Commercial Laws CBCMJ2T02

Syllabus topics (RTMNU)

• Contract Law – Meaning
• Law of Contract – Definition
• Classification of Contracts
• Essential Elements of Valid Contract
• Discharge of Contract
• Remedies of Breach of Contract
• Offer and Acceptance
• Legal Rules relating to Offer and Acceptance
• Revocation of Offer and Acceptance

Contract Law – Meaning, Law of Contract and Definition

The law of contract in India is the Indian Contract Act, 1872. It came into force on 1 September 1872. It tells us when a promise becomes legally binding and what happens if a party breaks it. Every business deal – buying goods, taking a loan, renting a shop – is a contract.

Definition: As per Section 2(h), "An agreement enforceable by law is a contract."

So, Contract = Agreement + Enforceability by law. An agreement is "every promise and every set of promises forming the consideration for each other" (Section 2(e)). All contracts are agreements, but all agreements are not contracts. Example: a promise to go to a movie with a friend is a social agreement, not a contract.

Classification of Contracts

Essential Elements of a Valid Contract

Section 10: all agreements are contracts if made by free consent of competent parties, for lawful consideration and lawful object, and not expressly declared void.

1. Offer and acceptance – one party makes an offer, the other accepts it.
2. Intention to create legal relations – social and domestic promises are not contracts (Balfour v. Balfour).
3. Lawful consideration – something in return ("quid pro quo"). No consideration, no contract (except cases in Sec 25).
4. Capacity of parties (Sec 11) – parties must be major (18 years), of sound mind, and not disqualified by law. An agreement with a minor is void (Mohori Bibee v. Dharmodas Ghose).
5. Free consent (Sec 14) – not caused by coercion, undue influence, fraud, misrepresentation or mistake.
6. Lawful object (Sec 23) – not illegal, immoral or against public policy.
7. Not expressly declared void – e.g. agreement in restraint of marriage or trade, wagering agreements.
8. Certainty and possibility of performance – terms must be clear, and the act must be possible.
9. Legal formalities – writing, stamping or registration where a law requires it.

Discharge of Contract

Meaning: Discharge means the end of a contract, when the rights and duties of the parties come to an end.

1. By performance – both parties do what they promised (actual performance) or one offers to perform (attempted performance / tender).
2. By mutual agreement (Sec 62–63) – novation (new contract replaces old), rescission (cancellation), alteration (change of terms), remission (accepting less) and waiver.
3. By impossibility of performance (Sec 56) – e.g. destruction of subject matter, death in personal service contracts, change of law, war.
4. By lapse of time – if no suit is filed within the period of the Limitation Act, 1963 (generally 3 years).
5. By operation of law – death, insolvency, merger of rights.
6. By breach of contract – actual breach (refusal on due date) or anticipatory breach (refusal before the due date).

Remedies for Breach of Contract

When one party breaks the contract, the injured party can use these remedies:

1. Rescission – cancel the contract and be free from duties.
2. Damages (Sec 73) – money compensation for loss that arises naturally from the breach or that both parties knew of (Hadley v. Baxendale). Remote or indirect loss is not paid. Types: ordinary, special, exemplary, nominal.
3. Quantum meruit – "as much as earned"; payment for work already done.
4. Specific performance – court orders the party to actually perform, used where money is not enough (e.g. sale of a unique house) – under the Specific Relief Act, 1963.
5. Injunction – court order stopping a party from doing an act that breaks the contract.

Offer and Acceptance

Offer (proposal), Sec 2(a): When one person signifies to another his willingness to do or not to do something, with a view to obtaining the assent of that other, he makes a proposal.

Acceptance, Sec 2(b): When the person to whom the proposal is made signifies his assent to it, the proposal is accepted. An accepted proposal becomes a promise.

Example: Ramesh offers to sell his scooter to Suresh for ₹40,000. Suresh says "I agree". This is offer and acceptance.

Legal Rules relating to Offer

1. Offer must intend to create legal relations.
2. Terms must be certain and not vague.
3. Offer may be express or implied.
4. Offer may be specific (to one person) or general (to the public) – Carlill v. Carbolic Smoke Ball Co.
5. Offer must be communicated; a person who acts without knowing of the offer cannot claim (Lalman Shukla v. Gauri Dutt).
6. An invitation to offer is not an offer – price lists, catalogues, goods displayed in shops (Harvey v. Facey).
7. Offer should not say that silence will be taken as acceptance.

