedortransmittedtohim,theDistrictForumortheStateCommission or the National Commission, as the case may be, shall declare that the notice had been duly served on the opposite party or to the complainant.Provided that where the notice was properly addressed, pre-paid and duly sent by registered post acknowledgement •due, a declaration referred to in this sub-section shall be made notwithstanding the fact that the acknowledgement has been lost or mislaid, or for any other reason, has not been received by the District Forum, the State Commission or the National Commission, as the case may be, within thirty days from the date of issue of notice.Allnoticesrequiredtobeservedonanoppositepartyortocomplainantshallbedeemedtobesufficiently•served, if addressed in the case of the opposite party to the place where business or profession is carried and in case of complainant, the place where such person actually and voluntarily resides.

5.14 Vacancies or Defects in Appointment Not to Invalidate OrdersNo act or proceeding of the Districts Forum, the State Commission or the National Commission shall be invalid by reason only of the existence of any vacancy amongst its members or any defect in the constitution thereof.

5.15 Power of the National Commission to Make RegulationsTheNationalCommissionmay,with the previous approval of theCentralGovernment, bynotification,makeregulations not inconsistent with this Act to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act.

In particular and without prejudice to the generality of the foregoing power, such regulations may make provisions for the cost of adjournment of any proceeding before the District Forum, the State Commission or the National Commission, as the case may be, which a party may be ordered to pay.

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5.15.1 Power to Make Rules

TheCentralGovernmentmay,bynotification,makerulesforcarryingouttheprovisionscontainedinclause(a)•of sub-section (1) of section 2, clause (b) of sub-section (2) of section 4, sub-section (2) of section 5, sub-section (2) of section 12, clause (vi) of sub-section (4) of section 13, clause (hb) of sub-section (1) of section 14, section 19, clause (b) of sub-section (1) and sub-section (2) of section 20, section 22 and section 23 of this Act.TheStateGovernmentmay,bynotification,makerulesforcarryingouttheprovisionscontainedinclause(b)•of sub-section (2) and sub-section (4) of section 7, clause (b) of sub-section (2) and sub-section (4) of section 8A, clause (b) of sub-section (1) and sub-section (3) of section 10, clause (c) of sub-section (1) of section 13, clause (hb) of sub-section (1) and sub-section (3) of section 14, section 15 and clause (b) of sub-section (1) and sub-section (2) of section 16 of this Act.

5.16 Rules and Rgulations to be Laid Before Each House of ParliamentEvery rule and every regulation made under this Act 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 thesessionorthesuccessivesessionsaforesaid,bothHousesagreeinmakingandmodificationintheruleorregulation or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafterhaveeffectonlyinsuchmodifiedformorbeofnoeffect,asthecasemaybe;so,however,thatanysuchmodificationorannulmentshallbewithoutprejudicetothevalidityofanythingpreviouslydoneunderthat rule or regulation.Every rule made by a State Government under this Act shall be laid, as soon as may be after it is made, before •the State Legislature.

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SummaryThe consumer protection act came into force in 1986.•Itisthefirststeptowardsprotectionoftheconsumerbecausetheconsumerwasatthereceivingendandthe•market was a sellers market.Theact came into forcebygovernmentnotificationand is applicable throughout Indiaexcept theStateof•Jammu and Kashmir.TheactclearlydefinestermssuchasAppropriateLaboratory,organisation,branchoffice,consumer,district•forum, etc.The consumer protection councils are meant for taking care of various activities related to marketing of goods •and services.There are a number of agencies established to resolve the disputes arising out of sub-standard goods, non-•compliance of warranty clause.Now there is an effective procedure to attend to the grievances and complaints of consumers. Any aggrieved •person can approach the state commission.There is a time for appeal.•If a consumer is not given justice, there is a provision for appropriate penalties such as imprisonment, heavy •fines,etc.

ReferencesThe Consumer Protection Act, 1986• , [Online] Available at: <http://www.indiankanoon.org/doc/1733066/> [Accessed 20 June 2013].The Consumer Protection Act, 1986• , [Online] Available at: <http://www.ncdrc.nic.in/1_1.html> [Accessed 20 June 2013].Edu, I., 2012. • ConsumerProtectionActanditsDefinitions, [Video online] Available at: <http://www.youtube.com/watch?v=aE2FLxpBg64> [Accessed 20 June 2013].Wala, E., 2012. • Consumer Protection Act 1986. [Video online] Available at: <http://www.youtube.com/watch?v=Zc3nCKYzHfI> [Accessed 20 June 2013].The Consumer Protection Act, 1986,• Universal Law Publishing.Gambhir, C., 2007. • Consumer Protection Administration: Organisation and Working, Deep and Deep Publications.

Recommended ReadingGoyal, K. N., 2008. • Consumer Protection Act, 1986. 19th ed., Eastern Book Co, India. Borowalia, J. N., 2004. • Commentary on the Consumer Protection Act 1986. Universal Law Publishing Co Ltd.Das, B. K., 1998. Consumer, • Protection Act, 1986 (Act no. 68 of 1986): The most analytical, critical, exhaustive, and updated commentary, 2nd ed., Sodhi Publication.

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Self AssessmentWhat is the limitation period for admitting complaint?1.

2 years from the date on which the cause of action has arisena. 4 years from the date on which the cause of action has arisenb. 3 years from the date on which the cause of action has arisenc. 5 years from the date on which the cause of action has arisend.

Consumer dispute means a dispute _______________.2. between consumer and merchanta. between consumer and consumerb. where the person against whom a complaint has been madec. between employer and employeed.

Unfair trade practice ________________3. represents the quality of goods and services.a. falsely represents the quality of goods and servicesb. represents the type of trade.c. represents the price of thegoods and serviced.

The consumer protection council consists of which of the following members?4. Stategovernmentandotherofficialsa. Chairmanandotherofficialsb. Inspectorandotherofficialsc. Owner of the shop and shareholdersd.

The National Consumer Disputes Redressal Commission _______________5. have framed this acta. means National Commission.b. take care of the complaint so registeredc. made by this actd.

Every order of a District Forum, State Commission or the National Commission shall, if no appeal has been 6. preferred against such order under the provisions of this Act, ____________

be voida. not be consideredb. befinalc. be terminatedd.

EverymemberoftheStateCommissionshallholdofficeforatermofhowmanyyears?7. Five years or up to the age of sixty-seven yearsa. Seven yearsb. Fifty years of agec. Eightyearsoruptofiftyyearsofaged.

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Any person aggrieved by an appeal by an order made by the National Commission in exercise of its power may 8. prefer an appeal against such order to the Supreme Court within a period of_____________.

14 days from the date of ordera. 8 days after the date of orderb. 19 days after the date of orderc. 30 days from the date of orderd.

The national commission shall have jurisdiction to entertain complaints where the value of goods and services 9. is________________.

Over 20 lakhsa. Below 20 lakhsb. Over 10 lakhsc. Over 5 lakhsd.

Every rule made by a State Government under this Act shall be laid, as soon as may be after it is made, 10. _______.

before the State Legislaturea. after the State Legislatureb. after National Commissionc. before National Commissiond.

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Chapter VI

The Information Technology Act 2000

Aim

The aim of this chapter is to:

explain Information Technology Act 2000•

elucidate the detailed picture on the implementation of Information Technology Act 2000 t•

explicate the importance of Information Technology Act 2000•

Objectives

The objective of the chapter is to:

enrich the understanding of the students on the acts of Information Technology•

explain various terms in Information Technology Act 2000•

enhance the knowledge on implementation of those acts and their various limitations•

Learning outcome

On reading this chapter, you will be able to:

understand the meaning of Information technology and the complications arising due to misuse•

determine the importance of various authorities under Information Technology Act 2000•

describe the implementation of Information Technology Act 2000 t•

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6.1 IntroductionThe information technology act 2000 is an act to provide legal recognition for transactions carried out by means of electronic date interchange and other means of electronic communication, commonly referred to as "electronic commerce", which involve the use of alternative to paper-based methods of communication and storage of information tofacilitateelectronicfilingofdocumentswiththeGovernmentagenciesandfurthertoamendtheIndianPenalCode, the India Evidence Act, 1872, the Banker’s Books Evidence Act, 1891 and the Reserve Bank of India Act, 1934 and for matters connected therewith or incidental thereto.Whereas, the General Assembly of the United Nations by resolution A/RES/ 51/162, date 30th January 1997 has adopted the Model Law on Electronic Commerce adopted by the United Nations Commission on International Trade Law, he said resolution recommends, inter alia, that all States give favourable consideration to the said Model Law when they enact or revise their laws, in view of The need for uniformity of the law applicable to alternatives to paper based methods of communication and storage of information and it is considered necessary to give effect to the said resolutionandtopromoteefficientdeliveryofGovernmentservicesbymeansofreliableelectronicrecords.

6.2 Digital SignatureAuthentication of electronic records

Subjecttotheprovisionsofthissection,anysubscribermayauthenticateanelectronicrecordbyaffixinghis•digital signature.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.Any person by the use of a public key of the subscriber can verify the electronic record.•The private key and the public key are unique to the subscriber and constitute a functioning key pair.•

Legal recognition of digital signaturesWhereanylayprovidesthatinformationoranyothermattershallbeauthenticatedbyaffixingthesignatureoranydocument shall be signed or bear the signature of any person, then, notwithstanding anything contained in such law, suchrequirementshallbedeemedtohavebeensatisfiedifsuchinformationormatterisauthenticatedbymeansofdigitalsignatureaffixedinsuchmannerasmaybeprescribedbytheCentralGovernment.

Power to make rules by Central Government in respect of digital signatureThe Central Government may, for the purposes of this Act, by rules, prescribe:

the type of digital signature•themannerandformatinwhichthedigitalsignatureshallbeaffixed•themannerorprocedurewhichfacilitatesidentificationofthepersonaffixingthedigitalsignature•controlprocessesandprocedurestoensureadequateintegrity,securityandconfidentialityofelectronicrecords•or paymentsany other matter which is necessary to give legal effect to digital signatures•

Secure digital signatureIf,byapplicationofasecurityprocedureagreedtobythepartiesconcerned,itcanbeverifiedthatadigitalsignature,atthetimeitwasaffixed,was

uniquetothesubscriberaffixingit•capable of identifying such subscriber•created in a manner or using a means under the exclusive control of the subscriber and is linked to the electronic •record to which related 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

Verification of digital signatureAny person by the use of a public key of the subscriber can verify the electronic record [Section 3(3)]. The private

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key and the public key are unique to the subscriber and constitute a functioning key pair [section 3(4)]The idea is similar to the locker key in a bank. You have your ‘private key’ while the bank manager has ‘public key’. The locker does not open unless both the keys come together and match.

Licence to issue digital Signature certificatesSubject to the provisions of sub-section (2), any person may make an application to the Controller for a licence •toissueDigitalSignatureCertificates.Nolicenceshallbeissuedundersub-section(1),unlesstheapplicantfulfillssuchrequirementswithrespectto•qualification,expertise,manpower,financialresourcesandotherinfrastructurefacilities,whicharenecessarytoissueDigitalSignatureCertificatesasmaybeprescribedbytheCentralGovernment.

A licence granted under this section shallbe valid for such period as may be prescribed by the Central Government;•not be transferable or heritable•besubjecttosuchtermsandconditionsasmaybespecifiedbytheregulations•

Digital signature certificatesCertifyingauthoritytoissueDigitalSignatureCertificateare:

AnypersonmaymakeanapplicationtotheCertifyingAuthorityfortheissueofaDigitalSignatureCertificate•in such form as may be prescribed by the Central Government.Everysuchapplicationshallbeaccompaniedbysuchfeenotexceedingtwenty-fivethousandrupeesasmaybe•prescribed by the Central Government, to be paid to the Certifying Authority, provided that while prescribing fees under sub-section (2) different fees may be prescribed for different classes of applicants.Everysuchapplicationshallbeaccompaniedbyacertificationpracticestatementorwherethereisnosuch•statement,astatementcontainingsuchparticulars,asmaybespecifiedbyregulations.On receipt of an application under sub-section (1), the Certifying Authority may, after consideration of the •certificationpracticestatementortheotherstatementundersub-section(3)andaftermakingsuchenquiriesasitmaydeemfit,granttheDigitalSignatureCertificateorforreasonstoberecordedinwriting,rejecttheapplication;providedthatnoDigitalSignatureCertificateshallbegrantedunlesstheCertifyingAuthorityissatisfiedthat-

the applicant holds the private key corresponding to the public key to be listed in the Digital Signature a. Certificatethe applicant holds a private key, which is capable of creating a digital signatureb.

Thepublickeytobelistedinthecertificatecanbeusedtoverifyadigitalsignatureaffixedbytheprivatekey•held by the applicant; provided further that no application shall be rejected unless the applicant has been given a reasonable opportunity of showing cause against the proposed rejection.

6.3 What Does the IT Act Enable?The Information Technology Act enables:

Legal recognition to Electronic Transaction/ Record•Facilitates Electronic Communication by means of reliable electronic record•Acceptance of contract expressed by electronic means•Facilitates Electronic Commerce and Electronic Data interchange•Electronic Governance•Facilitateselectronicfilingofdocuments•Retention of documents in electronic form•Where the law requires signature, digital signature to satisfy the requirement•

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Uniformity of rules, regulations and standards regarding the authentication and integrity of electronic records •or documentsPublicationofofficialgazetteintheelectronicform•Interception of any message transmitted in the electronic or encrypted form•Prevent Computer Crime, forged electronic records, international alteration of electronic records fraud, forgery •orfalsificationinElectronicCommerceandelectronictransaction

6.4 Bar of LimitationSubject to provisions of sections 4 to 24 of the Act - (i.e. Limitation Act),every suit instituted, appeal preferred and application made after the ‘prescribed period’ shall be dismissed, although limitation has not been set up as a defense [section 3(1)]. - ‘Period of limitation’ means the period of limitation prescribed for any suit, appeal or application by the schedule to the Act and ‘prescribed period’ means the period of limitation computed as per provisions of the Act [section 2(j)].

Period As Prescribed in Schedule to the Act – The period has been prescribed in Schedule to the Act. Generally, it is as follows:

3 years for a suit relating to accounts, contracts, declarations, decrees, suits relating to movable property, a. recovery of lawsuit under a contract etc.12 years for suits relating to possession of immovable property and 30 years for mortgaged propertyb. One year for suit relating to torts (3 years for compensation in certain casesc. 30 to 90 days in case of appeals under Civil Procedure Code and Criminal Procedure Code. - - Period of d. filingappealandapplicationcanbeextendedifpropercauseisshown(butnotthesuit)[section5]

Ifcourtisclosedonlastday–Ifcourtisclosedonlastdayoflimitation,suit,appealorapplicationcanbefiledonthe next day when the Court reopens [section 4].

Continuous running of time – When once period of limitation starts running, it continues even if there is any subsequent disability or inability to institute a suit or make an application [section 9]. However, if at the time when personisentitledtofileasuitormakeapplication,ifapersonwasdisabled(ashewasminororinsane),theperiodof limitation will start after the disability is removed [section 6(1)]. In case of appeals against any judgment, if limitation is provided in any statute, that will prevail.

6.4.1 Computation of Period of LimitationFirst day or day of judgment is to be excluded [section 12(1)].a. Time for getting copy of judgment or decree or order or award (against which appeal or application has to b. befiledistobeexcluded[section12(3)].Time when leave to sue or appeal as pauper is applied for and is pending [section 13].c. Timespent (bymistakeormisunderstanding) inproceedingbonafide in theCourtwithout jurisdictiond. [section 14].If stay or injunction was granted, that period will be excluded [section 15(1)].e. Ifconsent/sanctionofGovernmentorsomeauthoritywasrequiredtobeobtainedforfilingsuit/applicationf. or notice was required to be given to Government in accordance with law, the period spent in obtaining the consent/sanction or time in giving notice is excluded [section 15(2)].

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6.4.2 Effect of Fraud or MistakePeriod of limitation starts only after fraud or mistake is discovered by affected party [section 17(1)]. In Vidarbha Veneer Industries Ltd. v. UOI - 1992 (58) ELT 435 (Bom HC), it was held that limitation starts from the date of knowledge of mistake of law. It may be even 100 years from date of payment. The cardinal principle enshrined in section17oftheLimitationActisthatfraudnullifieseverything.Thus,appealagainstthepartycanbeadmittedbeyond limitation, if party has committed fraud (in submitting non-genuine documents at adjudication in this case) – CC v. Candid Enterprises 2001(130) ELT 404 (SC 3 member bench).

6.4.3 Effect of Acknowledgment in WritingIf acknowledgment of any property is right or liability is obtained in writing duly signed by the party against whom such property, right or liability is claimed, before the expiration of period of limitation, a fresh period of limitation is computed from date of acknowledgment [section 18(1)], Acknowledgment can be signed either personally or by an agent duly authorised in this behalf [section 18(2)]. [That is why Banks and Financial Institutions insist on confirmationofbalanceeveryyear].

6.4.4 Continuing Breaches and TortsIn case of continuous breaches and torts, a fresh period of limitation begins to run at every moment of time during which the breach or tort continues [section 22]. Limitation is a question of law and can be raised at any stage i.e. even at the time of appeal.

6.4.5 Law of LimitationThe Law of Limitation only Bars Remedy, but does not extinguish the right.In Bombay Dyeing and Mfg Co. Ltd. v. State of Bombay AIR 1958 SC 328 = 1958 SCR 1122 (SC Constitution Bench), it was held that the law of limitation only bars the remedy of approaching the court of law. However, it does not extinguish the right as such. Law of Limitation is applicable only to courts and not to tribunals. – Nityanand M Joshi v. LIC - AIR 1970 SC 209 = (1970) 1 SCR 396 = 36 FJR 324 (SC) * Sakura v. Tanaji - AIR 1985 SC 1279 * Birla Cement Works v. G M Western Railway (1995) 2 JT 59 (SC).

6.4.6 Limitation in Criminal MattersAs per section 468 of Cr PC, Court cannot take cognisance of offence after expiry of following limitation period - (a) Sixmonths,iftheoffenceispunishableonlywithfine(b)Oneyear,iftheoffenceispunishablewithimprisonmentfor a term not exceeding one year (c) Three years, if the offence is punishable with imprisonment for a term not exceeding three years. However, in case of economic offences, there is no time limit.

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SummaryDigital Technology made dramatic changes in the mode of transacting business.•Theactprovideslegalrecognitionforelectroniccommerce.Thereareprovisionsforappointmentsofofficer•for holding enquiry for malpractices, cyber crimes.ThereisaprovisionforregisteringDigitalSignature.Itisregistered,certifiedbyappropriateagencyandhas•becomeefficientandreliablesourceofsecurebusiness.There is a time limit for every appeal application and is bound by a period of limitation, but it does not extinguish •the right of the aggrieved party.

ReferencesTHE INFORMATION TECHNOLOGY ACT, 2000• , [Pdf] Available at: <http://eprocure.gov.in/cppp/sites/default/files/eproc/itact2000.pdf>[Accessed20June2013].THE INFORMATION TECHNOLOGY ACT, 2000• , [Online] Available at: <http://deity.gov.in/content/it-act-2000-dpl-cyber-laws> [Accessed 20 June 2013].ignousol, 2010. • Information Technology Act 2000 and Beyond-1 part-1. [Video online] Available at: <http://www.youtube.com/watch?v=l1aqFKn__-s> [Accessed 20 June 2013].jainalw, 2012. • Information-Technology-Act 2000. [Video online] Available at: <http://www.youtube.com/watch?v=0i2sHNKwvs4> [Accessed 20 June 2013].Sharma, V.,• Information Technology Law and Practice, Universal Law Publishing.Business Law,• FK Publications.

Recommended ReadingIndian Penal Code (Act No. 45 of 1860) • - 2 Vols. 2006. India.Law of Crimes: As Amended by the Information Technology Act, 2000 2006. India• .Dr. Chansoria, D. & Srivastava, R. A., I• nformation Technology Act 2000: A Conceptual Paradigm Shift in Law.

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Self AssessmentDigital signature is an _____________1.

authentication of any electronic recorda. can be copied by anybodyb. authentication of any recordc. very old way of an recordd.

The period of limitation is prescribed for which of the following?2. cancellationa. suit, appeal, applicationb. registrationc. issuanced.

Computation of period of limitation is ______________.3. the last day or the day of judgment is includeda. thefirstdayordayofjudgementistobeexcludedb. that there is no time boundc. the last few days from the date of judgementd.

Limitation in criminal matters- court cannot take cognizance of offence after expiry of the following period4. 6monthsifoffenceispunishableonlywithfine__________a. one year with imprisonmentb. imprisonment not exceeding, three yearsc. imprisonment exceeding 5 yearsd.

Any person may make an application to the Controller for a ____________.5. licencetoissueDigitalSignatureCertificatesa. cancellationofDigitalSignatureCertificatesb. guidanceofdigitalsignaturecertificatesc. licence to issue electronic recordsd.

A fresh period of limitation begins to run at every moment of time during6. theissuanceofdigitalcertificatesa. which the breach or tort continuesb. which the imprisonment exceedsc. 1 year with imprisonmentd.

Ifcourtisclosedonlastdayoflimitation,suit,appealorapplicationcanbefiledonwhichofthefollowing?7. Next day when the Court reopensa. 2 days later when the court reopensb. 1 week after the court reopensc. 5 days later the court reopensd.

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Every application for Digital signature certificate shall be accompanied by such fee not exceeding 8. __________.

one thousanda. fiftythousandb. twenty-fivethousandrupeesc. ten thousandd.

A licence granted for Digital signature under this section shall be ___________.9. valida. invalidb. transferrablec. valid and transferrabled.

Thepublickeytobelistedinthecertificatecanbeusedtoverifyadigitalsignatureaffixedbytheprivatekey10. __________

held by the applicanta. held by the holderb. held by the controllerc. held by the judged.

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Chapter VII

Special Contracts

Aim

The aim of this chapter is to:

introduce various special contracts •

definetheresponsibilitiesofaspecialcontractsholder•

describe the essentials of special contracts•

Objectives

The objectives of this chapter are to:

elucidate different kinds of guarantee•

explain the duties of bailee of lost goods•

explicate the role and rights of the special contracts holders•

Learning outcome

At the end of this chapter, you will be able to:

understand various special contracts•

differentiate between contracts and quasi contracts•

identify the duties of the special contracts holders •

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7.1 Quasi Contracts‘Quasi Contracts’ are so called because the obligations associated with such transactions could neither be referred as tortious nor contractual, but are still recognised as enforceable, like contracts, in Courts. According to Dr. Jenks, Quasi-contract is “a situation in which law imposes upon one person, on grounds of natural justice, an obligation similar to that which arises from a true contract, although no contract, express or implied, has in fact been entered into by them.”

