Subject: Business Laws

Assignment A

Attempt any three:

Question1: The fundamental attribute of corporate personality is

that company is a legal entity distinct from the members. Elucidate
the statement. Also specify the important features of a company.

Answer: In the Eye of Court, Company is an independent identity. It is an

artificial person. There is no body, soul or brain but it works like a human
being. It can buy and sell on its own name. No members have right on
company except their invested share capital. So, no share holder sells or buy
the companys property. They can only sell their bought share at its current
market value. It is not just association of persons like partnership. It has full
independent legal entity. Death or birth of new shareholder will not affect the
existence of a company. Shareholders are not also the agent of company.
Company will not die with the death of any shareholder. When any
shareholder will die, his shares will transfer to other authorize party.

There are some exceptions when this rule will not apply. For example, when
any company starts acting like an agent of shareholders. At that time,
company and its shareholders will not different. At that time, its liability will
be unlimited.

The following are the main characteristics and distinctive features of a

company form of enterprise:

1. An Association of Persons:

At least two persons or seven persons must come together to form a private
or a public company respectively. A single individual cannot constitute a
company. This is the reason why a company is called on Association of
Persons.

2. Incorporated Association: A company comes into existence only after a

certificate of incorporation has been obtained from the Registrar of Joint
Stock Companies. Without incorporation, it has no legal existence.

3. Artificial Legal Person: A company is an artificial person created by law

to achieve the objectives for which it is formed. A company exists only in the
contemplation of law. It is artificial person in the sense that it is created by a
process other than natural birth and does not possess the physical attributes
of a natural person.

It is invisible, intangible, immortal and exists only in the eyes of law. It has no
body, no soul and no conscience; it is regarded as an artificial person.

4. Distinct Legal Entity: A company is a legal person having a juristic

personality entirely distinct and independent of the individual persons who
are its members. It enjoys in many respects the right of a natural person in
the eyes of law.

It can own property, conduct a lawful business, enter into contracts with
others, buy, sell and hold property, all in its own name under its own seal. It
can file a suit against others and can be sued against.

5. Perpetual Succession: A company has perpetual existence i.e. its

existence is not affected by the death or lunacy or insolvency or retirement
of its member.

Members may come and go, but the company continues its operations so
long as it fulfils the requirements of the law under which it has been formed.
Thus, a company has a perpetual succession irrespective of its membership.

6. Limited Liability: Liability of members of a limited company is limited to

the face value of the shares subscribed by each of them. Members cannot be
asked to pay anything more than what is due or unpaid on the shares of the
company held by them.

In no case the personal property of the members of a company can be

attached to satisfy the claims of creditors of a company.

7. Transferability of Shares: Members of a public limited company are

free to transfer the shares held by them to any one members for either to
purchase or sell the shares.

8. Diffused Ownership: Ownership of a company is in the hands of a large

number of people. In case of Private Ltd. Company, the upper limit is up to
50. In case of a public Ltd. Company there is upper limit to the number of
members.

Any individual is free to acquire the share of any company and become to
the owner to that extent only. As such ownership is spread among a number
of share holders.

9. Separation of ownership and management: Share holders are the

owners of the company. Companys share holders are widely scattered. It is
physically impossible for all of them to take patty in the management of the
company.

Being a share holder of a company does not give him the right to manage
the affairs of a company. The management is vested with the directors, who
are the legal representatives of the shareholders. Thus owners of the
company have no direct control over the management of the company.

10. Common Seal: A company being an artificial person cannot sign

documents for itself whereas a natural person can do. The law has provided
for the use of a common seal, with the name of the company engraved on it,
as substitute for its signature.

The common seal of the company is approved in the first Board Meeting held
immediately after the incorporation. Common seal has to be affixed on all
important documents and contracts.

Any document bearing the common seal of the company duly signed by at
least two directors will be legally binding on the company.

11. Corporate Finance: A company generally raises large amount of funds

in form of issuing shares, debentures, bonds and incurring loans and
advances from financial institutions. The total share capital of a company is
divided into a number of shares which are held by individual members and
institutions.

12. Object clause of Business: A company can conduct only such

business as stated in its first Memorandum of Association. In order to bring
any charges in its activity, the object clause must be changed.

13. Publication of Accounts: A joint stock company is required to file

annual audited statements with the Registrar of Companies at the end of
each financial year. The annual statements are available for inspection in the
office of the Registrar.

Question2: Discuss the essential elements of a valid contract.

Answer: A contract has been defined in Section 2(h) as an agreement

enforceable by law. To be enforceable by law, an agreement must possess
the essential elements of a valid contract as contained in Sections 10, 29
and 56.

According 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, are not expressly declared by the Act to
be void, and, where necessary, satisfy the requirements of any law as to
writing or attestation or registration.

As the details of these essentials form the subject-matter of our subsequent

chapters, we propose to discuss them in brief here.

The essential elements of a valid contract may be summed up as follows:

1. Offer and acceptance: There must be a lawful offer and a lawful

acceptance of the offer, thus resulting in an agreement. The adjective
lawful implies that the offer and acceptance must satisfy the requirements
of the Contract Act in relation thereto.

