LEGAL ASPECTS OF BUSINESS

UNIT – I
UNIT I MERCANTILE AND COMMERCIAL LAW 15

THE INDIAN CONTRACT ACT 1872

Essential of a valid contract, Void Agreements, Definition of contract, Formation of a contract,
performance of contracts, breach of contract and its remedies, Quasi contracts.

THE SALE OF GOODS ACT 1930

Sales contract, Transfer of title and risk of loss, Guarantees and Warranties in sales contract,
performance of sales contracts, conditional sales and rights of an unpaid seller.

NEGOTIABLE INSTRUMENTS ACT 1881

Nature and requisites of negotiable instruments. Transfer of negotiable instruments and liability of
parties, enforcement of secondary liability, holder in due course, special rules for Cheque and drafts,
discharge of negotiable instruments.

AGENCY
Nature of agency – Creation of agency, types of agents, Agent’s authority and liability of
principal and third party: Rights and duties of principal, agents and Third party, liability of agents
torts, termination of agency.

MERCANTILE AND COMMERCIAL LAW

THE INDIAN CONTRACT ACT 1872
Introduction:
This Act may be called be the Indian Contract Act, 1872. Extent, commencement - It extends to the whole of
except the State of Jammu and Kashmir; and it shall come into force on the first day of September, 1872.
Interpretation –clause: When one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal;
When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A
proposal, when a accepted, becomes a promise; The person making the proposal is called the "promisor", and
the person accepting the proposal is called "promisee", When, at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain
from doing, something, such act or abstinence or promise is called a consideration for the promise; Every
promise and every set of promises, forming the consideration for each other, is an agreement; Promises which
form the consideration or part of the consideration for each other, are called reciprocal promises;
 An agreement not enforceable by law is said to be void;
 An agreement enforceable by law is a contract;
 An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at
the option of the other or others, is a voidable contract;
 A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.
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Contract is an agreement made between two or more parties which the law will enforce. It has two elements
1. Agreement
2. Its enforceable by law Agreement = offer + Acceptance Contract = Agreement + Enforceability by law
Essential Elements of Valid Contract
1. Offer & acceptance – Offer must be definite acceptance of offer must be absolute and unconditional
2. Intention to create legal relationship – When the two parties enter in to an agreement, their intention must
be to create legal relationship.
3. Lawful consideration – It means something in return.
4. Capacity of parties - competency – must be capable of entering into the contract. Ie, sound mind, major.
5. Free and genuine consent – There must be a free and genuine consent of the parties to the agreement
6. Lawful object – Object must not be illegal, immoral, opposed to policy
7. Agreement not declared void - Must not have been expressly declared void by law in force in the country
8. Certainty and possibility of performance – The agreement must be certain and not vague
9. Legal formalities – Contract should be made in writing or in the presence of witness or registered.
Void agreement:- An agreement not enforceable by law is said to be void
Void Contract:- A contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable
Quasi – contract:- A quasi – contract is not a contract at all. A contract is intentionally entered into by the
parties.
The Essentials for Formation of Contract
The requirements for formation of contract are agreement and consideration. There is sometimes said to be a
third element, namely, intention to create legal relations. But this third element is rarely a problem and it is true
to say that, if it is a separate element, it goes without saying in the vast majority of cases.
Agreement:-Agreement entails the transformation of negotiations into a settled bargain or deal. The negotiating
process is obviously not contract and the law needs to be able to determine when that process has ceased and the
parties have reached finality in their commercial arrangement. The traditional approach to answering the
question: have the parties reached agreement? is to apply the rules of offer and acceptance. When a properly
constituted offer has been made by one party and accepted by the other, then there is agreement at the moment
of acceptance or, more precisely, at the moment of communication of acceptance. This apparently simple
process raises a number of questions which we have to look at, such as: Was an offer made at all? Who makes
an offer in certain types of transactions, for example, in auctions or tenders? Is a price list an offer? Is an
advertisement an offer? Then it is also necessary to answer further questions about the act of acceptance, such
as: does acceptance have to be communicated? Can you accept by silence? Can you accept by just getting on
with the commercial task? and so forth.
Consideration:- We have already seen that consideration involves a notion of exchange. There are rules about
what constitutes an exchange and what might be exchanged in order to amount to a good consideration. We will
look at these rules after we have examined the requirements of offer and acceptance. The relationship between
the rules of offer and acceptance on the one hand and the rules of consideration on the other hand is that the
exchange which constitutes an acceptance of an offer - in effect an exchange of promises is brought about by
acceptance - is at the same time the necessary exchange which constitutes the consideration. All this will
become clearer when we examine the doctrine of consideration in detail.
OFFER
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a person made a proposal, when he signifies to another his willingness to do or to abstain from doing
something.
TYPES OF OFFER
 Express offer - When offer is given to another person either in writing or in oral.
 Implied offer - When offer is given to another person neither in writing nor in oral.
 Specific offer - When offer is given to a specific person.
 General offer - When offer is given to entire world at a large.
 Cross offer - When both the persons are making identical offers to each other in ignorance of other’s
offer.
 Counter offer - When both the persons are making offers to each other which are not identical in
ignorance of other’s offer.
LEGAL RULES FOR OFFER
 Offer must be given with an intention to create a legal relationship.
 Offer must be definite.
 Offer must be communicated.
Proposal or Offer
 When one person signifies to another his willingness to do or to abstain from doing anything with a view
to obtaining the assent of that other to such act or abstinence he is said to make a proposal

Performance of contract
Execution of a contract by which the contracting parties are automatically discharged of their obligations under
it. Although contracts usually call for full and precise performance, a substantial performance may be
acceptable under certain circumstances, on a pro rata basis, or on payment of damages for the unfinished or
defective performance.
Discharge of Contract – A contract may be discharged
1. By performance – Actual performance, attempted performance
2. By agreement or consent – Express consent, implied consent (novation, rescission, alteration)
3. by impossibility of performance
4. by lapse of time
5. by operation of law – By death, By merger, By insolvency
6. by breach of contract – actual breach, anticipatory breach
QUASI CONTRACT:

Contractual obligations are voluntarily created by free consent through proposal

and acceptance. In some cases, some obligations though not contractual but treated as
contractual by law. In fact there is no contract but there is one in contemplation of law i.e. quasi contract law of
quasi contract, is also known as the law of restitution.
Sec. 68 to 72 deals with five kind of quasi contractual obligations. They are as
follower:
1. Claim for necessaries supplied to a person incapable of contracting Sec. 68: If a person in capable of
entering into a contract or anyone who he is legally bound to support is supplied by another person with

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 necessary suited to his condition in life, the person who has furnished such supplied, is entitled to be
reimbursed from the property of such in capable person.
Illustration: A supplies B a Lunatic with necessaries suitable to his condition in life. A is entitled to be
reimbursed from B’s property.
2. Reimbursement of many paid in which he is interested (Sec 69) A person, who is interested in the
payment of the money which another is bound to pay by law, and who therefore pays it, is entitled to be
reimbursed by the other.

Illustration: B hold land in Bengal, on a lease granted by A the reminder. The revenue payable by A to the
Govt. being in arrear, his land is advertised for sale by the Govt. under the revenue law, the consequences o f
such sale will be annulment of the B’s lease. B to prevent the sale B the consequent annulment of his own
lease, pays the Govt. the sum due from a. A is bound to make good the B the amount paid so.
3. Obligations of person to pay for enjoying benefit of non gratuities act Sec. 70
Where a person lawfully does something for another or delivers anything to him,
not intending to so graduating and such other person enjoys the benefit thereof, the Later is bound to
make compensation for the further.
Illustration: A, a tradesman, leaves goods at B’s house by mistake; B treats the goods as his own. He is
bound to pay A for them.
4. Responsibility of finder of goods (Sec. 71). An agreement is implied by law where a person finds goods
belonging to another and takes them into his custodies, he is subject to the some responsibility as a
bailee, it’s his responsibility to care of the goods and try to find out the true owner, he is entitled to its
possession as against everyone except the true owner.
5. Payment or delivery of mistake or under coercion (Sec,72) A person whom money has been paid or
anything delivered by mistake or under
coercion must repay it or return it. E.g. A & B jointly owe Rs. 100 to C. A alone pay the amount to c and
B not knowing this facts, pay Rs. 100 over again to C. C is bound to repay the amount to B. Further as
per sec. 73 the rights and liabilities of partners to a quasi contract are the same as if they willingly, In
fact entered into such a contract.
THE SALE OF GOODS ACT 1930
An Act to define and amend the law relating to the sale of goods
1. Short title, extent and commencement
(1) This Act may be called the Sale of Goods Act, 1930.
2 It extends to the whole of India [except the State of Jammu and Kashmir]
(3) It shall come into force on the lst day of July, 1930.
2. Application of provisions of Act 9 of 1872 The unrepeated provisions of the Indian Contract Act, 1872, save
insofar as they are inconsistent with the express provisions of this Act, shall continue to apply to contracts for
the sale of goods.
FORMATION OF THE CONTRACT OF SALE
Sale and agreement to sell
(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a price. There may be a contract of sale between one part-owner and another.
(2) A contract of sale may be absolute or conditional.

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(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the
contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or
subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which
the property in the goods is to be transferred.
FORMALITIES OF THE CONTRACT
Contract of sale how made:-
(1) A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The
contract may provide for the immediate delivery of the goods or immediate payment of the price of both, or for
the delivery or payment by installments, or that the delivery or payment or both shall be postponed.
(2) Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or
by word of mouth, or partly in writing and partly by word of mouth or may be implied from the conduct of the
parties.
SUBJECT MATTER OF CONTRACT
Existing or future goods:-
(1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by
the seller, or future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a
contingency which may or may not happen.
(3) Where by a contract of sale the seller purports to affect a present sale of future goods, the contract operates
as an agreement to sell the goods.
Goods perishing before making of contract:-
Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge
of the seller have, at the time when the contract was made, perished or become so damaged as no longer to
answer to their description in the contract.
Goods perishing before sale but after agreement to sell:-
Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of
the seller or buyer perish or become so damaged as no longer to answer to their description in the agreement
before the risk passes to the buyer, the agreement is thereby avoided.
THE PRICE
Ascertainment of price:-
(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby
agreed or may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller
a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each
particular case.
Agreement to sell at valuation:-
(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third
party and such third party cannot or does not make such valuation, the agreement is thereby avoided;
PROVIDED that, if the goods or any part thereof have been delivered to, and appropriated by, the buyer, he
shall pay a reasonable price therefore.

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(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party
not in fault may maintain a suit for damages against the party in fault.
CONDITIONS AND WARRANTIES
Stipulations as to time:-
Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not
deemed to be of the essence of a contract of sale. Whether any other stipulation as to time is of the essence of
the contract or not depends on the terms of the contract.
Condition and warranty:-
(1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition
or a warranty.
(2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a
right to treat the contract as repudiated.
(3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a
claim for damages but not to a right to reject the goods and treat the contract as repudiated.
(4) Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the
construction of the contract. A stipulation may be a condition, though called a warranty in the contract.
When condition to be treated as warranty:-
(1) Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the
condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the
contract as repudiated.
(2) Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of
any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for
rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or
implied, to that effect.
(3) Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by
law by reason of impossibility or otherwise.
Implied undertaking as to title, etc.
In a contract of sale, unless the circumstances of the contract are such as to show a different intention there is-
(a) An implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods and
that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to
pass;
(b) An implied warranty that the buyer shall have and enjoy quiet possession of the goods;
(c) An implied warranty that the goods shall be free from any charge or encumbrance in favour of any third
party not declared or known to the buyer before or at the time when the contract is made.
Sale by description:-
Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall
correspond with the description; and, if the sale is by sample as well as by description, it is not sufficient that
the bulk of the goods corresponds with the sample if the goods do not also correspond with the description.
Implied conditions as to quality or fitness:-
Subject to the provisions of this Act and of any other law for the time being in force, there is no implied
warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of
sale, except as follows:-
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(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the
goods are required, so as to show that the buyer relies on the seller's skill or judgment, 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 fit for such purpose:
PROVIDED that, in the case of a contract for the sale of a specified article under its patent or other trade name,
there is no implied condition as its fitness for any particular purpose.
(2) Where goods are bought by description from a seller who deals in goods of that description (whether he is
the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable
quality; PROVIDED that, if the buyer has examined the goods, there shall be no implied condition as regards
defects which such examination ought to have revealed.
(3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the
usage of trade.
(4) An express warranty or condition does not negative a warranty or condition implied by this Act unless
inconsistent therewith.
Sale by sample:-
(1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to
that effect.
(2) In the case of a contract for sale by sample there is an implied condition-
(a) That the bulk shall correspond with the sample in quality;
(b) That the buyer shall have a reasonable opportunity of comparing the bulk with the sample;
(c) That the goods shall be free from any defect, rendering them un-merchantable, which would not be apparent
on reasonable examination of the sample.

EFFECTS OF THE CONTRACT

TRANSFER OF PROPERTY AS BETWEEN SELLER AND BUYER
Goods must be ascertained:-
Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer
unless and until the goods are ascertained.
Property passes when intended to pass:-
(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to
the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract,
the conduct of the parties and the circumstances of the case.
(3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the
intention of the parties as to the time at which the property in the goods is to pass to the buyer.
Specific goods in a deliverable state:-
Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the
goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the
price or the time of delivery of the goods, or both, is postponed.
Specific goods to be put into a deliverable state:-

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Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for
the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the
buyer has notice thereof.
Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain
price:-
Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh,
measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price,
the property does not pass until such act or thing is done and the buyer has notice thereof.
Sale of unascertained goods and appropriation:-
(1) Where there is a contract for the sale of unascertained or future goods by description and goods of that
description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with
the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes
to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation
is made.
(2) Delivery to carrier-Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a
carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and
does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the
contract.
Goods sent on approval or "on sale or return":-
When goods are delivered to the buyer on approval or "on sale or return" or other similar terms, the property
therein passes to the buyer-
(a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
(b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of
rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no
time has been fixed, on the expiration of a reasonable time.
Reservation of right of disposal :-(1) Where there is a contract for the sale of specific goods or where goods
are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation,
reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the
delivery of the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the
property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.
(2) Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of
lading 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 right of disposal.
(3) Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange
together with the bill of lading or, as the case may be, the railway receipt, to secure acceptance or payment of
the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honor the
bill of exchange; and, if he wrongfully retains the bill lading or the railway receipt, the property in the goods
does not pass to him. Explanation: In this section, the expressions "railway" and "railway administration" shall
have the meanings respectively assigned to them under the Indian Railways Act, 1890.]
Risk prima facie passes with property
Unless 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
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delivery has been made or not: PROVIDED that, where delivery 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: PROVIDED 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.
TRANSFER OF TITLE
Sale by person not the owner
Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a
person who is not the owner thereof and who does not sell them under the authority or with the consent of the
owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his
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 authorized by the owner of the goods to make the same; provided that the buyer acts is good faith and
has not at the time of the contract of sale notice that the seller has not authority to sell. Sale by one of joint
owners
If one of several joint owners of goods has the sole possession of them by permission of the co-owners, the
property in the goods in transferred to any person who 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 contract
When 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 good 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 sale
(1) Where a person, having sold goods continues or is in possession of the goods or of the documents of title to
the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or
documents of title under any sale, pledge or 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 or
transfer were expressly authorized by the owner of the goods to make the same.
(2) Where a person, having bought or agreed to buy goods, obtains with the consent of the seller, possession of
the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent
acting for him, of the goods or documents of title 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.
PERFORMANCE OF THE CONTRACT
Duties of seller and buyer
It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with
the terms of the contract of sale.
Payment and delivery are concurrent conditions
Unless 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.
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Delivery
Delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or
which has the effect of putting the goods in the possession of the buyer or of any person authorized to hold them
on his behalf.
Effect of part delivery
A delivery of part of goods, in progress of the delivery of the whole has the same effect, for the purpose of
passing the property in such goods, as a delivery of the whole; but a delivery of part of the goods, with an
intention of severing it from the whole, does not operate as a delivery of the remainder.
Buyer to apply for delivery
Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies for
delivery.
Rules as to delivery
(1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a
question depending in each case on the contract, express or implied, between the parties. Apart from any such
contract, goods sold are to be delivered at the place at which they are at the time of the sale, and goods agreed to
be sold are to be delivered at the place at which they are at the time of the agreement to sell, if not then in
existence, at the place at which they are manufactured or produced.
(2) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending
them is fixed, the seller is bound to send them within a reasonable time.
(3) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to
buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf:
PROVIDED that nothing in this section shall affect the operation of the issue or transfer of any document of
title to goods.
(4) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a
reasonable hour is a question of fact.
(5) Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state shall be
borne by the seller.
Delivery of wrong quantity
(1) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may
reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate.
(2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell the buyer may
accept the goods included in the contract and reject the rest, or he may reject the whole. If the buyer accepts the
whole of the goods so delivered, he shall pay for them at the contract rate.
(3) Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different
description not included in the contract, the buyer may accept the goods which are in accordance with the
contract and reject the rest, or may reject the whole.
(4) The provisions of this section are subject to any usage of trade, special agreement of course of dealing
between the parties.
Installment deliveries
(1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments.
(2) Where there is a contract for the sale of goods to be delivered by stated installments which are to be
separately paid for, and the seller makes no delivery or defective delivery in respect of one or more installments,
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or the buyer neglects or refuses to take delivery of or pay for one or more installments, it is a question in each
case 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 to a right to treat the whole contract as repudiated. Delivery to carrier or wharfing
(1) Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer,
delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the
buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the
goods to the buyer.
(2) Unless otherwise authorized by the buyer, the seller shall make such contract with the carrier or wharfinger
on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other
circumstances of the case. If the seller omits so to do and the goods are lost or damaged in course of transit or
whilst in the custody of the wharfinger, the buyer may decline to treat the delivery to the carrier or wharfinger
as a delivery to himself, or may hold the seller responsible in damages.
(3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, in
circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to
insure them during their sea transit and if the seller fails so to do, the goods shall be deemed to be at his risk
during such sea transit. Risk where goods are delivered at distant place Where the seller of goods agrees to
deliver them at his own risk at a 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.
Buyer's right of examining the goods
(1) Where goods are delivered to the buyer which he has not previously examined, he is not deemed to have
accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract.
(2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to
afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they
are in conformity with the contract.
Acceptance
The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or
when the goods have been delivered to him and he does any act in relation to them which is inconsistent with
the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating
to the seller that he has rejected them.
Buyer not bound to return rejected goods
Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right
so to do, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he
refuses to accept them.
Liability of buyer for neglecting or refusing delivery of goods
When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and the buyer
does not within a reasonable time after such request take delivery of the goods, he is liable to the sellerfor 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.

11
RIGHTS OF UNPAID SELLER AGAINST THE GOODS
"Unpaid seller" defined
(1) The seller of goods is deemed to be an "unpaid seller" within the meaning of this Act.-
(a) When the whole of the price has not been paid or tendered;
(b) When a bill of exchange or other negotiable instrument has been received as conditional payment and the
condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or
otherwise.
(2) In this Chapter, the term "seller" includes any person who is in the position of a seller, as, for instance, an
agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid,
or is directly responsible for, the price.
Unpaid seller's rights
(1) Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the
property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of
law-
(a) A lien on the goods for the price while he is in possession of them;
(b) In case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the
possession of them;
(c) A right of re-sale as limited by this Act.
(2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other
remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in
transit where the property has passed to the buyer.
UNPAID SELLER'S LIEN
Seller's lien
(1) Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to
retain possession of them until payment or tender of the price in the following cases, namely:-
(a) Where the goods have been sold without any stipulation as to credit;
(b) Where the goods have been sold on credit, but the term of credit has expired;
(c) Where the buyer becomes insolvent.
(2) The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or
bailee for the buyer.
Part delivery
Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder,
unless such part delivery has been made under such circumstances as to show an agreement to waive the lien.
Termination of lien
(1) The unpaid seller of goods loses his lien thereon-
(a) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without
reserving the right of disposal of the goods;
(b) When the buyer or his agent lawfully obtains possession of the goods;
(c) By waiver thereof.
(2) The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained a
decree for the price of the goods.

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 STOPPAGE IN TRANSIT
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.
How stoppage in transit is affected
(1) The unpaid seller may exercise his right of stoppage in transit either by taking actual possession of the
goods, or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such
notice may be given either to the person in actual possession of the goods or to his principal. In the latter 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 it to his servant or agent in time to prevent a delivery to the
buyer.
(2) When notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the
goods, he shall re-deliver the goods to, or according to the directions of, the seller. The expenses of such re-
delivery shall be borne by the seller.