Legal Rules relating to Acceptance

1. Acceptance must be absolute and unqualified; a conditional acceptance is a counter-offer.
2. It must be communicated to the offeror; mental acceptance is not enough. Silence is not acceptance (Felthouse v. Bindley).
3. It must be in the prescribed or a usual and reasonable manner.
4. It must be given within the time fixed, or within a reasonable time.
5. It must be given by the person to whom the offer is made.
6. It must be given while the offer is still alive (before lapse or revocation).

Revocation of Offer and Acceptance

Section 4: communication of an offer is complete when it comes to the knowledge of the offeree. Communication of acceptance is complete – against the offeror when it is put in the course of transmission (e.g. letter posted); against the acceptor when it comes to the knowledge of the offeror.

Section 5: an offer can be revoked any time before the communication of acceptance is complete against the offeror. An acceptance can be revoked any time before the communication of acceptance is complete against the acceptor.

Modes of revocation of offer (Sec 6): by notice of revocation; by lapse of the time fixed or reasonable time; by failure of the acceptor to fulfil a condition; by death or insanity of the offeror (if known to the acceptor before acceptance). An offer also ends by counter-offer or rejection.

Likely exam questions

1. (Long, 8/16 marks) Define contract. Explain the essential elements of a valid contract with suitable examples.
2. (Long, 8/16 marks) What is meant by discharge of contract? Explain the various modes of discharge of contract and the remedies available for breach of contract.
3. (Short, 4 marks) Distinguish between void and voidable contracts.
4. (Short, 4 marks) State any four legal rules relating to a valid acceptance.
5. (Short, 4 marks) When is the communication of offer and acceptance complete? When can they be revoked?

Syllabus topics (RTMNU)

• Contract of Agency
• Bailment and Pledge
• Essentials of Bailment
• Rights and Duties of Bailor and Bailee
• Pledge – Essentials
• Rights and Duties of Pawnee
• Contract of Sale of Goods Act 1930
• Rules regarding Delivery of Goods
• Rights and Duties of a Buyer and Seller

Contract of Agency

Definition (Sec 182, Indian Contract Act): An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom the act is done is the principal.

Example: A property dealer who sells a flat for the owner is the owner’s agent. Insurance agents of LIC are agents of LIC.

Creation of agency:

1. Express agency – by words, oral or written (e.g. power of attorney).
2. Implied agency – from conduct or situation, e.g. a wife buying necessaries on her husband’s credit.
3. Agency by necessity – in an emergency, e.g. a carrier sells perishable goods to save loss.
4. Agency by ratification – principal later approves an act done without his authority.
5. Agency by estoppel – principal allows others to believe a person is his agent and cannot later deny it.

Any person who is major and of sound mind may appoint an agent (Sec 183); no consideration is needed to create an agency (Sec 185).

Bailment – Meaning and Essentials

Definition (Sec 148): Bailment is the delivery of goods by one person to another for some purpose, upon a contract that the goods shall be returned or disposed of as per the directions of the person delivering them, when the purpose is over.

The person who delivers goods is the bailor; the person who receives them is the bailee. Example: giving a watch for repair, a car for parking, clothes to a dry cleaner.

Essentials of bailment:

1. Contract – there must be an agreement, express or implied.
2. Delivery of goods – possession (not ownership) passes to the bailee.
3. Only movable goods – money and land cannot be bailed.
4. Specific purpose – delivery is for some purpose like repair or safe keeping.
5. Return of the same goods – the same goods (in original or altered form) must be returned or disposed of as directed.

Rights and Duties of Bailor and Bailee

Pledge – Meaning and Essentials

Definition (Sec 172): Pledge is the bailment of goods as security for payment of a debt or performance of a promise. The bailor is the pawnor (pledger); the bailee is the pawnee (pledgee).

Example: Seema gives her gold ornaments to a bank and takes a gold loan of ₹1,00,000. This is a pledge.

Essentials: (1) delivery of goods (actual or constructive); (2) the delivery is as security; (3) security is for a debt or a promise; (4) goods return to the pawnor when the debt is paid; (5) only movable goods.