2. Intention to create legal relations: There must be an intention among

the parties that the agreement should be attached by legal consequences
and create legal obligations. Agreements of a social or domestic nature do
not contemplate legal relations, and as such they do not give rise to a
contract.

3. Lawful consideration: The third essential element of a valid contract is

the presence of consideration. Consideration has been defined as the price
paid by one party for the promise of the other. An agreement is legally
enforceable only when each of the parties to it gives something and gets
something. The consideration may be an act (doing something) or
forbearance (not doing something) or a promise to do or not to do
something. It may be past, present or future. But only those considerations
are valid which are lawful.

4. Capacity of parties: The parties to an agreement must be competent to

contract; otherwise it cannot be enforced by a court of law. In order to be
competent to contract the parties must be of the age of majority and of
sound mind and must not be disqualified from contracting by any law to
which they are subject (Sec. 11).

5. Free consent: Free consent of all the parties to an agreement is another

essential element of a valid contract. Consent means that the parties must
have agreed upon the same thing in the same sense (Sec. 13). There is
absence of free consent if the agreement is induced by (ii) coercion, (ii)
undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake (Sec. 14). If
the agreement is vitiated by any of the first four factors, the contract would
be voidable and cannot be enforced by the party guilty of coercion, undue
influence etc.

6. Lawful object: For the formation of a valid contract it is also necessary

that the parties to an agreement must agree for a lawful object. The object
for which the agreement has been entered into must not be fraudulent or
illegal or immoral or opposed to public policy or must not imply injury to the
person or property of another (Sec. 23). If the object is unlawful for one or
the other of the reasons mentioned above the agreement is void. Thus, when
a landlord knowingly lets a house to a prostitute to carry on prostitution, he
cannot recover the rent through a court of law.

7. Writing and registration: According to the Indian Contract Act, a

contract may be oral or in writing. But in certain special cases it lays down
that the agreement, to be valid, must be in writing or/and registered. For
example, it requires that an agreement to pay a time barred debt must be in
writing and an agreement to make a gift for natural love and affection must
be in writing and registered (Sec. 25). Similarly, certain other Acts also
require writing or and registration to make the agreement enforceable by law
which must be observed. Thus, (i) an arbitration agreement must be in
writing as per the Arbitration and Conciliation Act, 1996; (ii) an agreement
for a sale of immovable property must be in writing and registered under the
Transfer of Property Act, 1882 before they can be legally enforced.

8. Certainty: Section 29 of the Contract Act provides that Agreements, the

meaning of which is not certain or capable of being made certain, are void.
In order to give rise to a valid contract the terms of the agreement must not
be vague or uncertain. It must be possible to ascertain the meaning of the
agreement, for otherwise, it cannot be enforced.

9. Possibility of performance: Yet another essential feature of a valid

contract is that it must be capable of performance. Section 56 lays down that
An agreement to do an act impossible in itself is void. If the act is
impossible in itself, physically or legally, the agreement cannot be enforced
at law.

10. Not expressly declared void: The agreement must not have been
expressly declared to be void under the Act. Sections 24-30 specify certain
types of agreements which have been expressly declared to be void.

3. Explain - different modes of crossing of a cheque and section 138 as

per the provisions of the Negotiable Instrument Act, 1881.

Different modes of crossing of a cheque

----------------------------------------------------

Crossing are of the following types:

(1) General crossing;

(2) Special crossing;

(3) However, there is yet another type of crossing which is

recognized by usage and custom, called restrictive crossing:

(4) Not negotiable crossing.

1. General Crossing:

In a general crossing, simply two parallel transverse lines, with or

without the words 'not negotiable' in between, may be drawn. Such
a cheque is crossed generally.

The effect of general crossing is that the payment of the cheque will
not be made at the counter, it can be collected only through a
banker.

2. Special Crossing:

In a special crossing, the name of a banker with or without the

words 'not negotiable' is written on the cheque. Such a cheque is
crossed specially to that banker.

It should be noted that two transverse parallel lines are necessary

for a general crossing, whereas for a special crossing, no such lines
are necessary.

The effect to special crossing is that the paying banker will be the
amount of the cheque only through the bank named in the cheque.

3. Restrictive crossing:

Besides the two statutory types of crossing discussed above, there

is one more type of crossing namely, restrictive crossing. This type
of crossing has been recognised by usage and custom of the trade.

In a restrictive crossing the words 'Account Payee' or Account Payee

Only' are added to the general or special crossing.
The effect of restrictive crossing is that the payment of the cheque
will be made by the bank to the collecting banker only for the
account payee named. If the collecting banker collects the amount
for any other person, he will be liable for wrongful conversion of
funds.

It should be noted that the duty of the paying banker is only to

ensure that the payment is made through the named bank, if there
is any. He is not liable, in case the collecting banker collects the
cheque for any other person than the account payee. In that case
collecting banker will be liable to the true owner.

4. Not negotiable Crossing (Sec. 130):

A person taking is cheque crossed generally or specially, bearing in

either case the words 'not negotiable' shall not be able to give a
better title to the holder than that of the transferor.

The effect of a not negotiable crossing is that the cheque can be

transferred but the transferee will not acquire a better title to the
cheque. Thus a cheque is deprived of its essential feature of
negotiability.

The objects of "not negotiable" crossing is to protect the drawer

against loss or theft in the course of transit.