Effect of sub-sale or pledge by buyer

(1) Subject to the provisions of this Act, the unpaid seller's right of lien or stoppage in transit is not affected 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 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 or 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 transferee.
(2) Where the transfer is by way of pledge, the unpaid seller may require the pledge to have the amount secured
by the pledge satisfied in the first instance, as far as possible, out of any other goods or securities of the buyer in
the hands of the pledge and available against the buyer.
SUITS FOR BREACH OF THE CONTRACT
Suit for price
(1) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully
neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the
price of the goods.
(2) Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer
wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in
the goods has not passed and the goods have not been appropriated to the contract.
Damages for non-acceptance
Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for
damages for non-acceptance.
Damages for non-delivery

13
Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller
for damages for non-delivery.
Specific performance
Subject to the provisions of Chapter II of the Specific Relief Act, 1877, in any suit for breach of contract to
deliver specific or ascertained goods, the court may, if it thinks fit, on the application of the plaintiff, by its
decree direct that the contract shall be performed specifically, without giving the defendant the option of
retaining the goods on payment of damages. The decree may be unconditional, or upon such terms and
conditions as to damages, payment of the price or otherwise, as the court may deem just, and the application of
the plaintiff may be made at any time before the decree.
Remedy for breach of warranty
(1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any
breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such
breach of warranty entitled to reject the goods; but he may-
(a) Set up against the seller the breach of warranty in diminution or extinction of the price, or
(b) Sue the seller for damages for breach of warranty.
(2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not
prevent him from suing for the same breach of warranty if he has suffered further damage.
Repudiation of contract before due date
Where either party to a contract of sale repudiates the contract before the date of delivery, the other may either
treat the contract as subsisting or wait till the date of delivery, or he may treat the contract as rescinded and sue
for damages for the breach.
NEGOTIABLE INSTRUMENTS ACT 1881
The Negotiable Instruments Act was passed in 1881. Some provisions of the Act have become redundant due to
passage of time, change in methods of doing business and technology changes. The instrument is mainly an
instrument of credit readily convertible into money and easily passable from one hand to another.
LOCAL USAGE PREVAILS UNLESS EXCLUDED - The Act does not affect any local usage relating to any
instrument in an oriental language. However, the local usage can be excluded by any words in the body of the
instrument, which indicate an intention that the legal relations of the parties will be governed by provisions of
Negotiable Instruments Act and not by local usage. [Section 1]. - - Thus, unless specifically excluded, local
usage prevails, if the instrument is in regional language.
BILL OF EXCHANGE AND PROMISSORY NOTES EXCLUDED FROM INFORMATION TECHNOLOGY
ACT - Section (1)(4)(a) of Information Technology Act provides that the Act will not apply to Bill of Exchange
and Promissory Notes. Thus, a bill of exchange or Promissory Note cannot be made by electronic means.
However, cheque is covered under of Information Technology Act and hence can be made and / or sent by
electronic means.
CHANGES MADE BY AMENDMENT ACT, 2002 - (a) Definition of ‗cheque‘and related provisions in
respect of cheque amended to facilitate electronic submission and/or electronic clearance of cheque.
Corresponding changes were also made in Information Technology Act. (b) Bouncing of cheque - Provisions
amended
* Provision for imprisonment upto 2 years against present one year
* Period for issuing notice to drawer increased from 15 days to 30 days
* Government Nominee Directors excluded from liability
14
* Court empowered to take cognizance of offence even if complaint filed beyond one month
* Summary trial procedure permitted for imposing punishment upto one year and fine even exceeding Rs 5,000
* Summons can be issued by speed post or courier service
* Summons refused will be deemed to have been served
* Evidence of complainant through affidavit permitted
* Bank‘s slip or memo indicating dishonour of cheque will be prima facie evidence unless contrary proved
* Offence can be compounded. - -
The amendments have been made effective from 6-2-2003.
Transferee can get better title than transferor – Normal principle is that a person cannot transfer better title
to property that he himself has. For example, if a person steals a car and sells the same, the buyer does not get
any legal title to the car as the transferor himself had no title to the car. The real owner of car can anytime obtain
possession from the buyer, even if the buyer had purchased the car in good faith and even if he had no idea that
the seller had no title to the car. This provision is no doubt sound, but would make free negotiability of
instrument difficult, as it would be difficult to verify title of transferor in many cases. Hence, it is provided that
if a person acquires ‗Negotiable Instrument’ in good faith and without knowledge of defect in title of the
transferor, the transferee can get better title to the negotiable instrument, even if the title of transferor was
defective. This is really to ensure free negotiability of instrument so that persons can deal in the instrument
without any fear.
DIFFERENCE BETWEEN NEGOTIATION AND TRANSFER/ASSIGNMENT - Difference between
―Negotiation‘and assignment/transfer is that in case of negotiation, the transferee can get title better than
transferor, which can never happen in assignment/transfer.
STATUTORY DEFINITION OF NEGOTIABLE INSTRUMENT - A ―negotiable instrument means a
promissory note, bill of exchange or cheque payable either to order or to bearer. A negotiable instrument may be
made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one
or some of several payees. [Section 13(2)].
Promissory Note - 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. [Section 4].
Bill of Exchange – As per statutory definition, ―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. [Para 1 of section 5]. A cheque is a special type
of bill of exchange. It is drawn on banker and is required to be made payable on demand.
DRAWER, DRAWEE AND PAYEE - The maker of a bill of exchange or cheque is called the ―drawer; the
person thereby directed to pay is called the ―drawee [section 7 para 1]. - - 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[section 7
para 5]. - - However, a drawer and payee can be one person as he can order to pay the amount to himself.
AT SIGHT, ON PRESENTMENT, AFTER SIGHT - In a promissory note or bill of exchange the expressions
―at sight and ―on presentment mean ‗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 protest
for non-acceptance. [section 21]. - - Thus, in case of document ‗after sight‘, the countdown starts only after
document is ‗sighted‘ by the concerned party.

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Stamp duty on Negotiable Instrument – A negotiable instrument is required to be stamped. Stamp duty on
Bill of Exchange and Promissory Note is a Union Subject. Hence, stamp duty is same all over India.
Hundi – a local instrument – Hundi is an indigenous instrument similar to Negotiable Instrument. The term is
derived from Sanskrit word ‗hund‘ which means ‗to collect‘. If it is drawn in local language, it is governed by
local usage and customs.
Provisions in respect of Cheque - A ―cheque is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand. ‗Cheque‘includes electronic image of a truncated cheque
and a cheque in electronic form. [section 6]. The definition is amended by Amendment Act, 2002, making
provision for electronic submission and clearance of cheque. The cheque is one form of bill of exchange. It is
addressed to Banker. It cannot be made payable after some days. It must be made payable ‗on demand‘.
Crossing of Cheque – The Act makes specific provisions for crossing of cheque.
CHEQUE CROSSED GENERALLY - Where 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. [Section 123]
CHEQUE CROSSED SPECIALLY - 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. [Section 124].
PAYMENT OF CHEQUE CROSSED GENERALLY OR SPECIALLY - Where a cheque is crossed generally,
the banker on whom it is drawn shall not pay it otherwise than to a banker. Where 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. [Section 126].
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 form whom he took it had. [Section 130].
Electronic Cheque –
Provisions of electronic cheque have been made by Amendment Act, 2002. As per Explanation I(a) to section 6,
‗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 by a secure system ensuring the minimum safety standards with the use of
digital signature (with or without biometrics signature) and asymmetric crypto system.
Truncated Cheque –
Provisions of electronic cheque have been made by Amendment Act, 2002. As per Explanation I(b) to section 6,
‗A truncated cheque‘ means a cheque which is truncated during the clearing cycle, either by the clearing house
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.
Penalty in case of dishonor of cheque for insufficiency of funds –
If a cheque is dishonored even when presented before expiry of 6 months, the payee or holder in due course is
required to give notice to drawer of cheque within 30 days from receiving information from bank.. The drawer
should make payment within 15 days of receipt of notice. If he does not pay within 15 days, the payee has to
lodge a complaint with Metropolitan Magistrate or Judicial Magistrate of First Class, against drawer within one
month from the last day on which drawer should have paid the amount. The penalty can be up to two years
16
imprisonment or fine up to twice the amount of cheque or both. The offense can be tried summarily. Notice can
be sent to drawer by speed post or courier. Offense is compoundable. It must be noted that even if penalty is
imposed on drawer, he is still liable to make payment of the cheque which was dishonored. Thus, the
fine/imprisonment is in addition to his liability to make payment of the cheque.
Return of cheque should be for insufficiency of funds –
The offence takes place only when cheque is dishonored for insufficiency of funds or where the amount exceeds
the arrangement. Section 146 of NI Act only provides that once complainant produces bank‘s slip or memo
having official mark that the cheque is dishonored, the Court will presume dishonor of the cheque, unless and
until such fact is disproved.
Calculation of date of maturity of bill of exchange - If the instrument is not payable on demand, calculation
of date of maturity is important. An instrument not payable on demand is entitled to get 3 days grace period.
Presentment of Negotiable Instrument - The Negotiable Instrument is required to be presented for payment to
the person who is liable to pay. Further, in case of bill of exchange payable ‗after sight‘, it has to be presented
for acceptance by drawee. ‗Acceptance’ means that drawee agrees to pay the amount as shown in the Bill. This
is required as the maker of bill (drawer) is asking drawee to pay certain amount to payee. The drawee may
refuse the payment as he has not signed the Bill and has not accepted the liability. In case of Promissory Note,
such acceptance is not required, as the maker who has signed the note himself is liable to make payment.
However, if the promissory note is payable certain days ‗after sight‘ [say 30 days after sight], it will have to be
presented for ‗sight‘. If the instrument uses the expressions ―on demand, ―at sight or ―on presentment, the
amount is payable on demand. In such case, presentment for acceptance is not required. The Negotiable
Instrument will be directly presented for payment.
Acceptance and payment for honour and drawee in need –
Provisions for acceptance and payment for honour have been made in case when the negotiable instrument is
dishonoured. Bill is accepted for honour when it is dishonoured when presenting for acceptance, while payment
for dishonour is made when Bill is dishonoured when presented for payment.
Negotiation of Instrument - The most salient feature of the instrument is that it is negotiable. Negotiation does
not mean a mere transfer. After negotiation, the holder in due course can get a better title even if title of
transferor was defective. If the instrument is ‗to order‘, it can be negotiated by making endorsement. If the
instrument is ‗to bearer‘, it can be negotiated by delivery. As per definition of ‗delivery‘, such delivery is valid
only if made by party making, accepting or indorsing the instrument or by a person authorized by him.
Liability of parties - Basic liability of payment is as follows – (a) Maker in case of Promissory Note or Cheque
and (b) Drawer of Bill till it is accepted by drawee and acceptor after the Bill is accepted. They are liable as
‗principal debtors‘ and other parties to instrument are liable as sureties for maker, drawer or acceptor, as the
case may be. When document is endorsed number of times, each prior party is liable to each subsequent party as
principal debtor. In case of dishonour, notice is required to be given to drawer and all earlier endorsees.
PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENTS –
Until the contrary is proved, the following presumptions shall be made:—
(a) consideration - that every negotiable instrument was made or drawn for consideration, and that every such
instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or
transferred for consideration; - -
(b) As to date - that every negotiable instrument bearing a date was drawn on such date;

17
(c) As to time of acceptance - that every accepted bill of exchange was accepted within a reasonable time after
its date and before its maturity; - -
(d) As to time of transfer - that every transfer of a negotiable instrument was made before its maturity;
(e) As to order of endorsements - that the endorsements appearing upon a negotiable instrument were made in
the order in which they appear thereon;
(f) As to stamps -that a lost promissory note, bill of exchange or cheque was duly stamped;-
(g) that holder is a holder in due course - that the holder of a negotiable instrument is a holder in due course:
provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful
custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by
means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder in due course
lies upon him.
AGENCY
An agent is a person employed to do any act for another, or to represent another in dealings with third person,
the person to whom such act is done, or who is so represented is called the principal.
Creation of Agency
1. Agency by express agreement
2. Agency by implied agreement – agency by estoppels, agency by holding out, agency by necessity
3. Agency by ratification
Classification of Agents
1. Extent of their authority – Special Agent, General Agent, Universal Agent
2. Nature of work performed – Commercial or mercantile agent, Banker, Non mercantile agent
Parties agreed that the agent will act on behalf & instead of the principal in negotiating & transacting bus with
3rd persons. 3 types
 Special: hired for an ltd purpose (CPA, attorney)
 General: employer/employee relations (wider affairs corporate lawyer)
 Universal: hired to do everything

Fiduciary: fundamental to agency, means that trust & confidence are involved
 Employer-Employee Relations: An employee is someone whose physical conduct is not entirely
controlled, or subject to control, by the employer. Employees who deal with third parties are typically
deemed to be agents.
 Employer-Independent contractor Relations: an independent contractor is not controlled by another or
subject to another's control with regard to physical conduct. He may or may not be an agent. Main
determinant here is how much control is exercised over the contractor.
 Formation of agency relationship:
o Consensual
o Need not be in writing
o No consideration required
o Principal must have legal capacity to enter into contracts; not necessary for agent (his power is
derived from principal)
o Agency must be for legal purpose

18
 o Agency by agreement: can be written or implied by conduct.
o Power of attorney must be written, can be special (limited) or general
o Agency by ratification: non-agent cuts deal for principal, principal approves agency by estoppel:
if principal causes a 3rd person to believe that another is his agent, & the third person deals with
supposed agent, the principal is "estopped to deny" the agency relationship.
o Agency by operation of law: spouses, emergencies
 Agent's Duties:
o Performance: must use reasonable diligence & skill in performing work required
o Notification: must notify principal of all matters concerning subject matter of agency
o Loyalty: actions must be strictly for the benefit of the principal, not in the interest of the agent or
a third party
o Obedience: must follow lawful & clearly stated instructions of the principal
o Accounting: must maintain separate accounts for the principal's funds & for the agent's funds, no
intermingling is permitted
 Principal's Duties:
o Compensation: must pay the agent for services rendered, & do so in a timely manner
o Reimbursement & indemnification: must reimburse agent that disburses money at principal's
request. Must compensate (indemnify) agent for any costs incurred as a result of principal's
failure to perform the contract
o Cooperation: must cooperate with & assist an agent in performing his duties
o Provide safe working conditions
o Agent's Rights & Remedies: has a corresponding right for every duty of the principal.
o Normal contract & tort remedies
 Principal's Rights & Remedies: has contract remedies for breach of fiduciary duties & tort remedies.
Main actions available:
o Constructive trust: imposed by courts when agent withholds monies that belong to principal,
allows principal to get what he deserves
o Avoidance: principal may avoid any contract entered into with agent if agent breaches agency
duties
o Indemnification: principal can be sued by a third party for an agent's negligent conduct, & in
certain situations the principal can turn around & sue agent for an equal amount of damages
 Scope of Agent's Authority:
o Express: given orally or in writing, embodied in that which the principal has engaged the agent
to do
o Implied: conferred by custom, can be inferred from agent's position, or is implied as reasonably
necessary means to perform duties
o Apparent: arises when the principal, by either word or action, causes a third party to reasonably
believe that an agent has authority to act, even though agent has no "actual" (express or implied)
authority.
 Emergency Powers: agent may take action necessary to protect interests of principal in an emergency
without principal's prior approval
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 Ratification: express or implied, principal's affirmation of a previously unauthorized contract or act
o Liability for contracts:
 Disclosed / Partially disclosed principals: liable to a third party for contract made by the
agent
 Undisclosed principals: agent, not the principal, is liable as a party on the contract.
However, if principal has a duty to perform & fails to do so, agent is entitled to
indemnification by principal if third party seeks restitution from agent
o Liability for Agent's Torts: Principal may be liable for agent's torts if they result from the
following:
 Principal's own tortious conduct
 Principal's authorization of tortious act
 Agent's unauthorized but tortious misrepresentation (if representations were made within
scope of the agency)
 Doctrine of Respondeat Superior: principal-employer is liable for any harm caused to a third party by an
agent-employee in the scope of employment. This doctrine imposes vicarious liability on the employer.
o Scope of employment: is employee doing what is normally expected of him, is employee "on the
job" from a time & location standpoint, does the employee's act benefit the employer
o Liability for employee's negligence: act causing the injury must have occurred within the scope
of employment, employee going to & from work or to & from meals is usually considered
outside the scope of employment
o Notice of dangerous conditions: employer has assumed knowledge of any dangerous conditions
discovered by an employee & pertinent to employment situation
 Liability for employee's intentional torts: if torts committed within scope of employment
 Liability for Independent Contractor's Torts: General rule is that the employer is not liable.
o Test: how much control the employer exerts over the contractor. Exceptionally hazardous
activities (blasting) that are contracted are an exception in that there is no shield for the employer
 Liability for Agent's Crimes: General rule is that a principal or employer is not liable for agent's or
employee's crime even if agent acted within scope of authority or employment.
 Termination of an Agency:
o Lapse of time: agency ends when time period expressed in the agreement comes to a close, or
reasonable time & can be terminated at will by either party.
o Purpose achieved: if agency was for a particular purpose, it ends upon completion occurrence of
a specific event: e.g., when I get back from vacation, you no longer handle my affairs
o Mutual agreement: enough said
o Termination by one party: either party has the power to terminate, but may not have the right to
terminate & could be liable for breach of contract.
o Agent's act of termination is renunciation, principal's is revocation
o Termination by operation of law: certain events terminate agency automatically (death, insanity)
o Notice required for termination:
 Principal's duty to notify third parties who know of the agency.
 Must notify directly if third party has dealt with agent.

20
  Agent's actual authority continues until he receives termination notice.
 Agent's apparent authority continues until third party has been notified.
 If agent's authority is written, it must be revoked in writing.

UNIT II
THE COMPANY ACT 1956
UNIT II COMPANY LAW
Major principles – Nature and types of companies, Formation, Memorandum and Articles of
Association, Prospectus, Power, duties and liabilities of Directors, winding up of companies, Corporate
Governance.

Company act 1956: Company act 1956 The Company act came into force from 1 April 1956. The act was
based upon the recommendation of company law committee appointed under the chairmanship of Mr. C. H.
Bhaba on 25 -10-1950. The committee submitted its report in 1952. The Indian company act extends to the
whole India.
COMPANY: Section 3(1)(i)&(ii) of the Companies Act, 1956 defines a company as: -a company formed and
registered under this Act or an existing Company. Existing Company’ means a company formed and registered
under any of the earlier Company Laws
INCORPORATION UNDER COMPANY ACT 1956. :
1. Separate legal entity: Separate legal entity A company is an separate legal entity means it is different from
its members. It works as an individual body. It can make contracts, open a bank account, can sue and be sued by
others.
Artificial person: Artificial person A company is a purely a creation of law. It is invisible, intangible and exists
only in the eyes of law. It has no soul, no body, but has a position to enter or exit into a contract. In short it can
do every thing just like a natural person.
Perpetual existence sec 34(2): Perpetual existence sec 34(2) Section 34(2) of the act states that an incorporated
company has perpetual life. The life of the company is not related to the life of the members. Law creates the
company and law alone can dissolve it. The existence of the company is not affected by death, insolvency,
retirement or transfer of share of members.
Common seal: Common seal A company being an artificial person can not work as a natural being. Therefore,
it has to work through its directors, officers and other employees. Common seal used as a official signature of a
company.
Limited liability: It means that the liability of a member shall be limited to the value of the share held by him;
he cannot be called upon to bear the loss from his personal property.
Transferability of share sec 82: Transferability of share sec 82 the share of a company is freely transferable.
The shareholder can transfer his share to any person without the consent of other members. A company cannot
impose absolute restrictions on the rights of member to transfer their shares
Types of companies (Registered under company act 1956): Types of companies (Registered under company
act 1956)
INCORPORATED:
1. CHARTERED COMPANIES these companies are incorporated under a special charter such as the east
India Company. The bank of England. The company act does not apply to it.
21
2. STATUTORY COMPANIES: These companies are incorporated by special act of legislature (act of
parliament or state legislature) eg. RBI, UTI, LIC REGISTERED COMPANIES registered under the Indian
Companies Act, 1956 are called registered companies. To become a registered company one has to take the
certification of incorporation from the registrar. Cont…
.
COMPANY WITH LIABILITY:
 Limited by Shares- In such companies, the liability is only the amount which remains unpaid on the
shares.
 Limited by Guarantee not having share capital-In this type of companies the memorandum of
Association limits the members’ liability. It will be based on the undertaking that has been given in
MOA for their contribution in case of a winding up.
 Limited by guarantee having share capital- In such cases , the liability would be based on the MOA
towards the guaranteed amount and the remaining would be from the unpaid sums of the shares held by
the person concerned.
Unlimited Company
 There is no limit on the liability of the members. The liability in such cases would extend to the whole
amount of the company’s debts and liabilities.
 Here the members cannot be directly sued by the creditors.
 When the company is wound up, the official liquidator will call upon the members to discharge the
liability.
 The details of the number of members with which the company is registered and the amount of share
capital has to be stated in the Articles of Association (AOA).
Government Company
 When 51% of the paid up share capital is held by the government.
 The share can be held by the central government or state government. Partly by central and partly by
two or more governments.
 As the legal status of the company does not change by being a government company, there are no
special privileges given to them.
Foreign Company
 A company incorporated outside India, but having a place of business in India.
 If it does not have a place of business in India but only has agents in India it cannot be considered to be
foreign company.
Private Company
 A company which has a minimum of two persons. They have to subscribe to the MOA and AOA
 It should be have a minimum paid up capital of 1 lakh or more as prescribed by the article.
 The maximum number of members to be fifty ( it does not include members who are employed in the
company, persons who were formerly employed)
 The rights to transfer the shares are restricted in the Private companies
 Prohibits any invitation to the public to subscribe and therefore it cannot issue a prospectus inviting the
public to subscribe for any shares in, or debentures of the company
 It prohibits acceptance of deposits from persons other than its members, directors or their relatives.