Rights and Duties of Pawnee

Rights of pawnee:

1. Right of retainer (Sec 173) – keep the goods for the debt, interest and expenses.
2. No retainer for other debts (Sec 174) – unless agreed.
3. Extraordinary expenses (Sec 175) – recover expenses made to preserve the goods.
4. Right to sue or sell (Sec 176) – if the pawnor fails to pay, the pawnee may sue on the debt and keep the goods, or sell the goods after giving reasonable notice. Shortfall can be recovered from the pawnor; surplus must be paid back.

Duties of pawnee: take reasonable care of the goods; not use them without permission; return the goods when the debt is paid; return any increase (e.g. bonus shares or dividend on pledged shares); not mix them with his own goods.

Contract of Sale of Goods Act, 1930

Contract of sale (Sec 4): A contract whereby the seller transfers or agrees to transfer the property (ownership) in goods to the buyer for a price. If ownership passes at once it is a sale; if it passes in future or on a condition, it is an agreement to sell.

Essentials: two parties, goods (movable property), price in money, transfer of ownership, and all elements of a valid contract.

Rules regarding Delivery of Goods

Delivery (Sec 2(2)) means voluntary transfer of possession from one person to another. Modes: actual (handing over goods), symbolic (handing over keys of godown or a railway receipt), constructive (a warehouse keeper agrees to hold goods for the buyer).

1. Seller and buyer must deliver and pay together, unless agreed otherwise (Sec 32).
2. Seller need not deliver until the buyer applies for delivery (Sec 35).
3. Place: goods are delivered where they are at the time of sale (Sec 36(1)).
4. Time: delivery at a reasonable hour; within reasonable time if no time is fixed.
5. Goods with a third party: delivery happens only when the third party acknowledges to the buyer that he holds the goods for him (Sec 36(3)).
6. Expenses of putting goods in a deliverable state are borne by the seller (Sec 36(5)).
7. Wrong quantity (Sec 37): if less is delivered, the buyer may reject or accept and pay pro rata; if more, he may accept the contract quantity, reject the whole, or accept all and pay for all.
8. Instalments – the buyer need not accept delivery in instalments unless agreed (Sec 38).
9. Delivery to carrier – handing goods to a carrier for the buyer is delivery to the buyer (Sec 39).
10. Right to examine – the buyer gets a reasonable chance to examine goods (Sec 41).

Rights and Duties of a Buyer and Seller

Likely exam questions

1. (Long, 8/16 marks) Define bailment. Explain the essentials of bailment and the rights and duties of the bailor and the bailee.
2. (Long, 8/16 marks) Explain the rules regarding delivery of goods under the Sale of Goods Act, 1930. State the rights and duties of a buyer and a seller.
3. (Short, 4 marks) What is pledge? State the rights of a pawnee.
4. (Short, 4 marks) Explain the different ways in which an agency can be created.
5. (Short, 4 marks) Distinguish between sale and agreement to sell.

Syllabus topics (RTMNU)

• Company – Definition
• Characteristics
• Kinds
• Privileges of Private Company
• Formation of a Company
• Memorandum of Association – Meaning
• Purpose
• Alteration of Memorandum
• Doctrine of Ultra Vires
• Articles of Association – Meaning
• Forms
• Contents
• Alteration of Articles
• Doctrine of Indoor Management
• Prospectus – Definition
• Contents
• Deemed Prospectus
• Misstatement in Prospectus
• Shares and Debentures – Meaning
• Types
• Director and Secretary – Qualification and Disqualification
• Appointment
• Removal
• Remuneration
• Powers, Duties and Liabilities
• Meeting – Requisites of Valid Meeting
• Types of Meeting
• Winding up – Meaning
• Modes of Winding Up

Company – Definition and Characteristics

Definition (Sec 2(20)): "Company" means a company incorporated under this Act or under any previous company law. Simply, it is an artificial person created by law.

1. Artificial legal person – created by law; acts through directors.
2. Separate legal entity – company is different from its members (Salomon v. Salomon & Co., 1897).
3. Perpetual succession – members may come and go; the company continues.
4. Limited liability – members pay only the unpaid amount on their shares.
5. Transferability of shares – free in a public company, restricted in a private company.
6. Common seal – optional since the 2015 amendment.
7. Can own property, sue and be sued in its own name.