Example:X Supplies goods to his customer Y who receives and consumes them. Y is bound to pay the price. Y’s acceptance of the goods constitutes an implied promise to pay. This kind of contract is called a tacit contract. In this very illustration, if the goods are delivered by a servant of X to Z, mistaking Z for Y, then Z will be bound to pay compensation to X for their value. This is ‘Quasi-Contract.’ The principle underlying a quasi-contract is that no one shall be allowed unjustly to enrich himself at the expense of another, and the claim based on a quasi contract is generally for money.

7.1.1 Types of Quasi ContractsSections 68 to 72 of the Contract Act describe the cases which are to be deemed Quasi contracts. Claim for necessaries supplied to a person incapable of contracting or on his accountIf 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 condition in life, the person who furnished such supplies is entitled to be reimbursed from the property of such incapable person (Sec. 68).

ExamplesA supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from •B’s property.A, who supplies the wife and children of B, a lunatic, with necessaries suitable to their conditions in life, is •entitled to be reimbursed from B’s property.

The above section covers the case of necessaries supplied to a person incapable of contracting (say, a minor, lunatic, etc.) and to persons whom the incapable person is bound to support (example, his wife and minor children). However, following points should be carefully noted:

the goods supplied must be necessaries. What will constitute necessaries shall vary from person to person �depending upon the social status he enjoys.*it is only the property of the incapable person that shall be liable. He cannot be held liable personally. Thus, �where he doesn’t own any property, nothing shall be payable.

Reimbursement of person paying money due by another in payment of which he is • interested A person who is interested in the payment of money which another is bound by law to pay, and who, therefore, pays it, is entitled to be reimbursed by the other (Section 69).

ExampleB holds land in Bengal, on a lease granted by A, the Zamindar. The revenue payable by A to the Government being in arrear, his land is advertised for sale by the Government.

Under the Revenue Law, the consequence of such sale will be the annulment of B’s lease. B, to prevent the sale and the consequent annulment of his own lease, pays the Government, the sum due from A. A is bound to make good to B the amount so paid.

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In order that the Section may apply, it is necessary to prove that:The person making the payment is interested in the payment of money, i.e., the payment was made � bonafide,for the protection of his own interest.The payment should not be a voluntary payment. It should be such that there is some legal or other coercive �process compelling the payment.The payment must be to another person. �The payment must be one which the other party was bound by law to pay. �

Obligationofapersonenjoyingbenefitsofnon-gratuitousact• Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously,andsuchotherpersonenjoysthebenefitthereof,thelatterisboundtomakecompensationtotheformerin respect of, or to restore the thing so done or delivered [Section 70].

ExamplesA, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own. He is bound to pay for •them.AsavesB’spropertyfromfire.AisnotentitledtocompensationfromB,ifthecircumstancesshowthathe•intended to act gratuitously.

InorderthatSection70mayapply,thefollowingconditionsmustbesatisfied:The thing must be done lawfully; �The intention must be to do it non-gratuitously; and �Thepersonforwhomtheactisdonemustenjoythebenefitofit. �

Responsibility of finder of goodsOrdinarily speaking, a person is not bound to take care of goods belonging to another, left on a road or other public place by accident or inadvertence, but if he takes them into his custody, an agreement is implied by law. Although, thereis infactnoagreementbetweentheownerandthefinderofthegoods, thefinderisforcertainpurposes,deemed in law to be a bailee and must take as much care of the goods as a man of ordinary prudence would take of similar goods of his own. This obligation is imposed on the basis of a quasi-contract. Section 71, which deals with thissubject,says:“Apersonwhofindsgoodsbelongingtoanotherandtakesthemintohiscustody,issubjecttothesame responsibility as a bailee.”

Liability of person to whom money is paid, or thing delivered by mistake or under coercion (Section 72)• A person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it.

ExamplesA and B jointly owe Rs. 1,000 to C. A alone pays the amount to C and B not knowing this fact, pays Rs. 1,000 •over again to C. C is bound to repay the amount to B.A railway company refuses to deliver certain goods to the consignee except upon the payment of an illegal •charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.

Notice that the term mistake as used in Section 72 includes not only a mistake of fact but also a mistake of law. ThereisnoconflictbetweentheprovisionsofSection72ontheonehand,andSections21and22ontheother,andthe true principle is that if one party under mistake, whether of fact or law, pays to another party money which is notduebycontractorotherwise,thatmoneymustberepaid[SalesTaxOfficer,Benaresv.KanhaiyalalMakanlal Saraf, (1959), S.C.J. 53].

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7.1.2 Difference between Contracts and Quasi ContractsIn Quasi Contracts, obligation between the parties is not contractual but one which is treated as contractual by law. These obligations are therefore, implied by law. Quasi contracts are also called ‘implied’ contracts. These are implied because they are ‘such obligations’ which resemble those created by contracts. The essentials for formation of a contract are absent but, as the results resemble those of a contract, they are called ‘Quasi Contracts’. They are called ‘Construction Contracts’ under English law. Indian law terms Quasi Contracts as “Certain relations resembling those created by contract.”

Law, in such cases, places the parties in the same position as they would have been if there was a contract between them. Second part of section 73 of the Act gives the right to the injured party in the following words:

“When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it, is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract”.

It will thus, be observed that Quasi Contracts cannot strictly be called contracts but, they create certain obligations and are, therefore, treated as contracts by law. The aggrieved party is placed in the same position as if the actual contract exists, on the footing that such obligations must be fairly compensated.

Thus, on the basis of the points above, Quasi Contract can be differentiated from Contract as illustrated in the following table.

Contract Quasi Contract

1. Contract is a ‘contract by fact’ and the essentials for formation of contract are present in it

Quasi-Contract is a ‘Contract by Law’ 1.and the formation procedure is absent

2. The Contractual obligations are created by the parties themselves in a contract

2. The contractual obligations are imposed by law in a quasi-contract

3. The remedy for aggrieved party in case of breach is claim for damages

3. The aggrieved party can claim on the principles of quantum meruit.

Table 7.1 Contract and Quasi Contract

7.2 Contract of Indemnity (Sec. 124)A contract by which one party promises to save the other from loss caused to him by the conduct of the Promisor himself, or by the conduct of any other person, is called a Contract of indemnity

Illustration 1:Mr. Yasir purchased demand draft of Rs 50,000 from a bank. The draft was lost in transit. Mr. Yasir requested the concerned branch to issue a duplicate demand draft. He had to furnish an indemnity bond that in case of any claim onthebank,Mr.Yasir(indemnifier)shallbeliabletomakegoodthelosssufferedbythebank(Indemnityholder/Indemnified)

All Contracts of Insurance are contracts of indemnity except life insurance:In such contracts an insurance company ( insurer) undertakes to indemnify the respective party (assured), of the losses suffered by the assured in the manner and to the extent agreed in the contract.

A contract of indemnity is a type of contingent contract or conditional contract. The contingency upon which the whole contract depends is the “happening of loss to the promisee”. The contract is formed with the object of protecting

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the promisee from a contingent anticipated loss. The promisor promises to compensate the loss if it caused by the promisor’s conduct or by the conduct of any other person.

7.2.1 Parties to Indemnity ContractFromthedefinition,itisveryclearthattherearetwopartiesinacontractofIndemnity.

Indemnifier(Promisor).•IndemnityHolder/Indemnified(Promisee).•

Indemnifier (Promisor)-Thepersonwhopromisestomakegoodthelossiscalledindemnifierorpromisor.Heisunderaduty,obligation,liabilitytobefulfilledofrequired.

Indemnity Holder/Indemnified ( Promisee) -The person whose loss is too be made good is called Indemnity Holderorpromiseeorpersonindemnified.Heenjoysarighttobecompensatedincaseofloss.

ExampleA contracts to indemnify B against the consequences of any legal proceedings which may take against B with respect to a certain sum of Rs 1 lakh. This is a contract of Indemnity. Here let us suppose that B owed C, the sum of Rs. 1 lakh on a promissory note. Suppose C lost the document but on the due date demanded the due money from B. B was not ready to pay. Hence A requested B ti make the payment and assured him that no suit shall be subsequently filedbyCinrespectofthepromissorynote.HereAistheindemnifierandBistheindemnifiedfromthelossifcausedtohimbyC’sconductoffilingasuitagainstBforrecoveringRs1lakh.

7.2.2 Essentials of Contract of IndemnityThe following are the various essentials of indemnity contract:

No. of Parties•Mode of Contract•Other essentials of Contract•Loss caused to indemnity holder•Commencementofliabilityofindemnifier•

7.2.3 Rights of Indemnity Holder When SuedAs per the Sce.125 of the Act, the promisee is entitled to recover the following from the promisor:

Can recover all damages incurred /Paid by him.•Can recover costs incurred.•Can recover sums paid under compromise, if any.•

Rights of IndemnifierSettledprincipleoflaw:Aftercompensatingthelosstoindemnityholder,indemnifierisentitledtoalltheways•andmeansbywhichpersonindemnifiedmighthaveprotectedhimselffortheloss.TimeofCommencementofIndemnifier’sLiability:Whenindemnityholderincursanabsoluteliabilitythough•not actual loss.

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7.3 Contract of Guarantee (Sec 126)A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the surety; the person in respect of whose default the guarantee is given is called the principal debtor, and the person to whom the guarantee is given is called the creditor. A guarantee may be either oral or written.

For example, ‘A’ lends money to ‘B’ and ‘C’ promises ‘A’ that if ‘B’ fails to repay he will pay the money .

Examples:Objects: Enabling a person:1.

To avail loan--Mr. Aslam availed a loan of Rs 1 million from XYZ Bank. The said bank asked the loanee, Mr.Aslam to furnish a guarantee from a credit worthy party. Mr. Aslam requested Mr. Akram to furnish guarantee for the said loan in favor of XYZ bank.

Mr. Akram furnished the guarantee as desired by the bank. In case of default by the loanee (Mr. Aslam), the guarantor/ surety ( Mr. Akram) shall be liable to pay the amount in default.

To make credit purchases:2. M/S AQ brothers make credit supplies to Hilton enterprises. Under the agreement, M/S Hilton enterprises furnished guarantee of Mr. Suhail. Mr.Suhail shall be liable to make payments to M/S AQ brothers in case of default by Hilton enterprises.

To get employment (furnishing guarantee to employer):3. Furnishing Guarantee to employer for seeking employment-M/S XYZ bank hired the services of Mr. Salman as cashier and asked him to furnish a guarantee of a third party for a sum of Rs 100,000. Mr. Salman furnished guarantee of Mr. Kamal.

7.3.1 Essentials of a Contract of GuaranteeEssential elements of a contract of guarantee are explained below.

Tripartite ContractIt is an agreement between the principal debtor, creditor and surety. The three separates contracts exist between them.Ifthepromisebyprincipaldebtorisnotfulfilled,theliabilityforthesuretyarises.

In a contract of guarantee the principal debtor is liable and the surety will be liable on principal debtor’s default. The principal contract exists between the principal debtor and the creditor and the contract between creditor and surety is a secondary contract.

Consideration Acontractguaranteelikeothercontractsmustfulfillessentialsofavalidcontract.Itmustbesupportedbysomeconsideration. It is not necessary that there must be direct consideration between the surety and the creditor. The considerationreceivedbytheprincipaldebtorissufficientforthesurety.(Section127)

Misrepresentation A guarantee obtained by means of misrepresentation made by the creditor or with his knowledge and assent, concerning a material part of the transaction is in valid. If the consent of surety will be obtained by misrepresentation, the surety is discharged from his liability. (Section 142)

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ConcealmentAny guarantee which the creditor obtains by means of keeping silence to material circumstances is invalid. The expression keeping silence means intentional concealment of the facts. The creditor should disclose to surety the facts which are likely to affect the surety’s liability. (Section 143)

Express ContractIt is not necessary that the contract of guarantee must be in writing. It may be either oral or written. It may be express of implied from the conduct of parties. (Section 126)

7.3.2 Difference between Indemnity and GuaranteeFollowing is the difference between indemnity and guarantee:

Point Indemnity Guarantee

Number of partiesTwo Parties- a)Indemnifierb) Indemnity holder

Three Parties.a) Creditor b) Principal Debtorc) Surety

Number Of contracts One Contract

Three Contracts:a) P.D & Creditor b) P. D & Suretyc) surety & creditor

Liability of indemnifier is primary and independent from Principal debtor.

Surety’s liability is secondary and conditional.

Request Indemnifiergivesindemnityathisown not on the request of third party.

Surety furnishes/gives guarantee on the request of the principal debtor

Purpose Reimbursement of loss.To Secure performance of a contract (debt etc) by principal debtor.

Existence of liabilityLiabilityofindemnifierarisesonlyon the happening of a contingency/liability.

Liability already exists performance is guaranteed by the surety, for example, loan already exists - Guarantor promises performance of repayment of loan if P. D defaults.

Filing of suitIndemnifiercannotsue(inhisname) except when there is an assignment of claim in his favor.

Surety after discharging his obligations can sue principal debtor.

Nature of undertakingIndemnifierundertakestosaveindemnity-holder from any future loss.

Surety undertakes for the payment of debts of the principal-debtor in case of his default.

Table 7.2 Difference between indemnity and guarantee

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7.3.3 Kinds of GuaranteeSimple guaranteeAguaranteewhichextendstoasingledebtortransactioniscalledordinary,simpleorspecificguarantee.Itcomesto an end as soon as the liability under the transaction ends.

Specific and continuing guaranteeSpecificGuaranteeor(OrdinaryGuarantee)-Thisguaranteeisrestrictedtoaspecifictransactionorengagement.For example availing a loan from a bank.

A guarantee, which extends to a series of transactions is called continuing guarantee. In other words a guarantee which covers a number of transactions over a period of time is called continuing guarantee. It’s like a standing offer which is accepted by the creditor every time a subsequent transaction takes place. Such a guarantee covers a series of transactions. For example guarantee furnished to a supplier for making supplies during the next one year. (Section 129)

Oral and written guaranteeThe Contract Act recognises only express types of guarantee, i.e., either oral or written. A creditor should always prefertogettheguaranteeinwritingtoavoidanydisputesinfuture.Oralguaranteeisverydifficulttoproveincase of dispute.

Retrospective and prospective guaranteeIf a guarantee is given for an existing debt it is called as retrospective guarantee. If it is given for a future debt; it is called as a prospective guarantee.

A continuing guarantee with respect to future to future transactions can be revoked by any of the following methods.

By notice of revocationThe surety may revoke at any time a continuing guarantee as to the future transactions by notice to the creditor. However, he remains liable for all transactions prior to the notice.

By death of suretyThe death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.

By modes of discharging the suretyA continuing guarantee is also revoked under the same circumstances under which surety’s liability is discharged by following modes:

1. By mutual consent- when the parties agree to substitute a new contract for the old contract or rescind or alter the old contract, the old contract stands cancelled.

2. By variance in contract- Any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. Illustrations (a) A becomes surety to C for B’s conduct as a manager in C’s bank. Afterwards B and C contract, without A’s consent, that B’s salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to overdraw, and the bank loses a sum of money. A is discharged from his surety ship by the variance made without his consent, and is not liable to make good this loss.Sec.133

3. By release of principal-debtor- The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. Sec 134

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Illustrations(a) A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B, and afterwards B becomes embarrassed and contracts with his creditors (including C) to assign to them his property in consideration of their releasing him from their demands. Here B is released from his debt by the contract with C, and A is discharged from his surety ship.4. By Creditor’s act or omission- If the creditor does any act which is inconsistent with the rights of the surety,

or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged. Illustrations (a) B contracts to build a ship for C for a given sum, to be paid by installments as the work reaches certain stages. A becomes surety to C for B’s due performance of the contract. C, without the knowledge of A, prepays to B the last two installments. A is discharged by this prepayment.

5. By loss of security–Asuretyisentitledtothebenefitofeverysecuritywhichthecreditorhasagainsttheprincipal debtor at the time when the contract of surety ship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.

Illustrations(a) C advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further security for the 2,000 rupees by a mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent, and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.

7.3.4 Rights of SuretyThesuretyenjoysvariousrightswhichcanbeclassifiedasfollows:Rights against creditorRights against principal-debtorRights against co-sureitiesLet us consider them one by one:

A. Rights Against The Creditor 1. Right to securities: The security at the time of payment can demand the securities which creditor has received from principal debtor at the time of creation of contract, whether surety is aware of such securities or not. If creditor by negligence loses any security held by him, the surety is discharged to that extent from the payment of guaranteed sum. But if security is lost due to unavoidable act, the surety would not be discharged. (Section 141)

2. Right to claim Set-off: If the principal debtor has some claims against the creditor, the debtor can ask for adjustment of his debts to the extent of his claims. If the creditor sues surety for repayment, the surety can claim set off, if any which principal debtors had against creditor.

B. Rights Against The Principal Debtor1. Right of Subrogation: When surety has paid the guaranteed debt on default of principal debtor he is entitled to all the rights, which creditor had against principal debtor. The surety is entitled to all the remedies which are available to creditor against principal debtor. (Section 140)

2. Right of Indemnity: In every contract of guarantee there is an implied promise by principal debtor to indemnify surety. The surety is entitled to recover from principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully. (Section 145)

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C. Rights Against Co-SuretiesSimilar AmountWhere there are sureties for the same debt and the principal debtor has committed a default, each party is liable to contribute equally to the extent of the default.

Different AmountWhere there are sureties for the same debt for different sums, they are bound to contribute equally subject to the limitfixedbytheirguarantee.Theywillnotcontributeproportionately.

7.3.5 Rights of a Creditor Against SuretyRight to sueWhere the liability of the surety arises, the creditor can sue surety without suing the principal debtor. The liability of surety is immediate and need not be postponed until the creditor has exhausted his remedies against the principal debtor.

Right to proceed before utilising debtor’s securitiesUnless otherwise agreed, a creditor may proceed against the surety before utilising the debtor’s securities for recovering the amount due.

Right to proceed simultaneouslyA credtor may sue principal debtor and surety concurrently recovering his debt.

Right in case of surety’s insolvencyIf the surety becomes insolvent, the creditor has the right to recover the dues from the property of the insolvent surety.

Right in case of co-suretiesIn case of co-sureties, the creditor is free to proceed against any one of the sureties for recovering the whole debt. This is because the liability of co-sureties is joint and several also.

7.3.6 Discharge of SuretyA surety is said to be discharged when he is freed from his obligations. As a result, his liability as a surety comes to an end. This can happen in various ways, either by the conduct of the surety himself or of the creditors or of the principal debtor or by operation of law

The various methods of discharge of contract are as follows:

1. By payment by principal debtorIf the principal debtor pays off his debt to the credtor, the surety will be discharged. This is the most ideal method of discharging a contract of guarantee.

2. By notice of revocationThe surety may revoke at any time a continuing guarantee as to the future transactions by notice to the creditor. However, he remains liable for all transactions prior to the notice.

3. By death of suretyThe death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.

4. By novation of contractWhen the parties mutually agree to substitute a new contract for the old contract, the old contract of guarantee comes to an end and the surety is discharged under the old contract.

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5. By variance in contractAny variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. Illustrations (a) A becomes surety to C for B’s conduct as a manager in C’s bank. Afterwards B and C contract, without A’s consent, that B’s salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to overdraw, and the bank loses a sum of money. A is discharged from his surety ship by the variance made without his consent, and is not liable to make good this loss.Sec.133

6. By release of principal-debtorThe surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. Sec. 134 Illustrations(a) A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B, and afterwards B becomes embarrassed and contracts with his creditors (including C) to assign to them his property in consideration of their releasing him from their demands. Here B is released from his debt by the contract with C, and A is discharged from his surety ship.

7. By Creditor’s act or omissionIf the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged. Illustrations(a) B contracts to build a ship for C for a given sum, to be paid by installments as the work reaches certain stages. A becomes surety to C for B’s due performance of the contract. C, without the knowledge of A, prepays to B the last two installments. A is discharged by this prepayment.

8. By loss of security Asuretyisentitledtothebenefitofeverysecuritywhichthecreditorhasagainsttheprincipaldebtoratthetime when the contract of surety ship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security. Illustrations(a) C advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further security for the 2,000 rupees by a mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent, and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.

7.4 Bailment ContractA Bailment is delivery of goods by one person to another person for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the direction of the person delivering them.

The person delivering goods is called ‘bailor’. The person to whom they are delivered is called the ‘bailee’Fromthedefinition,itisunderstoodthatbailmentisaverysimplecontractwhichempowersthetemporaryplacementof control over, or possession of personal property by one person, the bailor, into the hands of another, the bailee, for a designated purpose upon which the parties have agreed. .” It is generally considered to be a contractual relationship since the bailor and bailee, either expressly or impliedly, bind themselves to act according to particular terms. The term bailment is derived from the French bailor, “to deliver

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ExamplesDelivering vehicle to service station for servicing1. Giving clothes to a laundry for ironing.2. Delivering goods to carrier for the purpose of carrying them from one place to another.3.

Essential features of Bailment Contract Delivery: It is delivery of goods by one person to another. For example, delivering a vehicle to workshop for •repairs is an Actual delivery.Purpose: The goods are delivered for some purpose.•Return: It is agreed, that when the purpose is accomplished the goods are to be returned or otherwise disposed •of according to the direction of the bailor.Contract: Bailment arises from express or implied t contract. (n case of bailee of goods bailment arises by •implication tit’ law.Ownership: In bailment the bailor continues to be the owner of the goods. Therefore bailment does not cause •any change of ownership.Movable goods: Bailment is concerned with only mov able goods. Money is not included in the category in •movable goods. A deposit of money is not bailment.

Deposit of money in a bank does not .constitute bailment. 1Iir relationship between depositor and the bank is that of borrower and the lender.

Possession: A person already in possession of the goods may become a bailce by a subsequent agreement, •express. or implied.

Example:X is a seller of motor can, having several cars in his possession. Y buys a car and leaves the car in the possession of X After the sale is complete, X becomes a bailee, although originally he was the owner.

Delivery to bailee “The delivery of-goods to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf. -Sec. 149.