22
  If two or more are holding one or more shares in a company jointly, they shall for the purpose of this
definition, be treated as a single member.
 As there is no public accountability like a public company, there is no rigorous surveillance.
Exemption and Privileges of a Private company
 It can have a minimum of two members.
 It can commence business immediately after obtaining certificate of incorporation.
 It need not issue prospectus or statement in lieu of prospectus.
 It can have a minimum of 2 directors.
 It need not hold statutory meeting or file statutory report with the ROC.
Public Company
 A Public company means a company-
 Which is not a private company
 Which has a minimum paid-up capital of Rs 5 lakh or such higher paid-up capital, as may be
prescribed
 Which is a private company and is a not a subsidiary of a company, which is private company.
 It includes- any company which is a public company with a paid up capital of less than 5 lakh,
then it has to enhance its paid up capital as per the statutory requirement
Conversion of Company
 The Act provides for conversion of public company into a private company and vice versa
 A private company is converted into a public company either by default or by choice in compliance with
the statutory requirements.
 Once the action for conversion takes place then, a petition can be filed with the central government with
the necessary documents for its decision on the matter of conversion
The difference between Private Company and Public Company

Private Company Public Company

23
  It's minimum number of persons is two
and the maximum is 50.
 It makes the use of private limited after its
name.
 It can commence its business operation
after getting certificate of incorporation.
 The memorandum of association and the
articles of association is signed by at least
two persons.
 The filling of both memorandum and
article of association is obligatory.
 It does not require the filling of the
prospectus or statement-in-lieu of
prospectus.
 It cannot sell shares to the general public
in the open market.
 Transfer of share is restricted in the
articles of association.
 There are of least two directors and they
need not retire by rotation.
 There is no legal restriction on director's
remuneration.
 It's minimum number of persons is seven
and the maximum is unlimited.
 It makes the use of the word limited after
the name.
 It requires both the certificate of
incorporation and the certificate of
commencement for its commencement.
 It's memorandum and articles of
association is signed by at least seven
persons.
 It may not have its own articles of
association because it may adopt table 'A'.
 It must file prospectus or statement in lieu
of prospectus before allotment of shares.
 it sell shares to the general public in the
open market.
 Transfer of shares is not restricted and as
such shares are freely transferable and are
quoted in the stock exchange.
 it has at least 3 directors and they are
subject to retire by rotation.
 The directors cannot draw remuneration
more than 11 percent of the net profit of
the company.

MEMORENDUM OF ASSOCIATION:
The first step in the formation of the company is to prepare memorandum of association. it is one of the
documents which has to be filed with registrar of the companies at the time of incorporation of a company. It is
vital document; tell about the object of the company‘s formation, the power of the company as well as the
boundaries beyond which the action of the company cannot go.
Definition:
According to sec. 2(28) of the Companies Act, “Memorandum of association means “the memorandum of
association of a company as originally framed or as altered from ime to time”.
Meaning - Memorandum of Association
 It is the charter of the company
 It contains the fundamental conditions upon which the company can be incorporated
 It contains the objects of the company’s formation
 The company has to act within objects specified in the MOA
 It defines as well as confines the powers of the company

24
  Anything done beyond the objects specified in the MOA will be ultra vires. Their transactions will be
null and void
 The outsider have to transact looking into the MOA
Purpose of MOA
 The purpose of memorandum is two-fold:
 First, to enable the prospective investors to know the purpose for which their money is going to be used and what
risk they are taking in making the investment.
 The second, to inform the outsiders dealing with the company as to what is its permitted range of activities in which it
may lawfully engage.
Conditions of the MOA ( Sec 15)
 It should be printed
 Divided into paragraph and numbers consecutively
 Signed by at least seven persons or two in case of public and private company respectively.
 The signature should be in the presence of a witness, who will have to attest the signature
 Members have to take shares and write the number of shares taken with full address.
The Memorandum of Association of company limited by shares contains the following clauses:
(i). Name clause. This clause states the name of the company. It should not be identical to the name of an
existing company registered with the Registrar of companies nor should it resemble it.
(ii) Situation clause. By definition, a company is an artificial and an invisible person. To enable notices and
letters to be sent to that invisible person, there must be a registered office. The State in which a company has its
registered office is to be stated in this clause. Exact address within the State need not be, and in fact is not, given
in the Memorandum. This clause determines the jurisdiction of the Registrar of Companies.
(iii) Object clause. This clause may, in fact, be regarded as the most important clause in the Memorandum. It
should specify in unambiguous language the ob rejects for this which the company is formed. The objects
defined lay down the maximum permitted range of activities in which the company may engage an beyond
which it cannot go.
(iv) Liability clause. It contains a statement that the liability of the members is limited to the face value of the
shares taken up by them and if some amount has already been paid on the shares, a member can be called upon
to pay only the unpaid amount of the shares. If the liability of members of the company is limited by guarantee
under this clause, it must be stated clearly as to what is the amount of guarantee which is agreed to be
contributed by each member towards the liability arising in the event of the company going into liquidation.
(v) Capital clause. This clause is required to specify only the amount of share capital with which a company is
proposed to be registered and the division of that capital into shares of a fixed amount. The classes of shares an
their rights need not be disclosed here.
(vi) Association and subscription clause. This contains a declaration by the subscribers to the Memorandum
that they are desirous of forming themselves into a company and agree to take the number of shares in the capital
of the company written against their respective names. Thereafter, each subscriber signs the Memorandum in the
presence of a witness. There must be at least seven subscribers in case of a public company and two subscribers
in case of a private company and each of them has to take up at least one share. In addition to the above clauses
which are required by the statute to be included in a Memorandum, and other information, such as the rights of
members, contracts with managing agents, etc, may also be given there at the discretion of the promoters.

25
Importance of memorandum: It defines the rights and liabilities of the members. It shows the capital structure
of the company It shows the object of the company It specifies the state in which the registered office of the
company is situated. It shows the constitution of the company It specify the conditions under which the
company has been incorporated.
Doctrine of “Ultra Vires”
 The powers exercisable by the company are to be confined to the objects specified in the MOA.
 So it is better to define and include the provisions regarding the acquiring of business, sharing of profits,
promoting company and other financial, gifts , political party funds etc
 If the company acts beyond the powers or the objects of the company that is specified in the MOA, the
acts are considered to be of ultra vires. Even if it is ratified by the all the members, the action is
considered to be ineffective.
 Even the charitable contributions have to be based on the object clause. ( A Lakshmanaswami Mudaliar
V. LIC of India)
Article of association:
Definition of 'Articles Of Association'
“A document that specifies the regulations for a company's operations. The articles of association define the
company's purpose and lays out how tasks are to be accomplished within the organization, including the process
for appointing directors and how financial records will be handled”
Articles of Association
 It is the company’s bye- laws or rules to govern the management of the company for its internal affairs
and the conduct of its business.
 AOA defines the powers of its officers and also establishes a contract between the company and the
members and between the members inter se
 It can be originally framed and altered by the company under previous or existing provisions of law.
 AOA plays a subsidiary part to the MOA
 Anything done beyond the AOA will be considered to be irregular and may be ratified by the
shareholders.
 The content of the AOA may differ from company to company as the Act has not specified any specific
provisions
 Flexibility is allowed to the persons who form the company to adopt the AOA within the requirements of
the company law
 The AOA will have to be conversant with the MOA, as they are contemporaneous documents to be read
together.
 Any ambiguity and uncertainty in one of them may be removed by reference to the other.
Contents of article of association:
AOA contain rules and regulations regarding: (i) share capital an variation of rights, (ii) exercise of lieu by the
company, (iii) calls on shares, (iv) transfer, transmission, forfeiture and surrender of shares, (v) conversion of
shares into stock and its reconversion into shares, (vi) issue of share warrants and rights of their holders, (vii)
alternation of capital, (viii) conduct of any proceedings at general meetings of shareholders, (ix) voting by
members. (x) powers, rights, remuneration, qualification and duties of directors, (xi) proceedings of Board, (xii)
appointment of manager, secretary, etc., (xiii) seal of the company, (xiv) dividend, reserves and capitalization of
profits (xv)accounts, and, (xvi) winding up.
26
 Prospectus
A prospectus, as per Section 2(36), means any document described or issued as prospectus and includes any
notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the
public for the subscription or purchase of any shares or debentures of a body corporate. Thus, a prospectus is
not merely an advertisement; it may be a circular or even a notice. A document shall be called a prospectus if it
satisfies two things: (a) It invites subscription to shares or debentures or invites deposits. (b) The aforesaid
invitation is made to the public.
The following provisions of the law regarding issue of the Prospectus are to be noted:
1. A copy of the Prospectus must accompany each from of application for shares offered to the public.
2. A Prospectus must be dated and signed by the directors.

3. A copy of the Prospectus together with the consent of the expert whose statement is included in it, a
copy of every contract appointing or fixing remuneration of managerial personnel and any other material
contract not entered into in the ordinary course of business must be filed with the Registrar on or before
the date of the Prospectus. The Prospectus must be issued to the public within 90 days of its date.

Various forms in which the prospectus can be issued.

 Shelf Prospectus: Prospectus is normally issued by financial institution or bank for one or more issues
of the securities or class of securities mentioned in the prospectus.
 There can be deemed prospectus also if it is issued by the issue house
 ‘Information Memorandum’: It means a process, which is undertaken prior to the filing of prospectus.
 Even an Advertisement , that the shares are available is considered to be prospectus
Contents of the prospectus
 General information
 Capital structure
 Terms of present issue
 Management and projects
 Management and perception of risk factor
It is compulsory to register the prospectus with the Registrar
Director
The Legal Status of the director
The director occupies the position of a:
 As a Trustee- In relation to the company
 As Agents- When they act on behalf of the company
 As Managing Partner-As they are entrusted with the responsibility of the company
 Qualification Shares.
o In case there is requirement as per the AOA for the director is bound to buy qualification shares
o If acts are done by the director prior to he or she being disqualified, the acts are considered to be
valid.
Appointment of Directors

27
  The appointment can sometimes be by based on the proportional representation like minority
shareholders.
 There can be alternate directors, additional directors, casual directors.
 The third parties can appoint the directors
 Other than the shareholders and the first directors, the central government and *NCLT may also appoint
directors.
*National Company Law Tribunal
Duties and Liabilities of the Directors
Fiduciary Duties
 To act honestly and with good faith
 Not to use confidential information of the company for their own purpose
 Duty of Care and to act reasonably while acting for the company
Statutory Duties
 Not to contract with company, where he/she or his relative has an interest in the contract
 where he/she has a interest, they need to inform the board or seek prior approval while entering into
contract, otherwise the contract is voidable
 Duty to attend and convene meetings
 Duty not to delegate
Other Duties:
 To convene statutory, Annual General meeting (AGM) and also extraordinary general meetings
 To prepare and place at the AGM along with the balance sheet and profit & loss account a report on the
company‘s affairs including the report of the Board of Directors
 To authenticates and approves annual financial statement
 To appoint first auditor of the company
 To appoint cost auditor of the company
The directors liabilities
 The liability of the directors can be either civil or criminal.
 If provided in the MOA, the liability may be unlimited, for a limited company, otherwise it may be
altered.
 Liability may be for breach of fiduciary duties
 The directors are personally liable for the following:
a) Ultra vires acts
b) malafide acts - The fraudulent deception of another person; the intentional or malicious refusal to perform
some duty or contractual obligation
c) negligent acts - There are no objective standards of skill and care which will help in determining whether a
Director has been negligent, instead, there are only general principles which may be applied depending on the
facts of each case.
The director are not liable for negligence if they act honestly for the benefit of the company, and within
their powers with such care as is reasonably expected of them, having regard to their knowledge and
experience. The directors are not bound to bring any special qualification into their office. The mere omission to
take every possible care will not amount to negligence.

28
 d) Liability for the acts of third parties
Criminal Liability
 Liability of the director for any untrue statement in the prospectus
 Inviting any deposits in contravention of the law
 Liability for false advertisement
 Failure to repay the application money, which was excess
 Concealing the names of the creditors
 Failure to lay the balance sheet.
 Failure to provide information to the auditor etc
Winding up
Winding up of a company is the process whereby its life is ended and its property administered for the benefit
of its creditors and members. An administrator, called a ‘liquidator’, is appointed and he takes control of the
company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance
with their respective rights. Winding up procedures are laid out in the Companies Act, 1956 (“Act”). Broadly
speaking, under the Act, there are two main ways winding up can occur,
(a) By the court/tribunal
(b) Voluntary winding up.
Winding Up of the company by the Tribunal
a) Circumstances in which company may be wound up [Section 433]- A company may be wound up by the
Tribunal where the petition has been filed with the Tribunal under any of the following circumstances:
 Where the company has, by special resolution, resolved that the company be wound up by the Tribunal.
 Where the company fails to deliver the statutory report to the Registrar.
 Where the company does not commence its business within one year from the date of its incorporation.
 Where the number of its members is reduced below seven incase of the public company and below two
incase of the private company.
 Where the company is unable to pay its debts.
 Where Tribunal is of the opinion that it is just and equitable to wound up the company.
 Where the company is in default of filing its balance sheet or annual return for any five consecutive
financial years.
 Where the company has acted against the interest of sovereignty and integrity of India.
 Where the Tribunal is of the opinion to wound up the company under the circumstances specified in
section 424G (incase of the SICK industries).
b) Application of winding up [Section 439]- An application for winding up of the company shall be by way of
an petition and can be filed 1) by the company or 2) by any creditor or creditors of the company or 3) by any of
the contributory or contributories or 4) by the Registrar or 5) by any person authorized by Central Government
or 6) by State Government and Central Government.
Upon the receipt of the petition the Tribunal will move on with the process of winding up as per the procedure
covered under section 439-481 of the Companies Act.
Voluntary Winding up (Chapter III of Part VII of the Act)
A company may be wound up voluntarily when:
1) The company in a general meeting passes an ordinary resolution for voluntary winding up

29
 (i) Where the period fixed by the Articles of Association for the duration of the company has
expired, or
(ii) The event has occurred on which, under the Articles of Association, the company is to be
dissolved; or
2) If the company resolves by special resolution that it shall be wound up voluntarily. It is important to
highlight that under the Act, a minimum 21 clear days notice is required to be given to convene a general
meeting. However, with consent of shareholders (as per the relevant provisions of the Act), shorter
notice is possible, though practically, for larger public limited companies, obtaining such consent may be
difficult, in which case, they need to follow the 21 clear days notice requirement.
A voluntary winding up is deemed to commence at the time when the resolution for voluntary winding up is
passed as above. Thereafter, notice of the commencement of winding up has to be made in the Official Gazette
(by applying to the Registrar of Companies) within 14 (fourteen) days of the commencement of the winding up.
Further, the notice of the commencement of winding up has to be published in some newspaper circulating in
the district, where the registered office of the company is situated.
From the commencement of winding up, the company shall cease to carry on its business except as may be
required for the beneficial winding up of the company. However, the corporate state and the corporate powers of
the company continue until it is dissolved.
Further, the Act envisages two kinds of voluntary winding up, viz., (a) members’ voluntary winding up and (b)
creditors’ voluntary winding up. The rules highlighted above common to both these processes. However, the Act
stipulates specific provisions with respect to these two kinds of winding up.
(A) Members’ Voluntary Winding Up:
Members’ voluntary winding up is possible only when the company is solvent and is able to pay its liabilities in
full. The following are the important provisions regarding members’ voluntary winding up.
a) Declaration of Solvency [Section 488 of the Act] – Where it is proposed to wind up a company
voluntarily, its directors, or in case the company has more than two directors, the majority of the directors, may
at a meeting of the board, make a declaration verified by an affidavit, to the effect that they have made a full
enquiry into the affairs of the company and that having done so, they have formed the opinion that the company
has no debts, or that it will be able to pay its debts in full within such period not exceeding 3 (three) years from
the commencement of the winding up as may be specified in the declaration. Such declaration, to be effective,
must be made at least 5 weeks before the passing of the ordinary/special resolution in the general meeting
commencing the voluntary winding and has to be delivered to the Registrar of Companies (“ROC”) within the
said period.
b) Appointment and remuneration of liquidators [Section 490] – The company in a general meeting must: -
(i) Appoint one or more liquidators for the purpose of winding up the affairs and distributing the assets of the
company; and
(ii) Fix the remuneration, if any, to be paid to the liquidator or liquidators. Any remuneration so fixed cannot be
increased in any circumstance whatever, whether with or without the sanction of the court. No liquidator shall
take charge of his office unless his remuneration is so fixed.
c) Board’s power to cease- On the appointment of a liquidator, all the powers of the board of directors and the
managing or whole time director or manager shall cease except for purpose of giving a notice of such
appointment to the registrar. But their powers may continue if sanctioned by the general body of the
shareholders or by the liquidator to the extent of the sanction [Sec. 491].
30
d) Notice of appointment of liquidator to be given to Registrar [Sec. 493] – The company must give notice to
the Registrar regarding the appointment of liquidator within ten days of his appointment.
e) Power of liquidator to accept shares, etc. as consideration of sale of property of the company [Sec. 494] –
The liquidator may accept shares, policies, or like interest in consideration of the sale of the company’s
undertakings to another company, with an object to distribute the same amount the members of transferor
company, provided:
(i) A special resolution is passed by the company to that effect; and
(ii) He purchases the interest of any dissenting member at a price to be determined by agreement or by
arbitration.
f) Duty of liquidator to call creditors’ meeting in case of insolvency [Sec. 495] – If the liquidator is at, any time
of the opinion that the company will not be able to pay its debts in full within the period stated in the declaration
of solvency, or that period has expired without the debts having been paid in full, he must forthwith summon
meeting of creditors and must lay before them a statement of the assets and liabilities of the company.
g)Duty of the liquidator to inform the Income-tax Officer – Every liquidator of a company being wound up is to
give notice of his appointment as liquidator to the income tax officer having jurisdiction to access the income of
the company, within thirty days of such appointment as the liquidator will be held as the principal officer of the
company for tax assessment.
h) Duty of Liquidator to call general meeting at the end of each year[Sec. 496] The Liquidator shall call the
general meeting at the end of the every year where the winding up continues for more than one year within three
months from the end of each year or such longer period as Central Government may allow and shall present
before the meeting an accounts of his acts and dealings and of the conduct of the winding during the preceding
year undertaken by him.
i) Final meeting and dissolution [Sec. 497] – Subject to the application of Section 498, as soon as the affairs of
the company are fully wound up, the liquidator shall,
(i) Make up an account of the winding up showing how the winding up has been conducted and the property of
the company has been disposed of; and
(ii) Call a general meeting of the company for the purpose of laying the account before it, and giving any
explanation thereon.[1]
The Liquidator shall send to the Registrar and the Official Liquidator a copy of accounts and shall make a return
to each of them within one week after the meeting and the Registrar upon receipt of such return shall register
the same and the Official Liquidator upon receiving such return have to submit a report to the Tribunal stating
whether the affairs of the company have been conducted in the manner prejudice to the interest of its member or
not.
j) Dissolution of the company – The word ‘dissolution’ implies bringing the existence of the company to an end.
A dissolved company cannot hold any property or be sued in Court of Law. If any property of the company still
remains at the point of dissolution, such property will vest in the government immediately after dissolution. The
liquidator must also become functus officio on dissolution.
(B) Creditors’ Voluntary Winding Up:
The following are the important provisions regarding creditors’ voluntary winding up.
(a) Meeting of the Creditors [Section 500]- Where it is proposed by the creditors’ of the company to wind up
the company voluntary, the meeting of the creditors of the company must be called on the day, or the day next
the following day, on which the general meeting of the company at which the resolution for voluntary winding
31
up is to be proposed and the notice of the meeting of the creditors is to be sent to all the creditors along with the
notice of the general meeting of the company.[2] The Board of Directors of the company shall present before
the creditors full statement of the position of the company’s affair together with the list of creditors of the
company and the estimated amount of their claims.
(b) Notice of resolutions to be given to Registrar [Section 501] – Where at the meeting of the creditors any
resolution is passed, the notice of such resolution shall be given to the Registrar within the 10 days of passing of
such resolution.
(c) Appointment of the Liquidator [Section 501] - The creditors and the company at their respective meetings,
may nominate a person to be the liquidator for undertaking the winding up process, however, where at the
creditors meeting and the meeting of the company different persons are nominated as the liquidator then in that
case the person nominated by the creditors shall be the liquidator of the company.
(d) Appointment of the Inspection committee [Section 503]- The creditors may at the meeting appoint a
committee to inspect the whole procedure of winding up of the company.
(e) Remuneration of the Liquidator [Section 504]- The committee of inspection, if any, or the creditors may fix
the remuneration of the liquidator however where they fails to fix any remuneration in that case the
remuneration of the liquidator is fixed by the Tribunal.
(f) Power of liquidator [Section 505 & 507]– The liquidator of the company shall exercise all the powers as are
vested with the Board of Directors of the company further the provisions of Section 494 (powers of liquidator in
case of members’ voluntary wing up) shall equally apply in the case of creditors voluntary wing up with the
modification that the powers of the liquidator shall not be exercised except with the sanction of either the
Tribunal or the committee of inspection, if any appointed.
(g) Duty of Liquidator to call general meeting at the end of each year [Sec. 508] The Liquidator shall call the
general meeting of the company and the meeting of the creditors at the end of the each year where the winding
up continues for more than one year within three months from the end of each year or such longer period as
Central Government may allow and shall present before the meeting an accounts of his acts and dealings and of
the conduct of the winding during the preceding year undertaken by him.
(h) Final meeting and dissolution [Sec. 509] – As soon as the affairs of the company are fully wound up, the
liquidator shall,
(i) Make up an account of the winding up showing how the winding up has been conducted and the
property of the company has been disposed of; and
(ii) Call a general meeting of the company and a meeting of the creditors for the purpose of laying the
account before it, and giving any explanation thereof.[3]
The Liquidator shall send to the Registrar and the Official Liquidator a copy of accounts and shall make a return
to each of them within one week after the meeting and the Registrar upon receipt of such return shall register
the same and the Official Liquidator upon receiving such return have to submit a report to the Tribunal stating
whether the affairs of the company have been conducted in the manner prejudice to the interest of its member or
not.
i) Dissolution of the company – The word ‘dissolution’ implies bringing the existence of the company to an
end. A dissolved company cannot hold any property or be sued in Court of Law. If any property of the company
still remains at the point of dissolution, such property will vest in the government immediately after dissolution.
The liquidator must also become functus officio on dissolution.