Kinds of Companies and Privileges of Private Company

• On liability: limited by shares, limited by guarantee, unlimited company.
• On members: One Person Company (Sec 2(62)), private company (Sec 2(68)), public company (Sec 2(71)).
• On control: holding and subsidiary company.
• On ownership: government company (at least 51% paid-up capital held by Government, Sec 2(45)), foreign company, listed company.

Privileges of a private company (compared to a public company):

1. Only 2 members and 2 directors needed (public: 7 members, 3 directors).
2. Cannot invite the public, so no prospectus is needed.
3. No independent directors needed; Sec 197 limit on managerial remuneration does not apply.
4. Quorum is just 2 members personally present.

Formation of a Company

1. Promotion – a promoter gets the idea, checks it and arranges people, money and documents.
2. Incorporation (registration) – name reservation and incorporation are applied together online on the MCA portal (SPICe+ form) with MOA, AOA, declarations and directors’ details (Sec 7). The Registrar of Companies (ROC) issues a Certificate of Incorporation with a Corporate Identity Number (CIN).
3. Commencement of business – a company with share capital files a declaration that subscribers have paid for their shares (Sec 10A) within 180 days.
4. Capital subscription – a public company raises money from the public through a prospectus.

Memorandum of Association – Meaning, Purpose and Alteration

Meaning (Sec 2(56)): The MOA is the charter of the company. It defines its powers and its relationship with the outside world.

Purpose: outsiders learn the company’s objects and powers; members know where their money will be used. Clauses (Sec 4): Name, Registered Office, Object, Liability, Capital, and Subscription (Association) clause.

Doctrine of Ultra Vires

"Ultra vires" means "beyond powers". An act outside the object clause of the MOA is ultra vires and void; it cannot be ratified even by all members (Ashbury Railway Carriage Co. v. Riche, 1875). Directors may be personally liable for it.

Articles of Association – Meaning, Forms, Contents, Alteration

Meaning (Sec 2(5)): The AOA are the internal rules for management of the company. They are subordinate to the MOA.

Forms: Schedule I gives model Articles – Table F (limited by shares), Table G and H (limited by guarantee), Table I and J (unlimited companies).

Contents: share capital and its transfer, calls, meetings and voting, directors’ powers, dividends, borrowing, accounts and audit, winding up.

Alteration (Sec 14): by special resolution; must not go against the Act or the MOA; ROC approval needed when a public company converts into a private company.

Doctrine of Indoor Management

Outsiders dealing with a company may assume that internal procedures have been properly followed (Royal British Bank v. Turquand, 1856). It protects outsiders. Exceptions: outsider knew of the irregularity; negligence; forgery; act beyond apparent authority.

Prospectus – Definition, Contents, Deemed Prospectus, Misstatement

Definition (Sec 2(70)): Any document, notice, circular or advertisement inviting offers from the public to buy securities of a company. Includes red herring (Sec 32) and shelf prospectus (Sec 31).

Contents (Sec 26 and SEBI rules): name and registered office; directors and auditors; objects of the issue; capital structure; dates of opening and closing; risk factors; audited financial information; minimum subscription; auditors’ and experts’ reports.

Deemed prospectus (Sec 25): when a company allots securities to an issuing house which offers them to the public, the offer document is deemed to be the company’s prospectus.

Misstatement: untrue or misleading statement or omission. Civil liability (Sec 35) – directors, promoters, experts pay compensation. Criminal liability (Sec 34) – punishable as fraud under Sec 447.

Shares and Debentures – Meaning and Types

Share (Sec 2(84)): a share in the share capital of a company. Types: equity shares (voting rights, dividend after preference) and preference shares (fixed dividend and capital repaid first; cumulative, participating, convertible, redeemable). Also bonus, rights and sweat equity shares.

Debenture (Sec 2(30)): instrument showing a debt of the company. Types: secured/unsecured, redeemable/irredeemable, convertible/non-convertible, registered/bearer.

Director and Secretary

Director (Sec 2(34)) – a person appointed to the Board. Minimum: public 3, private 2, OPC 1; maximum 15 (more by special resolution). Every director needs a DIN.

Disqualification (Sec 164): unsound mind declared by court; undischarged insolvent; convicted with 6 months or more imprisonment; unpaid calls for 6 months; no DIN; director of a company that has not filed financial statements for 3 years.