Types of Bailment Contract Bailmentisofvarioustypes.Itcanbeclassifiedasfollowsonthebasisof:

Benefit•Reward to parties•

Based on benefitBailmentfortheexclusivebenefitof:

Bailor:Insuchcontracts,onlythebailorisbenefitedbutthebaileedoesnotderiveanybenefitfromit.For•example, leaving goods in safe custody without paying.Bailee:Abailmentinwhichthebaileeisexclusivelybenefitedbutbailorisnot,isofthistype.For• example, a loan of some article like a pen.Mutualbenefit:Whenthebailordelivershisarticlestoanotherforrepairorgiveshisgoodstocarrierforcarriage,•itisknownasbailmentformutualbenefit.Forexample,contractsforhiring,repair,etc.

Based on rewardGratuitous bailment: neither bailor nor bailee is entitled for remuneration, example: lending a book to a •friendNon-gratuitous bailment: bailment of reward: either bailee or bailor is entitled to a remuneration , example: •hire, tailor, etc

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7.4.1 Duties of BailorBailor is the person who delivers goods to another in a bailment. His duties are as follows:

Bailor’s duty to put bailee into possession(sec.149)Theverybasisofbailmentcontractisthedeliveryofgoodsbybailortobailee.Sothefirstandforemostdutyofbailoris to deliver possession of goods to bailee. Possession of goods can be given by ‘actual’ or ‘constructive’ delivery.

Bailor’s duty to disclose faults in goods bailed“The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extra ordinary risk, and, if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.

If the goods are bailed for hire, the bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in the good bailed.”-Sec. 150.

Examples :A lends a horse which he knows to be vicious to B. He does not disclose the fact that the horse is vicious. The •horse runs away, B is thrown and injured. .A is responsible to B for damage sustained. A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and A is injured. B is responsible to A for the injury.

Payment of expenses in Gratuitous Bailments“Where by the conditions of the bailment, the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.”-Sec. 158.

Responsibility for breach of warranty of titleThe bailor is responsible to the bailee for any loss which the bailee may sustain-by reason that the bailor was not entitled to make the bailment, or to receive back the goods or to give direction respecting them.-Sec. 164.

Example :A gives B’s car to C for use without B’s knowledge of permission. B sues C and receives compensation. C is entitled to recover his losses from A.

Bailor/s duty in premature termination of gratuitous bailment(Sec.159)Sometimes the goods are delivered by bailor to bailee gratuitously for a certain period or certain purpose. If such bailment is terminated by bailor before the agreed time or before the purpose is accomplished, then the bailor shall indemnify the bailee for any loss caused to the bailee thereby.

Bailor’s duty to receive back the goods The bailor, who has delivered the goods to bailee, should also take back the goods after bailment. If the bailor refuses to receive back the goods, the bailee will incur expenses for the safe custody of goods. It is the bailor’s duty to repay such additional expenses incurred by bailee.

7.4.2 Duties of BaileeFollowing are the duties of a bailee: To take reasonable care of the goods bailed

According to section 151, in all cases of bailment the bailee is bound to take care of the goods as much as it is •his own goods of the same bulk, quality and value.Despite reasonable care, if the goods are damaged or destroyed in any way, the bailee is not liable for the loss, •destruction or deterioation (Sec. 152) destruction or deterioration. Example: A, who was going out of town, delivered his pet dog to his friend B. Dog gets sick and dies. A was liable as he failed to exercise reasonable care.

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Not to make any unauthorised use of goodsIf the bailee uses the goods bailed in a manner which is inconsistent with the terms of the contract, he shall •be liable for any loss even though he is not guilty of negligence, , and even if the damage is the result of an accident (Sec. 154)

ExampleA hires B’s car to drive from Mumbai to Pune but drives it to Goa instead.A is liable to compensate B in case it gets damaged in such a scenario.

Not to mix goods bailed with his own goodsThe bailee must not mix the goods of the bailor with his own goods•If bailee mixes the goods with the bailor’s consent both shall have a proportionate interest in the mixture (Sec. •155)Without the bailor's consent .if the goods are separated or divided, the bailee is bound to bear the expenses on •separation or division as well as damage arising from the mixture (Sec. 156)If the mixture is beyond separation, the bailor is entitled to be compensated by the bailee for the loss of the •goods (Sec. 157)

Example:A bails 100 chocolates bearing a particular mark to B. B, without A’s consent mixes this marked 100 chocolates •with his own, bearing a different mark. A is entitled to bear all the expenses incurred in the separation of the chocolates, and any other incidental damage.

To return the goodsIt is the duty of the bailee to return or deliver, according to the bailor's directions, the goods bailed, without demand, as soon as the time has expired or the purpose of the bailment is accomplished (Sec.160)

If bailee fails to deliver the goods, he is responsible to bailor for any loss (Sec. 161)For example, A hires a horse for 4 days, fails to return and subsequently the horse dies. In such a case, A has to pay price of the horse.

Example:‘A’hires‘B’’scarfor2days.Bdoesnotreturnthecarevenafter2days.Thecarisdamagedbyfloodsthereafter.B is liable for the damages due to delay, in addition to the actual loss caused to A.

To return any accretion to the goodsThebaileeisboundtodelivertothebailor,oraccordingtohisdirections,anyincreaseorprofitwhichmayhaveaccruedfrom the goods bailed (Sec. 163)

Example:A leaves his 5 hens in the custody of B for taking care of them. The hens give birth to 10 chickens. B is bound to deliver back the hens with the chickens.

7.5 Rights of the Bailor The duties of bailee are in fact the rights of bailor. Enforcement of Bailor’s rights- Bailor can enforce all the duties of bailee.The various rights of a bailor are as follows:

Rights of taking back the goods bailedThe bailor has right to take back the goods bailed as soon as the purpose of bailment is completed. If the bailee defaults in so returning, the bailor has right to receive compensation.

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Right in case of unauthorised use of goodsThe bailor is entitled to terminate the contract of bailment if the bailee makes the unauthorised use of the goods bailed.

Right to goods bailed before stated periodThe bailor may get back his goods before the time stated in the contract of bailment with the consent of the bailee.

Right to dissolution of contractThe bailor may dissolve the contract if the conditions of bailment are disobeyed by the bailee.

Right to gratuitous goodsThebailorhasright it terminatethecontractofgratuitousbailmentatanytimeevenbeforethespecifiedtime,subjecttothelimitationthatwheresuchaterminationofbailmentcauseslossinexcessofbenefit,thebailormustcompensate the bailee.

Right in share of profitThebailorhasshareintheincreaseorprofitgainedfromthegoodsbailedifthereisprovisioninthecontract

Compensation from a wrongdoer If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, the bailor or the bailee may bring a suit against the third person for such deprivation (Sec. 180)

Return of goods lent gratuitouslyThebailorcandemandthereturnofgoodswheneverhepleaseseventhoughhelentthemforaspecifiedtimeorpurpose (Sec. 159)

7.5.1 Rights of the BialeeThe duties of bailor are in fact the rights of bailee, Enforcement of Bailee’s rights- Baileecanenforceallthedutiesofbailor,byfilingasuit.

The various rights of a bailee are as follows:Right to recover damagesA bailee has right to recover damages from the bailor if he suffers any loss due to defects of the goods bailed.

Right to receive compensationA bailee is entitled to receive compensation from the bailor for any loss resulting from the defect in the bailor’s title.

Right of legal actionA bailee may take necessary legal action against the person who wrongfully deprives him of the use of goods bailed or does them any injury (Sect. 180)

Right to recover bailment expensesBailee is entitled to be reimbursed for all legitimate expenses incurred for any purpose of bailment.

Right of lienWhere the lawful charges of the bailee in respect of the goods bailed are not paid, he may retain the goods.This right of the bailee is known as ‘particular lien´ (Sect. 170)

Right of indemnityThe bailee has right to receive the amount of indemnity from bailor for any loss which he may sustain by reason that the bailor was not entitled to make the bailment or to receive back the goods, or to give directions respecting them. (Sect. 164)

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Delivery of goods to one of several joint bailors of goodsIf several joint owners of the goods bailed, the bailee may deliver the goods back to one joint owner without the consent of all, unless there is no contrary agreement (Sec. 165)

Delivery of goods to bailor without titleIf bailor does not hold the title of the goods, bailee is not responsible to the owner of the goods (Sec. 166)

Right to apply to court to stop deliveryIf a person other than the bailor claims the goods bailed, the bailee may apply it to court to stop the delivery of the goods to bailor and to decide the title to the goods (Sec. 167)

Right of action against trespassersIf a third person wrongfully deprives the bailee of the use or possession of the goods bailed to him he has the right to bring an action against that party (Sec. 180)

7.5.2 Rights of Bailor and Bailee against WrongdoersRights of Bailor and Bailee against Wrongdoer [Section 180] If a third party wrongfully deprives a bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to such remedies as the owner might have used in the like case if no bailment had been made; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.

Apportionment of Relief or Compensation Obtained by Such suits [Section 181]Whatever is obtained by way of relief or compensation in any such suit shall as between the bailor and the bailee, be dealt with according to their respective interests.

ExampleX delivered a TV to Y for repairs. Z forcefully takes the possession of TV from Y’s shop. Inthis case, either X or Y maysueZ.IfYfilesthesuit,heshallhandovertheamountreceivedafterdeductinghisrepairchargestoX.

7.5.3 Types of LienLien means the right of a person to retain possession of some goods belonging to another until some debt of or claim ofthepersoninpossessionissatisfied

PossessionisessentialforexercisingtherightoflienThus,Liencanbedefinedasarightwherethebaileehas,inaccordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed he has in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.

In order to create a lien the possession must be:•Rightful �Not for a particular purpose �Continuous �

Extinguishment of Lien•A lien is extinguished or lost by:

Abandonment �Payment or tender of the amount due �Loss or surrender of possession of the goods �

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There are two types of lien, which are as follows:

Lien

Particular Lien (Sec 170)

General Lien(Sec. 171)

Fig. 7.1 Types of lien

A particular lienLien which is available to the bailee against only those goods in respect of which he has rendered some service involving the exercise of labour or skill

According to Section 170, where the bailee has in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the service he has rendered in respect of them

If the bailee does not complete the work within the agreed time, or a reasonable time, he cannot exercise his •right of lien.If the bailee voluntarily permits the bailor or regains possession of the goods without payment of the charges, •he cannot exercise the right of lien.If without any fault of the bailee, the goods are destroyed or stolen, the bailee is entitled to be paid for services •performed upon the goods before they were destroyed or stolen.

Example:A gives his clothes to a laundryman B for dry-cleaning. B can retain the clothes till his bill is paid. But he cannot withhold if he has given a credit period.

A general lienItisarighttoretainallthegoodsoranypropertyofanotheruntilalltheclaimsoftheholderaresatisfied

Accordingtosection171,generallienisavailabletobankers,factors,wharfingers,attorneysofHighCourt•and policy brokers.These individuals are entitled to retain possession of the goods bailed to them as security until their claims are •fullysatisfied.

ExampleA has taken two distinct loans from a bank B, against two securities. A repays one of these loans. The banker B retain both the securities until the other loan is repaid.

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Difference between Particular Lien and General LienFrom the above discussion we can conclude the following difference between particular lien and general lien

Point Particular Lien General Lien

Goods1.It can be exercised only against the goods on which some remuneration is due

It can be exercised against all goods in possession of bailee whether in respect of which claims are due or not

Object/Purpose2.It can be exercised only for recovery of remuneration for services rendered.

It can be exercised for a general balance of account due.

Which bailee 3.entitled?

Available to any bailee in absence of contract to con-trary

Available only to bailees specifiedinsec.171,unlessthere is an express contract to that effect.

Purpose of 4.Delivery

Goods are delivered to con-fer an additional value on the goods bailed

Goods are delivered as se-curity to bailee usually.

Table 7.3 Difference between particular lien and general lien

7.5.4 Finder of Lost GoodsResponsibilityofFinderofgoods-Accordingtosection71,aperson,whofindsgoodsbelongingtoanotherandtakes them into his custody is subject to the same responsibility as a bailee. Such a person is termed as the Finder of goods.

Rights of finder of goodsRight of lien•Accordingtosection168,thefinderoflostgoodshasarightoflienoverthegoodsforhisexpenses.Right to sue for reward•Accordingtosection168,thefindercansueforanyspecificrewardwhichtheownerhasofferedforthereturnof goods.Right of sale•Accordingtosection169,findermaysellthegoodsfound•

If the true owner cannot be found after reasonable diligence �If found, he refuses to pay the lawful charges �If the goods are in the danger of perishing or of losing the greater part of their value �Ifthelawfulchargesofthefinder,amounttotwo-thirdoftheirvalue �

Duties of finder of lost goods

He must take reasonable care of the goodsAlthough, there is in fact no agreement between the owner and the bailee of the goods, the bailee is for certain purposes, deemed in law to be a bailee and must take as much care of the goods as a man of ordinary prudence would take of similar goods of his own.

He must not use the goods for his own purposeIfthefinderusesthegoodsbailedinamannerwhichisinconsistentwiththetermsofthecontract,heshallbeliablefor any loss even though contract, he shall be liable for any loss even though he is not guilty of negligence, and

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even if the damage is the result of an accident (Sec. 154). Example, A hires B’s car to drive from Mumbai to Pune but drives it to Goa instead.A is liable to compensate B in case it gets damaged in such a scenario.

He must not mix the goods with his own goodsThefindermustnotmixthegoodsoftheownerwithhisowngoodsIffindermixesthegoodswiththeowner’sconsent both shall have a proportionate interest in the mixture (Sec. 155) Without the owner’s consent .if the goods areseparatedordivided,thefinderisboundtobeartheexpensesonseparationordivisionaswellasdamagearisingfrom the mixture (Sec. 156) If the mixture is beyond separation, the owner is entitled to be compensated by the finderforthelossofthegoods(Sec.157)

He must try to find out the owner of the goodsFindermusttakereasonableeffortsinfindingoutthetrueownerofgoods.Forthispurposehemayincursomeexpenses in publishing notices, advertisements etc which are known as ‘lawful expenses’.

7.5.5 Termination of BailmentA contract of bailment terminates or comes to an end under the following circumstances:

On the expiry of the periodBailmentforaspecifiedperiodterminatesassoonasthefixedorstipulatedperiodexpires.

On the achievement of the objectBailmentforaspecifiedpurposeterminatesassoonasthepurposeforwhichthegoodsarebailedisfulfilled

Inconsistent use of goods (Sec. 154)If a bailee doe any act with regard to the goods bailed, which are inconsistent with the conditions of bailment, then the bailor can terminate the contract.

Destruction of the subject-matter Bailment can be terminated if the subject-matter or the goods are destroyed

Gratuitous bailmentGratuitous bailment may be terminated by the bailor at any pre-mature time. However the bailor has to indemnify thebaileeifthelossduetoprematureterminationexceedsthebenefitactuallyderivedbythebailee.

Death of the bailor or baileeA gratuitous bailment is terminated by the death of wither the bailor or bailee.

7.6 Contract of PledgeThe bailment of goods as security for payment of a debt or performance of a promise is called “pledge”. The bailor is in this case called “pawnor”. The bailee is called “pawnee”.

Fromthedefinition,itisfoundthat,thereare3essentialfeaturesofapledgeThere must be bailement of goods, i.e., delivery of goods,•The bailment must be by way of security, and•The security must be for payment of debt or a performance of promise. There are two parties to a pledge- ‘Pawnor •(who delivers the goods)’ and ‘Pawnee (To whom the goods are delivered)’

Example:A borrows Rs.2 laks from a bank B and keeps his ornaments as security for payment of the debt. It is a contract of pledge, where A is the Pawnor and B is the Pawnee.

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7.6.1 Advantages of PledgeIn case of pledge contract the relationship between the Pawnor and Pawnee is that of a debtor and creditor respectively. To a creditor/Pawnee, pledge is perhaps the safest mode of creating a charge on securities, because:

The goods are in the possession of the creditor. In case of debtor’s default, they can be disposed of with a proper •procedure.Goods cannot be manipulated because they are under pawnee’s control.• Incase of insolvency of pawnor, pawnee can sell the goods in his custody and recover his debt.•

7.6.2 Difference between Pledge and BailmentBothPledgeandBailmentarespecifictypesofcontracts.Pledgeisaspecifictypeofbailment.Bothdealwithmovable goods only. In both, there is transfer of possession only and not transfer of ownership. However there are many differences between them, which are as follows

Point Pledge Bailment

Purpose of Delivery1.

Goods are pledged for aspecificpurposei.e.repayment of a debt or performance of a promise.

Goods are bailed for any purpose

Object of contract2. Goods are pledged as a security

Goods are bailed for a specificpurposeorforaparticular period of time

Use of Goods3. Pawnee cannot use the goods. He has to simply keep them as a security

Bailee may use them or provide some services with respect to goods as per the conditions of bailement.

Right available in 4. case of default

In case of default by pawnor, pawnee can sell the goods.

Bailee has right of lein and right to use bailor for duties.

Table 7.4 Difference between pledge and bailment

7.6.3 Rights and Duties of PawneeRights of Pawnee are as follows:

Right of retainer (Sec 173,174))•Right to recover expenses (Sec. 175)•Right on default by pawnor (Sec. 176)•

Pawnee’s right of retainer (Sec 173) The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interests of the debt, and all necessary expenses incurred by him in respect to the possession or for the preservation of the goods pledged.

Pawnee cannot retain the goods for debt or promise other than, for which pledged - presumption in case of subsequent advances (Sec 174) The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise of other than the debtor promise for which they are pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the pawnee.

Pawnee’s right as to extraordinary expenses incurred (Sec175) The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.

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Pawnee’s right where pawnor makes default(Sec176) If the pawnor makes default in payment of the debt, or performance, at the stipulated time, or the promise, in respect of which the goods were pledged, the pawnee may bring as suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater that the amount so due, the pawnee shall pay over the surplus to the pawnor

7.6.4 Rights and Duties of PawnorThe duties of pawnee are in fact the rights of pawnor. The various rights of a pawnor are as follows:

Enforcement of Pawnor’s rightsPawnor can enforce all the duties of pawnee by legal action against him. For example, Right to get back his goods, right to receive accretion to the goods etc.

Defaulting pawnor’s right to redeem (Sec 177) If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledged is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them; but he must, on that case, pay, in addition, any expenses which have arisen from his default.

The most important duties of the pawnor, are as under:Pawnor;s duties are same as bailor’s duties.•Pawnor’s duty to comply with the terms of pledge.•Pawnor’s duty to compensate the pawnee for extraordinary expenses.•

7.6.5 Pledge by Non-ownersThe general rule is that, only the owner of goods can create a valid pledge. This means, it is presumed that, in a pledge, the ownor is the ownor of the goods. In other words, a pawnor should be the owner of the goods.

But exceptionally, even a non-owner can pledge the goods, and the pledge is still legal and valid. The following non-owners can pledge the goods in the following circumstances:

Pledge by mercantile agent(178) Where a mercantile agent is, with the consent of the owner, in possession of goods or the documents of title to goods, any pledge 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 pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.

Explanation : In this section, the expression “mercantile agent” and “documents of title” shall have the meanings assigned to them in the Indian Sale of Goods Act, 1930 (3 of 1930).

Pledge by person in possession under voidable contract(Sec178A)When the pawnor has obtained possession of the other goods pledged by him under a contract voidable under section 19 of section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquired a goods title to the goods, provided he acts in good faith and without notice of the pawnor’s defect of title.

Pledge where pawnor has only a limited interest(Sec179) Where person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.

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Pledge by a co-owner in possessionWhen there are several joint owners of goods, of which one co-owner is in possession of the goods, he with the consent of the rest, can make a valid pledge of goods.

Pledge by seller in possession after saleA seller is still in possession of goods after sale if he makes a pledge of goods, it will be a valid pledge provided the pawnee has acted in good faith and without knowledge as to the defective title of the pawnor/seller.

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SummaryQuasi-contract is a situation in which law imposes upon one person, on grounds of natural justice, an obligation •similar to that which arises from a true contract, although no contract, express or implied, has in fact been entered into by them.A contract by which one party promises to save the other from loss caused to him by the conduct of the Promisor •himself, or by the conduct of any other person, is called a Contract of indemnity.A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case •of his default.A Bailment is delivery of goods by one person to another person for some purpose, upon a contract that they •shall, when the purpose is accomplished, be returned or otherwise disposed of according to the direction of the person delivering them. In a Bailment contract The person delivering goods is called ‘bailor’. The person to whom they are delivered •is called the ‘bailee’.The duties of bailee are in fact the rights of bailor. Enforcement of Bailor’s rights- Bailor can enforce all the •duties of bailee.A Lien is the right of a person to retain possession of some goods belonging to another until some debt of or •claimofthepersoninpossessionissatisfied.AFinderofgoodsissubjecttothesameresponsibilityasabailee.Heisresponsibleforfindinggoodsbelonging•to another person and taking them into his own custody. The bailment of goods as security for payment of a debt or performance of a promise is called “pledge”. •In case of a pledge, the bailor is called a “pawnor”. The bailee is called “pawnee”.•The duties of pawnee are in fact the rights of pawnor. Enforcement of Pawnor’s rights- Pawnor can enforce all •the duties of Pawnee.

ReferencesThe Indian Contract Act • [pdf] Available at: <http://www.corecentre.co.in/Database/Docs/DocFiles/indian_contract.pdf> [Accessed 15 September 2011].Chiney, S., 2010. • Business Regulatory Framework, Mumbai: Sheth Publishers Pvt. Ltd.Tulsian, 2006. Business Law for B. Com Hons,• Tata McGraw-Hill Education.Business Law Including Company Law• [pdf] Available at: <http://www.newagepublishers.com/samplechapter/001048.pdf> [Accessed 12 September 2011].Pinelli, J., 2010. • WhatIsanIndemnityBenefitContract? [Video online] Available at: <http://www.ehow.com/video_4774350_indemnity-benefit-contract_.html>.[Accessed19October2011].Lien. [Video online] Available at: <http://www.howcast.com/videos/171509-Lien>. [Accessed 19 October •2011].

Recommended ReadingBose, D. C., 2010. • Business Law , Publication PHI Learning Private Ltd.Mathur, S. B., 1974. • Business Law , Published by Tata McGraw Hill.Vechalekar, N. M., • Business Law , Everest Publishing House.

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Self AssessmentSections 68 to 72 of the Contract Act describe the cases which are to be deemed as _________.1.

Bailment Contracta. Pledge’ Contractb. Contract of Guaranteec. Quasi contractsd.

_______ is the right of a person to retain possession of some goods belonging to another until some debt of or 2. claimofthepersoninpossessionissatisfied.

Liena. Pledgeb. A Guaranteec. Indemnityd.

The bailment of goods as security for payment of a debt or performance of a promise is called__________.3. Guaranteea. Indemnityb. Pledgec. Suretyd.