32
 [1] The meeting must be called by advertisement specifying the time, place and object of the meeting,
and must be published at least one month before the meeting in the Official Gazette and also in newspapers
circulating in the district where the registered office of the company is situated.
[2] The notice of such meeting of the creditors must be advertised in the Official Gazette and at least in
two newspapers circulating in the district in which the registered office or the principal office of the company is
situated.
Corporate Governance
Corporate governance is "the system by which companies are directed and controlled". [1] It involves regulatory
and market mechanisms, and the roles and relationships between a company’s management, its board, its
shareholders and other stakeholders, and the goals for which the corporation is governed. In contemporary
business corporations, the main external stakeholder groups are shareholders, debt holders, trade creditors,
suppliers, customers and communities affected by the corporation's activities. [4] Internal stakeholders are the
board of directors, executives, and other employees.
Principles of corporate governance
 Rights and equitable treatment of shareholders: Organizations should respect the rights of
shareholders and help shareholders to exercise those rights. They can help shareholders exercise their
rights by openly and effectively communicating information and by encouraging shareholders to
participate in general meetings.
 Interests of other stakeholders: Organizations should recognize that they have legal, contractual,
social, and market driven obligations to non-shareholder stakeholders, including employees, investors,
creditors, suppliers, local communities, customers, and policy makers.
 Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to
review and challenge management performance. It also needs adequate size and appropriate levels of
independence and commitment
 Integrity and ethical behaviour: Integrity should be a fundamental requirement in choosing corporate
officers and board members. Organizations should develop a code of conduct for their directors and
executives that promotes ethical and responsible decision making.
 Disclosure and transparency: Organizations should clarify and make publicly known the roles and
responsibilities of board and management to provide stakeholders with a level of accountability. They
should also implement procedures to independently verify and safeguard the integrity of the company's
financial reporting. Disclosure of material matters concerning the organization should be timely and
balanced to ensure that all investors have access to clear, factual information.
Importance of Corporate Governance :
1. Changing Ownership Structure : In recent years, the ownership structure of companies has changed a
lot. Public financial institutions, mutual funds, etc. are the single largest shareholder in most of the large
companies. So, they have effective control on the management of the companies. They force the
management to use corporate governance. That is, they put pressure on the management to become more
efficient, transparent, accountable, etc. The also ask the management to make consumer-friendly
policies, to protect all social groups and to protect the environment. So, the changing ownership
structure has resulted in corporate governance.

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 2. Importance of Social Responsibility : Today, social responsibility is given a lot of importance. The
Board of Directors have to protect the rights of the customers, employees, shareholders, suppliers, local
communities, etc. This is possible only if they use corporate governance.
3. Growing Number of Scams : In recent years, many scams, frauds and corrupt practices have taken place.
Misuse and misappropriation of public money are happening everyday in India and worldwide. It is
happening in the stock market, banks, financial institutions, companies and government offices. In order
to avoid these scams and financial irregularities, many companies have started corporate governance.
4. Indifference on the part of Shareholders: In general, shareholders are inactive in the management of their
companies. They only attend the Annual general meeting. Postal ballot is still absent in India. Proxies
are not allowed to speak in the meetings. Shareholders associations are not strong. Therefore, directors
misuse their power for their own benefits. So, there is a need for corporate governance to protect all the
stakeholders of the company.
5. Globalization : Today most big companies are selling their goods in the global market. So, they have to
attract foreign investor and foreign customers. They also have to follow foreign rules and regulations.
All this requires corporate governance. Without Corporate governance, it is impossible to enter, survive
and succeed the global market.
6. Takeovers and Mergers: Today, there are many takeovers and mergers in the business world. Corporate
governance is required to protect the interest of all the parties during takeovers and mergers.
7. SEBI : SEBI has made corporate governance compulsory for certain companies. This is done to protect
the interest of the investors and other stakeholders.

UNIT III
INDUSTRIAL LAW
UNIT III INDUSTRIAL LAW
An Overview of Factories Act, Payment of Wages Act, Payment of Bonus Act, Industrial
Disputes Act.

INTRODUCTION
In common parlance, invariably factory and industry are understood as interchangeable. This is incorrect. The
term industry refers to a steady and systematic activity in which a trade is organized, whereas a factory is the
place where such activities are being carried on. The entire day-to-day administration of the factories is
governed by the principal Act of 1948 amended Act, which is an improvement of 1934 Act. This Act extends to
the whole of India, including Jammu and Kashmir. Unless otherwise provided, it also applies to factories
belonging to the Central and State Governments. (Section 116) The Bhopal tragedy of 1984 has created
awareness among the public for preventing pollution and this has made the government to take steps in
amending the present 1948 Act by incorporating Chapter IV A from Sections 41 A to 41 H, pertaining to
provisions as regards hazardous processes.
Factories Act 1948
In India the first Factories Act was passed in 1881. This Act was basically designed to protect children and to
provide few measures for health and safety of the workers. This law was applicable to only those factories,
which employed 100 or more workers. In 1891 another factories Act was passed which extended to the factories

34
employing 50 or more workers. ―Factory‖ is defined in Section 2(m) of the Act. It means any premises
including the precincts thereof- i. Where on ten or more workers are working, or were working on any day of
the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid
of power, or is ordinarily so carried on; or ii .Where on twenty or more workers are working, or were working
on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried
on without the aid of power, or is ordinarily so carried on; But does not include a mine subject to the operation
of the MinesAct,1952 or a mobile unit belonging to the Armed forces of the Union, a railway running shed or a
hotel, restaurant or eating place.
OBJECT OF THE ACT
The object of the Factories Act of 1948 is (a) To improve health, welfare and safety of the workmen. (b) To
regulate by imposing restriction as to hours of work including rest and provisions for availing of leave. (c) To
make stringent provisions as regards employment of women and young persons and duration of their work.
MEANING OF THE TERM ‘FACTORY’
Factory means any premises including the precincts therefore –
(i) Wherein ten or more workers are working or were working on any day of the preceding twelve months,
and in any part of which a manufacturing process is being carried on with the aid of power, or is
ordinarily so carried on, or
(ii) (ii) Whereon twenty or more workers are working or were working on any day of the preceding twelve
months, and in any part of which a manufacturing process is being carried on without the aid of power,
or is ordinarily so carried on. Factory does not include a mine as it is covered by Indian Mines Act,
1952 or a mobile unit belonging to the armed forces of the Union, a railway running shed or a hotel,
restaurant or eating place.
To put it in a nutshell, factory means (i) any premises including precincts (ii) where ten or more persons are
engaged in manufacturing process with the aid of power or (iii) twenty or more persons are engaged in
manufacturing process without the aid of power.
HEALTH (SECTIONS 11 TO 20)
1. Cleanliness (Section 11) : Housekeeping is the modern term used for keeping the factory premises clean and
tidy. Factories must not only be kept clean but must be maintained with cleanliness in such a way that
accumulation of dirt and refuse must be avoided. Constant cleaning of effluvia (disagreeable vapours) arising
from any drain is needed. Removal of dirt and refuse alone is not enough, but they have to be disposed of in a
suitable manner without, causing detriment to the residents of the locality.
2. Disposal of wastes and effluents (Section 2) : Wastes and effluents are to be disposed of in order to maintain
the hygiene inside the factory. However, such wastes cannot be let out without treatment. This is because wastes
would pollute the surroundings. Norms laid down by the State Pollution Control Board have to be observed
strictly in this regard.
3. Ventilation and Temperature (Section 13): Ventilation and air circulation ensure normal health to the
workmen. In order to maintain ventilation and fresh air circulation, temperature in the working place should be
secured. For this purpose, the interior walls and roofs of the factory must be properly designed and provided
with heat resisting or heatproof materials by way of insulation. Reasonable care should be taken for colour
washing interior walls with psychologically pleasing colours such as light green, etc.
4.Dust and Fumes (Section 14) : Effective measures have to be adopted in order to prevent the workers
inhaling dusts, fumes and other impurities that are present (which cannot be seen through naked eye) in the air.
35
 Control devices or tools have to be used for the purpose of preventing dust and fumes. Use of exhaust fans is
highly recommended in such places. No stationary internal combustion engine is allowed to be operated unless
proper arrangements are made to prevent accumulation of injurious fume are caused thereon. [Gregeon vs. Hick
Hargreavaes (1955) All E.R.860].
4. Artificial Humidification (Section 15) : In factories where artificial humidification is adopted from the point
of view of manufacturing a product (e.g., in a textile mill), the norms prescribed by the Government must be
strictly followed for increasing or decreasing or maintaining such artificial humidification, Humidifiers for
keeping air moisture at even level shall be provided. Water used in these plants must constantly be changed and
it must be pure. Otherwise it will give room for water borne diseases among workers.
5. Overcrowding (Section16) : Every worker requires at least 350 cubic feet (now after the commencement of
the Act, 500 cubic feet) for the purpose of enabling him to work with ease and comfort ensuring mobility.
However, while calculating the aggregate space, no account shall be taken of any space, which is more than 14
feet above the level of the floor. The Chief Inspector of Factories, by notice may specify the number of persons
to be employed in a room.
6. Lighting (Section17) : Too much light throws glare on normal vision. Diffused light does not help to
promote proper vision. Hence, the required light with minimum power must be provided. Glazed windows and
sky lights through which rooms are ventilated have to be constantly cleaned from the inner and outer surfaces.
Glares and shadows must be avoided from distorting the vision of eye. Otherwise, workmen would strain their
eyes leading to risks.
7. Drinking water (Section18) : Potable, pure or wholesome drinking water shall be made available to
workmen at convenient points, A notice board must be displayed indicating availability of such facility. The
notice shall also contain the caption,’drinking water’ in local language. If the strength of the workers increases
beyond 250, cool water equipment must be provided to ensure supply of chilled water. The points at which
drinking water is supplied shall legibly marked “Drinking water” in a language understood by a majority of
employees. Such water points must be located beyond 6 meters or any washing place, urinals, latrine, spittoon
and open drainage, carrying silage or effluent. Shorter distance shall be permitted for locating water points only
with the approval of Chief Inspector of Factories.
8.Latrines and Urinals (Section 19) : For a human being, two places are very important and both of them have
to dept clean and tidy. They are – (i) Latrines and urinals; (ii) Places where people rest and relax.
Factories where more than 250 workers are ordinarily employed, the latrine and urinal accommodation shall be
of the prescribed sanitary type. The floors and internal walls upto a height of 3 feet and above from the floor
level should be laid in glazed tiles. If tiles are not provided for, the latrines cannot be dept clean, as the bad
water would pass through the pores of latrine walls.
Sweepers shall be employed whose primary duty is to keep the latrines and urinals clean and washing places
tidy.
9. Spittoons (Section 20) : Spittoons are nothing but pots that are specially provided for, into which, the
workers have to spit. Workers cannot spit, as they like, as that would spoil the cleanliness and hygiene of the
factory. Sufficient number of spittoons should be provided, taking into account the number of persons
employed. A fine of Rs.5 would be imposed on any one who violated the rule.
SAFETY (Sections 21 to 40) Safety is prior to security. According to this concept, the present Factories Act
ensures several safety measures as sound in Sections 21 to 40, which are enumerated below:
1. Fencing of Machinery (Section 21) In every factory the following namely,
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  Every moving part of a prime mover, and every fly-wheel connected to a prime mover, whether the
prime mover or fly-wheel is in the engine house or not;
 The headrace and tailrace of every water wheel and water-turbine;
 Any part of a stock-bar, which projects beyond the headstock of a lathe;
 Every part of an electric generator, a motor or rotary converter;
 Every part of transmission machinery; and
 Every dangerous part of any other machinery must be fenced in a secured manner by substantial
construction, which should be constantly maintained. They have to be dept in proper position when the
parts of machinery are in motion (Section 21).
The manager of the factory should take particular care to provide safeguard devices to deep the machine intact,
so that it cannot come into contact with workers and thereby cause injury.
2.Work on or near Machinery in motion (Section 22) :Such of those parts of machine that are in motion may
have to be constantly examined in order to ensure that there is no friction, The examination, including
lubrication on these moving parts of the machinery must be done only by the adult male workers with tight
fitting clothes, It is better such tight fitting clothes are supplied by the occupier.
3. Employment of Young person’s on Dangerous machines (Section 23): Where complex machinery is
functioning in a factory, it becomes very essential to stop any machinery either by striking a gear or for cutting
off power. In old type of machines, driving belts were mounted on fast and loose pulleys. They were used
forming part of transmission machinery. Hence, power must be cut off in order to prevent the driving belts
riding upon moving shafts. Suitable, efficient mechanical device must be provided for instantaneously stopping
the machines.
4. Self-acting Machines (Section 25) : In a factory, traversing part of a self acting machine together with a
material carried on by it could be allowed to run over a space under which any person is liable to pass.
However, such machinery shall be allowed to traverse both outward and inward directions only beyond a
distance of 45 cms from any fixed structure. The fixed structure shall not be part of the machine. Workers must
be capable of passing under the moving part of self-acting machine in connection with their employment.
5. Casing of new machinery (Section 26) : Power driven machinery, revolving shaft, spindle wheel and pinion
should be properly encased, i.e., covered and guarded effectively. Spur wheel, helical wheel, fly wheel, friction
gear not requiring adjustments which are in constant motion should be safely encased. Even hiring these
machines without the safeguards is punishable with fine upto Rs.500 and imprisonment for 3 months or both.
6. Prohibition of Employment of Women and Children near Cotton openers (Section27) : Women and
children are generally prohibited in being employed in pressing cotton in which a cotton opener is at work. If
the feed end of a cotton opener is portioned by a separate wall or screen extending upto the ceiling or roof from
the delivery end, then women and children could be employed on the side of the feeding end and definitely not
at the delivery end.
7. Hoists and lifts (Section28) : In a factory where hoists and lifts are in use, their construction must have been
done out of quality materials with adequate strength to withstand the strain of weight. Such lifts should be fitted
with gates and enclosures. Lifts have to be thoroughly examined at least once in six months by competent
persons, besides this, routine and other examinations have to be conducted. Entries have to be made recording
the date of examination.
8. Lifting machine, chains, and ropes and lifting tackles (Section29) : Lifting machines and cranes that are
used in a factory must be properly fastened and strongly coupled with chains and ropes. These chains and ropes
37
tied up with the hoists sufficiently protect the lifts and cranes in contingencies like power failure or mechanical
failure. The lifts should be fitted with ropes or chains connected with a cage so that the balance could be
maintained with weights. The chief Inspector of factories has to ensure whether these lifts and cranes including
the ropes are maintained properly.
9. Revolving machinery (Section 30): In the case of use of revolving or grinding machines, it is necessary that
the optimum speed should be indicated for the safe working of the machine. Although indications may be there
signifying the maximum speed, the optimum speed must be written on the machine for the safe use of it. This
would enable prevention of risk to the user and reduction of strain to the machine. Such a notice must be
displayed on the peripheral space of the grinding stone, abrasive wheel, etc.
10. HAZARDOUS PROCESSES Section 41-A-41-H: Hazardous process has become an important subject
after the Bhopal gas tragedy. Precautionary measures and for handling situations involving hazardous processes
have been highlighted under Chapter IV-A. What is hazardous process has become a major issue, so as to
enforce the provisions under Chapter IV-A. It is for this reason; a new concept under hazardous processes has
been introduced with effect from 1.10.1987.
With view to avoid hazards, in storing, handling, transporting and using dangerous materials, these new
provisions have been provided by way of addition to the existing ones under safety measures.
WELFARE OF WORKERS The present Factories Act has provided several measures under Chapter V for
welfare of the workers under Sections 42 to 48, dealing with washing facilities, facilities for storing and
dressing, facilities for sitting, First-aid appliances, canteen, shelter, rest rooms, lunch rooms and crèches
Washing facilities (Section 42) : Suitable and adequate washing facilities, as prescribed by the State government
have tobe provided separately and exclusively for male and female workers. These places should be accessible.
Facilities for storing and drying clothes (Section 43) : Suitable places must be provided by the occupier to
enable the workers to keep their clothes safe so that there is no risk of theft in that place.
Sitting Facilities (Section 44) : Arrangements shall be made for workers to sit and take rest where their work
involves a standing posture.
First Aid appliances (Section 45) : The term first aid itself signifies immediate medical help required by the
affected parties. First aid boxes containing essential medicines, including cotton must be provided for every
department with not less than 150 workers. Where in a factory, 500 or more workers are employed, the occupier
should provide an ambulance room, which is indispensable in the matter of giving medical attention to workers
who have e sustained serious injuries.
Canteen (Section 46) : Factories employing 250 or more workers shall provide one or more canteens as per the
rules of the State government. A managing committee consisting of representatives of employees and employers
should manage such canteens.
Shelters, rest rooms and lunch rooms (Section 47) : Suitable shelters, rest rooms, lunch rooms with provision
for drinking water shall be provided for every factory employing 150 or more workers.
Creches (Section 48) : Creche is a room or place for accommodating children below the age of six. Such
creche must be properly lighted and adequately ventilated. Trained women assistants shall be employed to
attend to the children and maintain them clean and healthy.
Welfare Officers (Section49) : In factories, where 500 or more workers are employed, there shall be such
number of qualified welfare officers employed by the management as per norms prescribed by the State
government regarding their qualification, duties and conditions of service.