Appointment: first directors by Articles; by general meeting (Sec 152); additional, alternate, nominee and casual-vacancy directors by the Board (Sec 161).

Removal: by ordinary resolution with special notice and a hearing (Sec 169); by Tribunal (Sec 242).

Remuneration (Sec 197): public company’s total managerial remuneration up to 11% of net profit; sitting fee up to ₹1 lakh per meeting.

Powers: Board powers (Sec 179) such as calling calls, issuing securities, borrowing; some need a special resolution (Sec 180). Duties (Sec 166): act per Articles, in good faith, with due care, avoid conflict of interest, no undue gain. Liabilities: breach of duty, ultra vires acts, prospectus misstatement.

Company Secretary (Sec 2(24)) – a member of ICSI. Whole-time CS is a Key Managerial Person, compulsory for listed companies and companies with paid-up capital of ₹10 crore or more (Sec 203). Appointed and removed by Board resolution. Duties (Sec 205): advise the Board on compliance, keep minutes and registers, follow secretarial standards.

Meeting – Requisites and Types

Requisites of a valid meeting: called by proper authority (Board); proper notice – 21 clear days (Sec 101); quorum present (Sec 103: private 2; public 5, 15 or 30 by number of members); chairman (Sec 104); proxies (Sec 105); resolutions passed properly; minutes recorded (Sec 118).

Types: (1) Annual General Meeting (Sec 96) – once a year, within 6 months of year end, gap not over 15 months; (2) Extraordinary General Meeting (Sec 100) – for urgent business; (3) class meetings; (4) Board meetings (Sec 173) – at least 4 a year, gap not over 120 days; (5) committee and creditors’ meetings.

Winding up – Meaning and Modes

Meaning: the process of ending the life of a company by selling its assets, paying creditors and distributing the balance to members. After winding up, the company is dissolved.

1. Winding up by the Tribunal (NCLT) (Sec 271) – on grounds like special resolution, acts against sovereignty or security of India, fraud, not filing financial statements for 5 years, or "just and equitable" ground.
2. Voluntary winding up – by members’ decision; now done as voluntary liquidation under the Insolvency and Bankruptcy Code, 2016 (Sec 59).

Likely exam questions

1. (Long, 8/16 marks) Define company. Explain its characteristics and the stages in the formation of a company.
2. (Long, 8/16 marks) What is a Memorandum of Association? Explain its clauses, the procedure for its alteration and the doctrine of ultra vires.
3. (Short, 4 marks) Explain the doctrine of indoor management and its exceptions.
4. (Short, 4 marks) What is a deemed prospectus?
5. (Short, 4 marks) State the disqualifications of a director under the Companies Act, 2013.

Syllabus topics (RTMNU)

• Consumer Protection Act, 2019: Definitions
• Consumer Protection in India
• Rights of Consumers
• Consumer Dispute Redressal Forums
• Nature and Scope of Remedies
• Information Technology Act 2000 – Scope and Objectives
• E-Governance
• Authorities
• Offences and Penalties

Consumer Protection Act, 2019 – Definitions

The Consumer Protection Act, 2019 replaced the 1986 Act and came into force on 20 July 2020. It covers online and offline buying, e-commerce, misleading advertisements and product liability.

1. Consumer (Sec 2(7)) – a person who buys goods or hires services for consideration (paid, promised or partly paid). It includes users with the buyer’s approval and online buyers. It excludes a person who buys for resale or commercial purpose.
2. Complainant (Sec 2(5)) – consumer, registered consumer association, Central or State Government, CCPA, legal heir of a dead consumer.
3. Defect (Sec 2(10)) – fault or shortcoming in quality, quantity, purity or standard of goods.
4. Deficiency (Sec 2(11)) – fault or shortcoming in the quality or manner of a service.
5. Unfair trade practice (Sec 2(47)) – false claims, misleading ads, not issuing a bill, refusing to take back defective goods.
6. Product liability (Sec 2(34)) – duty of a manufacturer or seller to compensate for harm caused by a defective product.