Which of the following statements is false?4. Pawnor’s duties are same as bailor’s duties.a. Pawnor’s duty is to comply with the terms of pledge.b. The duties of pawnee are in fact the rights of pawnor.c. Pawnor is the person to whom the goods are delivered.d.

A_________ is the right to retain all the goods or any property of another until all the claims of the holder are 5. satisfied.

General Liena. Particular Lienb. Lienc. Guarantee d.

Which of the following statements is false?6. Thebailorcannotdemandthereturnofgoodsfromthebaileeinacasewherehelentthemforaspecifieda. time or purpose.If bailor does not hold the title of the goods, bailee is not responsible to the owner of the goods.b. A bailment contract is delivery of goods by one person to another.c. The bailor is entitled to terminate the contract of bailment if the bailee makes the unauthorised use of the d. goods bailed.

Liability of __________ arises only on the happening of a contingency/liability.7. indemnifiera. bailorb. indemnity holderc. finderofgoods.d.

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The number of parties involved in a Contract of guarantee are________.8. Twoa. Fourb. Threec. Fived.

A _________ bailment is one in which neither the bailor nor the bailee is entitled to any remuneration.9. Gratuitousa. Non-Gratuitousb. Rewardc. Benefitd.

In a contract of guarantee, the person who gives the guarantee is called the_______.10. Principal Debtora. Creditor b. Suretyc. Guaranteerd.

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Chapter VIII

The Patents Act, 1970

Aim

The aim of this chapter is to:

introduce the Patents Act,1970•

enlist the rights of the patentee•

explain the salient features of the Indian Copyright Act,1957 and Designs Act, 2000•

Objectives

The objectives of this chapter are to:

elucidate the meaning and developments in intellectual property•

explain the provisions of the various legislations (acts) covering the IPR•

identify the terms and conditions applicable for various Acts•

Learning outcome

At the end of this chapter, you will be able to:

understand the provisions of the Patents Act, 1970•

distinguish between Patent and Copyright Act•

comprehend the meaning of the Indian Designs(2000) and Trademar• k(1999) Act

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8.1 IntroductionTheterm‘Patent’isdefinedasamonopolyright,whichisgrantedtoapersonwhohasinventedanewandusefularticle, or an improvement of existing article, or a new process of making an article.

It consists of an exclusive right to manufacture the new invented article or manufacture an article according •to the invented process for a limited period. Inventions that consist of products or new alloy is called product invention and the corresponding patent to this is referred to as ‘product patent’. Whereas, inventions that consist of process or processes of making a known or new alloy is a process invention and patent for this is called a ‘process patent’. This Act is only provided for process patent and for product like food, pharmaceutical and chemicals, the inventors were granted only EMR (exclusive marketing rights).Examples of particular species of patents for inventions include biological patents, business method patents, •chemical patents and software patents.Some other types of intellectual property rights are referred to as patents. In some jurisdictions, industrial •design rights are called design patents in some jurisdictions (they protect the visual design of objects that are not purely utilitarian)Patent right is obtained by applying to the proper authority under the Act and is registered for a certain •period.

The main provisions of the Act:The Controller General of Patents, Designs and Trade Marks appointed under the Trade and Merchandise Marks •Act,1958,shallbetheControllerofPatentsforthepurposesofthisAct.Also,thereshallbea‘patentoffice’forthe purpose of facilitating the registration of patents at such places as the Central Government may specify.Thereshallbekeptatthepatentoffice;a‘registerofpatents’whereinshallbeentered•The names and addresses of grantees of patents;•Notificationsofassignments,extensions,andrevocationsofpatents;and•Particulars of such other matters affecting the validity or proprietorship of patents as may be prescribed.•

8.1.1 Meaning of “Property’ and ‘Intellectual Property’As a matter of fact, the concept of ‘Property’ has undergone sweeping changes from ancient time to modern days. In the early period, property was understood as property of tangible nature only, example, animals, money, buildings, goods etc. i.e. moveable or immovable property. The other way of classifying property is corporeal property and incorporeal property or tangible property and intangible property. Corporeal property indicates the material, tangible things owned by the human beings, organisations, associations etc. They are the physical objects and hence they are perceptible by touch. On the other hand, incorporeal property is intangible which can be a subject matter of right. Such property does not have a physical existence and hence cannot be perceived by touch. From this point of view, actionable claims, goodwill, easementary rights, intellectual property rights such as patents, copyrights, trademarks etc. are considered as ‘Intangible or Incorporeal property’

‘Intellectual property’ as a type or a form of property has come into existence in recent times and its importance is great and is growing. In fact, intellectual property is a right pervading some material object. The intangible products of a man’s brain are as valuable as his land, building, goods, money, belongings etc. It is quite different from real propertyoraformalproperty.Infiction,itisproperty.Hence,itiscalledasintellectualproperty.Therightsrelatingto the intellectual property are recognised by law as the subject matter of rights of various intangible or immaterial products like human intelligence, skills and labour. In short, it can be said that intellectual property is basically a creation of intellect or relates to intellect. It is a right pervaded in some property of real nature, and as such it is only apropertyinfictionorafictionalpropertyexample,patentrights,copyrights,designrightsetc.

From the following important attributes of intellectual property, you will come to know the nature of intellectual property.

Intellectualpropertyisonlyapropertyinfictionorfictionalpropertyandnotarealpropertythoughitispervading•some real property. It cannot be perceived by touch.

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Intellectualpropertyincludestherightsrelatingtoscientificdiscoveries,industrialdesigns,trademarks,service•marks,literary,artisticandscientificworksandallotherrightsresultingfromintellectualactivityintheindustrialscientific,literaryorartisticfield.Intellectual property rights are legal rights governing the use of creations of the human mind. Legal protection •is granted to the owner or creator of the intellectual property under different Acts such as Patents Act, Trade Marks Act etc.Intellectual property can be divided mainly into four kinds or types, i.e, Patent Right, Copy Right, Trade Marks •Right and Design Right.Intellectual property rights are protected under related Acts,•The owner of an intellectual property can earn income by selling the rights or using the same. Such rights can •beconfinedorextendedtosomeprescribedperiodaccordingtotheprovisionsoftherelatedActs.

8.1.2 Intellectual Property Rights The term ‘Intellectual Property Rights’ means the exclusive right that the owner has over his intellectual property, within the limits of the law, to use and enjoy it in the same way as the owner of other kinds of properties, movable or immovable. Nobody else can use intellectual property without the consent of the owner of the property. The rightsaregrantedbythestateundertherelevantActsfortheperiodspecifiedtherein.IntellectualPropertyRights(IPR) broadly include: Patents, Copyrights, Trademarks, Industrial Designs, Geographical Indications, Layout Design of Integrated Circuits, Protection of Undisclosed Information (Trade Secrets), Protection of Plant Varieties and Farmers’ Rights.

IPR comprise the legal rights that are granted to a person for any creative and artistic work, for any invention or discovery, or for any literary work or words, phrases and symbols or designs for a stipulated period of time. The owners of Intellectual Property are granted certain exclusive rights through which they use their property without any disturbance and can prevent the misuse of their property. Intellectual property is any innovation, commercial or artistic, or any unique name, symbol, logo or design used commercially.

In India, Intellectual Property is governed under the Patents Act, 1970; Trademarks Act, 1999; Copyright Act, 1957; Designs Act, 2001, etc. The various kinds of intellectual properties are Patents, Trademarks, Copyrights, Trade Secrets, Industrial Designs, Lay out Designs of Integrated Circuits and Geographical Indications.The core area dealt with in this article lies at Patents, Trademarks and Copyright. Patents protect the inventions, Trademarks prevent the infringement of the marks or the logos under which the business is carried on or the goods are manufactured or sold and Copyright grants protection to the authors of original work which can be artistic, literary, dramatic or musical.

The legislations which cover IPR in India are: The Patents Act, 1970 (last amended in 2005).•The Designs Act, 2000 which superseded the earlier Designs Act of 1911.•The Trademarks Act, 1999 which superseded the earlier Trade and Merchandise Marks Act, 1958.(The •Merchandise Marks Act of 1958 is yet to be enforced).The Copyright Act, 1957 (last amended in 1999).•The Semiconductor Integrated Circuit layout Design Act, 2000.•The Geographical Indication of Goods (Registration and Protection) Act, 1999.•

For‘ProtectionofUndisclosedInformation’nospecificlegislationexistsandthesubjectisgenerallycoveredunderrelevant national laws like the Indian Contract Act, 1889).

The Protection of Plant varieties and Farmer’ Rights, 2001

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8.2 The Patents Act, 1970Patent system in India is administered under the superintendence of the Controller General of Patents, Designs, TrademarksandGeographicalIndications.TheOfficeoftheControllerGeneralfunctionsundertheDepartmentofIndustrial Policy and Promotion, Ministry of Commerce and Industry. The Controller General directs and supervises the functioningof thePatentOffice and thePatent InformationSystem (PIS).ThePatentOfficeperforms thestatutorydutiesinconnectionwiththegrantofpatentsfornewinventionsunderthePatentsAct.TheHeadOfficeof Patents is at Kolkata with branches at Mumbai, Chennai and Delhi. The branches deal with the applications for patents originating within their respective territorial jurisdiction. The Patent Information system (PIS) at Nagpur has been functioning as patent information base for the users. The PIS maintains a comprehensive collection of patent specificationandpatentrelatedliterature,onaworld-widebasisandprovidestechnologicalinformationcontainedin patent or patent related literature through search services and patent copy supply services to various users of R&D establishments,Governmentoffices,privateindustries,business,inventorsandotheruserswithinIndia.

Final changes to Indian patent law were made for compliance with India’s obligations under the Trade Related Intellectual Property Systems (TRIPS) Agreement. Pharmaceutical products and not just processes are now patentable subject matter while computer software is not patentable subject matter even when there is technical application for industry and/or it is embedded in hardware. An old repealed law has been revived which prohibits anyone resident inIndiafromfilingforapatentoutsideofIndiaunlesstheyfirstfileforthesameinventioninIndiaortheyobtainthe Controller’s permission to do so six weeks in advance. A Traditional

Knowledge Digital Library is being compiled to document centuries-old healing remedies and medical treatments in order to prevent patenting of ancient indigenous practices and techniques.

By joining the World Trade Organisation, India became obligated to comply with the TRIPS Agreement by January 1, 1995. Extensive changes would be required to the Indian patent system in order to comply, including the addition ofproductsaswellastheexistingprocessestopatentablesubjectmatterinallfieldsoftechnology.

The Patents (Amendment) Ordinance to amend the Indian Patent Act of 1970 became effective on January 1, 1995. Article 65 gave India ten years (until January 1, 2005) to establish patent protection for products.

A brief analysis of the same is mentioned below:- Attheveryendoftheten-yeartransitionperiod,changeswerefinallymadetotheIndianpatentlawforcompliancewith India’s obligations under the TRIPS Agreement. The changes implemented in the Patents (Amendments) Act 2005 have been highly controversial in India, were previously pharmaceutical products were not patentable subject matter, only the process of making a pharmaceutical product could be protected by patent. Because pharmaceutical products were not protected by patent law, Indian companies developed alternate processes to make the pharmaceutical products that were patented in other countries, thus establishing a large thriving generic drug industry in India. Intense political pressure necessitated a dramatic last minute presidential decree instituted on January 1, 2005 in order to comply just in time for the World Trade Organisation deadline.

The subsequent political debate was extremely heated, resulting in protests, walkouts by members of parliament, •and in the end numerous amendments to the highly controversial bill were enacted. The amendments included: tightened standards for the granting of patents; restoration of procedures for opposing patents; introduction of protection for existing producers of 1995-2005 medicines; the allowance of parallel importation; limitations on the negotiation of voluntary licenses; and, the expansion of rights to export post-1995 generic medicines produced according to provisions contained in the compulsory licenses.Indiawasrequiredtocollectdrugproductpatentapplicationsfiledbetween1995and2005,andtobegintheir•examination when the new law is in place. There is a backlog of approximately 8,000 such drug products patent applicationsbeingdealtwithattheIndianPatentOffice.

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ThefinalimplicationsandeffectsofthechangestotheIndianpatentlawarestillunfolding,withdetailsand•their implications only slowly becoming clear. Much about the new patent law remains uncertain and probably willremainsountiltestedinthecourts,includingsignificantambiguitiesrelatingtopatentability,andsomewhatvague provisions for compulsory licensing. What is clear now is that software, even embedded software is out while drugs are in as patentable subject matter.Theperiodforfilingarequestforexaminationhasbeenincreasedfrom36monthsto48monthsfromthedate•ofearliestpriorityordateoffilingoftheapplication,whicheverisearlier.The time to amend an application to place it in condition for grant has been increased from 6 months to 9 months •and can be extended to 12 months. This applies only to cases that will be examined after the rules came into effect. The new Act provides for expedited prosecution of a patent application wherein a patent may be granted within •a period of just six to nine months. To provide an opportunity of any third party to submit objections, no patent shall be granted until six months from the date of publication of the application. The time for completion of formalities has been increased from 3 months to 6 months and may be extended further if required. Previously there was no requirement for when an application was to be referred to the examiner once the request •forexaminationhadbeenfiled.Now,oncearequestforexaminationisfiledtheapplicationmustbereferredto the Examiner within 30 days from the date of request. Previously the mere discovery of any new property or new use of a known substance or the mere use of a •known process, machine or apparatus was non-patentable unless the known process resulted in a new product or employs at least one new reactant. TheOrdinancenowclarifiesnon-patentabilityofnewusesofknownsubstancesbyaddingthatanapparentor•obvious new use of a known substance will not be an invention. When a patent application has been published before it is granted, any person may in writing represent to the •Controller against the grant on grounds of lack of patentability including novelty, inventive step and industrial applicability or nondisclosure, or wrongful disclosure of source and geographical origin of biological material used in the invention and anticipation of invention by the knowledge oral or otherwise, available within any local or indigenous community in India or elsewhere. The Controller is then required to consider and dispose of the representation within a prescribed period through •an ex-parte proceeding. Cross border compulsory licensing in implemented to enable the manufacture as well as export of patented •pharmaceuticalproductstoanycountryhavinginsufficientornomanufacturingcapacityinthepharmaceuticalfield to address public health problems provided a compulsory license has been granted by that country.‘Pharmaceutical product’ means any patented product or product manufactured through a patented process and includes diagnostic kits.

8.2.1 Application of PatentAn application for a patent for an invention may be made by any of the following persons:

Byanypersonclaimingtobethetrueandfirstinventoroftheinvention;•Byanypersonbeingtheassigneeofthepersonclaimingtobethetrueandfirstinventorinrespectoftheright•to make such an application;By the legal representative of any deceased person who immediately before his death was entitled to make such •an application.

The following are not inventions within the meaning of this Act:An invention which is frivolous or which claims anything obvious contrary to well established natural laws;•An invention; the primary or intended use of which would be contrary to law or morality or injurious to public •health;Themerediscoveryofascientificprincipleortheformulationofanabstracttheory;•

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The mere discovery of any new property of new use for a known substance or of the mere use of a known •process, machine or apparatus unless such known process results in a new product or employs at least one new reactant;A substance obtained by a mere admixture resulting only in the aggregation of the properties of the components •thereof or a process for producing such substance;The mere arrangement or re-arrangement or duplication of known devices each functioning independently of •one another in a known way;A method or process of testing applicable during the process of manufacture for rendering the machine, apparatus •orotherequipmentmoreefficientorfortheimprovementorrestorationoftheexistingmachine,apparatusorother equipment or for the improvement or control of manufacture;A method of agriculture or horticulture;•Any process for the medicinal, surgical, curative, prophylactic or other treatment of human beings or any process •for a similar treatment of animals or plants to render them free of disease or to increase their economic value or that of their products.

Everyapplicationforapatentshallbeforoneinventiononlyandshallbemadeintheprescribedformandfiledinthepatentoffice.Everyapplicationshallstatethattheapplicantisinpossessionoftheinventionandshallnametheownerclaimingtobethetrueandfirstinventor;andwherethepersonsoclaimingisnottheapplicantoroneoftheapplicants, the application shall contain a declaration that the applicant believes the person so named to be the true andfirstinventor.Everysuchapplicationshallbeaccompaniedbyaprovisionaloracompletespecification.

Whereanapplicationforapatent(notbeingaconventionapplication)isaccompaniedbyaprovisionalspecification,acompletespecificationshallbefiledwithintwelvemonthsfromthedateoffilingoftheapplication,andifthecompletespecificationisnotsofiledtheapplicationshallbedeemedtobeabandoned.Everycompletespecificationshall:-

Fully and particularly describe the invention and its operation or use and the method by which it is to be •performed;Disclose the best method of performing the invention which is known to the applicant and for which he is •entitled to claim protection; andEndwithaclaimorclaimsdefiningthescopeoftheinventionforwhichprotectionisclaimed.•

Atanytimewithinfourmonthsfromthedateofadvertisementoftheacceptanceofacompletespecificationunderthis Act (or within such further period not exceeding one month in the aggregate as the Controller may allow on application made to him in the prescribed manner before the expiry of the four months aforesaid) any person interested may give notice to the Controller of opposition to the grant of the patent on any of the following grounds, namely:

That the applicant for the patent or the person under or through whom he claims, wrongfully obtained the •invention or any part thereof from him or from a person under or through whom he claims;Thattheinventionsofarasclaimedinanyclaimofthecompletespecificationhasbeenpublishedbeforethe•priority date of the claim:

inanyspecificationfiledinpursuanceofanapplicationforapatentmadeinIndiaonorafterthe1stday �of January, 1912; or in India or elsewhere, in any other document; �

Thattheinventionsofarasclaimedinanyclaimofthecompletespecificationisclaimedinaclaimofacomplete•specificationpublishedonoraftertheprioritydateoftheapplicant’sclaimandfiledinpursuanceofanapplicationfor a patent in India, being a claim of which the priority date is earlier than that of the applicant’s claim;Thattheinventionsofarasclaimedinanyclaimofthecompletespecificationwaspubliclyknownorpublicly•used in India before the priority date of that claim;

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Thattheinventionsofarasclaimedinanyclaimofthecompletespecificationisobviousandclearlydoesnot•involve any inventive step;ThatthesubjectofanyclaimofthecompletespecificationisnotaninventionwithinthemeaningofthisAct,•or is not patentable under this Act;Thatthecompletespecificationdoesnotsufficientlyandclearlydescribetheinventionorthemethodbywhich•it is to be performed;That in the case of a convention application, the application was not made within twelve months from the date •ofthefirstapplicationforprotectionfortheinventionmadeinaconventioncountrybytheapplicantorapersonfrom whom he derives title, etc.Where any such notice of opposition is duly given, the Controller shall notify the applicant and shall give to •the applicant and the opponent an opportunity to be heard before deciding the case. Whereacompletespecificationinpursuanceofanapplicationforapatenthasbeenacceptedandeither:•

theapplicationhasnotbeenopposedandthetimeforthefilingoftheoppositionhasexpired;or �theapplicationhasbeenopposedandtheoppositionhasbeenfinallydecidedinfavouroftheapplicant; �or the application has not been refused by the Controller by virtue of any power vested in him by this Act; then �the the patent shall, on request made by the applicant in the prescribed form, be granted to the applicant or, in the case of a joint application, to the applicants jointly, and the Controller shall cause the patent to be sealed withthesealofthepatentofficeandthedateonwhichthepatentissealedshallbeenteredintheregister.

The term of every patent granted and the term of every patent which has not expired and has not ceased to have •effectunderthisAct,shallbetwentyyearsfromthedateoffilingoftheapplicationforthepatent.Whereanapplicationismadeforapatentinrespectofanyimprovementinormodificationofaninvention•describedordisclosedinthecompletespecificationfiledthereofandtheapplicantalsoappliesorhasappliedfora patent for that invention or is the patentee in respect thereof, the Controller may, if the applicant so requests, grantthepatentfortheimprovementormodificationasapatentofaddition.Apatentofadditionshallbegrantedfor a term equal to that of the patent for the main invention.At any time after the expiration of three years from the date of the sealing of a patent, any person interested •may make an application to the Controller alleging that the reasonable requirements of the public with respect tothepatentedinventionhavenotbeensatisfiedorthatthepatentedinventionisnotavailabletothepublicata reasonable price and praying for the grant of a compulsory licence to work the patented invention.If any person fails to comply with any direction given under the Act or makes or causes to be made an application •forthegrantofapatentincontraventionoftheAct,heshallbepunishablewithimprisonmentorwithfineorwith both.This Act has been amended by the Patents (Amendment) Act, 2002 and the Patents (Amendment) Act, 2005 to •take care of India’s obligations under the TRIPS Agreement. After the amendments, product patent (instead of process patent) is being granted for food, pharmaceutical and chemical products. Also, along with post grant opposition to patents, pre-grant opposition is also permissible.

8.2.2 Grant of Patents and Rights Conferred TherebyIn Chapter VIII of this Act, there are important provisions from which we come to know various aspects relating to Patents, example, grant of patents, data of patents, rights of patentees, rights of co-owners of patents, term of patent etc. There are in all Ten Sections, i.e., from 43 to 53 included in this Chapter VIII of the act. These sections are as follows.

Grant and sealing of patents[Section 43]Whereacompletespecificationinpursuanceofanapplicationforapatenthasbeenacceptedandeither-the•applicationhasnotbeenopposedundersection25andthetimeforthefilingoftheoppositionhasexpired;ortheapplicationhasbeenopposedandtheoppositionhasbeenfinallydecidedinfavouroftheapplicant;ortheapplication has not been refused by the Controller by virtue of any power vested in him by this Act, the patent

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shall, on request made by the applicant in the prescribed form, be granted to the applicant or, in the case of a joint application, to the applicants jointly, and the Controller shall cause the patent to be sealed with the seal of thepatentofficeandthedateonwhichthepatentissealedshallbeenteredintheregister.Subject to the provisions of sub-section (1) and of the provisions of this Act with respect to patents of addition, •a request under this section for the sealing of a patent shall be made not later than the expiration of a period of sixmonthsfromthedateofadvertisementoftheacceptanceofthecompletespecification:

Provided that where at the expiration of the said six months any proceeding in relation to the application for the patent is pending before the Controller or the High Court, the request may be made within the prescribed period afterthefinaldeterminationofthatproceeding;wheretheapplicantoroneoftheapplicantshasdiedbeforetheexpiration of the time within which under the provisions of this sub-section the request could otherwise be made, the said request may be made at any time within twelve months after the date of the death or at such later time as the Controller may allow.