Example:

A cheque was drawn in favour of a firm B & Co. The cheque was
crossed 'not negotiable'; one of the partners, A in fraud of his Co-
partner B, endorsed the cheque to P who encashed it. Held that B,
who under the terms of the partnership agreement was entitled to
the cheque could recover the amount from P as A could not transfer
better title than he himself had [Fisher v. Roberst]

Who may cross a cheque? As a rule, it is the drawer who can cross a
cheque. However, Sec. 125 provides that even a holder can cross the
cheque. It further provides that a banker

can cross the cheque specially for collecting to another banker as

his agent for collection.

Section 138 in The Negotiable Instruments Act, 1881

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138. Dishonour of cheque for insufficiency, etc., of funds in the

account. Where 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 insufficient to honour the cheque or
that it exceeds the amount arranged to be paid from that account
by an agreement made with that bank, such person shall be deemed
to have committed an offence and shall, without prejudice. to any
other provision of this Act, be punished with imprisonment for a
term which may extend to one year, or with fine which may extend
to twice the amount of the cheque, or with both: Provided that
nothing contained in this section shall apply unless-

(a) the cheque has been, presented to the bank within a period of
six months from the date on which it is drawn or within the period
of its validity, whichever is earlier;
(b) the payee or the holder in due course. of the cheque as the case
may be, makes a demand for the payment of the said amount of
money by giving a notice, in writing, to the drawer of the cheque,
within fifteen days of the receipt of information by him from the
bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said
amount of money to the payee or, as the case may be, to the holder
in due course of the cheque, within fifteen days of the receipt of the
said notice. Explanation.- For the purposes of this section," debt or
other liability" means a legally enforceable debt or other liability.

Question4: What are the characteristics of negotiable instrument?

Discuss the privileges of holder in due course as per the provision of
the Negotiable Instrument Act.