38
WORKING HOURS, HOLIDAYS & ANNUAL LEAVE Adult [Section 2(a)], Adolescent [Section 2(b)] and
Child [Section 2(c)] An adult is a person who has completed the age of 18. An adolescent is a person who has
completed the age of 15 but has not completed the age of 18. A child is a person who has not completed the age
of 15.
It is very important to note that according to Section 67, a child who has not completed the age of 14 cannot be
employed to work in a factory.
Working Hours Weekly hours (Section 51): No adult worker shall be required or allowed to work in a factory
for more than 48 hours in a week. At present it is reduced to 40 hours.
Work not done in the factory under direction of office will not be counted. [Superintendent & Remembrancer of
Legal Affairs, Bengal Vs. J.J. Andrews, (1931) I.L.R. 50 Cal. 519].
Daily Hours (Section 54): No adult worker shall be required or allowed to work in a factory for more than 9
hours in any day and 40 hours in a week. However, to facilitate the change of shift, this limit may be exceeded,
subject to the previous approval of the Chief Inspector of factories.
Where work of the same kind is carried out by two or more sets of workers working during different periods of
the day, each of such sets is called a “group” or “relay” and each of such periods is called “shift” [Section 2(r)].
Classification of Workers: The manager of the factory shall classify the workers into such groups, as he may
deem fit and proper. This would depend upon the nature of work, the number of workers in each group, wherein
all the adult workers are not required for such work during the same period [Section 61 (4)]. For each group,
which is not required to work on a system of shifts, the manager of the factory shall fix the periods during
which the group may be required to work. [Section 61 (5)].
Group working on a system of shifts : The manager shall fix the period during which each relay of the group
may be required to work on shifts.
This is done in spite of the reason that there is already a pre-determined schedule that has been fixed as a system
specifying the shift in which the respective relays have to work [Section 61 (6)].
Register of Adult Workers (Section 62) : Registers disclosing the particulars of adult workers working in the
factory shall be maintained by the manager incorporating the changes from time to time. Registers shall show
(a) the name of each adult worker in the factory, (b) the nature of his work, (c) the group, if any, in which he is
included, (d) the place or spot where his group works on shifts, the relay to which he is allotted; and (e) such
other particulars as may be prescribed.
Work in accordance with Notice (Section 63) : All adult workers who are required or allowed to work in the
factory, shall be in accordance with the notice periods of work as displayed on the general notice board and in
conformity with the entries made in the register of adult workers.
It shall be the duty of the occupier or manager in the factory, not to allow any adult worker beyond the
stipulated period of hours of work. Furthermore, he shall not allow the total number of workers to exceed the
number that has already been notified and allocated for work. The plea of payment of overtime wages would not
justify employing a worker to do work beyond the usual hours of work.
HOLIDAYS (SECTIONS 52 & 53) No adult worker shall be required or allowed to work in a factory, on the
first day of the week, which is a Sunday. This would mean that a worker shall have a holiday for every six days
of continuous work.
However, the manager may call upon a worker to work on a Sunday. In such cases, one day holiday must be
given either out of the 3 days preceding the Sunday or out of the 3 days succeeding the Sunday. Before making

39
this arrangement, a manager shall deliver a notice to the office of the inspector expressing his intention to that
effect.
Furthermore, notice must also be displayed in the factory, intimating such change. No substitution can however
be made, in such a way that it makes a worker to work for more than l0 days consecutively. Sunday, shall for the
purpose of calculating weekly hours of work be included in the preceding week, where any worker works on a
Sunday.
Compensatory Holidays : It is mandatory that a worker shall be allowed compensatory holidays of equal
number to the holidays so lost. This arises on account of the worker being deprived of the weekly holidays
under Section 52 made by the State Government exempting the factory from such provisions. The
compensatory holidays must be allowed to the workman within 2 months or within a month in which the
substitution of such holidays becomes due. The manner in which compensatory holidays has to be allowed, is
prescribed by the State Government.
ANNUAL LEAVE WITH WAGES (SECTION 79 TO 82) Section 78 to 84 of the Factories Act deal with
annual leave with wages. If any award or agreement including settlement or contract of service provides for a
longer annual leave with wages under provisions of Section 79 to 82, the worker shall be entitled to such leave.
But there cannot be any award or settlement reducing the annual leave as provided under the Act.
THE PAYMENT OF WAGES ACT, 1936
OBJECT OF THE ACT
To regulate the payment of wages to certain classes of employed persons. Two fold:- First the date of payment
of wages and Secondly the deductions from wages whether as fine or otherwise. APPLICABILITY OF THE
ACT Persons employed in:- Any factory (a saw mill, ginning factory, godowns, yards etc as defined in Factories
Act, 1948). Tramway service or motor transport service engaged in carrying passengers or good or both by road
for hire or reward. Air transport service Dock, Wharf or Jetty, Inland vessel, mechanically propelled Mine,
quarry or oil-field plantation
Workshop or other establishment etc. WAGE includes any remuneration:- Payable under any award or
settlement between the parties or order of a Court; Over time work or holiday or any leave period; Any
additional remuneration under the terms of employment. Wage does not include any bonus, pension fund or
provident fund, traveling allowance and any gratuity.
WAGES TO BE PAID IN CURRENT COINS OR CURRENCY NOTES
a. All wages shall be paid in current coins or currency notes or in both. After obtaining the authorization, either
by Cheque or by crediting the wages in employees baThe nks Account {Section 6}
TIME OF PAYMENT OF WAGES the wages of every person employed is paid. When less than 1000 persons
are employed shall be paid before the expiry of the 7th day of the following month. When more than 1000
workers, before the expiry of the 10th day of the following month. (Section 5). Drawing average wage upto
Rs.6500 pm as amended with effect from 6th September 2005.
COVERAGE OF EMPLOYEES DEDUCTION MADE FROM WAGES Deductions such as, fine, deduction
for amenities and services supplied by the employer, advances paid, over payment of wages, loan, granted for
house-building or other purposes, income tax payable, in pursuance of the order of the Court, Provident Fund
contributions, cooperative societies, premium for Life Insurance, contribution to any fund constituted by
employer or a trade union, recovery of losses, Employees State Insurance contribution etc. (Section 7).
DEDUCTION FOR ABSENCE FROM DUTIES FOR UNAUTHORISED ABSENCE for whole or any part of
the day – If ten or more persons absent without reasonable cause, deduction of wages upto 8 days {Section 9}
40
For default or negligence of an employee resulting into loss. Show cause notice has to be given to the employee.
{Section 10}
DEDUCTION FOR DAMAGE OR LOSS DEDUCTIONS FOR SERVICE RENDERED When
accommodation amenity or service has been accepted by the employee. {Section 11} Deductions for recovery
of Advance. Deduction for recovery of loans. Deductions for payment to co-operative societies and Insurance
schemes.
AUTHORITIES UNDER THESE ACT INSPECTORS. AUTHORITY TO HEAR CLAIMS.
Any commissioner for Workmen‘s Compensation; or Any Regional Labour Commissioner Any Assistant
Labour Commissioner. Presiding Officer of any Labour Court or Industrial Tribunal.
PRESENTATION OF CLAIM APPLICATION SINGLE APPLICATION IN RESPECT OF CLAIMS FROM
UNPAID GROUP APPEAL
Payment of Bonus Act, 1965.
Applicability: Applicability Every factory or an establishment employing not less than 20 employees during an
accounting year. The establishment once covered under the Act shall continue the coverage even if the number
of employees falls below 20 subsequently.
Employee:
Employee: any person other than apprentice engaged for hires or rewards Includes supervisors Includes
Managers. Includes all administrative staff. Includes a person who has worked not less than 30 days in an
accounting year. But does not include any person whose salary exceeds 10000/- pm.
Can a person drawing wages more than 10000 make a claim? :
Can a person drawing wages more than 10000 make a claim? No. It is not maintainable under the Act.
Maximum salary: Maximum salary Employees drawing salary upto Rs. 10000/- are eligible for Bonus. But
their salary will be limited to Rs. 3500/- for the purpose of Bonus. Max and Min Bonus: Max and Min Bonus
Maximum of 20% and Minimum of 8.33% of the Salary/ Wages. Maximum amount of Bonus is limited to
Rs.84000/- (3500x12x20/100)
Can Bonus be denied to an employee on the condition that on the day of declaration of Bonus he was not
in employment? : Can Bonus be denied to an employee on the condition that on the day of declaration of
Bonus he was not in employment? NO. It violates the provisions of Sec. 8 of the Act.
Whether a Probationer is eligible for Bonus? : Whether a Probationer is eligible for Bonus? A probationer
will be eligible for bonus as there is no exclusion in the definition of ‗employee’ under the Act.
Forfeiture of Bonus. : Forfeiture of Bonus. Sec. 9.Bonus can be forfeited to an employee who has been
dismissed from service on grounds of fraud, theft, misappropriation, or sabotage of any property of the est
The Industrial Disputes Act, 1947
The Industrial Disputes Act, 1947 extends to whole of India. It came into operation on the first day of April,
1947. This Act replaced the Trade Disputes Act of 1929. The Trade Disputes Act imposed certain restraints on
the right of strike and lockout in Public Utility Services. But no provision was existing for the settlement of
Industrial Disputes, either by reference to a Board of Conciliation or to a Court of Inquiry. In order to remove
this deficiency, the Industrial Disputes Act, 1947 was passed.
Industry - Industry means any business, trade, undertaking, manufacture or any service, employment,
handicraft or industrial occupation or vocation of workmen
Industrial Disputes - Industrial Dispute is :
(1) a dispute or difference between
41
 (a) Employers and employers, or (b) employers and workmen, (c) workmen and workmen;
(2) The dispute or difference should be connected with (a) employment or . non employment, or (b) terms of
employment, or (c) conditions of labour of any person; .
(3) the dispute may be in relation to any workman or workmen or any other person in whom they are interested
as a body
lay Off - Means putting aside workmen temporarily. The duration of lay off should not be for a period longer
than the period of emergency. The employer-employee relationship does not come to an end during the period
of lay-off but is merely suspended during the period of emergency.
Any such refusal or failure to employ a workman may be on account of:
(i) shortage of coal, power or raw materials or
(ii) the accumulation of stock; or
(iii) the breakdown of machinery; or
(iv) natural calamity; or
(v) any other connected reasons.
Lock out - Means the closing of a place of employment, or the suspension of work, or the refusal by an
employer to continue to employ any number of persons employed by him. While strike is a weapon in the hands
of the labour to force the management to accept their demands, lockout is a weapon in the hands of the
management to coerce the labour to come down in their demands relating to the conditions of employment.
Lockouts has been described by the Supreme Court as the antithesis of strike.
Retrenchment - Means the discharge of surplus labour or staff by the employer for any reason What-so-ever.
'The term "retrenchment" defines under the section 2(00) may be analyzed as:
(1) Retrenchment means the termination by the employer of the services of a workman.
(2) The termination may be for any reason what so ever.
(3) But the termination should not be as a measure. of punishment by way of disciplinary action.
Conditions of retrenchment:
According to Sec. 25F of the Act no workman employed in any industry who has been in continuous service for
not less than one year under an employer shall be retrenched by the employer until: .
(a) the workman has been given one month's notice in writing indicating the reasons for retrenchment, or the
workman has been paid in lieu of such notice, wages for the period of notice;
(b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to 15 days
average pay for every completed year of continuous service or any part thereof, in excess of 6 months, and
(c) Notice in the prescribed manner is served on the appropriate Government or such authority as may be
specified by the appropriate Government by notification in the Official Gazette.
Difference between lockout and lay-off:
(1) Lockout is an act on the part of the employer to pressurise the labour; while layoff is for trade
reasons, beyond the control of the employer; i.e., it is not intentional act.
(2) Lockout is exercised due to an industrial dispute and continues during the period of dispute; layoff is
not necessiorily concerned with dispute with workmen.
Difference between lock-out and retrenchment:
1. Temporary or permanent: Lockout is temporary measure, while retrenchment is permanent.
2. Relationship: In lockout the relationship of employer and employee is only suspended; it does not come to an
end. In retrenchment such a relationship is severed at the instance of the employer.
42
 3. Motive: Lockout is with a motive to coerce the workmen; the intention of retrenchment is to dispense with
surplus labour.
4. Trade dispute: Lockout is due to an industrial dispute, whereas in case of retrenchment, there is no such dispute
Difference between lock-out and closure
1. Temporary/Permanent: Lockout is temporary measure, whereas closure is permanent.
2. Weapon of coercion: Lockout is a weapon of coercion in the hands of employer; while closure is generally made
for trade reasons.
3. Trade Dispute: Lockout is declared during an industrial dispute, while in case of closure, there need not be any
dispute
Difference between retrenchment and closure
1. Retrenchment affects only some of the workman, whereas closure affects all workman.
2. In retrenchment the trade or business remains uninterrupted as it continues; while in closure the business itself
is discontinued.
Strike - Strike means (1) cessation of work by a body of persons employed in any industry acting in
combination, or (2) a concerted refusal of any number of persons who are or have been employed in any
industry to continue to work or to accept employment; or (3) to refusal under a common understanding of any
number of persons who are or have been employed in industry to continue to work or to accept employment.

Authorities under the ACT

Power and Duties
The adjudication of industrial disputes has been kept out of the jurisdiction of Municipal Courts at the
first instance so that effort may be made for settlement of such disputes through some other agencies. The
various modes of settlement of industrial disputes provided by the Act. may be classified under three heads: (1)
Conciliation (2) Adjudication and (3) Arbitration
Authorities make use of conciliation
The authorities that make use of conciliation on the sole method of settlement of disputes are:
(1) Works Committee
. (2) Conciliation Officer
(3) Board of Conciliation
The adjudicating authorities that decide any dispute under the Act. are:
(1) Court of Inquiry
(2) The Labour Court
(3) Industrial Tribunal;
(4) National Tribunal, and
Sec. 10-A of the Act. makes provision for voluntary reference of disputes to arbitration. Apart from the
above, provision has also been made for constitution of Court of Inquiry, whose main function is inquire into
any matter appearing to be connected with or relevant to an industrial dispute
1. Work committee (Sec.3)
The works committee is considered to be powerful social institution only to secure cooperation between
workers and employers, but to make the will of the employees effective on the management. According to sec.3
of the Industrial Disputes Act, 194"1, in the case of an industrial establishment in which 100 or more workmen
are employed or have been employed oh any day in the preceding 12 months, the appropriate Government may,
43
 by general or special order, require the employer to constitute a Works committee consisting of representatives
of employers and workmen engaged in the establishment. The number of representatives of workmen on Works
Committee shall be not being less than that of the representatives of the employers.
The representatives of the workmen shall be chosen from among the workmen in consultation with their trade
union, if any registered under the Indian Trade Union Act.1926. .
The duties of the Works Committee are to promote measures for securing and preserving amity and good
relations between the employers and workmen and to comment upon matters of their interest or concern and to
endeavour to compose any material difference of opinion in respect of matters of common intents or concern of
employers and workmen.

2. Conciliation Officers (Sec.4)

The appropriate Government may by notification in the official gazette, interest appoint conciliation
officers for any specified area or for one or more specified industries, either permanently or for a limited
period of time. Conciliation officers are charged with the duty of holding conciliatory proceedings for the
purpose of bringing about a fair and amicable settlement of any industrial dispute. The jurisdiction, powers and
other matters in respect of the Conciliation Officer ~hall be published in the Gazette
Powers of Conciliation Officer: According to Sec.11 of the Act, conciliation officer may, for the purpose of
inquiry into any existing or apprehended industrial dispute, after giving reasonable notice, enter the premises
occupied by any establishment which the dispute relates. He may call for and inspect any document which he
has ground for considering being relevant to the industrial dispute or being necessary for the purpose of
verifying the implementation of any award or carrying out any duty imposed on him under the Act. and for the
aforesaid purposes. He will have the same powers as one vested in a Civil Court, in respect of compelling the
production of documents.
Under Sec 11(6), Conciliation Officers are members of Board or Court and the Presiding Officer of
Labour Court Tribunal or National Tribunal shall be deemed to be public servants within the meaning of
Sec.21 of IPC.
Duties of Conciliation Officers (sec.12):
For the purpose of bringing about fair and amicable settlement of an industrial dispute, the Conciliation
Officer is required to discharge the following duties- .
(1) where any industrial dispute exists or is apprehended, the Conciliation Officer, shall hold
conciliation proceedings. He will interview both the workmen concerned with the dispute and
endeavour to bring about a settlement.
(2) The conciliation Officer shall, for the purpose of bringing about a settlement of the dispute,
investigate the dispute and all matters affecting the merits and the right settlement thereof and
may do all such things as he thinks fit for the purpose of inducing the parties to come to a fair
and amicable settlement of the dispute. .
(3) If a settlement of the dispute or of any of the matters in dispute is arrived at in the course of the
conciliation proceedings, the Conciliation Officer shall send a report thereof to the settlement
singed by the parties
to dispute. .

44
 (4) If no such settlement is arrived at, the Conciliation Officer shall, as soon as practicable after the
close of the investigation, send to the appropriate Government a full report setting forth the steps
taken by him for ascertaining the facts and circumstances relating to the dispute and for bringing
about a settlement thereof, together with a full statement
of such facts and circumstances, and the reasons on account of which, in his opinion, a
settlement could not be arrived at.
(5) The report must be submitted within 14 days of the commencement of the conciliation
proceedings or within such shorter period as may be fixed by the appropriate Government:
provided that, subject to the approval of the Conciliation Officer, the time for the submission of
the report may be extended by such period as may be agreed upon in writing by all the parties to
the dispute.
(6). If, on a consideration of the report in respect of failure of settlement, the appropriate Government
is satisfied that there is a case for reference to Board, Labour Court, Tribunal or National
Tribunal, it may make such reference. Where the Government does not make such a reference, it
shall record and communicate to the parties concerned it's reasons thereof
3 Board of Conciliation (Sec.5)
The appropriate Govt. may as occasion arises by notification in the in the Official Gazette constitute a
Board of Conciliation for promoting the settlement of an industrial dispute. A Board shall consist of a Chairman
and two or four other members, as the appropriate Government thinks fit. The Chairman shall be an independent
person and shall be appointed on the recommendation of the party they represent. The quorum for a meeting is
two where the total number is three and three where the number is five. A Board, having a quorum, may act
notwithstanding the absence of the chairman or any of its members, or any vacancy in it's number. But; if the
Government informs the board that the services of the Chairman or any other member have ceased to be
available, the board must not act until a new Chairman or member has been appointed.
Powers of Conciliation Officer
Conciliation Officer has all powers of a Civil Court when trying a suit in respect Duties of Conciliation Officer
(Sec.13)
Conciliation Officer has to endeavour to bring about a settlement of a dispute referred to him and to do
anything to induce the parties to come to a fair and amicable settlement. Where a settlement is reached a similar
report and a memorandum of settlement have to be submitted to the appropriate Government. But in case of
failure, apart from furnishing all the details as required in the case of a report, by a Conciliation Officer, he is
also required to submit his recommendations for the determination of the dispute. The time limit prescribed for
submission of such reports is 2 months of the date on which the dispute was referred to him or within such
shorter period as may be fixed by the appropriate Government or all the parties to the dispute may, however,
further extend the period by agreement in writing. Where a dispute, in which the Board has failed to bring
about a settlement, relates to a public utility service and the Government does not refer it to a Labour Court,
Tribunal or National Tribunal, he must inform the parties concerned the reasons for not doing so.
Courts of Inquiry (Sec.G)
The appropriate Government may, as occasion arises, by notification in the official Gazette, constitute a
Court of Inquiry for inquiring into any matter appearing

45
to be connected with or relevant to an industrial dispute. Such a Court may consist of one or more independent
persons, as the Government may appoint. Where it consists of more than one member, one of them shall be
appointed as Chairman. The Court having the prescribed quorum may act even if the Chairman or a member is
absent; but not if the services of the Chairman have ceased to be available, and on other Chairman has beer'
appointed. The Court shall inquire into the matters referred to it and report thereon to the appropriate
Government within 6 months from the date of commencement of the inquiry.
Members of Court of Inquiry shall deemed to be public servants within the meaning of Sec. 21 of IPC.
The Court of Inquiry, if it so thinks fit, appoint one or more persons having special knowledge of the matter
under consideration as assessor or assessors to advise it In the proceeding before it.
On a perusal of the relevant Sections 22, 23 and 33 of the Act. relating to the Court during the
pendency of a proceeding before a Court of Inquiry, the following right remain unaffected, such as:
(i) The right of a workman to go on strike
(ii) The right of an employer to lookout his business. and
(iii) The right of the employer to dismiss or otherwise to punish the workman in certain cases under
Sec.33
Duties of Courts of Inquiry (Sec. 14)
The Court of Inquiry of shall inquire into the matters referred to it and the
report of Inquiry thereon be presented before the appropriate Government; ordinarily within a period of 6
months from the commencement of inquiry.
The report of the Court of Inquiry shall be in writing and be signed by all the members of the Court,
provided that a member may record a minutes of dissent also. Labour Court
The appropriate Government may, by notification in the Official Gazette, constitute one or more
Labour Courts for the adjudication of industrial disputes relating to any of the following matters or for
performing such other function as may be assigned to them under the Act. The functions of the Labour Court
as provided in the
. Act. are:
(i) Adjudication of industrial disputes relating to any matter specified in the
Second Schedule
(ii) Performing of such other functions as may be assigned to them under this Act. 1 he following
matters are specified in the Second Schedule, namely
(i) The propriety or legality of an order passed by an employer under Standing Orders; .
(ii) The application and interpretation of Standing Orders;
(iii) Discharge or dismissal of workman including re-instatement of, or grant of relief to; workmen
wrongfully dismissed;
(iv) Withdrawal of any customary concession or privilege;
(v) Illegality or otherwise of a strike or lockout; and
(vi) All matters other than those specified in the Third Schedule.
. According to sec.? (2) a Labour Court shall consist of one person only who shall be appointed by the
appropriate Government. But no person shall be appointed as Presiding Officer of a Labour Court, unless (a)
he is, or has been a judge of a High Court; or (b) he has for a period not less then 3 years been a District
Judge; or (c) he has held the office of the Chairman of any other member of any tribunal, for a period of not
46
less than two years; or (e) he has been the presiding Officer of a Labour Court constituted under any
provincial Act for not less than five years.
Powers of the Labour Court (Sec. 11)
Powers of the Labour Court to give appropriate relief in case of discharge or dismissal of workman are as under.
(1) Subject to any rule that may be made in this behalf, the labour Court may follow such procedure
that it may think fit.
(2) The Presiding Officer of the Court may, for the purpose of inquiry into any existing or apprehended
dispute, enter into the premises occupied by any establishment to which the dispute relates.
(3) The Labour Court shall have all the powers as are vested to a Civil Court.
(4) If it thinks fit, appoint one or more persons, having special knowledge of the matter under
consideration, as an assessor to advise it in the proceedings before it.
Duties of Labour Court (Sec. 15)
Where an industrial dispute has been referred to Labour-Court, for adjudication, it shall hold its
adjudication expeditiously and shall, submit its award to the appropriate Government. The award of Labour
Court shall be in writing and be signed by its Presiding Officer (Sec.16)
Every award of Labour Court, shall within a period of 30 days from the date of its receipt by the
appropriate Government, be published by if in the official Gazette. The award published by the. appropriate
Government shall be final and binding on the parties to dispute. Sec.17 -A provides that an award (including
arbitration award) shall become enforceable on the expiry of 30 days from the date of its publication under
Sec. 17. The award shall not become enforceable on the expiry of 30 days:
. (a) if the appropriate Government is of opinion, in any case where the
award has been given by a Labour Court or Tribunal in relation to an industrial dispute to which
it is a party that it will be in expedient to give effect to the whole or any part of the award on
public grounds effecting: .
(i) National economy, (ii) social justice. .
(b) if the Central Government, in any case where the award has been given by a National Tribunal,
on similar grounds in of the opinion that it would be in expedient to give effect to the whole .or
part of the award.
For the purpose of stopping the enforcement of any award, a notification in the Official Gazette is
necessary.
Industrial Tribunals (Sec. 7 A)
. Industrial Tribunals were created for its first time by the Industrial Dispute Act.1947. Commenting upon
the starts of these tribunal, the Supreme Court has observed that tribunals under the Act. are invested with
many trappings of a Court; but do not have the same status as courts'. The Tribunal is the judicial body or at
any rate, a quasi-judicial body2.
The appropriate Government may by notification in the Official Gazette, constitute one or more
industrial tribunals for the adjudication of industrial dispute s relating to any matters specified above as in the
case of Labour Court, or the following matters, namely
(1) Wages including the period and mode of payment (2) Compensatory and
other allowances;
(3) Hours of work and rest intervals;
47
 (4) Leave with wages and holidays;
(5) Bonus, profit sharing, provident fund and gratuity;
(6) Shift working otherwise than in accordance with standing orders; (7) Classification by grades;
(8) Rules of discipline;
(9) Rationalization;
(10) Retrenchment of workmen and closure of establishment; and
(11) Any other matter that may be prescribed.
A Tribunal shall consist of one person only to be appointed by the appropriate Government. A person to
be appointed as a Presiding Officer of a Tribunal must .be, or must have been, a judge of a high Court; or if he
has for a period of not less than three years, be a District Judge or on Additional District-Judge. Only
experienced persons of high integrity can be appointed as Providing Officer of the Tribunal. It is provided by
Sec.7-A(4) that the Appropriate Government, if thinks fit, may appoint two persons as assessors to advise the
Tribunal in the proceedings before it.
Industrial Tribunals shall have the same power vested in a Civil Court when trying a suit, such as: (a)
enforcing the attendance of any person and examining him on oath, (b) compelling the production of document
and material object, (c) issuing commissions for the examination of witness and any such matters as may be
prescribed.