The period within which under sub-section (2) a request for the sealing of a patent may be made, may, from •timetotime,beextendedbytheControllertosuchlongerperiodasmaybespecifiedinanapplicationmadetohim in that behalf, if the application is made and the prescribed fee paid within that longer period:

Providedthatthefirstmentionedperiodshallnotbeextendedunderthissub-sectionbymorethanthreemonthsinthe aggregate.

Explanation – For the purposes of this section a proceeding shall be deemed to be pending so long as the time for any appeal therein (apart from any future extension of that time) has not expired, and a proceeding shall be deemed tobefinallydeterminedwhenthetimeforanyappealtherein(apartfromanysuchextension)hasexpiredwithoutthe appeal being brought.

Amendment of patent granted to deceased applicant[Section 44]Where at any time after a patent has been sealed in pursuance of an application under this Act, the Controller is satisfiedthatthepersontowhomthepatentwasgrantedhaddied,or,inthecaseofabodycorporate,hadceasedtoexist, before the patent was sealed, the Controller may amend the patent by substituting for the name of that person the name of the person to whom the patent ought to have been granted, and the patent shall have effect, and shall be deemed always to have had effect, accordingly.

Date of patent[Section 45]Subject to the other provisions contained in this Act, every patent shall be dated as of the date on which the •completespecificationwasfiled:Providedthatapatentwhichisgrantedinpursuanceofanapplicationtowhichany directions issued under section 78C of the Indian Patents and Designs Act, 1911 applied immediately before thecommencementofthisAct,shallbedatedasofthedateofthefillingofthecompletespecificationorthedate of such commencement whichever is later.The date of every patent shall be entered in the register.•Notwithstanding anything contained in this section, no suit or other proceeding shall be commenced or prosecuted •in respect of an infringement committed before the date of advertisement of the acceptance of the complete specification.

Form, extent and effect of patent. [Section 46]( Every patent shall be in the prescribed form and shall have effect throughout India.•(A patent shall be granted for one invention only:•Provided that it shall not be competent for any person in a suit or other proceeding to take any objection to a •patent on the ground that it has been granted for more than one invention.

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Grant of patents of be subject to certain conditions[Section 47]The grant of a patent under this Act shall be subject to the condition that -

Any machine, apparatus or other article in respect of which the patent is granted or any article made by using a •process in respect of which the patent is granted, may be imported or made by or on behalf of the Government for the purpose merely of its own use;Any process in respect of which the patent is granted may be used by or on behalf of the Government for the •purpose merely of its own use;Any machine, apparatus or other article in respect of which the patent is granted or any article made by the •use of the process in respect of which the patent is granted, may be made or used, and any process in respect of which the patent is granted may be used, by any person, for the purpose merely of experiment or research including the imparting of instructions to pupils; andIn the case of a patent in respect of any medicine or drug, the medicine or drug may be imported by the Government •for the purpose merely of its own use or for distribution in any dispensary, hospital or other medical institution maintained by or on behalf of the Government or any other dispensary, hospital or other medical institution which the Central Government may, having regard to the public service that such dispensary, hospital or medical institutionrenders,specifyinthisbehalfbynotificationintheOfficialGazette.

Rights of patentees[Section 48]Subject to the other provisions contained in this Act, a patent granted before the commencement of this Act, •shall confer on the patentee the exclusive right by himself, his agents or licensees to make, use, exercise, sell or distribute the invention in India.SubjecttotheotherprovisionscontainedinthisActandtheconditionsspecifiedinsection47,apatentgranted•after the commencement of this Act shall confer upon the patentee -

Where the patent is for an article or substance, the exclusive right by himself, his agents or licensees to �make, use, exercise, sell or distribute such article or substance in India;Where a patent is for a method or process of manufacturing an article or substance, the exclusive right by �himself, his agents or licensees to use or exercise the method or process in India.

Patents rights not infringed when used on foreign vessels, etc., temporarily or accidentally in India[Section 49]

(Where a vessel or aircraft registered in a foreign country or a land vehicle owned by a person ordinarily resident •in such country comes into India (including the territorial waters thereof) temporarily or accidentally only, the rights conferred by a patent for an invention shall not be deemed to be infringed by the use of the invention -

In the body of the vessel or in the machinery, tackle, apparatus or other accessories thereof, so far as the �invention is used on board the vessel and for its actual needs only; orIn the construction or working of the aircraft or land vehicle or of the accessories thereof, as the case may �be.

This section shall not extend to vessels, aircraft or land vehicles owned by persons ordinarily resident in a •foreign country the laws of which do not confer corresponding rights with respect to the use of inventions in vessels, air crafts or land vehicles owned by persons ordinarily resident in India while in the ports or within the territorial waters of that foreign country or otherwise within the jurisdiction of its courts.

Rights of co-owners of patents[Section 50]Where a patent is granted to two or more persons, each of those persons shall, unless an agreement to the contrary •is in force, be entitled to an equal undivided share in the patent.Subject to the provisions contained in this section and in section 51, where two or more persons are registered •as grantee or proprietor of a patent, then, unless an agreement to the contrary is in force, each of those persons shall be entitled, by himself or his agents, to make, use, exercise and sell the patented invention for his own benefitwithoutaccountingtotheotherpersonorpersons.

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Subject to the provisions contained in this section and in section 51 and to any agreement for the time being in •force, where two or more persons are registered as grantee or proprietor of a patent, then, a licence under the patent shall not be granted and a share in the patent shall not be assigned by one of such persons except with the consent of the other person or persons.Where a patented article is sold by one of two or more persons registered as grantee or proprietor of a patent, •the purchaser and any person claiming through him shall be entitled to deal with the article in the same manner as if the article had been sold by a sole patentee.Subject to the provisions contained in this section, the rules of law applicable to the ownership and devolution •of movable property generally shall apply in relation to patents; and nothing contained in sub-section (1) or sub-section (2) shall affect the mutual rights or obligations of trustees or of the representatives of a deceased person or their rights or obligations as such.Nothing in this section shall affect the rights of the assignees of a partial interest in a patent created before the •commencement of this Act.

Power of controller to give directors to co-owners[Section 51]Where two or more persons are registered as grantee or proprietor of a patent, the Controller may, upon application •made to him in the prescribed manner by any of those persons, give such directions in accordance with the application as to the sale or lease of the patent or any interest therein, the grant of licences under the patent, or theexerciseofanyrightundersection50inrelationthereto,ashethinksfit.If any person registered as grantee or proprietor of a patent fails to execute any instrument or to do any other •thing required for the carrying out of any direction given under this section within fourteen days after being requested in writing so to do by any of the other persons so registered, the Controller may, upon application made to him in the prescribed manner by any such other person, give directions empowering any person to execute that instrument or to do that thing in the name and on behalf of the person in default.Before giving any directions in pursuance of an application under this section, the Controller shall given an •opportunity to be heard -

In the case of an application under sub-section (1), to the other person or persons registered as grantee or �proprietor of the patent;In the case of an application under sub-section (2), to the person in default. �

No direction shall be given under this section so as to affect the mutual rights or obligations of trustees or of •the legal representatives of a deceased person or of their rights or obligations as such, or which is inconsistent with the terms of any agreement between persons registered as grantee or proprietor of the patent.

Grant of patent to true and first inventor where it has been obtained by another in fraud of him[Section 52]

Where a patent has been revoked on the ground that the patent was obtained wrongfully and in contravention of •the rights of the petitioner or any person under or through whom he claims, or, where in a petition for revocation, thecourt,insteadofrevokingthepatent,directsthecompletespecificationtobeamendedbytheexclusionofaclaimorclaimsinconsequenceofafindingthattheinventioncoveredbysuchclaimorclaimshadbeenobtainedfrom the petitioner, the court may, by order passed in the same proceeding, permit the grant to the petitioner of thewholeorsuchpartoftheinventionwhichthecourtfindshasbeenwrongfullyobtainedbythepatentee,inlieu of the patent so revoked or is excluded by amendment.Where any such order is passed, the Controller shall, on request by the petitioner made in the prescribed manner •grant to him -

in cases where the court permits the whole of the patent to be granted, a new patent bearing the same date �and number as the patent revoked;in cases where the court permits a part only of the patent to be granted, a new patent for such part bearing �the same date as the patent revoked and numbered in such manner as may be prescribed:

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ProvidedthattheControllermay,asaconditionofsuchgrant,requirethepetitionertofileanewandcompletespecificationtothesatisfactionoftheControllerdescribingandclaimingthatpartoftheinventionforwhichthepatent is to be granted.

No suit shall be brought for any infringement of a patent granted under this section committed before the actual •date on which such patent was granted.

Term of Patent[Section 53]Subject to the provisions of this Act, the term of every patent granted under this Act shall:•

In respect of an invention claiming the method or process of manufacture of a substance, where the substance �isintendedforuse,oriscapableofbeingused,asfoodorasamedicineordrug,befiveyearsfromthedateof sealing of the patent, or seven years from the date of the patent whichever period is shorter; andIn respect of any other invention, be fourteen years from the date of the patent. �

A patent shall cease to have effect notwithstanding anything therein or in this Act on the expiration of the period •prescribed for the payment of any renewal fee, if that fee is not paid within the prescribed period or within that period as extended under this section.The period prescribed for the payment of any renewal fee shall be extended to such period, not being more •thansixmonthslongerthantheprescribedperiod,asmaybespecifiedinarequestmadetotheControlleriftherequest is made and the renewal fee and the prescribed additional fee paid before the expiration of the period sospecified.

8.3 Patents of Addition [Section 54]From the provisions of Section 54, we come to know the meaning, certain conditions relating to ‘Patent of Addition’ etc. These provisions are as under:

Subject to the provisions contained in this section, where an application is made for a patent in respect of any •improvementinormodificationofaninventiondescribedordisclosedinthecompletespecificationfiledtherefore(in this Act referred to as the “main invention”) and the applicant also applies or has applied for a patent for that invention or is the patentee in respect thereof, the Controller may, if the applicant so requests, grant the patent fortheimprovementormodificationasapatentofaddition.[Section54(1)]Subjecttotheprovisionscontainedinthissection,whereaninvention,beinganimprovementinormodification•of another invention, is the subject of an independent patent and the patentee in respect of that patent is also the patentee in respect of the patent for the main invention, the Controller may, if the patentee so requests, by order,revokethepatentfortheimprovementormodificationandgranttothepatenteeapatentofadditioninrespect thereof, bearing the same date as the date of the patent so revoked. [Section 54(2)]Apatentshallnotbegrantedasapatentofadditionunlessthedateoffilingofthecompletespecificationwas•thesameasorlaterthanthedateoffilingofthecompletespecificationinrespectofthemaininvention.[Section54(3)]A patent of addition shall not be sealed before the sealing of the patent for the main invention; and if the period •within which, but for the provisions of this sub-section, a request for the sealing of a patent of addition could be made under section 43 expires before the period within which a request for the sealing of the patent for the main invention may be so made, the request for the sealing of the patent of addition may be made at any time within the last mentioned period. [Section 54(4)].

8.3.1 Term of Patents of addition [Section 55]

A patent of addition shall be granted for a term equal to that of the patent for the main invention, or so much •thereof as has not expired, and shall remain in force during that term or until the previous cesser of the patent for the main invention and no longer:Provided that if the patent for the main invention is revoked under this Act, the court, or, as the case may be, the Controller, on request made to him by the patentee in the prescribed manner, may order that the patent of addition shall become an independent patent for the remainder of the term for the patent for the main invention and thereupon the patent shall continue in force as an independent patent accordingly. [Section 55(1)]

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(2) No renewal fee shall be payable in respect of a patent of addition, but, if any such patent becomes an •independent patent under sub-section (1), the same fee shall thereafter be payable, upon the same dates, as if the patent had been originally granted as an independent patent. [Section 55(2)]

8.3.2 Validity of Patents of Addition [Section 56]

The grant of a patent of addition shall not be refused, and a patent granted as a patent of addition shall not be •revokedorinvalidated,onthegroundonlythattheinventionclaimedinthecompletespecificationdoesnotinvolve any inventive step having regard to any publication or use of -

themaininventiondescribedinthecompletespecificationrelatingthereto;or �anyimprovementinormodificationofthemaininventiondescribedinthecompletespecificationofapatent �of addition to the patent for the main invention or of an application for such a patent of addition, and the validity of a patent of addition shall not be questioned on the ground that the invention ought to have been the subject of an independent patent. [Section 56(1)]

For the removal of doubts it is hereby declared that in determining the novelty of the invention claimed in the •completespecificationfiledinpursuanceofanapplicationforapatentofadditionregardshallbehadalsotothecompletespecificationinwhichthemaininventionisdescribed. [Section 56(2)]]

8.3.3 Advantages of PatentsThe exclusive right to commercially exploit an invention provides the patent owner with the legal right to stop others from making, using, or selling the patented (i.e. claimed) invention and the right to collect damages for any such unlawful activity - so long as the patent (i.e. the claims) is not found invalid. Obtaining this exclusive right is thefundamentalmotivationforseekingapatentandaffordsseveralbenefitstothepatentowner.

Patents help insure that the payoff from R and D and a business’s competitive advantage are maximised. Patents are also valuable for generating interest and investment in new and growing businesses.

However,becausepatentprotectioncaninvolvesignificantexpense,anappropriatepatentfilingstrategythatbalancesthespeculativevalueofaninventionwiththecostsofpatentfilingsisrequired.

Most inventions involve considerable research and development (R&D) investment and efforts. Patenting an invention serves to prevent competitors from simply copying or reverse engineering the invention and thereby appropriating thoseR&Deffortsfortheirownbenefit.Furthermore,evenifacompetitorindependentlydevelopsthesameinventionat a later stage, the patent may be used to stop the competitor’s entry into the market. Thus, a patent helps insure that the payoff from R&D and the patent owner’s competitive advantage are maximised.

Patents are also valuable for generating interest and investment in new and growing businesses. This is particularly important for companies attempting to establish themselves in high-tech industries. Start-up companies are often basedonthedevelopmentofaspecificnew,sometimespotentiallyground-breaking,technology.Withoutsecuringrightsfortheirtechnology,thesecompaniesmayfindthemselvesunabletoobtainsufficientresourcestobringthattechnology to market.

Patents may also be licensed to other parties allowing these parties to exploit the invention in exchange for royalty payments. In some situations, where claims of patent infringement have been made by one patent owner against another, the latter patent owner may be able to rely on its patent rights to launch a counterclaim for patent infringement.

This type of dispute is often settled with some form of cross licensing in which each party licenses the other under its patents, thereby avoiding costly litigation.

Finally, a patent serves as a readily accessible public record of the innovative developments made and owned by the patent owner. The existence of a patent may serve as a warning to competitors to stay clear of a protected technology. In addition, a patent stakes out a patentee’s technological territory, precluding others who develop technology at a later stage from attempting to claim or patent that technology as their own.

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8.4 The Copyright Act, 1957The Indian Copyright Act of 1914 was mainly based on the Copyright Act, 1911 of the United Kingdom. But there felt the need to enact an independent self-contained law on the subject of copyright due to the changing circumstances. Hence, after independence, the Government of India enacted the Copyright Act of 1957 and also framed the Copyright Act of 1958. Thus, the Law of Copyright in India is contained in the Copyright Act of 1957 as amended subsequently in 1983, 1984, 1992, 1994 and 19999 as per requirements. It is very important to note that, many important changes have been made so far in the Copyright Act of 1957 after entering the World Trade Organisation(WTO) and signing the purpose of conceptual understanding of ‘Copyright’, we have to consider certain provisions of the Copyright Act of 1957 as amended from time to time. But let us begin with the meaning of copyright.

8.4.1 Meaning of ‘ Copyright’Copyright is a form of protection provided to the authors of “original works of authorship” including literary, dramatic, musical, artistic, and certain other intellectual works, both published and unpublished. The Copyright Act, 1957 generally gives the owner of copyright ;the exclusive right to reproduce the copyrighted work, to prepare derivative works, to distribute copies or phonorecords of the copyrighted work, to perform the copyrighted work publicly, or to display the copyrighted work publicly.

Statute-based, no registration necessary •Copyright = intellectual property•Combines different rights (literary works: the right to reproduce in hardback and paperback editions, the right •of translation adaptation)

8.4.2 Works in which Copyright Subsists and Works in which Copyright Does not Subsist[Section 13]Works in which copyright subsists.

Subject to the provisions of this section and the other provisions of this Act, copyright shall subsist throughout 1. India in the following classes of works, that is to say,- original literary, dramatic, musical and artistic works; cinematographfilms;and[sound recordings;]

Copyrightshallnotsubsistinanyworkspecifiedinsub-section(1),otherthanaworktowhichtheprovisions2. of section 40 or section 41 apply, unless,-

inthecaseofapublishedwork,theworkisfirstpublishedinIndia,orwheretheworkisfirstpublishedoutsideIndia, the author is at the date of such publication, or in a case where the author was dead at that date, was at the time of his death, a citizen of India;

in the case of an unpublished work other than a [work of architecture] the author is at the date of the making of the work a citizen of India or domiciled in India; and

in the case of [work of architecture] the work is located in India. Explanation.-inthecaseofaworkofjointauthorship,theconditionsconferringcopyrightspecifiedinthissub-sectionshallbesatisfiedbyalltheauthorsofthework.

Copyrightshallnotsubsist-inanycinematographfilmasubstantialpartofthefilmisaninfringementofthe3. copyright in any other work; in any [sound recording] made in respect of a literary, dramatic or musical work, if in making the [sound recording], copyright in such work has been infringed.

Thecopyrightinacinematographfilmora[soundrecording]shallnotaffecttheseparatecopyrightinany4. workinrespectofwhichorasubstantialpartofwhich,thefilm,orasthecasemaybe,the[soundrecording]is made.

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In the case of a [work of architecture] copyright shall subsist only in the artistic character and design and shall 5. not extent to processes or methods of construction.

There is the reference of the provisions of Section 40 and 41 in the above mentioned Section 13(2) and certain words or terms are also used in the provisions of Section 13. Unless we know the provisions of Sections 40 and 41, meaningofthetermsorwordsused,wecannotunderstandtheprovisionsofSection13properly.Hence,letusfirstknow the provisions of Section 40 and 41 of this Act.

In Chapter IX of this Act, under the heading ‘International Copyright’, provisions of sections from 40 to 43 are given which are as follows:

Provisions of Section 40: Power to extend copyright to foreign works -- The Central Government may, by order published in the Official Gazette, direct that all or any provisions of this Act shall apply- to work first published in any class territory outside India towhich the order relates in likemanner as if theywere first publishedwithinIndia; to unpublished works, or any class thereof, the authors whereof were at the time of the making of the work, subjects or citizens of a foreign country to which the order relates, in like manner as if the authors were citizens of India;

in respect of domicile in any territory outside India to which the order relates in like manner as if such domicile wereinIndia;toanyworkofwhichtheauthorwasatthedateofthefirstpublicationthereof,or,inacasewherethe author was dead at that date, was at the time of his death, a subject or citizen of a foreign country to which the order relates in like manner as if the author was a citizen of lndia at that date or time; and thereupon, subject to the provisions of this Chapter and of the order, this Act shall apply accordingly:

Provided that- before making an order under this section in respect of any foreign country (other than a country with which India has entered into a treaty or which is a party to a convention relating to copyright to which India is also a party), the CentralGovernmentshallbesatisfiedthatthatforeigncountryhasmade,orhasundertakentomake,suchprovisionsif any, as it appears to the Central Government expedient to require for the protection in that country of works entitled to copyright under the provisions of this Act; the order may provide that the provisions of this Act shall apply either generallyorinrelationtosuchclassesofworksorsuchclassesofcasesasmaybespecifiedintheorder;theordermay provide that the term of copyright in India shall not exceed that conferred by the law of the country to which the order relates; the order may provide that the enjoyment of the rights conferred by this Act shall be subject to the accomplishment of such conditions and formalities, if any, as may be prescribed by the order; in applying the provisionsofthisActastoownershipofcopyright,theordermaymakesuchexceptionsandmodificationsasappearnecessary, having regard to the law of the foreign country; the order may provide that this Act or any part thereof shall not apply to works made before the commencement of the order or that this Act or any part thereof small not applytoworksfirstpublishedbeforethecommencementoftheorder.

Provisions of Section 40-A:IftheCentralGovernmentissatisfiedthataforeigncountry(otherthanacountrywithwhichIndiahasentered1. into a treaty or which is a party to a convention relating to rights of broadcasting organisations and performers to which India is also a party) has made or has undertaken to make such provisions, if any, as it appears to the Central Government expedient to require, for the protection in that foreign country, of the rights of broadcasting organisationsandperformersasisavailableunderthisAct,itmay,byorderpublishedintheOfficialGazette,direct that the provisions of Chapter VIII shall apply - to broadcasting organisations whose headquarters is situated in a country to which the order relates or, the broadcast was transmitted from a transmitter situated in a country to which the order relates as if the headquarters of such organisation were situated in India or such broadcast were made from India; to performances that took place outside India to which the order relates in like manner as if they took place in India; to performances that are incorporated in a sound recording published inacountrytowhichtheorderrelatesasifitwaspublishedinIndia;toperformancesnotfixedonasoundrecording broadcast by a broadcasting organisation the headquarters of which is located in a country to which

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the order relates or where the broadcast is transmitted from a transmitter which is situated in a country to which the order relates as if the headquarters of such organisation were situated in India or such broadcast were made from India. Every order made under sub-section (1) may provide that -the provisions of Chapter VIII shall apply either 2. generally or in relation to such class or classes of broadcasts or performances or such other class or classes ofcasesasmaybespecifiedintheorder;thetermoftherightsofbroadcastingorganisationsandperformersin India shall not exceed such term as is conferred by the law of the country to which the order relates; the enjoyment of the rights conferred by Chapter VIII shall be subject to the accomplishment of such conditions and formalities,ifany,asmaybespecifiedinthatorder;ChapterVIIIoranypartthereofshallnotapplytobroadcastand performances made before the commencement of the order or that Chapter VIII or any part thereof shall not apply to broadcasts and performances broadcast or performed before the commencement of the order; in case of ownership of rights of broadcasting organisations and performers, the provisions of Chapter VIII shall applywithsuchexceptionsandmodificationsastheCentralGovernmentmay,havingregardtothelawoftheforeign country, consider necessary.”

Provisions as to works of certain international organisations [Section 41]. - (1)Where-anyworkismadeorfirstpublishedbyorunderthedirectionorcontrolofanyorganisationtowhichthis section applies, and there would, apart from this section, be no copyright in the work in India at the time of themakingor,asthecasemaybe,ofthefirstpublicationthereof,andeither-theworkispublishedasaforesaidinpursuance of an agreement in that behalf with the author, being an agreement which does not reserve to the author the copyright, if any, in the work, or under section 17 any copyright in the work would belong to the organisation; there shall, by virtue of this section, be copyright in the work throughout India.