Answer: A Negotiable instrument means a promissory note, bill of exchange

or cheque either to order or bearer." Justice K. C. Wills defines negotiable
instrument as "ONE THE PROPERTY IN WHICH IS ACQUIRED BY ANY ONE
WHO TAKES IT BONAFIED FOR VALUE, NOT WITHSTANDING ANY DEFECT OF
TITLE IN THE PERSON FROM WHOM HE TOOK IT". Transferability A Negotiable
instrument as a document of title to money is transferable either by the
application of the law or by the custom of the trade concerned. Special
feature of N.I The special feature of such an instrument is the privilege it
confers to the person who receives it bonafide and for value, to possess good
title thereto, even if the transferor has no title or had defective title to the
instrument. Distinctive features of Negotiable Instruments - Easily
transferable from one person to another - Confers absolute and good title on
the transferee - The holder of a Negotiable Instrument (P.N./B.E./Cheque) is
called as the holder in due course and possesses the right to sue upon the
instrument in his own name. Types of Negotiable Instruments Negotiable
instruments by Statue are of three types, cheques, bills of exchange and
promissory note. Negotiable instruments by custom or usage :- Some other
instruments have acquired the character of negotiability by the the custom
or usage of trade. Section 137 of Transfer of Property Act 1882 also
recognizes that an instrument may be negotiable by Law or Custom. Thus in
India Govt. Promissory notes, Shah Jog Hundis, Delivery Orders, Railway
Receipts, Bill of Lading etc. have been held negotiable by usage or custom.
These can be said as quasi statutory Negotiable Instruments. Exceptions
Sometimes the Drawer and Holder can take away the negotiability of an
instrument by expression such as "Not Negotiable", Pay to "A" only. Here "A"
(the holder) cannot transfer a better title to the transferee. Promissory
Note Section 4: "A promissory note is an instrument in writing (not being a
bank note or a currency note), containing an unconditional undertaking,
signed by the maker to pay a certain sum of money only to, or to the order of
a certain person or to the bearer of the instrument." Bill of Exchange Section
5: "A bill of Exchange is an instrument in writing containing an unconditional
order signed by the maker, directing a certain person to pay a certain sum of
money only to, or to the order of a certain person or to the bearer of the
instrument." According to Section 7, the maker/creator of the instrument is
known as 'Drawer'. The person to whom payment may be made is known as
"Payee". The person who is directed to pay the amount is known as Drawee.
He accepts to pay the amount mentioned in the instrument. In case of a
promissory note Drawer and Drawee are same. In case of a cheque the
Drawee is always a Banker. Cheque As per Section 6 "A cheque is a bill of
exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand." After 2002 amendment cheque includes " the
electronic image of a truncated cheque and a cheque in the electronic form."
In terms of Explanation I, (a) " 'a cheque in the electronic form' means a
cheque which contains the exact mirror image of a paper cheque, and is
generated, written and signed in a secure system ensuring the minimum
safety standards with the use of digital signature (with or without biometrics
signature) and asymmetric crypto system; (b) 'a truncated cheque' means
a cheque which is truncated during the course of a clearing cycle, either by
the clearing house or by the bank whether paying or receiving payment,
immediately on generation of an electronic image for transmission,
substituting the further physical movement of the cheque in writing."
M.I.C.R.Cheques/Drafts In MICR (Magnetic Ink Character Recognition)
cheques: First six number indicate the cheque number Next three numbers
indicate city code Next three numbers indicate Bank code Next three
numbers indicate Branch code Characteristics of Cheque, Bill of Exchange
and Promissory Note 1) Instrument in writing: Pencil writing is not forbidden
by the law but to prevent alternation, etc. the custom and usage do not allow
this. (2) Unconditional order/promise: Cheque and bill of exchange are
orders of creditors (Drawers) to the debtors (Drawee) to pay money.
Instruments with expressions such as "I.O.U. Rs.500/-" is not a bill of
exchange. On the other hand a promise with following narration duly signed,
dated and accepted by a drawee is a Bill of Exchange B/E "I promise to pay
B or order Rs.5,000/-" (3) Difference between cheque and bill of exchange:
The main difference between a cheque and a bill of exchange is that the
former is always drawn on and is payable by a banker specified therein.
(4) Certainty of the sum: The amount of the instrument must be certain.
(5) Payable to order or bearer: The instrument must be payable either to
order or to bearer as per the provision of Section 13 of the Act. For example
if a cheque is drawn with the expression " Pay to Ram Lal" it indicates that it
can be paid to Ram Lal or any person as per his order. But if it is written pay
to 'Ram Lal' only it must be paid to Ram Lal only. A bill of exchange and
cheque are payable to bearer if it is expressed to be so payable or if the only
or the last endorsement is an endorsement in blank. (6) Payee must be a
certain person: The term 'person' includes besides individuals, bodies
corporate, local authorities, Co-operative Societies, etc. and it also includes
Registrar, Principal, director, Secretary, etc. of those institutions. Payee may
be more than one person (7) Term of payment: A cheque is always payable
on demand, though words to this effect are not mentioned therein. A bill may
be payable at sight or after a period of time specified therein. A promissory
note or bill of exchange in which no time for payment is specified is payable
on demand (Section 19). If the bill is payable after a certain period it must be
accepted by a drawee. But no such acceptance is necessary in case of a
cheque. (8) Signature of the drawer/promisor: The negotiable instrument is
valid only if it bears the signature of the drawer/promisor. (9) Delivery of the
instrument: The making, acceptance or endorsement of an instrument is
completed by delivery in terms of Section 46 of the Act. Stamping of
promissory notes and bill of exchange is necessary. The Indian Stamp Act
1899 requires that the promissory note and the bill of exchange except
cheques to be stamped. (11) Currency note: The currency note is a
promissory note payable to bearer on demand. Section 21 of RBI Act
prohibits creation of this type of promissory notes by others excepting the
Reserve Bank of India. Holder and holder in due-course A negotiable
instrument is transferable from person to person. The Negotiable Instrument
Act confers upon the person who acquires it bonafide and for value, the
RIGHT TO POSSESS good title to the instrument. such a person is called
HOLDER IN DUE COURSE. Each and every person in possession of a cheque
or bill cannot be its holder in due course and cannot claim statutory
protection available under the Act. In terms of Section 8, "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 and recover the amount
due thereon from the parties thereto." Two fold entitlements He must be
entitled to the possession of the instrument in his own name and under legal
title. Actual possession of the instrument is not essential; the holder must
have legal right to possess the instrument in his own name. He must have
lawfully derived the title as an endorsee or payee. He must be entitled to
receive or recover the amount from the parties concerned in his own name.
In case of order instruments, the name of the person must appear as its
endorse or payee. Bearer/Order instrument In case of a bearer instrument,
the bearer may claim the money without having his name mentioned on the
cheque. In case a Bill, a Promissory note or a cheque is lost or destroyed its
holder is the person so entitled at the time of such loss or destruction. Holder
in due course As per Section 9, "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 payee or endorsee thereof if
payable to order before the amount mentioned in it became defect in the
title of the person from whom derived his title." Conditionalities A person
becomes holder in due course if the following conditions are satisfied:- The
instrument must be in the possession of the holder in due course and in case
of an order instrument he must be its payee or endorsee. The negotiable
instrument must be regular and complete in all aspects. Alterations if any
must be authenticated. The instrument must have been obtained for
valuable consideration i.e. by paying its full value. Exceptions A person who
receives a cheque (not being a gift cheque issued by banks) as a gift will not
be called its holder in due course for want of consideration. If a cheque is
given in respect of a debt incurred in gambling the consideration of the
cheque is unlawful and hence cheque received on such consideration cannot
make the payee thereof a holder in due course provided: The instrument
must have been obtained before the amount mentioned therein became
payable. He must have received it without having sufficient cause to believe
that any defect existed in the title of the transferor. The title of a Negotiable
Instrument is deemed to be defective if it is acquired by unfair means, e.g.
fraud, coercion, undue influence or by any other illegal means. Section 9
thus lays heavy responsibility on the person accepting a negotiable
instrument. Rights of a Holder An endorsement in blank may be converted
by him into an endorsement in full. (2) He is entitled to cross a cheque either
generally or specially with the words Not Negotiable. (3) He can negotiate a
cheque to a third person. (4) He can obtain a duplicate of the lost
instrument. Privileges of a Holder in Due Course (1) He possesses a better
title free from all defects, which is the greatest privilege of all. Section 53
states that a holder of negotiable instrument who derives title from a holder
in due course has rights thereon of that of a holder in due course. (2) Every
prior party to negotiable instrument, i.e, maker or drawer, acceptor or
endorser is liable thereon to a holder in due course until the instrument is
duly satisfied. (Section 36). (3) If a negotiable instrument was originally
inchoate (i.e. incomplete) instrument and a subsequent transfer completed
the instrument for a sum greater than what was the intention of the maker,
the right of a holder in due course to recover the money of the instrument is
not affected at all. (4) Right in case of fictitious instrument is unaffected.
(5) Right in case the instrument was obtained by unlawful means or for
unlawful consideration is unaffected. (6) Estoppel against denying original
validity of the instrument. (7) Estoppel against denying capacity of payee to
endorsee. (8) Estoppel against denying signature or capacity of prior party.
Payment in due course Section 10 defines payment in due course as
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 amount
mentioned therein. The other important provisions relating to payment in
due course are the following. i. The payment should be made in accordance
with the apparent tenor of the instrument i.e. according to the true intentions
of the parties. ii. The payment should be made in good faith and without
negligence. iii. The payment should be made to the person in possession of
the instrument in circumstances, which do not arouse suspicion about his
title to possess the instrument and to receive payment thereof.