National Tribunals (Sec 78)

The Central Government may, by notification in the Official Gazette, constitute one or more National
Industrial Tribunals for the adjudication of industrial disputes which, in the opinion of the Central Government
involve questions of national importance or are of such a nature that industrial establishments situated in more
than one State are likely to be interested in, or affected by, such disputes.
A National Tribunal shall consist of one person only to be appointed by the Central Government. In
order to be qualified as a Presiding Officer of a National Tribunal, a person must be or must have been a Judge
of a High Court, or must have held the office of the Chairman or any other member of the Labour Appellate
Tribunal for at least 2 years. The Central Government may appoint two assessors to advise the National
Tribunal, in proceeding before it.
Powers of National Tribunals (Sec.11)
1. Subject to any rules that may be made in this behalf, National Tribunal shall
follow such procedure as the arbitrator or other authority concerned may think fit.
2. The presiding officer of National Tribunal may for the purpose of inquiry into any existing or apprehended
industrial dispute, after giving reasonable notice, enter the premises occupied by any establishment to
which the dispute relates.
3. Every national Tribunal shall have the same powers as are vested in only experienced persons of high
integrity can be appointed as presiding offer of the Tribunal It is. provided by Sec. 7 - A (4) that the
Appropriate Government of it thinks fit may appoint two persons as assessors to advise the Tribunal in
the proceedings before It a Civil Court under CPC, 1908 when trying a suit, in respect of the fo!!owing
matters, viz.,-(a) enforcing the attendance of any person and examining him on oath; (b) compelling
the production of document and material objects; (c) Issued commissions for the examination of
witness; (d) in respect of such other matters as may be prescribe: and every by a Board, Court, Labour

48
 Court, Tribunal or National Tribunal shall be deemed to be a judicial proceeding within the meaning of
Sec. 193 arid 228 of the Indian Penal Code.
(4) National Tribunal may, if it so thinks fit, appoint one or more persons having special knowledge of the
matter under consideration as assessor or assessors to advise it in the proceeding before it.
(5) All the Presiding Officers of a National Tribunal shall be deemed to be public
servants within the meaning of Sec. 21 of the Indian Penal Code.
(6) Subject to any rules made under this Act, the costs of, and incidental to, any proceeding before a National
Tribunal shall be in the discretion of that National Tribunal, and shall have full power to determine by
and to whom and to what extent and subject to what conditions, of any, such costs are. top be paid, and
to give all necessary direction for the purpose aforesaid and such costs may, on application made to
the .appropriate Government by the person entitled, be recovered by the Government in the same
manner as an arrear of land revenue.
(7) Every National Tribunal shall be deemed to be a Court for the purpose of Sec. 480, 482 and 484 of the
Criminal Procedure Code, 1948.
Note: The procedure and power of different authorities laid down under Sec. 11 of the Act, are equally
applicable in the case of Conciliation Officers / Board, Court of Inquiry, Labour Court, And Tribunals.

PREVENTION AND SETTLEMENT OF INDUSTRIAL DISPUTES:

Machinery for prevention of disputes in India: The frequency with which the strikes took place and the
serious industrial and social dislocation which they cause has underlined the importance of preserving industrial
peace. The methods for prevention of industrial disputes include broadly all such measures which directly or
indirectly contribute towards improvement of Industrial relations. The prevention methods, therefore cover the
entire field of relations between industry and labour which are described below:
(1) Strong Trade Union
(2) Profit Sharing and Co-partnership
(3) Joint Consultation
(4) Industrial Employment Standing Orders
(5) Code of Discipline
(6) Collective Bargaining
(7) Works Committees
(8) Workers Participation in Management
(9) Tripartite Bodies/ Machinery
(10) Labour Welfare Officer
(11) Wage Board
1. Strong Trade Union: A strong trade union responsible to the welfare of workers must work to protect and
promote the interests of workers and the condition of their employment. It must provide advice and information
to management on personnel policies and practices. Unions also impress upon workers the need to exercise
restraint in the use of their rights. Unions assist employers in maintaining discipline and in increasing
productivity. Unions should act as a link between employers and workers so as to develop mutual
understanding and co orporation between the two sides. As a matter of fact a trade union is the most switable
and most effective agency to conduct bargaining strong.
2. Profit Sharing and Co-partnership: (a) Profit-Sharing: This method helps for maintenance of good
49
industrial relations. Profit sharing means that the employer gives to the workers a portion of profit of the
business, in addition to wages. It is usually based on an agreement between the employer and the workers.
Importance of profit sharing:
(1) The award to labour of a share of profits would create psychological
conditions favourable to the restoration of industrial peace.
(2) Profit sharing is likely to strongthen the common interest of labour and
capital and thereby increase the productive efficiency of the workers.
(3) Profit sharing e"nhances social justice so far as labour, a primary factor
of production, that produces profits, is allowed to share in them.
(4) Protit sharing makes the worker responsible, creates a feeling of identity
with business and settles all disputes peacefully.
Limitations of profit sharing:
(1) Although the purpose of profit sharing is to lay foundation for harmonious industrial relations, they
often fail to gain the confidence of the worker since the amount of profits accruing to the workers
has not been very
large. The workers suspect honesty and good faith on the part of the employer in distribution of
profits.
(2) There is possibility of conflicts since the employees contend that the
increased profits are due to their efforts.
(3) The workers often fear that employers may use the profit-sharing scheme to weaken the trade
unions and to make the workers dependent upon them.
(4) Profit sharing may make the workers sluggish and therefore, production instead of being
augmented, may actually diminish.
Broadly speaking; until a climate of mutual trust and confidence is created between the two sides, the
success of profit sharing schemes in industry so far as industrial peace is concerned, seems doubtful.
(b) Co-partnership:
Co-partnership has come to be a applied to schemes which include a system of profit sharing as well as control
in the management. It is necessary that in order to acquire control of business, the workers may other acquire
share-capital gaining thereby the rights and responsibility of share-holders or may form a co-partnership
committee having a voice in internal management of the business. So far as India is concerned, acquiring of
share capital or joining in a co-partnership committee by workers seems difficult because of their law earnings
and backward in education. Therefore, in the context of Indian conditions, it is proper to lay emphasis on
workers participation in management.
(3) Joint consultation:
The industrial democracy necessitates joint consultation in industry between employer~ and workers to
eliminate most of the problems faced by them. Joint consultation involves a regular and continuous relationship
between workers and management, and therefore, pre-supposes the willing acceptance by management of the
participation of workers representatives in discussing Common problems of interest to the enterprise. While
full joint consultation can be expected only after the establishment of a collective bargaining relationship,
mutual consultation at the plant level often helps to bring the parties together and to train them in the
discussion of common problems. Thus, there is tremendous scope of reducing industrial tension and improving
50
 productivity through joint consultation in industry.
The system of joint consultation in India could not develop adequently before independence mainly
because of the illiteracy, migratory character and lack of proper organisation of workers. After 1947, with the
initiation of Five Year Plans greater emphasis was laid on more production and workers interests began to
attract greater attention. The Industrial Disputes Act, 1947 provided for establishment of 'works committees' at
the plant level. Now the consultative machinery in this country exists almost at every levels i.e. undertaking,
industry, State and National levels. At the undertaking level, there are Joint Committees or Joint Councils. At
the industry level, there are Wage Boards and Industrial Committees to deal with specific problems of workers
that arose from time to time in particular industries. At the State Level, the Labour Advisory Board functions,
and at the national level there are Indian Labour Committee, etc.
The functions of Joint Consultative Machinery in India have been the prevention of disputes, reduction
in mutual differences and friction, and creation of a proper work climate in industry.
4. Industrial Employment Standing Orders: This is another constructive step towards the prevention
of industrial disputes which determine the terms and conditions of industrial employment. Every worker
should have the knowledge about the terms and conditions in which he has been employed. He is also expected
to know the rules of discipline that is supposed to be followed by him. This problem is solved by 'Standing
Orders' in which terms and conditions for employers and employees are prescribed. The provision for
'Standing orders was for the first time, made in the Bombay Industrial Disputes Act, 1938. Thereafter, in order
to define the condition of employment and to make them known to the workmen, the Government enacted the
Industrial Employment (Standing Orders) Act, 1946. This Act applies to every industrial establishment
wherein 100 or more workers are employed or were employed on any day of the preceding 12 months.
5. Code of Discipline: The Indian Labour Conference at its 15th Session in 1957 evolved a 'Code of
Industrial Discipline'. The Code voluntarily binds the employers and workers to settle all grievances and
disputes by mutual negotiations, conciliation and voluntary arbitration. The main features of this Code include
the following.
(1) Both, employers and employees should recognise the rights and
responsibilities of each other.
(2) Neither party will have recourse to coercion, intimidation, litigation and
victimisation, but will settle all disputes through the existing machinery
for the settlement of industrial disputes.
(3) A mutually agreed procedure will be set up and both the parties will
abide by it without taking arbitrary action.
6. Collective Bargaining: It is a form of joint consultation, and a process in which the representative of
the employer and of the employees meet and attempt to negotiate a contract governing the employer-employees
union relationship. It involves discussion and negotiation between the two groups as to the terms and conditions
of employment. The main object of collective bargaining is to protect the interests of workers through collective
action and by preventing unilateral action on the part of the employer. It promotes industrial democracy.
7. Works committees: Works committees are the most suitable agency for prevention of industrial
disputes. In most of the countries like India, works committees are required to the established through
legislation.
According to Sec. 3 of the Industrial Disputes Act 1947, in the case of an industrial establishment in
which 100 or more workmen are employed or have been
51
employed on any day in the preceding 12 months, the appropriate Government may, by general or special
order require the employer to constitute a Works Committee consisting of representatives of employers and
worker engaged in the establishment, the number of representatives of workmen not being less than that of the
employers representatives, to be chosen in consultation with their trade union, if any.
The duties of the Works Committee are to promote measures for securing and preserving amity and
good relations between the employer and workmen and to comment upon matters of their interest, and to
endeavor to compose any material difference of opinion in respect of such matters.
8. Workers participation in management: These councils aim at enabling the workers to participate in
management, help them to understand the problems and difficulties of the industry concerned and bring about
better relationship between the management and labour.
9. Tripartite Bodies/Machinery: Several tripartite bodies have been constituted at Central and State
levels. The Indian Labour Conference, Standing Labour Committees, Wage Bounds and Industrial Committees
operate at the Centre. At the State Level, State Labour Advisory Bounds have been set up. All these bodies
play important role in reaching at agreements on various labour matters. The recommendations of these bodies
are advisory in nature but carry a great weight on employers, trade unions and the Government. All these
bodies constitute the consultative machinery for the private sector.

UNIT IV
UNIT IV INCOME TAX ACT AND SALES TAX ACT

Corporate Tax Planning, Overview of central Sales Tax Act 1956 – Definitions, Scope,
Incidence of CST, Practical issues of CST, Value Added Tax – Concepts, Scope, Methods
ofVAT Calculation, Practical Implications of VAT.

Introduction to CST:
It is the implementation of freedom of information legislation in India on a national level "to provide for setting
out the practical regime of right to information for citizens." The Act applies to all States and Union Territories
of India, except the State of Jammu and Kashmir - which is covered under a State-level law. Under the
provisions of the Act, any citizen (excluding the citizens within J&K) may request information from a "public
authority" (a body of Government or "instrumentality of State") which is required to reply expeditiously or
within thirty days. This law was passed by Parliament on 15 June 2005 and came fully into force on 13 October
2005 Information the Act specifies that citizens have a right to:
 Request any information (as defined).
 Take copies of documents.
 Inspect documents, works and records.
 Take certified samples of materials of work.
 Obtain information in form of printouts, diskettes, floppies, tapes, video cassettes 'or in any other
electronic mode' or through printouts. Process under the Act, all authorities covered must appoint their
Public Information Officer (PIO).
Any person may submit a request to the PIO for information in writing. It is the PIO's obligation to provide
information to citizens of India who request information under the Act. If the request pertains to another public
52
authority (in whole or part) it is the PIO's responsibility to transfer/forward the concerned portions of the
request to a PIO of the other within 5 days. In addition, every public authority is required to designate

Assistant Public Information Officers

(APIOs) to receive RTI requests and appeals for forwarding to the PIOs of their public authority. The citizen
making the request is not obliged to disclose any information except his name and contact particulars. The Act
specifies time limits for replying to the request.
 If the request has been made to the PIO, the reply is to be given within 30 days of receipt.
 If the request has been made to an APIO, the reply is to be given within 35 days of receipt.
 If the PIO transfers the request to another public authority (better concerned with the information
requested), the time allowed to reply is 30 days but computed from the day after it is received by the
PIO of the transferee authority.
 Information concerning corruption and Human Rights violations by scheduled Security agencies (those
listed in the Second Schedule to the Act) is to be provided within 45 days but with the prior approval of
the Central Information Commission. However, if life or liberty of any person is involved, the PIO is
expected to reply within 48 hours. Since the information is to be paid for, the reply of the PIO is
necessarily limited to either denying the request (in whole or part) and/or providing a computation of
"further fees". The time between the reply of the PIO and the time taken to deposit the further fees for
information is excluded from the time allowed. If information is not provided within this period, it is
treated as deemed refusal. Refusal with or without reasons may be ground for appeal or complaint.
Further, information not provided in the times prescribed is to be provided free of charge. For Central
Departments as of 2006, there is a fee of Rs. 10 for filing the request, Rs. 2 per page of information and
Rs. 5 for each hour of inspection after the first hour. If the applicant is a Below Poverty Card holder,
then no fee shall apply. Such BPL Card holders have to provide a copy of their BPL card along with
their application to the Public Authority. States Government and High Courts fix their own rules.
What is not open to disclose?
The following is exempt from disclosure [S.8)]
 information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the
security, "strategic, scientific or economic" interests of the State, relation with foreign State or lead to
incitement of an offence;
 information which has been expressly forbidden to be published by any court of law or tribunal or the
disclosure of which may constitute contempt of court;
 information, the disclosure of which would cause a breach of privilege of Parliament or the State
Legislature;
 information including commercial confidence, trade secrets or intellectual property, the disclosure of
which would harm the competitive position of a third party, unless the competent authority is satisfied
that larger public interest warrants the disclosure of such information; ‘
 information available to a person in his fiduciary relationship, unless the competent authority is satisfied
that the larger public interest warrants the disclosure of such information;
 information received in confidence from foreign Government;

53
  information, the disclosure of which would endanger the life or physical safety of any person or identify
the source of information or assistance given in confidence for law enforcement or security purposes;
 information which would impede the process of investigation or apprehension or prosecution of
offenders;
 cabinet papers including records of deliberations of the Council of Ministers, Secretaries and other
officers;
 information which relates to personal information the disclosure of which has no relationship to any
public activity or interest, or which would cause unwarranted invasion of the privacy of the individual
(but it is also provided that the information which cannot be denied to the Parliament or a State
Legislature shall not be denied by this exemption); Notwithstanding any of the exemptions listed
above, a public authority may allow access to information, if public interest in disclosure outweighs the
harm to the protected interests. (NB: This provision is qualified by the proviso to sub-section 11(1) of
the Act which exempts disclosure of "trade or commercial secrets protected by law" under this clause
when read along with 8(1)(d)) VAT Value Added Tax (VAT) Definition Most of the states in India, with
effect from April1, 2005 have adopted Value added Tax. Value added tax or VAT is an indirect tax, which
is imposed on goods and services at each stage of production, starting from raw materials to final
product. VAT is levied on the value additions at different stages of production.

The Central Sales Tax Act, 1956. The Act extends to the whole of India.