Any organisation to which this section applies which at the material time had not the legal capacity of a body 3. corporate shall have and be deemed at all material times to have had the legal capacity of a body corporate for the purpose of holding, dealing with, and enforcing copyright and in connection with all legal proceedings relating to copyright. The organisation to which this section applies are such organisations as the Central Government may, by order 4. publishedintheOfficialGazette,declaretobeorganisationsofwhichoneormoresovereignpowersortheGovernment or Governments thereof are members to which it is expedient that this section shall apply.

Provisions of Section 42. Power to restrict rights in works of foreign authors first published in India. -If it appears to the Central Government that a foreign country does not give or has not undertaken to give adequate protection to the works ofIndianauthors,theCentralGovernmentmay,byorderpublishedintheOfficialGazette,directthatsuchoftheprovisionsofthisActasconfercopyrightonworksfirstpublishedinIndiashallnotapplytoworks,publishedafterthedatespecifiedintheorder,theauthorswhereofaresubjectsorcitizensofsuchforeigncountryandarenotdomiciled in India, and thereupon those provisions shall not apply to such works.

Provisions of Section 42A.If it appears to the Central Government that a foreign country does not give or has not undertaken to give adequate protection to rights of broadcasting organisations or performers, the Central Government may, by order published intheOfficialGazette,directthatsuchoftheprovisionsofthisActasconferrighttobroadcastingorganisationsor performers, as the case may be, shall not apply to broadcasting organisations or performers whereof are based on incorporated in such foreign country or are subjects or citizens of such foreign country and are not incorporated or domiciled in India, and thereupon those provisions shall not apply to such broadcasting organisations or performers.”

Provisions of Section 43.Orders under this Chapter to be laid before Parliament.- Every order made by the Central Government under this Chapter shall, as soon as may be after it is made, be laid before both Houses of Parliament and shall be subject to suchmodificationsasParliamentmaymakeduringthesessioninwhichitissolaidorthesessionimmediatelyfollowing.

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8.4.3 Ownership of Copyright and the Rights of the Owner [Section 17]“Owner of copyright” shall include an exclusive licensee; in the case of an anonymous or pseudonymous literary, dramatic, musical or artistic work, the publisher of the work, until the identity of the author or, in the case of an anonymous work of joint authorship, or a work of joint authorship published under names all of which are pseudonyms, the identity of any of the authors, is disclosed publicly by the author and the publisher or is otherwise established to the satisfaction of the Copyright Board by that author or his legal representatives.

[Section 17]SubjecttotheprovisionsofthisAct,theauthorofaworkshallbethefirstownerofthecopyrightthereinProvided that- in the case of a literary, dramatic or artistic work made by the author in the course of his employment by the proprietor of a newspaper, magazine or similar periodical under a contract of service or apprenticeship, for the purpose of publication in a newspaper, magazine or similar periodical, the said proprietor shall, in the absence ofanyagreementtothecontrary,bethefirstownerofthecopyrightintheworkinsofarasthecopyrightrelatestothe publication of the work in any newspaper, magazine or similar periodical, or to the reproduction of the work for thepurposeofitsbeingsopublished,butinallotherrespectstheauthorshallbethefirstownerofthecopyrightinthe work; subject to the provisions of clause (a), in the case of a photograph taken, or a painting or portrait drawn, oranengravingoracinematographfilmmade,forvaluableconsiderationattheinstanceofanyperson,suchpersonshall,intheabsenceofanyagreementtothecontrary,bethefirstownerofthecopyrighttherein;inthecaseofawork made in the course of the author s employment under a contract of service or apprenticeship, to which clause (a)orclause(b)doesnotapply,theemployershall,intheabsenceofanyagreementtothecontrary,bethefirstowner of the copyright therein; [(cc)in the case of any address or speech delivered in public, the person who has delivered such address or speech or if such person has delivered such address or speech on behalf of any other person, suchotherpersonshallbethefirstownerofthecopyrightthereinnotwithstandingthatthepersonwhodeliverssuch address or speech, or, as the case may be, the person on whose behalf such address or speech is delivered, is employed by any other person who arranges such address or speech or on whose behalf or premises such address or speech is delivered;] in the case of a Government work, Government shall, in the absence of any agreement to the contrary,bethefirstownerofthecopyrighttherein;[(dd)inthecaseofaworkmadeorfirstpublishedbyorunderthe direction or control of any public undertaking, such public undertaking shall, in the absence of any agreement tothecontrary,bethefirstownerofthecopyrighttherein.

Explanation - For the purposes of this clause and section 28A, “public undertaking” means- an undertaking owned orcontrolledbyGovernment;orGovernmentcompanyasdefinedinsection617oftheCompaniesAct,1956;orbody corporate established by or under any Central, Provincial or State Act;] in the case of work to which the provisions ofsection41apply,theinternationalorganisationconcernedshallbethefirstownerofthecopyrighttherein.

The owner of the copyright can assign the copyright to any person subject to the provisions of Section 18. The provisions relating to assignment, mode of assignment, right to relinguish copyright are continued in Sections 18, 19, 20 and 21 of this Act. The provisions of these sections are as under.

Assignment of copyright[Section 18] The owner of the copyright in an existing work or the prospective owner of the copyright in a future work may •assign to any person the copyright either wholly or partially and either generally or subject to limitations and either for the whole term of the copyright or any part thereof: Provided that in the case of the assignment of copyright in any future work, the assignment shall take effect only when the work comes into existence. Where the assignee of a copyright becomes entitled to any right comprised in the copyright, the assignee as •respects the rights so assigned, and the assignor as respects the rights not assigned, shall be treated for the purposes of this Act as the owner of copyright and the provisions of this Act shall have effect accordingly. In this section, the expression “assignee” as respects the assignment of the copyright in any future work includes •the legal representatives of the assignee, if the assignee dies before the work comes into existence.

Mode of assignment[Section 19][(1)]No assignment of the copyright in any work shall be valid unless it is in writing signed by the assignor or •by his duly authorised agent.

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The assignment of copyright in any work shall identify such work, and shall specify the rights assigned and the •duration and territorial extent of such assignment. The assignment of copyright in any work shall also specify the amount of royalty payable, if any, to the author •or his legal heirs during the currency of the assignment and the assignment shall be subject to revision, extension or termination on terms mutually agreed upon by the parties. Where the assignee does not exercise the rights assigned to him under any of the other subsections of this section •within a period of one year from the date of assignment, the assignment in respect of such rights shall be deemed tohavelapsedaftertheexpiryofthesaidperiodunlessotherwisespecifiedintheassignment.Iftheperiodofassignmentisnotstated,itshallbedeemedtobefiveyearsfromthedateofassignment.•Iftheterritorialextentofassignmentoftherightsisnotspecified,itshallbepresumedtoextendwithinIndia.•Nothing in sub-section (2) or sub-section (3) or sub-section (4) or sub-section (5) or sub-section (6) shall be •applicable to assignments made before the coming into force of the Copyright (Amendment) Act, 1994.

Disputes with respect to assignment of copyright[Section 19A]Ifanassigneefailstomakesufficientexerciseoftherightsassignedtohim,andsuchfailureisnotattributableto•any act or omission of the assignor, then, the Copyright Board may, on receipt of a complaint from the assignor and after holding such inquiry as it may deem necessary, revoke such assignment. If any dispute arises with respect to the assignment of any copyright the Copyright Board may, on receipt of a •complaint from the aggrieved party and after holding such inquiry as it considers necessary, pass such order as itmaydeemfitincludinganorderfortherecoveryofanyroyaltypayable:ProvidedthattheCopyrightBoardshallnotpassanyorderunderthissub-sectiontorevoketheassignmentunlessitissatisfiedthatthetermsofassignment are harsh to the assignor in case the assignor is also the author : Provided further that no order of revocationofassignmentunderthissub-section,bemadewithinaperiodoffiveyearsfromthedateofsuchassignment.

Transmission of copyright in manuscript by testamentary disposition[Section 20]Where under a bequest a person is entitled to the manuscript of a literary, dramatic or musical work, or to an artistic work, and the work was not published before the death of the testator, the bequest shall, unless the contrary intention is indicated in the testator’s will or any codicil thereto, be construed as including the copyright in the work in so far as the testator was the owner of the copyright immediately before his death.

Explanation - In this section, the expression “manuscript” means the original document embodying the work, whether written by hand or not.

Right of author to relinquish copyright[Section 21]The author of a work may relinquish all or any of the rights comprised in the copyright in the work by giving •notice in the prescribed form to the Registrar of Copyrights and thereupon such rights shall, subject to the provisions of sub-section (3), cease to exist from the date of the notice. On receipt of a notice under sub-section (1), the Registrar of Copyrights shall cause it to be published in the •OfficialGazetteandinsuchothermannerashemaydeemfit.The relinquishment of all or any of the rights comprised in the copyright in a work shall not affect any rights •subsisting in favour of any person on the date of the notice referred to in sub-section (1).

8.4.4 Term of CopyrightThe provisions relating to “Term of Copyright” are found in sections from 22 to 29[Chapter V] of the Copyright Act of 1957.These provisions are as under:

Term of copyright in published literary, dramatic, musical and artistic works[Section 22]:- Except as otherwise hereinafter provided, copyright shall subsist in any literary, dramatic, musical or artistic work (other than a photograph) publishedwithinthelifetimeoftheauthoruntilfiftyyearsfromthebeginningofthecalendaryearnextfollowingthe year in which the author dies.

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Explanation.-In this section the reference to the author shall, in the case of a work of joint authorship, be construed as a reference to the author who dies last.

Term of copyright in anonymous and pseudonymous works[Section 23]‘Psuedonym’meansafictitiousname

In the case of a literary, dramatic, musical or artistic work (other than a photograph), which is published •anonymouslyorpseudonymously,copyrightshallsubsistuntilfiftyyearsfromthebeginningofthecalendaryearnextfollowingtheyearinwhichtheworkisfirstpublished:In sub-section (1), references to the author shall, in the case of an anonymous work of joint authorship, be •construed, where the identity of one of the authors is disclosed, as references to that author; where the identity of more authors than one is disclosed, as references to the author who dies last from amongst such authors.In sub-section (1), references to the author shall, in the case of a pseudonymous work of joint authorship, be •construed,

where the names of one or more (but not all) of the authors are pseudonyms and his or their identity is not disclosed, as references to the author whose name is not a pseudonym, or, if the names of two or more of the authors are not pseudonyms, as references to such of those authors who dies last; where the names of one or more (but not all) of the authors are pseudonyms and the identity of one or more of them is disclosed, as references to the author who dies last from amongst the authors whose names are not pseudonyms and the authors whose names are pseudonyms and are disclosed; and where the names of all the authors are pseudonyms and the identity of one of them is disclosed, as references to the author whose identity is disclosed or if the identity of two or more of such authors is disclosed, as references to such of those authors who dies last.

Explanation-For the purposes of this section, the identity of an author shall be deemed to have been disclosed, if either the identity of the author is disclosed publicly by both the author and the publisher or is otherwise established to the satisfaction of the Copyright Board by that author.

Term of copyright in posthumous work[Section 24]In the case of literary, dramatic or musical work or an engraving, in which copyright subsists at the date of the •death of the author or, in the case of any such work of joint authorship, at or immediately before the date of the death of the author who dies last, but which, or any adaptation of which, has not been published before that date,copyrightshallsubsistuntilfiftyyearsfromthebeginningofthecalendaryearnextfollowingtheyearinwhichtheworkisfirstpublishedor,whereanadaptationoftheworkispublishedinanyearlieryear,fromthebeginning of the calendar year next following that year.For the purposes of this section a literary, dramatic or musical work or an adaptation of any such work shall be •deemed to have been published, if it has been performed in public or if any records made in respect of the work have been sold to the public or have been offered for sale to the public.

Term of copyright in photographs[Section 25]:- Inthecaseofaphotograph,copyrightshallsubsistuntilfiftyyears from the beginning of the calendar year next following the year in which the photograph is published.

Term of copyright in cinematograph films[Section 26]:-:-Inthecaseofacinematographfilm,copyrightshallsubsistuntilfiftyyearsfromthebeginningofthecalendaryearnextfollowingtheyearinwhichthefilmispublished.

Term of copyright in records[Section 27]:-:-Inthecaseofarecord,copyrightshallsubsistuntilfiftyyearsfromthe beginning of the calendar year next following the year in which the record is published.

Term of copyright Government works[Section 28]:-:- In the case of Government work, where Government is thefirstownerofthecopyrighttherein,copyrightshallsubsistuntilfiftyyearsfromthebeginningofthecalendaryearnextfollowingtheyearinwhichtheworkisfirstpublished.

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Term of copyright in works of international organisation:- In the case of a work of an international organisation towhichtheprovisionsofsection41apply,copyrightshallsubsistuntilfiftyyearsfromthebeginningofthecalendaryearnextfollowingtheyearinwhichtheworkisfirstpublished.

8.4.5 Registration of CopyrightCopyright registration in India gives the creators of a wide range of material, such as literature, art, music, sound recordings,filmsandbroadcasts;economicrights;enablingthemtocontroluseoftheirmaterialinanumberofways, such as by making copies, issuing copies to the public, performing in public, broadcasting and use on-line. Italsogivesmoralrightstobeidentifiedasthecreatorofcertainkindsofmaterialandtoobjecttoitsdistortionorits mutilation. (Material protected by copyright is termed a “work”.)

However, copyright does not protect ideas, names or titles. The purpose of copyright law in India is to allow copyright registrants to gain economic rewards for their efforts and so encourage future creativity and the development of new materialwhichbenefitsusall.Copyrightmaterialisusuallytheresultofcreativeskilland/orsignificantlabourand/or investment and without protection, it would often be very easy for others to exploit material without paying the creator. Most uses of copyright material therefore require permission from the copyright owner. However there are exceptions to copyright, so that some minor uses may not result in copyright infringements. Copyright protection is automatic as soon as there is a record in any form of the material that has been created. Under the Indian Copyright Act there is a provision to register copyright although this is voluntary.

Owner of copyright In the case of a literary, dramatic, musical or artistic work, the general rule is that the author, i.e. the person •whocreatedthework,isthefirstowneroftheeconomicrightsundercopyright.However,wheresuchaworkismadeinthecourseofemployment,theemployeristhefirstowneroftheserights,unlessanagreementtothecontrary has been made with the author. Inthecaseofafilm,theprincipaldirectorandthefilmproducerarejointauthorsandfirstownersoftheeconomic•rights and similar provisions as referred to above apply where the director is employed. Inthecaseofasoundrecordingtherecordproduceristheauthorandfirstownerofcopyright;inthecaseofa•broadcast, the broadcaster; and in case of a published edition, the publisher.

Copyright is, however, a form of property which, like physical property, can be bought or sold, inherited or otherwise transferred, wholly or in part. So, some or all of the economic rights may subsequently belong to someone other than thefirstowner.Incontrast,themoralrightsaccordedtoauthorsofliterary,dramatic,musicalandartisticworksandfilmdirectorsremainwiththeauthorordirectororpasstohisorherheirsondeath.Copyrightinmaterialproducedby a Government department belongs to the Government of India. Copyright owners generally have the right to authorise or prohibit any of the following things in relation to their works:

Copying of the work in any way, example, photocopying / reproducing a printed page by handwriting, typing •or scanning into a computer / taping live or recorded music. Issuing copies of the work to the public. •Public delivery of lectures or speeches etc. •Broadcasting of the work, audio / video or including it in a cable programme. •Making an adaptation of the work such as by translating a literary or dramatic work, transcribing a musical •work and converting a computer program into a different computer language or code.

Copyright is infringed when any of the above acts are done without authorisation, whether directly or indirectly and whether the whole or a substantial part of a work, unless what is done falls within the scope of exceptions to copyright permitting certain minor uses of material.

There are a number of exceptions to copyright that allow limited use of copyright works without the permission of the copyright owner. For example, limited use of works may be possible for research and private study, criticism or review, reporting current events, judicial proceedings, teaching in schools and other educational establishments andnotforprofitplayingofsoundrecordings.

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But if you are copying large amounts of material and/or making multiple copies then you may still need permission. Also where a copyright exception covers publication of excerpts from a copyright work, it is generally necessary to include an acknowledgement. Sometimes more than one exception may apply to the use you are thinking of.

Exceptions to copyright do not generally give you rights to use copyright material; they just state that certain activities do not infringe copyright. So it is possible that an exception could be overridden by a contract you have signed limiting your ability to do things that would otherwise fall within the scope of an exception.

It is important to remember that just buying or owning the original or a copy of a copyright work does not give you permission to use it the way you wish. For example, buying a copy of a book, CD, video, computer program etc does not necessarily give you the right to make copies (even for private use), play or show them in public. Other everyday uses of copyright material, such as photocopying, scanning, downloading from a CD-ROM or on-line database, all involve copying the work. So, permission is generally needed. Also, use going beyond an agreed licence will require further permission.

8.4.6 Other Provisions of the Copyright Act of 1957We have considered in detail the provisions of this Act relating to ownership, term of copyright in order to understand the meaning and nature of copyright. Besides these provisions, there are provisions made in the Act relating to licenses ( Chapter VI- Sections from 30 to 32.), Copyright Societies (Chapter VII- Sections from 33 to 36), Rights of Broadcasting Organisation and of Performers (Chapter VIII, Sections from 37 to 39), Infringement of Copyright (Chapter XI, Sections from 51 to 53), Civil Remedies (Chapter XII, Sections from 54 to 62), Offences (Chapter XIII, Sections from 63 to 70), Appeals (Chapter XIV, Sections from 71 to 73), Miscellaneous Provisions (Chapter XV, Sections from 74 to 79). This shows that the scope of this Act is quite extensive. But, we have considered only those provisions of the Act which are essential for conceptual understanding of “Copyright”. Now, we are in a position to understand the nature and certain important features of “Copyright.”

8.4.7 Nature and Features of Copyright ActCopyright is a form of protection provided to the authors of “original works of authorship” including literary, dramatic, musical, artistic, and certain other intellectual works, both published and unpublished. The 1976 Copyright Act generally gives the owner of copyright the exclusive right to reproduce the copyrighted work, to prepare derivative works, to distribute copies or phonorecords of the copyrighted work, to perform the copyrighted work publicly, or to display the copyrighted work publicly.

The copyright protects the form of expression rather than the subject matter of the writing. For example, a description of a machine could be copyrighted, but this would only prevent others from copying the description; it would not prevent others from writing a description of their own or from making and using the machine. Copyrights are registeredbytheCopyrightOfficeoftheLibraryofCongress.

Performing rights societies’ rights (for instance, music royalties)•Definitionofcategoriesinwhichcopyrightactuallysubsists•International copyright•Definitionofinfringement•

This can be made clear from the provisions of Section 63 and 63-A and B of the Copyright Act of 1857.

Provisions of Section 63Any person who knowingly infringes or abets the infringement of- the copyright in a work, or any other right conferred by this Act, [except the right conferred by section 53A], [shall be punishable with imprisonment for a termwhichshallnotbelessthansixmonthsbutwhichmayextendtothreeyearsandwithfinewhichshallnotbelessthanfiftythousandrupeesbutwhichmayextendtotwolakhrupees:Providedthat[wheretheinfringementhas not been made for gain in the course of trade or business] the court may, for adequate and special reasons to be mentionedinthejudgement,imposeasentenceofimprisonmentforatermoflessthansixmonthsorafineoflessthanfiftythousandrupees.]

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Explanation-Construction of a building or other structure which infringes or which, if completed, would infringe the copyright in some other work shall not be an offence under this section.

Provisions of Section 63A: Enhanced penalty on second and subsequent covictions. - Whoever having already been convicted of an offence under section 63 is again convicted of any such offence shall be punishable for the second and for every subsequent offence, with imprisonment for a term which shall not be less than one year but whichmayextendtothreeyearsandwithfinewhichshallnotbelessthanonelakhrupeesbutwhichmayextendto two lakh rupees :

Provided that [where the infringement has not been made for gain in the course of trade or business] the court may, for adequate and special reasons to be mentioned in the judgment impose a sentence of imprisonment for a term of lessthanoneyearorafineoflessthanonelakhrupees:

Provided further that for the purposes of this section, no cognisance shall be taken of any conviction made before the commencement of the Copyright (Amendment) Act, 1984.]

Provisions of Section 63B: Knowing use of infringing copy of computer programme to be an offence Any person who knowingly makes use on a computer of an infringing copy of a computer programme shall be punishable with imprisonment for a term which shall not be less than seven days but which may extend to three yearsandwithfinewhichshallnotbelessthanfiftythousandrupeesbutwhichmayextendtotwolakhrupees:Provided that where the computer programme has not been used for gain or in the course of trade or business, the court may, for adequate and special reasons to be mentioned in the judgment, not impose any sentence of imprisonment andmayimposeafinewhichmayextendtofiftythousandrupees.”

The above mentioned provisions of Section 63, 63-A and 63-b makes clear one of the objects of this Act i.e. to give protection to the owners of the copyrights from the infringement of their rights.

8.4.8 Difference Between Patent and Copyright Act

Point of Difference Copyright Patent

1. Subject matter

A copyright covers “works of authorship,” which essentially means literary, dramatic, and musical works, pictorial, graphic, and sculptural works, audio-visual works, sound recordings, pantomimes and choreography.

A patent covers an invention, which essentially means a new and non-obvious useful and functional feature of a product or process.

2. Requirement for protection

In order for a work to be copyrighted, it must be original andfixedinatangiblemediumof expression; no formalities are required

In order for an invention to be patented, it must be novel (i.e., new), non-obvious, and useful and a patent must be issued by the IndianPatentandTrademarkOffice

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3. Infringement

For a copyright to be infringed, the work itself must have actually been copied from (either wholly or to create a derivative work), distributed, performed, or displayed. If a person other than the copyright owner independently comes up with the same or a similar work, there is no infringement

A patent confers a statutory monopoly that prevents anyone other than the patent holder from making, using, or selling the patented invention. This is true even if that person independently invents the patented invention.

4. Infringement Copyright protection begins as soon as a work is created

Patent protection does not begin until the patent is issued

5. Start of protection

Copyright is registrable under the Copyright Act of 1957.

Patent is registrable under the Patents Act of 1970.