5. Elaborately explain the essential features of the consumer protection

act 1986. Also briefly discuss unfair trade practice and restrictive trade
practice as discussed under consumer protection Act?

(i)
Features of Consumer Protection Act 1986

1. This Act is applicable on both goods and services. Goods are manufactured
by the manufacturer and consumer buys them from manufacturer or seller.
Services include transport, electricity, water; roads, etc. are under this Act.

2. Consumer Redressal Forum-Under Consumer Protection Act, the three

judicial systems has been set up to provide relief to consumers. In this
system, consumer forums have been set up at various levels which are
functioning to safeguard the interests of consumers. Under this system,
many forums and commissions have been set up at various levels where
consumers can lodge their complaints.

I. At district level there is District Consumer Dispute Redressal Forum. It is

headed by a judicial officer equivalent to Session Judge. He is assisted by two
members. Cases involve compensation up to 20 lakhs are entertained in this
forum.

II. At state level there is State Consumer Dispute Redressal Commission. It is

headed by a judicial officer equivalent to High Court Judge. He is also
assisted by two members. Here cases involve compensation of 20 lakhs to
one crore are entertained.

III. At national level there is National Consumer Dispute Redressal

Commission. It is headed by a Judge of Supreme Court. He is assisted by four
members. Here cases involve compensation above one crore are
entertained. National Commission has jurisdiction for appeals coming up
against orders of State Commission. Supreme Court is the final deciding
authority.

3. Under this Act there is provision to settle the complaint within three
months of filing it. If the complaint needs laboratory testing, the period is
extended to five months.

4. In Consumer Protection Act, clause VI defines the rights of the consumer

which have been already discussed in the previous chapter.

5. There is no fee for lodging a complaint. Even poor people can get justice.

6. The clause II of this Act has defined some terms used by Consumer
Protection Act like:

I. Defect-it is any fault or shortcoming in quality, quantity, purity, potency, or

standard fixed by the government.

II. Deficiency-it is any fault, shortcoming or imperfection in quality or

performance.

III. Unfair Trade Practice-it is unfair and deceptive procedure used to promote
sale or supply of goods and services like lottery, chit fund, conducting
competitions, etc.

IV. Restricted trade practices.

(ii)
Unfair Trade Practice and Restrictive Trade Practice

According to the provisions of the Consumer Protection Act, 1986 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 the
practice of making any statement, whether orally or in writing or by visible
representation which falsely represents that the goods are of a particular
standard, quality, quantity, grade, composition, style or model; falsely
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; makes a false or misleading representation concerning
the need for, or the usefulness of, any goods or services etc. permits the
publication of any advertisement whether in any newspaper or otherwise, for
the sale or supply at a bargain price, of goods or services that are not
intended to be offered for sale or supply at the bargain price. Bargaining
price has been defined as a price that is stated in any advertisement to be a
bargain price, by reference to an ordinary price or otherwise, or a price that a
person who reads, hears or sees the advertisement, would reasonably
understand to be a bargain price having regard to the prices at which the
product advertised or like products are ordinarily sold.

The Act defines restrictive trade practice as a trade practice which tends to
bring about manipulation of price or conditions of delivery or to affect flow of
supplies in the market relating to goods or services in such a manner as to
impose on the consumers unjustified costs or restrictions and shall include
delay beyond the period agreed to by a trader in supply of such goods or in
providing the services which has led or is likely to lead to rise in the price;
any trade practice which requires a consumer to buy, hire or avail of any
goods or services as condition to buying, hiring or availing of other goods or
services.