Consumer Protection in India

• Consumer Protection Councils – Central, State and District councils advise on consumer rights.
• Central Consumer Protection Authority (CCPA) (Sec 10) – regulates unfair trade practices and misleading ads, orders recalls, and can penalise manufacturers and endorsers (celebrities) of misleading ads – up to ₹10 lakh (₹50 lakh for repeat).
• Mediation – disputes may be settled through mediation cells attached to the Commissions.
• E-commerce rules – online platforms must show seller details and have a grievance officer.
• Easy access – complaints can be filed online (e-Daakhil) and where the complainant lives or works; National Consumer Helpline 1915.

Rights of Consumers

1. Right to safety – protection from goods and services dangerous to life and property.
2. Right to be informed – about quality, quantity, purity, standard and price (e.g. MRP, expiry date).
3. Right to choose – access to a variety of goods at competitive prices.
4. Right to be heard – consumer interests get due consideration at proper forums.
5. Right to seek redressal – against unfair trade practices and exploitation.
6. Right to consumer awareness – to get consumer education.

Consumer Dispute Redressal Forums (Commissions)

The Act sets up a three-tier quasi-judicial system called Consumer Disputes Redressal Commissions. Limits below are as per the 2021 Jurisdiction Rules.

A complaint must be filed within 2 years from the date of the cause of action (Sec 69). A lawyer is not compulsory.

Nature and Scope of Remedies

If the complaint is proved, the Commission may order the opposite party (Sec 39) to:

1. Remove the defect in goods or deficiency in service.
2. Replace the goods with new defect-free goods.
3. Return the price or charges paid.
4. Pay compensation for loss or injury, and punitive damages where suitable.
5. Discontinue the unfair trade practice and not repeat it.
6. Withdraw hazardous goods from sale.
7. Issue corrective advertisement.
8. Pay adequate costs to the complainant.

Example: A mobile phone bought for ₹25,000 stops working within warranty and the company refuses repair. The District Commission can order replacement or refund plus compensation.

Information Technology Act, 2000 – Scope and Objectives

The IT Act, 2000 came into force on 17 October 2000 and was amended in 2008. It is India’s main law on e-commerce and cyber crime, based on the UNCITRAL Model Law on Electronic Commerce.

Scope: extends to the whole of India; also applies to offences committed outside India that involve a computer system in India. It does not apply to negotiable instruments (other than cheques), power of attorney, trusts, wills, and contracts for sale of immovable property.

Objectives:

1. Give legal recognition to electronic records and e-commerce transactions.
2. Give legal recognition to digital (electronic) signatures.
3. Allow electronic filing of documents with Government (e-governance).
4. Allow electronic storage of data and electronic fund transfer.
5. Define cyber crimes and provide penalties.
6. Set up authorities to regulate certifying authorities.

E-Governance

Chapter III (Sec 4–10A) gives legal force to electronic working:

• Sec 4 – legal recognition of electronic records.
• Sec 5 – legal recognition of electronic signatures.
• Sec 6 – use of electronic records in Government (filing forms, issuing licences, receiving payments).
• Sec 7 – retention of records in electronic form.
• Sec 8 – publication in the Electronic Gazette.
• Sec 10A – contracts formed electronically are valid.

Examples: online income tax returns, GST filing, DigiLocker, MCA21 company filings.

Authorities under the IT Act

1. Controller of Certifying Authorities (CCA) (Sec 17) – licenses and supervises Certifying Authorities.
2. Certifying Authorities (Sec 24) – issue Digital Signature Certificates (DSC).
3. Adjudicating Officer (Sec 46) – decides compensation claims (up to ₹5 crore).
4. Appellate Tribunal (Sec 48) – appeals against adjudicating officers; since 2017 handled by TDSAT.
5. CERT-In (Sec 70B) – national agency for cyber security incidents.

Offences and Penalties

Likely exam questions

1. (Long, 8/16 marks) Explain the rights of consumers under the Consumer Protection Act, 2019. Describe the Consumer Dispute Redressal Commissions and the remedies available to consumers.
2. (Long, 8/16 marks) State the scope and objectives of the Information Technology Act, 2000. Explain the offences and penalties under the Act.
3. (Short, 4 marks) Who is a consumer under the Consumer Protection Act, 2019?
4. (Short, 4 marks) Explain the provisions of the IT Act, 2000 relating to e-governance.
5. (Short, 4 marks) Write a short note on the Controller of Certifying Authorities.