Table 8.1 Difference between Patent and Copyright Act

8.5 The Design Act, 2000The Designs Act of 1911 was passed by the then British Government of India and since then extensive amendments havebeenmadeintheDesignsAct.InthemeanwhileIndiahasmadetremendousprogressinthefieldofscienceand technology. There has been considerable increase in the registration of designs. To provide more effective protection to registered designs and to promote design activity it has become necessary to make the legal system of providingprotectiontoindustrialdesignsinamoreefficientmanner.Itisalsointendedtoensurethatthelawdoesnot unnecessarily extend protection beyond what is necessary to create the required incentive for design activity while removing impediments to the free use of available designs. To achieve these objectives and in order to repeal the Designs Act, 1911 which has been extensively amended, the Designs Bill was introduced in the Parliament and the Designs Act of 2000 was passed.

Under section 2 (d) of the Designs Act, 2000 the following features have been added:It includes the composition of lines or colours applied to any article•Such article may be either in two dimensional form or in three dimensional form or both:•ItdoesnotincludeanyartisticworkasdefinedunderthecopyrightAct.•

Hence, the Designs Act of 2000 does not include the trade mark and the property mark alone but also includes the ‘artistic works’.

Therefore,thedefinitionundertheActof2000isanimprovedoneandmorecomprehensive.AsperSection5of Design Act, 2000, any person who claims to be the proprietor of any new or original design can apply for the registration of the design. The foreigner can apply for the registration of the design. However, the convention followed is that if a country does not offer the identical registration right to Indian citizen for their designs in their country, its citizen would not be eligible to apply for registration of design in India.

The application under Section 5 shall be accompanied by four copies of representation of the design and the application shallstatetheclassinwhichthedesignistoberegistered.Theapplicantisalsotofileabriefstatementofnoveltywith the application. There are 31 classes plus miscellaneous class 99 of goods. The procedure for registration of a design is comparatively simple when compared to procedure for registration of a patent and trademark.

Submission of application•

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Acceptance / objections / refusal•Removal of objections / appeal to central Government•Decision of Central Government•Registration of the design•

Off late, a new Design Law came into effect in India on May 11, 2001 replacing the old law of 1911. Major changes are listed below:

Novelty is now to be determined on a world-wide basis.•Theinitialtermofprotectionwillbefortenyearswithasubsequentrenewalforfivefurtheryearsforatotal•offifteenyears.The validity of a design registration will be able to be challenged before the Controller at any time during its •period of protection.ConventionPrioritywillbeabletobeclaimedfromapplicationsfiledinanyParisConventioncountryandnot•limited to British Commonwealth countries as previously.

8.5.1 Definition and Meaning“Design”meansonlythefeaturesofshape,configuration,pattern,ornamentorcompositionoflinesorcoloursapplied to any article whether in two dimensional or three dimensional or in both forms, by any industrial process ormeans,whethermanual,mechanicalorchemical,separateorcombined,whichinthefinishedarticleappealtoand are judged solely by the eye; but does not include any mode or principle of construction or anything which is in substanceameremechanicaldevice,anddoesnotincludeanytrademarkasdefinedinclause(v)ofsub-section2oftheTradeandMerchandiseMarksAct,1958orpropertymarkasdefinedinsection479oftheIndianPenalCodeoranyartisticworkasdefinedinclause(c)ofsection2oftheCopyrightAct,1957.

An article is distinguished not only by its utility but also by its visual appeal which too usually play an important role in shaping the buyers preference for the article. Therefore, the design of an article and even design of its packaging is important from the commercial view point

8.5.2 Nature and Feature of DesignFromthedefinitionstatedinSection2(d)oftheAct,wecometoknowthat‘Design’isanideaorconceptionastofeaturesofshape,configuration,pattern,ornamentappliedtoanarticle.Suchdesignsformaspecialbranchofindustrial property. A design relating to an article appeals to the eye. It contains certain features or outward appearance. Such features are applicable to an article manufactured by any industrial process or by any means.

Suchindustrialprocesscanbemanual,mechanical,chemicalandseparateorcombined.Thefeaturesinthefinishedarticle produced should appeal to the eye and should be capable of being judged solely by the eye. This is one of the important features or ingredients of design. However, design does not conclude a trade mark, a collective markorpropertymark.ThetermTradeMark’hasbeendefinedinSection2(zb)oftheTradeMarksActof1999extensively.

But, here it can be noted in short that ‘Trade Marks’ means a mark used or proposed to be used in relation to goods for the purpose of indicating or as to indicate a connection in the course of trade between the goods or some person who has the right either as the proprietor or as the registered user to use such mark with or without any indication of the identity of that person. Trade Mark is registrable under valuable property belongs to a particular person [Section 479 of the Indian Penal Code]. It indicates the ownership of property. ‘Collective Mark’ means a trade mark distinguishing goods or services of members of an association of persons (not bring a proprietor within the meaning of the Indian Partnership Act 1932 ) which is the proprietor of the mark from those of others [Section 2(g) of the Trade Marks of 1999]. From the meaning of the above mentioned terms, it becomes clear that design is a different term from a trade mark, “property mark or a collective mark and it does not conclude a trade mark, a property mark or a collective mark.

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8.5.3 Prohibition of Registration of certain Designs under the ActWhat is not capable to be registered as ‘Design’ under this Act is made clear in the provisions of Section 4 of the Act. These provisions are as under :“A design which:

is not new or original; or •has been disclosed to the public any where in India or in any other country by publication in tangible form or •byuseorinanyotherwaypriortothefilingdate,orwhereapplicable,theprioritydateoftheapplicationforregistration; or isnotsignificantlydistinguishablefromknowndesignsorcombinationofknowndesigns;or•comprises or contains scandalous or obscene matter, shall not be registered. •

8.5.4 Registration of Design In India, designs are protected by two legal rights:

Registered designs and •Artistic copyright •

Design registration in India gives the owner, a monopoly on his or her product, i.e. the right for a limited period to stop others from making, using or selling the product without their permission and is additional to any design right or copyright protection that may exist automatically in the design.

Legal basis•Designs Act, 2000 �Designs Rules, 2001 �

‘Article’ under the Designs Act, 2000UndertheDesignsAct,2000the“article”meansanyarticleofmanufactureandanysubstance,artificial,orpartlyartificialandpartlynaturalandincludesanypartofanarticlecapableofbeingmadeandsoldseparately.

‘Set of article’ under Designs Act 2000If a group of articles meets the following requirements then that group of articles may be regarded as a set of articles under the Designs Act, 2000:

Ordinarily on sale or intended to be used together. •All having common design even though articles are different (same class). •Same general character. Generally, an article having the same design and sold in different sizes is not considered •as a set of articles. Practical example: “Tea set”, “Pen set”, “Knife set” etc. Essential requirements for the registration of ‘Design’ under the Designs Act, 2000•

The design should be new or original, not previously published or used in any country before the date of �application for registration. The novelty may reside in the application of a known shape or pattern to new Subject matter. Practical example: The known shape of “Kutub Minar” when applied to a cigarette holder the same is registrable. However, if the design for which application is made does not involve any real mental activity for conception, then registration may not be considered. Thedesignshouldrelatetofeaturesofshape,configuration,patternorornamentationappliedorapplicable �to an article. Thus, designs of industrial plans, layouts and installations are not registerable under the Act. The design should be applied or applicable to any article by any industrial process. Normally, designs of �artistic nature like painting, sculptures and the like which are not produced in bulk by any industrial process are excluded from registration under the Act. Thefeaturesofthedesigninthefinishedarticleshould,appealtoandarejudged,solelybytheeye.This �impliesthatthedesignmustappearandshouldbevisibleonthefinishedarticle,forwhichitismeant;Thus,any design in the inside arrangement of a box, money purse or almirah may not be considered for showing such articles in the open state, as those articles are generally put in the market in the closed state.

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Any mode or principle of construction or operation or any thing which is in substance a mere mechanical �device, would not be registerable design. For instance, a key having its novelty only in the shape of its corrugation or bend at the portion intended to engage with levers inside the lock associated with, cannot be registered as a design under the Act. However, when any design suggests any mode or: principle of construction or mechanical or other action of a mechanism, a suitable disclaimer in respect thereof is required to be inserted on its representation, provided there are other registerable features in the design. Thedesignshouldnot includeanyTradeMarkorpropertymarkorartisticworksasdefinedunderthe �Copyright Act, 1957.

Procedure for Registration of Design

Filing of Application

Numbering and Dating of Application and Formali-

ties Check

Substantive Examinations of Applications

Removal of Objective (s)

Communication of Objective (s)

in 3 monthsNon compliance of Objective (s)

Abandoned

Re-Examination

RefusalHearing if

Objection (s) is contested

Compliance of Objection (s)

within 2 receivingreport months

Appeal to High Court

In case of allowance of appeal

Publication in the OfficialGazette

IssueofCertificateofRegistration

Waiving/removal of Objection (s) Acceptance

Fig. 8.1 Procedure of registration of design

Applying for registration of designTheapplicationforregistrationofdesigncanbefiledbytheapplicanthimself/herselforthroughaprofessionalperson (i.e., patent agent, legal practitioner). However, for the applicants not being residents of India, an agent residing in India has to be employed.

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Place of applying for registration of designAny person who desires to register a design shall submit the following documents to the Controller of Designs, ThePatentOfficeatKolkata,oratanyofitsbranchofficesatNewDelhi,MumbaiandChennai.Foraddressandcontact numbers, click here.

Duration of the registration of a design and its extensionThe duration of the registration of a design is initially ten years from the date of registration but in uses where claim to priority has been allowed, the duration is ten years from the priority date. This initial period of registration may be extended by further period of 5 years on an application made in Form-3 accompanied by a fee of Rs. 2,000/- to the Controller before the expiry of the said initial period of Copyright. The proprietor of a design may make application for such extension even as soon as the design is registered.

Cancellation of registration of a designThe registration of a design may be cancelled at any time after the registration of design, on a petition for cancellation in form 8, with a fee of Rs. 1,500/- to the Controller of Designs, on the following grounds:

That the design has been previously registered in India or •That it has been published in India or elsewhere prior to date of registration or •The design is not new or original or •Design is not registrable or •It is not a design under Clause (d) of Section 2. •

Restoration of the lapsed design due to non-payment of extension fee within prescribed timeAregistrationofdesignwillceasetobeeffectiveonnon-paymentofextensionfeeforfurthertermoffiveyears,ifthe same is not paid before the expiry of original period of 10 years. However, new provision has been incorporated intheActsothatlapseddesignsmayberestored,providedthefollowingconditionsaresatisfied:

ApplicationforrestorationinForm-4withfeeofRs.1,000/-isfiledwithinoneyearfromthedateoflapse•statingthegroundforsuchnon-paymentofextensionfeewithsufficientreasons.If the application for restoration is allowed, the proprietor is required to pay the extension fee of Rs: 2,000/- and •anadditionalfeeofRs.1,000/-andfinallythelapsedregistrationisrestored.

Piracy of a designPiracy of a design means the application of a design or its imitation to any article belonging to class of articles in which the design has been registered for the purpose of sale or importation of such articles without the written consent of the registered proprietor. Publishing such articles or exposing them for sale with knowledge of the unauthorised application of the design to them also involves piracy of the design.

Penalty for the piracy of a registered designIf anyone contravenes the copyright in a design for the every contravention he/she is liable to pay a sum not exceeding Rs. 25,000/- to the registered proprietor subject to a maximum of Rs. 50,000/- recoverable as contract debt in respect of any one design. The registered proprietor may bring a suit for the recovery of the damages for any such contravention and for injunction against repetition of the same. Total sum recoverable shall not exceed Rs. 50,000/- as contract debt as stated in Section 22(2)(a). The suit for infringement, recovery of damage should notbefiledinanycourtbelowthecourtofDistrictJudge.

8.5.5 Powers and Functions of ControllerThe provisions related to powers and duties of the Controller are given in Chapter VII of the Designs Act, 2000. They are as follows:-

Provisions of Section 32:Powers of Controller in Proceedings under Act:-Subject to any rules in this behalf, the Controller in any proceedings before him under this Act shall have the powers of a civil court for the purpose of receiving evidence, administering

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oaths, enforcing the attendance of witnesses, compelling the discovery and production of under documents, issuing commissions for the examining of witnesses and awarding costs and such award shall be executable in any court having jurisdiction as if it were a decree of that court.

Provisions of Section 33Exercise of discretionary power by Controller:- Where any discretionary power is by or under this Act given to Controller, he shall not exercise that power adversely to the Exercise of the discretionary power byapplicant for registration of a design without (if so required within the prescribed time by the applicant) giving the applicant an opportunity of being heard.

Provisions of Section 34Power of Controller to take directions of the Central Government:- The Controller may, in any case of doubt ordifficultyarisingintheadministrationofanyoftheprovisionsofthisAct,applytotheCentralGovernmentfordirections in the matter.

Provisions of Section 35 Refusal to register a design in certain cases:-

The Controller may refuse to register a design of which the use would, in his opinion, be contrary to public •order or morality.An appeal shall lie to the High Court from an order of the Controller under this section. Refusal to register a •design in certain cases.

Provisions of Section 36Appeals to the High Court

Where an appeal is declared by this Act to lie from the Controller to the High Court, the appeal shall be •made within three months of the date of the order passed by the Controller.In calculating the said period of three months, the time (if any) occupied in granting a copy of the order appealed •against shall be excluded.TheHighCourtmay,ifitthinksfit,obtaintheassistanceofanexpertindecidingsuchappeals,andthedecision•oftheHighCourtshallbefinal.The High Court my make rules consistent with this Act as to the conduct and procedure of all proceedings •under this Act before it.

8.6 The Trade Mark Act, 1999The trademarks law of India is enshrined the new Trade Marks Act, 1999 that came into vigor with effect from September 15, 2003. The old Trade and Merchandise Marks Act, 1958 was repealed at the same time. The new Trademarks Act of 1999 is in line up with the WTO recommendations and is in conventionality with the TRIPS Agreement to which India is a participant.

Under the new Trademarks Act of 1999:Registration of Service Marks allowed in addition to Trademarks for goods. •No separate application necessary for each category/class of goods or services; a single application would do, •howeverfilingfeewillbechargedseparatelyforeachclassofgoods/services.The term of registration of trademark is ten years, subject to renewal thereafter. •The system of maintaining registration of trademark in Part A and Part B with different legal rights, dispensed •away. Registration of trademarks which are imitations of well known trademarks not permitted. •Registration of Collective Marks owned by associations allowed. •Offences relating to trademark made cognisable. •

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Filing Fees enhanced by more than 8 times. •Extension of application of convention countries. •

8.6.1 Meaning of ‘Trade Mark’A trademark is a word, symbol, or phrase, used to identify a particular manufacturer or seller’s products and distinguish them from the products of another. For example, the trademark “Nike,” along with the Nike “swoosh,” identify the shoes made by Nike and distinguish them from shoes made by other companies (example, Reebok or Adidas). Similarly, the trademark “Coca-Cola” distinguishes the brown-colored soda water of one particular manufacturer from the brown-colored soda of another (example, Pepsi). When such marks are used to identify services (example, “Jiffy Lube”) rather than products, they are called service marks, although they are generally treated just the same as trademarks.

Under some circumstances, trademark protection can extend beyond words, symbols, and phrases to include other aspects of a product, such as its color or its packaging. For example, the pink color of Owens-Corning fiberglassinsulation or the unique shape of a Coca-Cola bottle might serve as identifying features. Such features fall generally under the term “trade dress,” and may be protected if consumers associate that feature with a particular manufacturer rather than the product in general. However, such features will not be protected if they confer any sort of functional or competitive advantage. So, for example, a manufacturer cannot lock up the use of a particular unique bottle shape if that shape confers some sort of functional advantage (for instance, it is easier to stack or easier to grip). Qualitex Co. v. Jacobson Products Co., Inc., 115 S. Ct. 1300 (1995).

Trademarksmakeiteasierforconsumerstoquicklyidentifythesourceofagivengood.Insteadofreadingthefineprint on a can of cola, consumers can look for the Coca-Cola trademark. Instead of asking a store clerk who made a certain athletic shoe, consumers can look for particular identifying symbols, such as a swoosh or a unique pattern of stripes. By making goods easier to identify, trademarks also give manufacturers an incentive to invest in the quality oftheirgoods.Afterall,ifaconsumertriesacanofCoca-Colaandfindsthequalitylacking,itwillbeeasyfortheconsumer to avoid Coca-Cola in the future and instead buy another brand. Trademark law furthers these goals by regulating the proper use of trademarks.

8.6.2 Some important Aspects of the Trade Marks Act of 1999The Trade Marks Act of 1999 is quite exhaustive in which there are 159 sections. The Act extends to the procedure for registration of trade marks, application for registration, registration of trade marks, duration renewal, etc. of registration, Chapters II and III), effect of registration [Chapter IV], assignment and transmission of trade marks [ChapterV], registeredusers [ChaptersVI], rectification and correctionof theRegister [ChapterVII], specialprovisionsforcollectivemarksandforcertificationoftrademarks[ChaptersVIIIandIX]etc.Besidestheseaspects,wefindprovisionsrelatingtotheoffences,penaltiesetc.inChapterXIIoftheAct.Markisnotmadecompulsoryrequirement of the Act. However, the registration of a trade mark, if valid, gives its proprietor the exclusive legal right to use it in relation to the goods or services in respect of which the trade mark is registered. Registration of a trade mark is prima facie evidence of the validity of the trade mark.

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SummaryIntellectual property is a right pervaded in some property of real nature, and as such it is only a property in •fictionorafictionalproperty.Intellectual property can be divided mainly into four kinds or types i.e Patent Right, Copy Right, Trade Marks •Right and Design Right.‘Intellectual Property Rights’ means the exclusive right that the owner has over his intellectual property, within •the limits of the law, to use and enjoy it in the same way as the owner of other kinds of properties, movable or immovable.Theterm‘Patent’isdefinedasamonopolyrightwhichisgrantedtoapersonwhohasinventedanewanduseful•article, or an improvement of existing article, or a new process of making an article.The Controller General of Patents, Designs and Trade Marks appointed under the Trade and Merchandise Marks •Act, 1958, is the concerned Controller of Patents for the purposes of the Patents Act, 1970.Copyright is a form of protection provided to the authors of “original works of authorship” including literary, •dramatic, musical, artistic, and certain other intellectual works, both published and unpublished.The Law of Copyright in India is contained in the Copyright Act of 1957 as amended subsequently in 1983, •1984, 1992, 1994 and 19999 as per requirements.If a group of articles meets the following requirements then that group of articles may be regarded as a set of •articles under the Designs Act, 2000:(i) Ordinarily on sale or intended to be used together. (ii) All having common design even though articles are different (same class). (iii) exhibit same general character.Designs Act of 2000 does not include the trade mark and the property mark alone but also includes the ‘artistic •works’ .The trademarks law of India is enshrined the new Trade Marks Act, 1999 that came into vigor with effect from •September 15, 2003.A trademark is a word, symbol, or phrase, used to identify a particular manufacturer or seller’s products and •distinguish them from the products of another.

References THE PATENTS ACT, 1970• [Pdf] Available at: <http://wbbb.gov.in/Legislations/rules/TheIndianPatentAct1970.pdf>. [Accessed 12 September2011].THE PATENTS ACT, 1970• [Pdf] Available at: <http://www.it.iitb.ac.in/~palwencha/IPR/IPA%201970.pdf>. [Accessed 12th September2011].ChurchLaw, 2009.• Copyright / Trademark Law Overview [ Video online] Available at: <http://www.youtube.com/watch?v=VrfcUAA1qBk> [Accessed 12 September 2011]. Hutonthe Hill• ., 2009. Understanding Trademarks [ Video online] Available at: <http://www.youtube.com/watch?v=EWtnBvP3nPU&feature=related> [Accessed 10 September 2011].Geet, S.D.and Deshpande, A.,• Legal Aspects of Business, Nirali Prakashan.Cherunilam, F., 2007. • International business: text and cases, 4th ed., Prentice-Hall.

Recommended Reading Jain, S., 2010• . Patents: Procedures and Practices, Universal Law Publishing. Pathak,• A., 2009. Legal Aspects Of Business, Tata McGraw-Hill Education.The Copyright Act, 1957• , Universal Law Publishing.

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Self Assessment__________isarightpervadedinsomepropertyofrealnature,andassuchitisonlyapropertyinfictionora1. fictionalproperty

Individual propertya. Intellectual propertyb. Copyrightc. Patent Rightd.

The Law of Copyright in India is contained in the Copyright Act of _________.2. 1983a. 1984b. 1992c. 1957d.

Theterm_________isdefinedasamonopolyrightwhichisgrantedtoapersonwhohasinventedanewand3. useful article.

Copyrighta. Trademarkb. Patentc. IPRd.

_____________is a form of protection provided to the authors of “original works of authorship” including 4. literary, dramatic, musical, artistic, and certain other intellectual works.

Copyrighta. Patentb. Trademarkc. IPRd.

The _____________Act, 1999 was passed and came into vigor with effect from September 15, 2003.5. Designa. Patentb. Trademarkc. Copyrightd.

The provisions related to powers and duties of the Controller are given in ____________ of the Designs Act, 6. 2000

Chapter Va. Chapter IVb. Chapter IXc. Chapter VIIId.

Which of the following statements is true?7. Patent protection does not begin until the patent is issued.a. Designs Act of 2000 does not include ‘artistic works’. b. Patent is registrable under the Patents Act of 1999.c. A design which is not new or original is also capable of being registered as ‘Design’ under the Designs Act, d. 2000.

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A _____________ is a word, symbol, or phrase, used to identify a particular manufacturer or seller’s products 8. and distinguish them from the products of another.

Patenta. Copyrightb. Designc. Trademarkd.

Which of the following statements is false?9. Anapplicationforapatentforaninventionmaybemadebyanypersonclaimingtobethetrueandfirsta. inventor of the invention.Every patent shall be in the prescribed form and shall have effect throughout India.b. “Owner of copyright” may include an exclusive licensee.c. The provisions relating to “Rights of the Copyright Owner” are found in sections from 22 to 29[Chapter V] d. of the Copyright Act, 1957.

The Indian Patents Act was last amended in ____________.10. 2005a. 1970b. 1999c. 2003d.

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Case Study I

Good Foods Sdn Bhd (the company) was incorporated in 2000. The company’s sole object clause provides that the principal activity of the company is catering. Nelli and Rosman, who are chefs by profession, are the directors and together they hold 85% of the shares in the company the remaining 15% of the shares being held by eight other shareholders.

The company has been doing extremely well since it was incorporated. Nelly Rosman are keen to expand the business of the company. They are planning to set up a culinary school have been advised that the company will have to amend its object clause before it can successfully embark into the new venture.