Assignment B
Read the case study given below and answer the questions given at
the end

Case Study

Aditya Mass Communication Private Limited

Vs
A.P. state Road Transport Corporation

A.P. State Road Transport Corporation, Hyderabad advertised tender

notice on calling for tenders for display of advertisements on the
buses owned by it. According to the condition of the Tender Notice,
each tender form had to be accompanied by a demand draft for Rs
20 lakhs and tender forms completed in all respects had to be put in
the tender box. The accompanying sum of money was the Earnest
Money Deposit (E.M.D). Clause (10) of the terms provided that the
tender will be opened at 3:00 p.m. on October 31, 1996, in presence
of the tenderers or their authorized agents. Clause (14) provided
that tenderers will not be permitted to withdraw their tender after
the tenders were opened .Clause (15) provided that if the highest
tenderer backs out from taking up the agency , for whatsoever
reason, the E.M.D. paid by him will be forfeited.
Aditya mass Communication Private Limited submitted its duly filled
tender along with demand draft of Rs. 20 lakhs. In relation to this
tender, another person approached the High Court and got an order
restraining the Transport Corporation from proceeding further with
the tender. Following the order, the A.P. State Road Transport
Corporation opened the tender box at 3 p.m. and found six sealed
covers. In view of the directions of the High Court, the covers were
again placed back in the tender box without opening the seals. The
signature of the tenderers and their agents was taken to this
effect .The tenders were not opened to find out the highest bidder.
Aditya Mass Communication Private Limited wrote a letter on
November 11, 1996 stating that no reasons were given to him for
non-opening of the tenders and that he could not keep the huge
amount of Rs 20 lakhs locked in with all the uncertainty associated
with the tender. It, thus, requested for return of the Earnest Money
Deposit. A.P. State Road Transport Corporation replied on November
14, 1996 that the Aditya Mass communication had signed on the
note recording the proceedings of opening the tender box and
putting back sealed covers. Thus, it could not put up the argument
that no reasons for non-opening of the tender was given on it. The
letter notified that the tenders would be opened on November 16,
1996 at 11:30 hrs. Aditya Mass Communication once again wrote a
letter on November 15, 1996 that the question of their participation
in the opening of tenders did not arise as they asked for the return
of E.M.D. The A.P. State Road Transport Corporation went ahead
with the opening of the tender, found Aditya Mass Communication
to be the highest bidder and awarded the tender to it. Aditya Mass
Communication was informed of this but it demanded refund of
Earnest Money Deposit. The A.P. State Road Transport Corporation
following the terms of tender forfeited the earnest money deposit of
Aditya Mass Communication.
Question1: Elaborately state the important legal issue/s covered
under this case.
Answer: The point in this case is whether the petitioner has withdrawn the
tender before it was opened in accordance with the conditions of the tender
notice. According to the tender notice, the tenders were to be opened at 3
pm by opening the tender box. But mere opening of the box was not
sufficient. The tender forms were to be scrutinized as to whether they were
valid tenders and successful bidder was to be found out. That process
admittedly, was not gone through and even according to the respondent the
sealed covers were not opened on the given date and were kept back in the
box. The opening of the tenders by removing the salts was postponed
because of the interim order of this court. Before the actual process starts,
the petitioner had asked for the return of earnest money. Hence, it is not
possible to accede to the contention of the learned counsel for the
respondent. Though the request of the petitioner did not specifically refer to
withdrawal of the tender, still no one would ask for return of the earnest
money unless there is an intention not to participate in the tender. The
respondent had also understood this because of the later reply where the
respondent had clearly stated that the petitioner should participate in the
opening of the tenders on the date to which it was postponed and expressed
the inability to return the earnest money. But that clause comes into
operation after the tenders are opened and the highest bidder is declared
and such a declaration can come only after scrutinizing the tenders. In the
present case, that did not take place and the petitioner had asked for return
of earnest money stating that he had no interest in participating in the
opening of the tenders.

Ques 2: What are the essential features of a tender?

Ans. As tender would amount to complete performance, if the offer were
carried out, the requisites of a valid tender are indicated by the requisites of
valid performance. There must be an un-conditional offer to perform, coupled
with a manifested ability to carry out the offer, and a production of the
subject-matter of the tender;66 the amount tendered must not be less than
what is due; and if greater, there must be no demand for a return of the
excess.68 The medium of payment must be that which the contract specifies
or in the absence of contractual definition that which the law has made legal
tender;69 the time must be that fixed by the contract or by law;70 it must
not be before maturity; and the hour of the day must be reasonable. But at
the present time in case of a liquidated debt a valid tender may be made
subsequent to the day of maturity by adding legal interest to the amount of
the debt.

Question 3: Give your reasons in support of your decision for the

issue discussed in this case.
Ans. According to the tender notice, the tenders were to be opened at 3 pm
by opening the tender box. But mere opening of the box was not sufficient.
The tender forms were to be scrutinized as to whether they were valid
tenders and successful bidder was to be found out. That process admittedly,
was not gone through and even according to the respondent the sealed
covers were not opened on the given date and were kept back in the box.
The opening of the tenders by removing the salts was postponed because of
the interim order of this court. Before the actual process starts, the petitioner
had asked for the return of earnest money. Hence, it is not possible to accede
to the contention of the learned counsel for the respondent. Though the
request of the petitioner did not specifically refer to withdrawal of the tender,
still no one would ask for return of the earnest money unless there is an
intention not to participate in the tender.