OBJECTIVES OF THIS ACT

a. To give out the principles for determining Inter State Sale (ISS) or Sale outside a state or Export sale or
Import sale.
b. Provide for the levy, collection and distribution of taxes on sale of goods in the course of inter-State
trade.
c. Declare certain goods to be of special importance (Called Declared goods).
d. Specify the restrictions and conditions on state laws imposing taxes on declared goods.
e. To provide for collection of tax in the event of liquidation of a company.
FEATURES OF CST ACT
a. It states that every dealer who makes an ISS must be a registered dealer.
b. Such dealer, who makes an Inter State Sales, is liable to pay Central Sales Tax.
c. Sec.3 explains when the sale of goods will be called an ISS.
d. It explains what is an import and export sale.
e. Sec.4 explains when a sale will be outside all other States.
f. Normally CST is charged at a single point, but in some cases there can be multiple point tax on
account of subsequent sale.
g. Goods for the purpose of CST have been divided into - Declared & other goods.
h. CST is leviable from the first rupee of sales made in the course of Inter-state sale.
i. The Central Sales-tax is levied under this Act but it is collected by the State Government from
where the goods have been sold.
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I PURPOSE/SCOPE

(i) This Act is applicable to sales/purchases taking place in course of interstate trade and commerce.
(ii) The interstate nature of transaction is to be determined as defined in Section 3(a)/(b). If sale/purchase
occasions movement of goods from one State to another State, it is an interstate sale. A sale, affected by transfer
of documents of title to goods when goods are in inter-state movement, is also an inter-state sale.
(iii) Section 4 of the CST Act determines suits of sale: i.e. State in which the sale takes place. Accordingly the
suit is to be decided on the location of the goods at the time of sale.
(iv) Section 5 defines the sale/purchase taking place in course of import/export and such transactions are
immune from levy of any tax by State Government or Central Government. [Sections 5(1), 5(2) and 5(3)].
The sale of goods to any exporter for the purpose of complying with the pre-existing order and covered by
Section 5(3) is also exempt as deemed export. These sales are to be supported by Form H along with export
order details and copy of bill of lading etc. as evidence of actual export.
II EXEMPTIONS
(i) Section 6 is charging Section. As per Section 6(2) subsequent inter-state sale transaction taking place by
transfer of documents of title to goods, when the goods are in course of movement, are exempt. For this purpose
the claimant dealer has to obtain Form E-1 from his vendor (if such vendor is first seller otherwise, E-II) and
Form ‘C’ from the buyer.
(ii) Sale to notified foreign diplomat authorities is also exempt u/s. 6(3) against Form ‘J’.
(iii) The interstate sale to units situated in Special Economic Zone (SEZ) or developers of SEZ against Form ‘I’
are exempt as per Sections 8(6) read with Section 8(8).
III BRANCH/CONSIGNMENT TRANSFER
Under Section 6A, branch/consignment transfer is allowed only if Form ‘F’ is produced, else it will be deemed
to be a sale. Form ‘F’ is required to be obtained from transferee branch/agent. One Form ‘F’ can cover transfers
effected in one calendar month.
IV RATES OF TAX
As per Section 8 of CST Act, the rates of taxes are to be decided as per rates under Local Act. The rates can be
as under:

(Prior to 1-4-2007)

Local Rate of Tax Rate of Tax under C.S.T. Act

Supported by Form ‘C’ or ‘D’ Without ‘C’ or ‘D’ Form

Declared goods Local rate of tax Twice the local rate of tax

If the goods are generally exempt under Exempt Exempt

Local Act

Less than 4% Local Rate of tax 10%

4% or more, up to 10% 4% 10%

55
More than 10% 4% Local rate of tax

(From 1-4-2007 to 31-5-2008)

Local Rate of Tax Rate of Tax under C.S.T. Act

Supported by ‘C’ Form Without ‘C’ Form

(Form D is abolished)

Declared goods 3% 4%

If the goods are generally exempt under Exempt Exempt

Local Act

1% 1% (C form not required) 1%

4% 3% 4%

12.5% 3% 12.5%

(From 1-6-2008 onwards)

Local Rate of Tax Rate of Tax under C.S.T. Act

Supported by ‘C’ Form Without ‘C’ Form

(Form D is abolished)

Declared goods 2% 4%

If the goods are generally exempt under Exempt Exempt

Local Act

1% 1% (C form not required) 1%

4% 2% 4%

5% 2% 5%

12.5% 2% 12.5%

56
V. REGISTRATION, FORM ‘C’ PURCHASES AND OTHER PROVISIONS
1. There is no threshold limit for registration under CST Act and hence even on the basis of single
transaction a dealer will be liable for registration under Section 7(1). The dealer can also obtain
registration voluntarily along with registration under VAT Act as per Section 7(2) of CST Act.
Application for registration should be in Form A. Registration certificate will be in Form B.
2. As per Section 9(2), the interest/penalty/return/assessment provisions applicable under Local Act are
also applicable to CST Act. In addition there are provisions for levy of penalty u/s. 10 like contravention
of the conditions of declaration forms, wrong issue of form etc.
3. Purchases to be effected against Form ‘C’ are subject to conditions. The compliance is to be checked
before using Form ‘C’. In nutshell, it can be mentioned that Form ‘C’ can be used for effecting
purchases which are meant for:
a) Resale by him
b) Use in manufacturing/processing of goods for sale
c) Use in mining
d) Use in generation/distribution of power
e) Use in packing of goods for sale/resale
f) Use in telecommunication network.
4. One ‘C’ form can be issued for one quarter of a financial year. Similarly EI/EII can also be issued on
quarterly basis.
The Central Government has substituted second and third proviso to Rule 12(1) vide Notification No. 588(E)
dated 16th September, 2005. According to these provisos, with effect from 1st October, 2005, Form C will have
to be collected separately for each quarter of the year. Form D was required to be obtained transaction wise.
However, Form D has been abolished with effect from 1st April, 2007.
Central Government has also substituted sub rule (7) to rule 12 with effect from 1st October, 2005. Form C or
certificate in Form E-I or E-II will have to be submitted to sales tax department within three months from the
end of the quarter in which sale is effected. In case of Form F, it is to be obtained on monthly basis and it is to
be submitted to the sales tax department within three months from the end of the month in which goods are
transferred to the interstate branch or agent. In Maharashtra State, the Commissioner of Sales Tax has exempted
the dealer from submission of Form C, D, F, H, E-I or E-II. Instead of that, dealers are required to submit the list
of missing forms on quarterly basis as per the format specified in Trade Circular No. 28T of 2005 dated
24.10.2005.
5. From 11-5-2002 the six deemed transactions of sale, including works contracts and leases are taxable
under the CST Act if they are effected in the course of inter-state trade.
6. Chapter VI-A provides for filing of appeals before Central Sales Tax Appellate Authority in case of
disputes involving more than one state.
In addition, there are other provisions for declared goods, liability in case of companies, offences and
prosecution, etc.
Concept of VAT
VAT is a multi – point sales tax with set – off for tax paid on purchase.
VAT being a multi – stage levy, it allows registered dealers to take credit for the tax paid on purchase from
registered suppliers against the tax payable on the sales.
What is Value Added Tax?
57
VAT is a multi –point tax with set-off for tax paid on purchases. It is collected in installments at each transaction
in the production and distributions system. It does not have cascading effect due to the system of deduction or
tax credit mechanism. The following illustration will help in highlighting the differences between a single point
tax and Vat.
Assumptions:
First Stage
Selling price of manufacturer (Excluding tax) Rs. 100.00 Tax rate applicable- 20% Rs. 20.00 Selling price
including tax Rs. 120.00
Second Stage Cost price to Wholesale dealer Rs. 120.00 Overheads and profit margin Rs. 60.00 Selling price
Rs. 180.00
Third stage: Cost price to retail trader Rs.180.00 Overheads and profit margin at 50% Rs. 90.00 Selling price
to consumer Rs.270.00 Thus, from the above illustration it is clear that the government gets only Rs. 20.00
whereas due to the cascading effect of tax the consumer is under compulsion to pay Rs. 45.00 indirectly towards
tax. By the introduction of vat the Tax base is widened and every intermediary is required to pay tax only on the
value addition made by him.
Objectives of VAT
1. Eliminates multiplicity of taxes such as entry tax, turnover tax, sales tax, surcharge, Excise duty etc,
2. Prevents double taxation with cascading effect.
3. Eliminates inter – state tax (e.g. Central Sales Tax)
4. Rationalize all tax burdens in the cases of goods and services until sold for consumption.
5. Makes the tax structure, simple, efficient and transparent.
6. Improve tax compliance.
7. Development of fair and healthy competition in the interest of consumers.
Advantages of VAT
1. Less chances for tax evasion as the incidence of tax spread over every dealer.
2. Lower tax rate.
3. Increased revenue to state gets the tax on the sale price.
4. A check on creation of black money.
5. No procedural hazards.
6. Uniformity of prices all over the country
VAT Rate Structure: 1% on gold, Silver, precious metals, gems, and precious stones. 4% on Essential
goods and primary raw materials. 12.5% on goods not covered in any schedule.
What is INPUT TAX Input generally mean goods purchased by a dealer in the course of his business for re –
sale or for use in the manufacture, processing, packing and storing of other goods or any other business use. The
tax paid on inputs is known as Input Tax.
Methodology of VAT
Primary Producer:
Farmer Sale of wheat to miller Rs.100 VAT payable b@10% Rs.10 Secondary producer : Miller Input Rs.100
Value added Rs.200 Sales to Baker Rs.300 VAT @ 10% Rs.30 Less: Input tax credit Rs.10 VAT payable Rs.20
Secondary Producer : Baker Input Rs.300 Value added Rs.600 Sales to customer Rs.900 VAT @10% Rs.90
Less: Input tax credit Rs. 30 VAT payable Rs.60 Customer Gross Value of purchase Rs.900 Add: VAT @ 10%

58
Rs.90 Total purchase price Rs.990 Government VAT collection = Rs(10+20+60) = Rs.90 (Actually borne by the
customer)
Advantages of VAT
1) Coverage
If the tax is carried through the retail level, it offers all the economic advantages of a tax that includes the entire
retail price within its scope, at the same time the direct payment of the tax is spread out and over a large number
of firms instead of being concentrated on particular groups, such as wholesalers or retailers.
2) Revenue security VAT represents an important instrument against tax evasion and is superior to a business
tax or a sales tax from the point of view of revenue security for three reasons.
3) Selectivity VAT may be selectively applied to specific goods or business entities.
4) Co-ordination of VAT with direct taxation Most taxpayers cheat on their sales not to evade VAT but to
evade personal and corporate income taxes.
Disadvantages of VAT
1. No uniformity of price among the state – every stage has alter the vat
2. Other taxes also available along with VAT, so it is confused.
3. Continuance of CST under VAT regime
4. Sweeping powers given to Commissioners. Goods covered under VAT All goods (other than Petrol, Diesel,
Aviation Turbine Fuel, IMFL and Sugarcane) including declared goods will be covered under VAT and will get
the benefit of input tax credit. Goods not covered under VAT Petrol, Diesel, Aviation Turbine Fuel, Indian
Made Foreign Liquor and sugarcane will not be taxed under VAT.
Dealers under VAT
1. Local authority, Company, Hindu undivided family, Association of persons, Firm.
2. Casual traders, factory, commission agent, Del – Credere agent, auctioneer, local branch of a firm or
company situated out side the state.
3. Person who effects transfer of property in goods other than by way of sale.
4. Dealer in hire purchase works contract and persons who transfer rights to use the goods.
5. Dealers in eatables including food and drinks (eg. Hotels, restaurants and sweet stalls) 6. Port Trust, Railway
administration, Shipping, Transport and Construction companies, Airlines
7. Any person of holding a permit for transport vehicles.
8. Tamil Nadu State Transport Corporation
9. Customs Department, Insurance Company, Advertising Agencies
10. Corporation or Companies of State and Central Govt.
Registration
All Traders should registered for VAT
TIN (Taxpayer Identification Number) an eleven digit number to be quoted in all VAT transactions and
correspondences All registered dealers under NGST ACT 1959 shall be provided with TIN automatically
without any fee. On receipt of TIN, the dealers have to file application for obtaining certificate of registration
under VAT.

UNIT V
UNIT V - CONSUMER PROTECTION ACT AND INTRODUCTION OF CYBER
LAWS
59
 Consumer Protection Act – Consumer rights, Procedures for Consumer grievances
redressal, Types of consumer Redressal Machineries and Forums, Cyber crimes, IT Act
2000 and 2002, Cyber Laws, Introduction of IPR – Copy rights, Trade marks, Patent Act.

Consumer Protection Act

CONSUMER PROTECTION ACT—1986
Consumer is at the core of business world in the present day economy. Quantity and quality of goods are
produced as per the needs of the consumer. Advancement of any business unit depends on the satisfaction of the
consumer. That product will be in great demand which gives maximum satisfaction to the consumer and so will
be produced on large scale. As a result, the concerned production unit will develop and earn large profit. Despite
the Fact that Importance of the consumer is widely recognized, he is deprived of his rights and privilege and is
subjected to diverse kinds of exploitation. For instance exploitation in the form of short weight and measure
poor quality of the product, adulteration, supply of fake goods, boarding and black marketing of the goods,
delivery of goods not on schedule. Not only that, even doubtful and false advertisements are indulged into by
the producers to attract consumers.
With a view to protecting the consumers from such exploitation and making them aware of their rights, a
method of consumer protection has been launched. Need for protection arid satisfaction of the consumer is now
being widely recognized across the world. India has also adopted the concept of consumer protection more
seriously and vigoursly.
Meaning of Consumer Protection:
Consumer protection means the protection of the consumers from their exploitation by the unfair trade practices
of the producers/sellers. In fact, providing proper protection of the fundamental rights and Interests of the
consumers, freeing them from exploitation, creating consumer awareness, consumer providing the right to clean
business environment to the consumers by means of Legal amendments Is all that protection means,
Consumer Protection Act In India:
In India, Central and State Governments have passed various legislative enactments regarding Consumer
Protection. Among them, main Acts are:
 Drug and Cosmetics Act 1940,
 Industries Development and Regulation Act 1951
 Indian Standards Institution (Certification Marks) Act 1952
 Prevention of Food Adulteration Act 1954
 Essential Commodities (Supply) Act 1955
 The Trade and Merchandise Marks Act, 1958
 Monopolies and Restrictive Trade Practices Act 1969
 Packaged Commodities Regulation Order 1975
 Standards of Weights and Measures Act 1976
 Prevention of Black Marketing and Maintenance of Supplies of Essential Commodities Act 1980
 Standards of Weights and Measures (Enforcement) Act. 1985.
In spite of above Acts Interests of the consumers were not being properly safeguarded. There are many reasons
for it, but main among them are two,

60
First, consumer in general had no knowledge about the authority to whom complaints under these acts were to
be addressed.
Second, to seek remedy under these various acts consumer had to take legal action Involving lot of time and
money.
Need was therefore felt to enact such a legislative measure as provide quick and less expensive remedy to the
aggrieved consumer. Consequently, to protect properly the interest of the consumers and to settle quickly their
disputes, in December 1986 Consumer Protection Act was passed in India. It was enforced with effect from
April 15, 1987. Last amendment In the Act was made in. 2002.
SCOPE AND EXTENT OF THE ACT:
1. Except Jammu and Kashmir state, this Act extends to whole of India.
2. Provisions of this Act are In addition to the provisions made previously in the context of the consumers.
3. This Act shall apply to all goods and services that come under the scope of this Act.
Main Elements/Features of Consumer Protection Act, 1986:
Consumer Protection Act is the most progressive Act of Social well are and is referred to as Magna Carta of
consumer protection. It is a land mark event In the history of Acts In India.
Main features of the Act are as under
 It applies to all kinds of goods and services.
 Provisions of this Act are in addition to the provisions of any other Act in force In the country. Thus, this
Act does not limit or reduce the scope of any other Act
 Under this Act, there Is a provision for the Centre and State Governments to set up Consumer Protection
Councils composing of both official and non-official members. The objectives of the council are:
- to promote the rights and Interests of the consumers,
- to educate and protect them.
 This Act provides for the following rights to the consumer:
o Right to safety,
o Right to be heard,
o Right to consumer education,
o Right to seek redressal
o Right to Choose
o Right to be Informed
 This Act is based on the principle of compensation wherein fair compensation to the aggrieved party is
provided for. To redress the grievance, there Is provision for three-tier judicial machinery
o District level
o State level and
o National Level
 This Act provides affective protection to the consumer from different types of exploitations, such as
defective goods, adulteration, under-weight, excessive price, unsatisfactory or deficient services and
unfair trade practices.
 This Act redresses in a simple, cheap and dynamic manner the grievance of the consumer in limited
time.

61
  All suppliers of goods and services belonging to private, public and co-operative sectors come under the
purview of this Act.
Right to Consumer:
In a free market economy, consumer is sovereign. He has the right to buy or not to buy a product offered for
sale, to expect the product to be safe; to expect the product sale, to be what it is claimed to be; to be adequately
informed about the most salient aspect of the product. He has a right to receive proper and efficient service and
satisfaction. Under section 6 of Consumer Protection Act, consumer has following rights:
(I) Right to Safety: Consumer has the right to be protected against marketing of such goods and services as are
hazardous to health, life and property. There are several fake, adulterated, inferior, defective, ineffective and
dangerous goods available in market. They are injurious to body and health. Consumer therefore, has the right
to safety from all such goods as well as are likely to cause harm to his body and health, besides causing loss of
money.
(II) Right to Choose: Under this right, consumer can choose any from among the variety of goods and services
available in the market. One finds in the market goods of different brand, quality, shape, colour, size, design and
price produced by different manufacturers. Under this right, the consumer must be assured access to variety of
goods and services at competitive prices as far as possible. Misleading or false advertisement, wrong
information or in any other way, If any person (manufacturer, seller) influences his preference, in an unfair or
unnecessary manner, it will be treated as intervention in his right to choose.
(III) Right to be Informed: Consumer has the right to get all necessary information on the basis of which he may
decide to buy the good or service. He has therefore the right to be Informed about the quality, quantity, purity,
potency, standard, price of goods, etc.
(IV) Right to be heard: Consumer has the right to present before the appropriate forum or authorities all those
matters which effect his interests. This right Includes the right to make protest and file complaints. This right
implies that matters of interest to the consumer will receive due consideration at appropriate forums, so that he
is encouraged to express his problems, complaints and unjust treatment meted out to him.
(V) Right to seek redressal: Consumer has the right to get his claims and complaints settled against the
manufacturers and sellers. This right provides the consumer freedom from unfair trade practice or unscrupulous
exploitation by the trader. Besides, it helps him secure compensation.
(VI) Right to Consumer Education: Under this right, consumer is entitled to get Information or educated about
those things which are necessary for him. Such an education creates awareness about his rights and he comes to
know when to approach for the redressal of his grievance and exploitation. This helps a consumer protect
himself against fraudulent, deceptive and misleading advertisement and poor or negligent services.
Machinery for Redressal of Consumer Grievances:
To provide simple, speedy and inexpensive redressal of consumer grievances, the act envisages three- tier quasi-
judicial machinery at the national, state and district levels.
* National Consumer Disputes Redressal Commission - known as 'National Commission'.
* Consumer Disputes Redressal Commissions known as 'State Commission”.
* Consumer Disputes Redressal Forums- known as 'District Forum”.
(I) The District Consumer Protection Council:
The State Government shall establish for every district, by notification a council to be known as the District
Consumer Protection Council with effect from such date as it may specify in such notification.
Composition of the district forum:
62
 Each District Forum shall consist of -
 A person who is, or who has been or is qualified to be, a District Judge, who shall be its President;
 There will be 2 other members who shall be persons of ability, integrity and standing and have adequate
knowledge or experience or have shown capacity In dealing with problems rebating to economics, law,
commerce, accounting, industry, public affairs or administration, one of whom shall be a women.
 Every appointment shall be made by the State Government on the recommendation of Selection
Committee consisting of the following namely:
o The President of the State Commission- Chairman,
o Secretary, Law Department of the State- Member,
o Secretary, in charge, of the Department dealing with Consumer affairs in the State- Member.
Terms and age:
Provided that a member shall be eligible for re-appointment for another term of 5 years or up to the age of 65
years, whichever is earlier.
Jurisdiction of the district forum:
(1) 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.
(2) A complaint shall be instituted in a District Forum within the local limits of whose jurisdiction, -
(a) The opposite party or each of the opposite parties, where there are more than one, at the time of the
institution of the complaint, actually and voluntarily resides or carries on business or has a branch office,
or personally works for gain; or
(b) Any of the opposite parties where there are more than one, at the time of the institution of the
complaint, actually and voluntarily resides, or carries on business or has a branch office, or personally
works for gain, provided that in such case either the permission of the District Forum is given, or the
opposite parties who do not reside, or carry on business or have a branch office, or personally works for
gain, as the case may be, acquiesce in such institution; or
(c) The cause of action, wholly or in part arises.
(II) The State Commission:
Regarding State Commission following provision have been made In Consumer Protection Act 1986.
Establishment: In every state, the state government, by issuing a notification can establish consumer Grievance
Redressal Commission to be called ‘State Commission’.
Composition: Each State Commission shall consist of:
 A person (member) who is or has been a judge of a High Court, appointed by the State Government.
who shall be its President. But his appointment shall be made only after consultation with the Chief
Justice of the High Court.
 There will be 2 other members who shall be persons of ability, integrity and standing and have adequate
knowledge or experience or have shown capacity In dealing with problems rebating to economics, law,
commerce, accounting, industry, public affairs or administration, one of whom shall be a women.
 Every appointment shall be made by the State Government on the recommendation of the selection
committee. The Selection committee shall be composed of:
o President of the State Commission — Chairman
63
 o Secretary of the Law Department of the State — Member
o Secretary in charge of the Department dealing with Consumer Affairs in the State — Member
Terms and Age:
Every member of the State Commission shall hold office for a term 5 years, or up to the age of 67 years,
whichever is earlier, and shall not be eligible for re-appointment.
Jurisdiction of State Commission:
Subject to the other provision of this Act., the State Commission Shall have Jurisdiction:
(a) to entertain:
(i) Complaints where the value of the goods or services and compensation, if any claimed exceeds
rupees 20lakhs but does not exceed rupees one crores.
(ii) Appeals against the orders of any District Forum within the Stale; and
(b) to call for the records and pass appropriate 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
Government 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 on its jurisdiction illegally or with material irregularity.