They facilitate the new venture the company will need to acquire a new building. Nelly and Rosman do not wish to convert the company into a public company for this purpose. Instead, they have borrowed RM 2,000,000 from Ocean Bank. As security for the loan they have charged a piece of land owned by the company to Ocean Bank.

Nelly and Rosman also purpose to pass a resolution to issue additional shares to existing shareholders , where they will be required to double their shareholdings in the company.Nely and Rosman also propose that the name of the company be changed from Good Foods Sdn Bhd to Heavenly Foods Sdn Bhd.

Nelly and Rosman have called for an extra ordinary general meeting to pass the following resolutions namely-To amend the object clause to include the business of running culinary school•To issue additional shares by requiring all shareholders to double their shareholdings in the company and•To change the name of the company from Good Food s Sdn Bhd•

Chitra is one of the shareholders in the company. She is against all the above proposed changes and will vote against the resolution at the meeting. Chitra is also of the view that the loan from Ocean Bank is null and void because there is no provision in the company’s memorandum.of association allowing the loan. (Source: Case_Study_Corporate_Law, 2010. [Online] Available at: <http://scdlpgdbagroup.blogspot.in/2010/07/casestudycorporatelaw.html> [Accessed 20 June 2013])

QuestionsCan Chitra successfully block the passing of each of the three proposed resolutions?1. AnswerMinorityshareholderswithqualifiedminoritymayinitiateactionagainstdecisionsofthemajorityinacourtoflaw.Accordingtosection399oftheact,aqualifiedminorityconsistsofatleastonehundredshareholdersor one tenth of the total number of shareholders, whichever is less, or any shareholder holding one tenth of the issued share capital of the company fully paid up. Moreover, minority shareholders who hold more than 25% of the shares will have the ability to obstruct special resolutions, seek intervention of the CLT and therefore, impede the functioning of the company at some level.

Is Chitra correct in her argument that the above loan from Ocean Bank is null and void and has no effect?2. AnswerIf the majority of the shareholders (75%) were not informed prior to the borrowing of 2,000,000 Chitra can claim that the loan from Ocean Bank is void and has no effect.

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Case Study II

JVG Scandal - Case Study

JVG’s troubles started in June 1997, after the Securities and Exchange Board of India (SEBI) asked JVG Finance to refund the Rs 45 crore it had raised from a public issue in March 1997. A day after the issue had opened, RBI issued a show-cause notice asking why JVG Finance should not be barred from accepting deposits as the group companies had already exceeded their deposit limits. By the time RBI conditionally cleared the issue after assurances from Sharma, the 70-day stipulated period for listing the shares had passed.

Because of the time-lapse, SEBI intervened and ordered the refund of the public’s money according to the allotment rules. Sharma refused to refund the money to the investors and appealed against the order to the Finance ministry. He admitted that JVG had exceeded its limits while accepting deposits but claimed that since December 1996 (much before the RBI ban) it had stopped accepting deposits on its own and had even given RBI an undertaking. RBI did not accept the argument and barred the group from accepting any more public deposits.

In September 1997, post-dated cheques issued for principal as well as interest on JVG’s deposits bounced. Investors then complained to the civil courts, consumer courts, Company Law Board and criminal courts under the Negotiable Instruments Act upon which legal proceedings were initiated against the group. The government received a large numberofcomplaintsonnon-repaymentofdepositsonmaturitybytheJVGgroup.OnacomplaintfiledbytheRBI,theDelhiHighCourtorderedthewindingupofthecompany.ThecourtalsoappointedanofficialliquidatorandsaidthattheRBIdidnotconsidertherevivalschemefiledbythecompanyviable.TheRBIalsofiledcriminalprosecution petitions in the Metropolitan Magistrates’ Courts in New Delhi.

RBI alleged that the company had accepted deposits worth Rs 88.82 crore which was 756.68% of its net owned fund. This was much higher than the permissible limit of 25%2. Similarly, JVG Leasing had received deposits worth Rs 19.28 crore which was 147.58% of its net owned fund. The RBI complaint also said that the deposit forms issued by the JVG Group did not contain any information regarding premature withdrawals, which was necessary as per RBI provisions. The companies had not provided any information about the rate of interest to the investors on the receipts issued to them. Further, the companies failed to submit their audited balance sheets for the period ending March 31, 1994 and 1995 15 days after their annual general meeting (AGM) and did not inform the RBI about the changes in the composition of the board of directors.

RBI's petition also stated that the company had not maintained liquid assets as required by section 45IB of the RBI Act, 1934. RBI further contended that JVG Securities accepted public deposits through JVG Leasing Ltd. and had illegally credited it to the account of JVG Finance Ltd. Thus, JVG Securities facilitated collection of further deposits by JVG Finance Ltd., a company which had already accepted public deposits beyond the permissible limit in spite of the warning from RBI not to accept any further deposits. A total of 31 bank accounts of the JVG group of companies were seized and an amount of Rs 5 lakh lying in these accounts was frozen. Land and property, including 238 acres in Gurgaon, Rewari and Faridabad, in the name of JVG group of companies were attached. Nine company vehicles were taken into police possession and a number of properties located in Bombay and Delhi (held bythecompany)wereidentifiedandtheincome-taxauthoritiesinDelhiandBombaywereinformed.Meanwhile,JVG,fearingawithdrawalrushonitsdeposits,askedallitsdepositorstosendtheircertificatestotheDelhiofficefor scrutiny and also issued notices in the dailies assuring investors that all deposits which had matured would be redeemed immediately.

Sharma revealed that all genuine matured amounts had been repaid and only Rs 30 crore was to be paid to depositors of JVG Finance by January 1998 and another Rs 100 crore to JVG Leasing depositors between July 1998 and June 1999. He also admitted that it was impossible for him to repay all his depositors, including those whose deposits had notmatured.Sharma'sallegationthathisagentshadissuedfakecertificatestodepositorsformorethanRs100crorewasseenasaploytowashhishandsofftheresponsibilitytopaythem.Analystsremarkedthatifthecertificateswere issued by agents who were handpicked by Sharma himself, he could not disown them. There was suspicion as to the dubious nature of the investments Sharma had made with the money, which had not yielded the returns he

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had expected. As a result, he serviced the interest on the old deposits out of fresh deposits.Afterhewasbarredfromraisingfreshfunds,hetriedtogetridofthedepositorsbydubbingtheircertificatesfake.However, Sharma claimed that his investments fetched him the expected returns. He also refuted allegations that most of his investments were in the JVG Group. He said that he had invested in automobiles, plant and machinery and other equipment through hire purchase and lease schemes, and only a minor amount was in group companies. Sharmacommentedthatthedepositorswithfakecertificateswouldanywayusetheirownresourcestorecovertheirmoney.Theyweresuretoapprehendtheagentsforissuingfakecertificates.Hesaid,"Weareresponsibleonlyforthe proper investor who is listed with us."

Sharma was well-known in the industry circles for shooting his mouth off. His grand comments and claims were frequently splashed in business dailies and magazines. In fact, Sharma claimed that it was only the attention he drew to himself by making grandiose announcements that led to his downfall.

In May 1998, The Economic Offence Wing of Chandigarh police lodged an FIR against Sharma under Section 420 of the Indian Penal Code. However, Sharma failed to appear in the court despite repeated warrants. He then moved the Mumbai High Court for transferring of all criminal cases registered in various states against the JVG group to the Central Bureau of Investigation (CBI) for further investigation. In June, the court transferred only the cases registered in Maharashtra to the CBI. The next day, Sharma moved an application for anticipatory bail in the high court, upon which he was granted interim bail till July 6. The Mumbai High Court granted four weeks bail to Sharma and directed him to appear in the appropriate court in Delhi. Sharma did not appear before any court in Delhi and went underground.

Followingthis,ateamofofficersfromtheEconomicOffencesWingofthecrimebranchwassenttoMumbaiinNovember.TheteamarrestedSharmaataflatinBandra,asuburbinnorthwestMumbai.InJune1999,after16months in jail, Sharma was granted bail on a personal bond of Rs 1 lakh and a surety of a similar amount and was directed not to leave the country without the court's permission and not to tamper with evidence. Sharma had sought bail on health grounds claiming that he was suffering from hypertension, angina and chest pain. The JVG companies were delisted and barred permanently from indulging in NBFC activities in the future. However, JVG's demise and Sharma's stint in jail would perhaps never replace the dreams and hopes of the investors whose hard-earned money had vanished forever.

(Source: JVG Scandal, [Online] Available at: <http://www.icmrindia.org/free%20resources/casestudies/jvg-scandal-3.ht> [Accessed 20 June 2013])

QuestionsAnalyse the rise and fall of V.K.Sharma and the JVG group of companies. What were the major reasons for the 1. failure of the group? Give reasons to support your answer.CommentontheroleofregulatoryagenciesintheJVGscamandanalyzehowfarthefinancialandregulatory2. system contributed to the scam.

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Case Study III

Case Study on Corporate Governance: Satyam ScamSatyam Computers Services Limited was a consulting and an Information Technology (IT) services company founded by Mr. Ramalingam Raju in 1988. It was India’s fourth largest company in India’s IT industry, offering a variety of IT services to many types of businesses. Its’ networks spanned from 46 countries, across 6 continents and employing over 20,000 IT professionals. On 7th January 2009, Satyam scandal was publicly announced & Mr. RamalingamconfessedandnotifiedSEBIofhavingfalsifiedtheaccount.

Raju confessed that Satyam’s balance sheet of 30 September 2008 contained:InflatedfiguresforcashandbankbalancesofRs5,040crores(US$1.04billion)[asagainstRs5,361crores•(US$1.1billion)reflectedinthebooks].AnaccruedinterestofRs.376crores(US$77.46million)whichwasnon-existent.•AnunderstatedliabilityofRs.1,230crores(US$253.38million)onaccountoffundswhichwerearrangedby•himself.Anoverstateddebtors’positionofRs.490crores(US$100.94million)[asagainstRs.2,651crores(US$546.11•million) in the books].

The letter by B Ramalinga Raju where he confessed of inflating his company’s revenues contained the following statements:“Whatstartedasamarginalgapbetweenactualoperatingprofitandtheonereflectedinthebooksofaccountscontinued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly[annualisedrevenuerunrateofRs11,276crores(US$2.32billion)intheSeptemberquarterof2008andofficialreservesofRs8,392crores(US$1.73billion)].Asthepromotersheldasmallpercentageofequity,the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisitiondealwasthelastattempttofillthefictitiousassetswithrealones.Itwaslikeridingatiger,notknowinghow to get off without being eaten.”

The scandalThe scandal all came to light with a successful effort on the part of investor’s to prevent an attempt by the minority shareholdingpromoterstousethefirm’scashreservestobuytwocompaniesownedbythemi.e.MaytasPropertiesand Maytas Infra. As a result, this aborted an attempt of expansion on Satyam’s part, which in turn led to a collapse in price of company’s stock following with a shocking confession by Raju, The truth was its’ promoters had decided toinflatetherevenueandprofitfiguresofSatyamtherebymanipulatingtheirbalancesheetconsistingnon-existentassets, cash reserves and liabilities.

The probable reasonsDerivinghighstockvalueswouldallowthepromoterstoenjoybenefitsallowingthemtobuyrealwealthoutsidethecompanyandtherebygivingthemopportunitytoderivemoneytoacquirelargestakesinotherfirmsonanotherhand. There could be the reason as to why Raju’s family build its shareholding and shed it when required.

After the scandal, on 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. On 5th February 2009, the six-member board appointed bytheGovernmentofIndianamedA.S.MurthyasthenewCEOofthefirmwithimmediateeffect.Theboard consisted of:

Banker Deepak Parekh1. IT expert Kiran Karnik2. Former SEBI member C Achuthan S Balakrishnan of Life Insurance Corporation3. Tarun Das, Chief mentor of the Confederation of Indian Industry4. T N Manoharan, former President of the Institute of Chartered Accountants of India5.

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QuestionsAnalyse all the various terms of Company law from the above case and explain.1. Explain the breach of contract with the above case an example.2.

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Bibliography

References Aggarawala, O. P., 1973. • The Sale of Goods Act, 1930, 9th ed., Georg Thieme Verlag.Business Law Including Company Law• [pdf] Available at: <http://www.newagepublishers.com/samplechapter/001048.pdf> [Accessed 12 September 2011].Business Law,• FK Publications.Cherunilam, F., 2007. • International business: text and cases, 4th ed., Prentice-HallChiney, S., 2010. • Business Regulatory Framework, Mumbai: Sheth Publishers Pvt. Ltd.ChurchLaw, 2009. • Copyright / Trademark Law Overview [Video online] Available at: <http://www.youtube.com/watch?v=VrfcUAA1qBk> [Accessed 12 September 2011]. COMPANIES ACT, 1956• , [Pdf] Available at: <http://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdf> [Accessed 17 June 2013].Company law,• [Pdf] Available at: <http://www.icsi.in/Study%20Material%20Executive/CL.pdf> [Accessed 17 June 2013]. Deshmukh, H., 2012. The Negotiable Instruments Act ,1881 [Video online] Available at: <http://www.youtube.•com/watch?v=_8dnnizCq0g> [Accessed 20 June 2013].Deshmukh, H., 2012. The Negotiable Instruments Act ,1881 [Video online] Available at: <http://www.youtube.•com/watch?v=_8dnnizCq0g&list=PLQX0X69EeWM3lfrQPUAzp9bKClowJJ_W7> [Accessed 20 June 2013].Dr. Jain, V. K., 2012.• Sale of goods act, [Video online] Available at: <http://www.youtube.com/watch?v=GsskI9-gYBk> [Accessed 17 June 2013].Edu, I., 2012. • ConsumerProtectionActanditsDefinitions, [Video online] Available at: <http://www.youtube.com/watch?v=aE2FLxpBg64> [Accessed 20 June 2013].elahge, 2010• . Introduction to Corporate Law, [Video online] Available at: <http://www.youtube.com/watch?v=viyVBPvFFkQ> [Accessed 17 June 2013].Gambhir, C., 2007. • Consumer Protection Administration: Organisation and Working, Deep and Deep Publications.Geet, S.D. & Deshpande, A.,• Legal Aspects of Business, Nirali Prakashan.Gupta, N., 2013. • Lec 8 chapter sale of goods act 1930, [Video online] Available at: <http://www.youtube.com/watch?v=m8jgPoUqTZY> [Accessed 17 June 2013].Hannigan, B., 2012. • Company Law, 3rd ed., Oxford University Press.Hutonthe Hill., 2009. • Understanding Trademarks [Video online] Available at: <http://www.youtube.com/watch?v=EWtnBvP3nPU&feature=related> [Accessed 10 September 2011].icaias, 2011. Indian Contract Act 1872, [Video online] Available at: <http://www.youtube.com/•watch?v=3ZZNadPp5qI> [Accessed 17 June 2013].ignousol, 2010. • Information Technology Act 2000 and Beyond-1 part-1. [Video online] Available at: <http://www.youtube.com/watch?v=l1aqFKn__-s> [Accessed 20 June 2013].jainalw, 2012. • Information-Technology-Act 2000. [Video online] Available at: <http://www.youtube.com/watch?v=0i2sHNKwvs4> [Accessed 20 June 2013].Kapoor. G. S., 1973.• The Sale of Goods Act, 1930, New Age International.Lien. [Video online] Available at: <http://www.howcast.com/videos/171509-Lien>. [Accessed 19 October •2011].NEGOTIABLE INSTRUMENTS ACT, 1881• , [Pdf] Available at: <http://www.ddegjust.ac.in/studymaterial/mcom/mc-207-f.pdf> [Accessed 18 June 2013].Patra, A. C., 1966. • The Indian Contract Act, 1872, Volume 1, Asia Publishing House.

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Pillai, P. N., 1978. • Legal framework of business organisations, Malaya Law Review, Faculty of Law, University of Singapore.Pinelli, J., 2010. • WhatIsanIndemnityBenefitContract? [Video online] Available at: <http://www.ehow.com/video_4774350_indemnity-benefit-contract_.html>.[Accessed19October2011].prince2ibms07, 2008. • Introduction to business Law, [Video online] Available at: <http://www.youtube.com/watch?v=viyVBPvFFkQ> [Accessed 17 June 2013].Sachdeva, S., 2013. • Types of Contract part 1, [Video online] Available at: <http://www.youtube.com/watch?v=pdZ3JDlYqjU> [Accessed 17 June 2013].Sale of Goods Act, 1930• , [Online] Available at: <http://www.lawzonline.com/bareacts/sale-of-goods-act/Sale-of-Goods-Act.html> [Accessed 17 June 2013].Sanjiva Row, T. V., 2009. The Negotiable Instruments Act, 1881. General Books LLC.•Sanjiva, T. V., 2012. • The Indian Contract Act, 1872 (act Ix Of 1872): With The Case-law Thereon, Nabu Press.Sharma, V.,• Information Technology Law and Practice, Universal Law Publishing.The Consumer Protection Act, 1986• , [Online] Available at: <http://www.indiankanoon.org/doc/1733066/> [Accessed 20 June 2013].The Consumer Protection Act, 1986• , [Online] Available at: <http://www.ncdrc.nic.in/1_1.html> [Accessed 20 June 2013].The Consumer Protection Act, 1986,• Universal Law Publishing.The Indian Contract Act • [Pdf] Available at: <http://www.corecentre.co.in/Database/Docs/DocFiles/indian_contract.pdf> [Accessed 15 September 2011].The Indian Contract Act, 1872• , [Online] Available at: <http://www.vakilno1.com/bareacts/indiancontractact/indiancontractact.html> [Accessed 17 June 2013].The Indian Contract Act, 1872• , [Pdf] Available at: <http://220.227.161.86/19698ipcc_blec_law_vol1_chapter1.pdf> [Accessed 17 June 2013].THE INFORMATION TECHNOLOGY ACT, 2000• , [Online] Available at: <http://deity.gov.in/content/it-act-2000-dpl-cyber-laws> [Accessed 20 June 2013].THE INFORMATION TECHNOLOGY ACT, 2000• , [Pdf] Available at: <http://eprocure.gov.in/cppp/sites/default/files/eproc/itact2000.pdf>[Accessed20June2013].The Negotiable Instruments Act, 1881, [Pdf] Available at: <http://220.227.161.86/19699ipcc_blec_law_vol1_•chapter2.pdf> [Accessed 20 June 2013].The Negotiable Instruments Act, 1881. Universal Law Publishing.•THE PATENTS ACT, 1970• [Pdf] Available at: <http://wbbb.gov.in/Legislations/rules/TheIndianPatentAct1970.pdf>. [Accessed 12 September2011].THE PATENTS ACT, 1970• [Pdf] Available at: <http://www.it.iitb.ac.in/~palwencha/IPR/IPA%201970.pdf>. [Accessed 12th September2011].T• he Sale of Goods Act, 1930, [Pdf] Available at: <http://dspace.jgu.edu.in:8080/dspace/bitstream/10739/67/1/Chapter%2016.pdf> [Accessed 17 June 2013].Tulsian, 2006. • Business Law for B. Com Hons, Tata McGraw-Hill Education.Wala, E., 2012. • Consumer Protection Act 1986. [Video online] Available at: <http://www.youtube.com/watch?v=Zc3nCKYzHfI> [Accessed 20 June 2013].

Recommended Reading2008• . EBC Sale of Goods Act, 1930, 24th ed., Eastern Book Co.Borowalia, J. N., 2004. • Commentary on the Consumer Protection Act 1986. Universal Law Publishing Co Ltd.

Legal Framework and Business

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Bose, D. C., 2010. • Business Law, Publication PHI Learning Private Ltd.Chitaley, V. V., 1957. The Indian contract act (9 of 1872) (Corpus Iuris of India)•Das, B. K., 1998. Consumer, • Protection Act, 1986 (Act no. 68 of 1986): The most analytical, critical, exhaustive, and updated commentary, 2nd ed., Sodhi Publication.Dignam, A. & Lowry, J., 2012. • Company Law, 7th ed., Oxford University Press.Dr. Chansoria, D. & Srivastava, R. A., I• nformation Technology Act 2000: A Conceptual Paradigm Shift in Law.Gould, L., 2002. • Legal Framework of Business, United Publishing,Australia.Goyal, K. N., 2008. • Consumer Protection Act, 1986. 19th ed., Eastern Book Co, India. Indian Penal Code (Act No. 45 of 1860) • - 2 Vols. 2006. India.Jain, S., 2010• . Patents: Procedures and Practices, Universal Law Publishing. Khan Sabri, S. M., T• he sale of goods act, 1930, with Sales tax act, 1951, and other relevant acts,1969. Khyber Law Publishers. Law of Crimes: As Amended by the Information Technology Act, 2000 2006. India• .Malik, K. K. & Kulshreshtha, V. D., 1983. • The Indian Contract Act 1872Mallor, J., Barnes, A. J., Bowers, L. T. & Langvardt, A., 2012. • Business Law, 15th ed., McGraw-Hill/Irwin.Mathur, S. B., 1974. • Business Law, Published by Tata McGraw Hill.Pathak, A., 2009. Legal Aspects Of Business, Tata McGraw-Hill Education.•Patra. A. C., 1966. • The Indian Contract Act, 1872.Sanjiva, T. V., • The Negotiable Instruments Act, 1881.1988 Law Book Co; 9th ed., Singh, A., 1980. • The negotiable instruments act, 1881: Act No. XXVI of 1881, 1980 Eastern Book Co.The Copyright Act, 1957• , Universal Law PublishingThe Indian Sale of Goods Act,• 1930, Butterworth Publisher.Vechalekar, N. M., • Business Law, Everest Publishing House.Vyas, R. R., 1998. • The Negotiable Instruments Act, 1881 (XXVI of 1881): With exhaustive commentary and case laws on dishonour of cheques, 2nd ed., Snow White Publications.

169/JNU OLE

Self Assessment Answers

Chapter Ic1. b2. a3. b4. b5. a6. b7. b8. c9. b10.

Chapter IIa1. d2. c3. a4. d5. a6. c7. b8. d9. d10.

Chapter IIIc1. a2. a3. b4. a5. d6. c7. a8. a9. c10.

Chapter IVc1. c2. d3. c4. a5. a6. b7. a8. a9. c10.

Legal Framework and Business

170/JNU OLE

Chapter Vb1. b2. b3. c4. b5. c6. a7. d8. a9. a10.

Chapter VIb1. b2. b3. c4. a5. b6. a7. c8. d9. a10.

Chapter VIId1. a2. c3. d4. a5. a6. a7. c8. a9. c10.

Chapter VIIIb1. d2. c3. a4. c5. d6. a7. d8. d9. a10.