Question No. 2

Annual general Meeting is required to be held---

Options

By a private company only

By a public company only

By a company limited by guarantee only

By all kinds of companies

Ans. By all kinds of companies

Question No. 3

An acceptance is complete and effective only when it has been---

Options

Communicated to the offerer

Merely mentally accepted

Externally manifested

Kept in the drawer

Ans. Communicated to the offerer

Question No. 4

Name of a company can be changed by passing a special resolution and with th

Options

The company law tribunal

The Central Government

The Registrar of Companies

 none of the above

Ans. The Central Government

Question No. 5

A contract becomes voidable if it has been caused by---

Options

Coercion

Fraud

Undue Influence

All of them

Ans. All of Them

Question No. 6

If the goods have perished, the contract of sale of such specific goods, will beco

Options

voidable

void

illegal

None of these

Ans. voidable

Question No. 7

Articles can be altered by---

Options
 Ordinary resolution

Special Resolution

Resolution requiring special notice

Unanimous resolution

Ans. Resolution requiring special notice

Question No. 8

A contract entered into between the parties by words is called---

Options

An express contract

An implied contract

A quasi Contract

An excited contract

Ans. Implied Contract

Question No. 9

A prospectus is issued---

Options

By a Private LImited Company

By a Public Limited Company

By a Company limited by Guarantee

None of these
Ans. By a Private LImited Company

Question No. 10

When, before the contract becomes due for performance, the promisor declar
performing his promise, it is called---

Options

Remission

Waiver

Alteration

Anticipatory breach

Ans. Remission

Question No. 11

A bailment cannot be made about---

Options

Car

Furniture

Money

Television

Ans. Money

Question No. 12

The damages which arise in the usual course of things happening from the b
called---

Options
 Remote Damages

Ordinary damages

Special damages

Nominal Damages

Ans. Ordinary damages

Question No. 13

When a person is employed to represent another in dealings with third person,

Options

Bailment

Guarantee

Agency

Pledge

Ans. Agency

Question No. 14

Which of the following is not an essential element of a contract of sale---

Options

Goods as subject matter

Transfer of property in goods

Price

Railway receipts
Ans. Railway receipts

Question No. 15

Which of the following does not relate to termination of agency by operation of

Options

Death of principal

Insolvency of principal

Destruction of subject-matter

Revocation of authority by the principal

Ans. Destruction of subject-matter

Question No. 16

Limited liability means liability of its---

Options

Debtors is limited

Creditors is limited

Members is limited

Debenture holders is limited

Ans. Debtors is limited

Question No. 17

In a contract of sale, property means---

Options
 Raw Materials

Movable goods

Ownership

Immovable property

Ans. Immovable property

Question No. 18

The goods which are yet to be acquired by the seller, are called---

Options

Existing Goods

Contingent Goods

Unascertained goods

Future goods

Ans. Future Goods

Question No. 19

Acceptance of an offer is complete as against the offeror as soon as---

Options

The offerer knows about it

The letter of acceptance is posted

The letter f acceptance is signed by offeree

The letter is handed over to a delivery person

Ans. The letter of acceptance is posted

Question No. 20

If a company fails to pay its debts suit can be filed against the---

Options

Directors

Members

Officers

Company

Ans. Directors

Question No. 21

A contract with a minor is---

Options

Illegal

Valid

Void

Voidable

Ans. Void

Question No. 22

Who is liable for the supply of necessaries to a minor---

Options

His guardian
 His Manager

His property

He himself

Ans. His guardian

Question No. 23

In return for a new television, Raju agrees to give his old television value
amount of cash worth Rs. 5,000 to Ganesh. This is a---

Options

Barter

Exchange

Contract of sale of goods

Sale of approval

Ans. Contract of sale of goods

Question No. 24

Which of the following rights is held by an unpaid seller---

Options

Right of lien

Right of stoppage in transit

Right of resale

All of these

Ans. All of these

Question No. 25

Which of the following is not a remedy for breach of contract---

Options

Rescission of the contract

Restitution of benefit

Suit for damages

Alteration of the contract

Ans. Suit for damages

Question No. 26

A contract by which one party promises to save the other from loss is called---

Options

Contract of guarantee

Contract of indemnity

Quasi contract

None of these

Ans. Contract of guarantee

Question No. 27

Suretys liability is---

Options

Primary
 Secondary

Absolute

None of these

Ans. Primary

Question No. 28

Crossed cheques payable to bearer are negotiated by---

Options

Endorsement & delivery

Delivery

Assignment

None of these

Ans. Delivery

Question No. 29

In a contract of sale, which of the following is treated as implied condition---

Options

That the seller has title to goods

That goods are similar to description

That goods are according to sample shown

All of these

Ans. That the seller has title to goods

Question No. 30

Consideration must move at the desire of---

Options

The Promisor

The promisee

A third party

None of them

Ans. The Promisor

Question No. 31

Which of the following sentence is a valid promissory note---

Options

I promise to pay Mohan or order Rs. 1,000.

I promise to pay Hari Rs. 2,000 worth of shares..

I promise to pay Naraynan in East India Bonds

I promise to pay Rakesh Rs. 5,000 and to deliver 50 kg of sugar.

Ans. I promise to pay Mohan or order Rs. 1,000.

Question No. 32

A stipulation collateral to the main purpose of the contract, is called a---

Options

Condition
 Warranty

Guarantee

None of these

Ans. Warranty

Question No. 33

A person who receives a negotiable instrument for consideration, before matu

is called---

Options

Holder for value

Holder

Holder in due course

None of these

Ans. Holder in due course

Question No. 34

A director must vacate his office if he fails to obtain qualification shares within-

Options

1 week

two weeks

One month

two months

Ans. Two months

Question No. 35

A private company has at least---

Options

7 members

3 members

3 directors

2 Members

Ans. 2 Members

Question No. 36

A cheque payable to order may be negotiated---

Options

by delivery

By endorsement

By endorsement & delivery

None of these

Ans. By endorsement & delivery

Question No. 37

Which of the following endorsements is invalid---

Options

Restrictive endorsement
 Conditional endorsement

Special endorsement

Partial endorsement

Ans. Restrictive endorsement

Question No. 38

When a cheque bears across its face an addition of the words & between t
lines, it is called---

Options

Special crossing

Restrictive crossing

General crossing

Double crossing

Ans. Special Crossing

Question No. 39

Which of the following is a mode of discharge of contract---

Options

By impossibility of performance

By lapsse of time

By breach of contract
 All of the above

Ans. By Breach of Contract

Question No. 40

Which of the following rights are available to a finder of goods---

Options

Right of lien

Right to file a suit for reward

Right of sale of goods

All of these

Ans. Right of Lien

4. What are the characteristics of negotiable Instrument? Discuss the privileges of

per the provisions of the Negotiable Instruments Act, 1881? Also state the importa
incorporated under sec 138 of the act.

Characteristics of negotiable Instrument

-------------------------------------------------
1. Property
The possessor of the negotiable instrument is presumed to be the owner of the pro
A negotiable instrument does not merely give possession of the instrument but rig
property in a negotiable instrument can be transferred without any formality. In th
instrument, the property passed by mere delivery to the transferee. In the case of
endorsement and delivery are required for the transfer of property.

2. Title
The transferee of a negotiable instrument is known as holder in due course. A bon
is not affected by any defect of title on the part of the transferor or of any of the p
instrument. This is the main distinction between a negotiable instrument and othe
transfer. The general rule of nemo dat quod non habet does not apply to negotiabl
3. Rights
The transferee of the negotiable instrument can sue in his own name, in case of di
A negotiable instrument can be transferred any number of times till it is at maturit
instrument need not give notice of transfer to the party liable on the instrument to

4. Presumptions
Certain presumptions apply to all negotiable instruments e.g. a presumption that c
paid under it.

5. Prompt Payment
A negotiable instrument enables the holder to expect prompt payment because a
of the credit of all persons who are parties to the instrument.

PRIVILEGES OF A HOLDER IN DUE COURSE:

----------------------------------------------------
Section 9 of the Act defines holder in due course as any person who (i) for valuab
becomes the possessor of a negotiable instrument payable to bearer or the indors
before the amount mentioned in the document becomes payable, and (iv) without
to believe that any defect existed in
the title of the person from whom he derives his title. (English law does not regard
course).
The essential qualification of a holder in due course may, therefore, be summed up

1. He must be a holder for valuable consideration.

Consideration must not be void or illegal, e.g. a debt due on a wagering agreemen
inadequate. A donee, who acquired title to the instrument by way of gift, is not a h
since there is no consideration to the contract. He cannot maintain any action aga
instrument. Similarly, money due on a promissory note executed in consideration o
security deposit for the lease of a house taken for immoral purposes cannot be rec

2. He must have become a holder (passessor) before the date of maturity of the ne
Therefore, a person who takes a bill or promissory note on the day on which it bec
claim rights of a holder in due course because he takes it after it becomes payable
be discharged at any time on that day.

3. He must have become holder of the negotiable instrument in good faith. Good f
should not have accepted the negotiable instrument after knowing about any defe
instrument. But, notice of defect in the title received subsequent to the acquisition
the rights of a holder in due course. Besides good faith, the Indian Law also require
part of the holder before he acquires title of the negotiable instrument. He should
without any negligence on his part.
Reasonable care and due caution will be the proper test of his bona fides. It will no
the holder acquired the instrument honestly, if in fact, he was negligent or careles
sufficient indications showing the existence of a defect in the title of the transferor
become a holder in due course even though he might have taken the instrument w
knowledge.
Example:
(i) A bill made out by pasting together pieces of a tom bill taken without enquiry w
holder in due . It was sufficient to show the intention to cancel the bill. A bill should
enquiry if suspicion has been aroused.
(ii) A post-dated cheque is not irregular. It will not preclude a bonafide purchase in
the rights of a holder in due course. It is to be noted that it is the notice of the defe
immediate transferor which deprives a person from claiming the right of a holder i
defect in the title of any prior party does not affect the title of the holder.

4.A holder in due course must take the negotiable instrument complete and regula

1988 Amendment to Section 138

---------------------------------------
o If a person issues a cheque and it got dishonored the person is said to have
o Whatever be the reason for the dishonor weather for insufficiency of funds o
does not matter.

Purpose of Amendment
o These provisions were incorporated with a view to encourage the culture of use
enhancing the credibility of the instrument.
o The larger objective is to protect the interest of honest people dealing in chequ
o DRAWER BEWARE, Because, by the said amendment the DISHONOURED CHEQU
CRIMINAL OFFENCE.