III. The National Commission:

Following are the provisions of the Consumer Protection Act in respect of the National
Commission:
Establishment:
By issuing a notification Central Government can set up a National Commission This Commission has been
established at New Delhi.
Composition:
The National Commission shall compose of:
 A person (member) who is or has been a judge of the Supreme Court, shall be appointed by the Central
Government. He shall be its President. Provided that no appointment under this clause shall be made
except after consultation with the Chief justice of India.
 There shall be 4 other members including one woman. They shall be persons of ability integrity,
experience of, or have shown capacity in dealing with problems relating to economics, law, commerce,
accountancy, industry, public affairs or Administration.
Every appointment shall be made by the Central Government on the recommendation of a Selection Committee
consisting of the following namely:
 A person who is a judge of the Supreme Court, to be nominated by the chief justice shall be its
Chairman.
 The secretary Department of Legal Affairs In the government of India shall be Hs member.
 Secretary of the Department dealing with consumer affairs in the government of India shall be its other
members.
Term of Members:
Every member of the National Commission shall hold office for a term of 5 years or up to the age of 70 years,
whichever is earlier.
Jurisdiction of the National Commission:
64
Subject to the other provisions of this Act, the National Commission shall have Jurisdiction as under
 to entertain complaints where the value of the goods or services and compensation, if any, claimed
exceeds rupees 1crore.
 to entertain appeals against the orders of any State Commission;
 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.
IPR - Copyright Act, 1957
Copyright is right of artist, author, and producer of films etc. who have created a work by use of their artistic
skills. On the other hand, Patents Act, 1970 is designed to protect inventions in respect of manufacture, machine
or process of manufacture. Copyright Act has provisions to protect copyrights of foreign work also. This Act has
attained special significance in view of GATT agreement. Under this international agreement, all signatory
nations have to take steps to protect intellectual property rights (IPRs). It may be noted that registration of
patent is compulsory, while registration of copyright or trade mark is optional. Rights in a patent can be availed
only if it is registered, but copyrights or rights to trade mark are available even if the work is not registered.
Copyright protection is limited to an author‘s particular expression of idea, process and concept in a tangible
medium. However, the law permits fair use. Copyright is only in expression of an idea. There is no copyright in
an idea. Copyright protects skill, labour and capital employed by the author. Its object is to protect the writer
and author from the unlawful reproduction, plagiarism, piracy, copying and imitation. Thus, copyright is
negative in nature. It is not a right in novelty of ideas.
Works in which copyright subsists - Section 13(1) of Copyright Act provides that copyright subsists in
(a) Original literary, dramatic, musical and artistic works
(b) Cinematograph films and
(c) Sound recording.
Artistic work - ‗Artistic Work’ means
(i) A painting, sculpture, a drawing (including a diagram, map, chart or plan), an engraving or photograph. It
does not matter whether or not any such work possesses artistic quality and
(ii) Work of architecture [section 2(c)]. ‗Work of Architecture’ means any building or structure having an
artistic character or design, or any model for such building or structure [section 2(b)]. Note that a trade mark
designed in an artistic way can be protected under Trade Mark Act (as Trade Mark) as well as under Copyright
Act (as artistic work).
Dramatic work - Dramatic Work‘ includes any piece for recitation, choreographic work or entertainment in
dumb show, the scenic arrangement or acting form of which is fixed in writing or otherwise; but does not
include a cinematograph film.
Literary Work - The term Literary Work’ includes computer programmes, tables and compilations including
computer databases [section 2(o)].
Computer programmes - It means set of instructions expressed in words, codes, schemes or in any other form
including a machine readable medium capable of causing computer to perform a particular task or achieve a
particular result [section 2(ffc)]. Computer includes any electronic or similar device having information
processing capabilities [section 2(ffb)].

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Musical work - Musical work’ means a work consisting of music and includes any graphical notation of such
work, but does not include any words or any action intended to be sung, spoken or performed with the music
[section 2(p)]. Composer means a person who composes the work whether or not it is recorded in form of
graphical notation [section 2(ffa)].
Rights of a copyright owner - As per section 14, Copyright means exclusive right to do or authorize doing any
of the following acts in respect of a work or any substantial part thereof (this right is subject to provisions of the
Copyright Act).
RIGHTS IN LITERARY, DRAMATIC OR MUSICAL WORK –
(i) To reproduce the work in any material form including the storing of it in any medium by electronic means
(ii) To issue copies of work to the public - this clause does not apply to copies which are already in circulation
(iii) To perform work in public or communicate to public
(iv) To make any cinematograph film or sound recording
(v) To make translation
(vi) To make adaptation of work
(vii) To do, in relation to translation or an adaptation of work, any of the aforesaid acts mentioned in clause (i)
to clause (vi).
RIGHTS IN COMPUTER PROGRAMME
i) to do any of the acts specified above in relation to literary work
(ii)to sell or give on commercial rental or offer to sale or for commercial rental any copy of the computer
programmes. However, such 'commercial rental' does not apply in respect of computer programmes where the
programmes itself is not the essential object of the rental. ]. [Proviso to section 14(b) (ii)]
RIGHTS IN ARTISTIC WORK :
(i) To reproduce in any material form including depiction in two dimensions from three dimensions or vice
versa
(ii) To communicate work to public
(iii) To issue copies of work to the public which are not already in circulation
(iv) To include the work in any cinematograph film
(v) To make any adaptation of the work (vi) to do in relation to an adaptation of the work, any of the acts
specified in clause (i) to (iv) above.
RIGHTS IN CINEMATOGRAPH FILM
(i) To make a copy of the film, including a photograph of any image forming part thereof (ii) to sell or give on
hire of offer for sale or hire, any copy of the film. It does not matter whether or not such copy was sold or given
on hire on earlier occasions.
(iii) to communicate the work to public.
RIGHTS IN SOUND RECORDING
(i) To make any other sound recording embodying it
(ii) To sell or give on hire of offer for sale or hire, any copy of the film. It does not matter whether or not such
copy was sold or given on hire on earlier occasions
(iii) To communicate the sound recording to public.
Ownership of Copyright - Normally, author of work is the first owner (section 17). Author means
(a) Author of literary or dramatic work
(b) Composer of musical work
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(c) Artist of artistic work
(d) Person taking the photograph
(e) Producer of cinematographic film or sound recording [section 2(d)]. Right of author is subject to some
limitations.
Assignment of Copyright –
The owner of copyright can assign the copyright to a work. Such assignment can be partial or full or subject to
limitations and for limited term or full term. Even rights of future work can be assigned, but the assignment
becomes effective only when the work comes into existence. [Some leading and popular authors sell their work
at fat price even before it is complete.] After assignment, the assignee gets rights assigned and balance rights
remain with the assignor (section 18).
Term of copyright - Normal term of copyright is throughout the lifetime of author plus 60 years from
beginning of calendar year next following the year in which the author dies. In case of joint authorship, the
author who dies last will be considered (section 22).
Compulsory licensing - If owner does not grant permission for re-publication, performance or communication
to public, Copyright Board can direct Registrar of Copyrights to grant compulsory license to complainant on
such terms and conditions as it deems fit [section 31(1)].
Registration of Copyright is optional - Copyright may be registered with Registrar of Copyrights (section 44).
Registration is not compulsory. The register will contain details like name or title of work, name and addresses
of authors, publishers and owners of copyright. Application for registration has to be made in prescribed form
with fees.
Infringement of Copyright - The Act provides for remedies in case of infringement of Copyright.
Civil and Criminal Remedies under Copyright Act –
Owner of copyright has civil remedies against Infringement of Copyright Offences are also punishable
Patents Act, 1970 Patents Act, 1970 is designed to protect inventions in respect of manufacture, machine or
process of manufacture. On the other hand, the Copyright Act, 1957 is to protect rights of artists, authors,
producers of films, computer software owners etc. Patent is exclusive rights granted to the patent holder, for a
limited period, as a reward for creative work based on his private initiative. Creativity’s accorded the status of
‗property’ which can be bought, sold, licensed or hired like any other commodity. The principle behind patent
protection is that creativity will not get encouragement if it cannot be protected from pirating or copying. Major
changes have been made by Patents (Amendment) Act, 2002, which was passed on 25-6-2002 aligning it to
TRIPS in many aspects. Highlights are - * It provides for uniform protection for 20 years. * Appellate Authority
is provided. Appeal against order of Controller and Central Government and application for rectification of
register of patents will be to appellate Board and not to High Court. [However, suit for infringement of Patent or
revocation of patent will lie with Court only] * Person other than patent holder to obtain marketing approval
from regulatory authorities within 3 years before expiration of terms of patent * Provisions for protection of
bio-diversities of traditional knowledge * Reversal of burden in case of process patent * Procedural
simplifications.
The amendments have not yet been brought into force. However, these have been incorporated in this
writes up at appropriate places.
What is a Patent - Section 2(1)(m) merely states ‗Patent‘ means a patent granted under this Act‘. - - Thus,
word ‗patent’s not defined under the Act, though what can be patented and what cannot has been specified. - - A
patent, generally speaking, is a grant from Government, which confers on the grantee for a limited period of
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time the exclusive privilege of making, selling and using the invention for which a patent has been granted and
also of authorizing others to do so.
Varieties of Patents –
Three kinds of patents are granted under the provisions of the Act: (a) Ordinary patent (b) Patent of Addition (c)
Patent in respect of convention
International Application - Patents Act allows grant of patents to persons out of India, on the basis of
international arrangements. Such grant is available only if there is a convention, treaty or arrangement with the
foreign country for grant of patents on reciprocal basis i.e., if that country also agrees to grant patents to Indian
applicants (section 133). Government has to specify such countries by issue of notification in official gazette.
India has signed Paris Convention in August 1998. Hence, any country which is signatory to Paris convention is
a convention country.
What can be patented - Requirements of patent are:
(a) The subject matter should be new. This is test of novelty‘.
(b) It should be useful. This is test of utility‘.
(c) It should be an invention‘. It should be non-obvious.
(d) It should be a manner of manufacture, i.e. it should be capable of industrial application.
(e) Vendibility’ test (i.e. test of marketability) is important - the subject matter should have commercial purpose.
Any invention which satisfies the definition of the ‗invention’ given in the Act may be patented. Invention
means a new product or process involving an inventive step and capable of industrial application. [Section 2(1)
(j)]. - - ‗Inventive step’ means a feature that makes the invention not obvious to a person skilled in that art.
[Section 2(1)(ja). ‗Capable of industrial application‘, in relation to invention, means that the invention is
capable of being made or used in an industry. [Section 2(1)(ac)].
Life of Patent - Subject to the payment of prescribed renewal fee within the prescribed period, the term of
every patent granted under the Act is do years from date of filing the application for patent. [Section 53(1)].
[The period was 5 or 7 years for process of manufacture of food/medicine/drug and 14 years in other cases,
prior to Amendment Act, 2002].
Rights of a patentee - Patentee has following rights (a) where the patent is for a product, the exclusive right to
prevent third parties, who do not have his consent, from the act of making, using, offering for sale, selling or
importing for those purposes that product in India (b) where the subject matter of patent is a process, the
exclusive right to prevent third parties, who do not have his consent, from the act of using that process, and
from the act of using, offering for sale, selling or importing for those purposes the product directly obtained
from that process, in India. However, that product should not be such that no patent can be granted for that
product in India. [Section 48].
Working of patent and compulsory licensing - The general principle is that patents are granted to encourage
inventions. However, Patent is for use and not for hoarding or exploitation.
Infringement of Patent - Patentee and his agents and licensees have exclusive rights to make, use, exercise or
distribute the invention in India under section 48. Infringement means violating the statutory rights of patentee.
Innocent infringement, i.e. infringement without knowledge that a patent exists does not require payment of
damages and a share of profit (section 111). Suit for infringement can be filed only in District Court (section
104). The relief’s that can be claimed are (a) damages and a share of profit to patentee. (b) Injunction on
infringe on the terms the Court may deem fit [section 108(1)]. Court can also order that the infringing goods
shall be seized, forfeited or destroyed, as the Court deems fit.
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Trade Marks Act, 1999
A trade mark ‘is a very important and valuable asset of a company in a market oriented economy. The Act is
designed to protect this valuable property. Customers identify a product by its trade mark. Value and importance
of trade mark increases as business grows. Trade Marks Act, 1999 is enacted (in place of earlier 1958 law) with
an intention to protect rights of trade marks of business. It is a self-contained and comprehensive code to deal
with both the civil and criminal law relating to trade and merchandise marks. Procedures and forms are
prescribed in Trade Mark Rules, 2002. The 1999 Act has not yet been made effective.
Trade Mark under Common law as well as Trade Mark Act - Protection to Trade Marks was first introduced
in India in 1940. Prior to that, the law relating to trade mark was based on common law. At common law, right
to property in trade mark was in the nature of monopoly enabling the holder of the said right to restrain others
from using the trade mark. The trade mark had to be distinctive. After passing of the Act, registration of trade
mark is provided. However, registration of trade mark is not compulsory.
What is a ‘Trade mark’ - Trade mark means a mark capable of being represented graphically and which is
capable of distinguishing the goods or services of one person from those of others and may include shape of
goods, their packaging and combination of colours. It also includes certification trade mark ‘or ‗collective
mark. Mark can be in respect of goods or services. It should be capable of distinguishing the goods or services
of one person from those of others. The mark should indicate a connection in the course of trade between the
goods or services and some person having the right to use the mark.
USE IN COURSE OF TRADE - If mark is not used ‗in course of trade‘, the protection is not available. e.g.
Red Cross‘or Ashok Pillar‘is not used in course of trade. It cannot be a trade mark‘, though protection may be
available under some other law.
CAPABLE OF BEING REPRESENTED GRAPHICALLY - Major requirement is that the mark should be
capable of being represented graphically. Trade mark may be (a) letter mark - e.g. IBM, Coca Cola etc. (b)
Symbol mark - The symbol mark may be (i) brand name identifying the product or (ii) Logo- visual depiction of
the company and it identifies the company. E.g. Maharaja of Air India. Even shape of goods their packaging and
combination of colours can be a trade mark‘. E.g. liquor bottle packed in a fancy size bottle.
What is ‘Mark’ - Mark includes a device, brand, heading, label, ticket, name, signature, word, letter, numeral,
packaging or combination of colours or any combination thereof [section 2(1)(m)].
Registration of trade mark - Registration of trade mark is not mandatory, though highly desirable when stakes
are high. The trade marks are to be registered with Controller General of Patents, Designs and Trade Marks who
will be Registrar for purposes of this Act. [Section 3(1)]. Trade Mark Registry has been established u/s 5(1) of
the Act. Its offices can be established at different places. Register of trade Marks will be maintained at Head
Office. The register can be maintained in electronic form. Copy of Register will be maintained at each branch
office of Registrar. [Section 6].
Registration does not confer absolute right - Registration of trade mark does not confer absolute rights on the
owner. The registration of trade mark under section 28(1) is subject to other provisions of the Act. Registration
of Trade Mark does not confer any new right to the mark claimed or any greater right than that already existed.
Thus, even if a trade mark is registered, a ‗passing off‘action can be initiated against the person who has
registered the trade mark.
TRADE MARK HAS TO BE DISTINCTIVE - Trade mark should be such as to distinguish the goods of owner
of trade mark from goods of other persons. Registration in case of honest concurrent use - It may happen that
there is honest concurrent use of identical or similar trade mark by different proprietors. In such cases, Registrar
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can grant registration to both, subject to conditions and limitations as may be prescribed by Registrar. This can
be done even if one mark was already registered. [Section 12] Foreign Trade marks not registered in India
also protected - Foreign Trade marks like McDonalds, Whirlpool etc. have gained international recognition. In
view of this, such trade marks can get protection in India under ‗passing off’ action, even if the trade marks are
not registered in India. This is so even if the trade marks do not have any significant presence in India.
Rights conferred by Registration - Registration, if valid, grants exclusive right to use of trade mark to the
proprietor in relation to goods or services in respect of which the trade mark is registered,, subject to conditions
and limitations prescribed, if any, and subject to other provisions of thee Act. [Section 28(1)]. In case same or
similar trade mark is registered in name of more than one proprietor, they do not have any right against each
other, but have equal rights against third persons. [Section 28(3)]. - - The registration and its assignments and
transmissions are prima facie evidence of its validity in any legal proceedings [section 31(1)].
Infringement of Trade Mark - A registered trade mark is infringed‘ when a person other than registered
proprietor or a person using by way of permitted use, uses in course of trade, in following cases –
USE DECEPTIVELY SIMILAR MARK - Use of a mark which is identical with or deceptively similar to trade
mark in relation to goods or services in respect of which the trade mark is registered and in such a manner as to
render the use of the mark likely to be taken as being used as a trade mark. [Section 29(1)].
LIKELY TO CAUSE CONFUSION BECAUSE OF IDENTITY/SIMILARITY - Use which, because of identity
or similarity with registered trade mark and identity or similarity of goods or services covered by registered
trade mark, is likely to cause confusion on the part of public. [Section 29(2)].
USE EVEN ON DISSIMILAR GOODS - Use of identical or similar registered trade mark on goods which are
not similar, if the mark has reputation in India and use of the mark without due cause is taking undue advantage
or is detrimental to the distinctive character or repute of the registered trade mark. [Section 29(4)].
USE AS TRADE NAME - Use of registered trade mark as a trade name or name of business concern or part of
name of his business concern dealing in goods or services in respect of which the trade mark is registered.
[Section 29(5)].
APPLYING TRADE NAME ON LABELS OR PACKING GOODS - Unauthorized use the trade mark on
material intended to be used for labeling or packing of goods, as a business paper or for advertising goods or
services. [Section 29(7)]
USE IN ADVERTISING - Use in advertisement, taking unfair advantage or is detrimental to its distinctive
character or is against reputation of the trade mark. [Section 29(8)].
Meaning of ‘deceptively similar’ - A mark shall be deemed to be ‗deceptively similar ‘to another mark if it so
nearly resembles that other mark as to be likely to deceive or cause confusion. [Section 2(1) (h)].
Assignment, transmission and registered user - A trade mark can be assigned or transmitted. A registered
trade mark can be assigned by registered proprietor to another and to give effectual receipts for any
consideration for such assignment. [Section 37]. Registered trade mark can be assigned or transmitted with or
without goodwill of business concerned, in respect of all goods or services or of only some of the goods or
services. [section 38]. An unregistered trade mark can also be assigned or transmitted with or without goodwill
of business concerned [section 39]. Assignment or transmission shall be registered with registrar. [Section
45(1)].
Appellate Board - A ‗Intellectual Property Appellate Board’ shall be established by Central Government.
[Section 83]. The Board will exercise powers which were exercised by High Court under 1958 Act. Matters

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presently pending in High Court will also be transferred to the Board. [Section 100]. [However, matters relating
to infringement, passing off, offenses and penalties will continue to District Court/Magistrate only as at present]
Infringement -Falsifying trade mark and falsely applying trade mark is a criminal offense for which
punishment can be imposed by criminal courts. In addition, suit for infringement or passing off can be filed by
aggrieved party. It is a civil action. The suit is required to be instituted before District Court.
INFORMATION TECHNOLOGY ACT, 2000: IT Act, 2000:
IT Act, 2000 Enacted on 17th May 2000- India is 12th nation in the world to adopt cyber laws IT Act is based
on Model law on e-commerce adopted by UNCITRAL. We in India also have had a vision to become the 12th
nation in the world to enact a Cyber law. We have enacted the Information Technology Act, 2000.
OBJECTIVES : To provide legal recognition for transactions:- Carried out by means of electronic data
interchange, and Other means of electronic communication, commonly referred to as "electronic commerce",
involving the use of alternatives to paper-based methods of communication and storage of information, To
facilitate electronic filing of documents with the Government agencies To amend the Indian Penal Code, the
Indian Evidence Act, 1872, the Banker's Book Evidence Act, 1891 and the Reserve Bank of India Act, 1934
ELECTRONIC CONTRACT: Electronic Contract Acceptance Of Contract May Be Expressed By Electronic
Means Of Communication. The Same Shall Have Legal Validity And Enforceability.
AUTHENTICATION OF ELECTRONIC RECORDS: Any subscriber may authenticate an electronic record
Authentication by affixing his digital signature. Any person by the use of a public key of the subscriber can
verify the electronic record.
ELECTRONIC GOVERNANCE : Legal requirements of any information or any other matter being in
writing or in the typewritten or printed form, shall be deemed to have been satisfied if such information or
matter is— (a) rendered or made available in an electronic form; and (b) accessible so as to be usable for a
subsequent reference.
DIGITAL SIGNATURES & ELECTRONIC RECORDS: Digital Signatures & Electronic Records Legal
Recognition of Digital Signatures
OFFENCES & PENALTIES: Penalties and adjudication for various offences involving computers, computer
systems and computer networks.
PRACTICAL CHALLENGES : Practical Challenges We Must Ensure That The Final Output Of Any
Electronic Governance Project Must Be Legal In A Court Of Law Need To Comply The Strict Requirements Of
It Act, 2000 And Amended Indian Evidence Act
Cyber Crime:
Crime committed using a computer and the internet to steal a person's identity or illegal imports or malicious
programs Cyber crime is nothing but where the computer used as an object or subject of crime. Modes &
manner Un authorized access of computer system or network Theft of information contained in electronic
form Data diddling: This is altering raw data just before a computer processes it and then changing it back after
the processing is completed.
Denial of Service attack: The computer is flooded with more requests than it can handle which cause it to
crash. Trojan attacks: It means unauthorized programmer. It gains control over another‘s system by representing
itself as an authorized programmer.
Web jacking: This term is derived from the term hi jacking. In these kinds of offences the hacker gains access
and control over the web site of another. Email bombing: It refers to sending large numbers of mail to the

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victim, which may be an individual or a company by ultimately resulting into crashing. Harassment via e-mails:
Harassment through e-mails is not a new concept. It is very similar to harassing through letters.
Cyber-stalking: Cyber stalking involves following a person movements across the Internet by posting
messages.
Email spoofing: A mail which misrepresents its origin. It shows it's origin to be different from which actually it
originates.
Computer Vandalism: Damaging or destroying data rather than stealing or misusing them is called cyber
vandalism. Transmitting virus: These are programs that attach themselves to a file and then circulate. They
usually affect the data on a computer, either by altering or deleting it.
Cyber Terrorism: Terrorist attacks on the Internet is by distributed denial of service attacks, hate websites and
hate emails, attacks on sensitive computer networks, etc. Technology savvy terrorists are using 512-bit
encryption, which is impossible to decrypt.
Child Pornography: The use of computer networks to create, distribute, or access materials that sexually use
underage children. Cyber Contraband: Transferring illegal items through the internet (such as encryption
technology) that is barred in some locations.
Cyber laundering: Electronic transfer of illegally-obtained money with the goal of hiding its source and
possibly its destination.
Cyber Stalking: Threats that creates fear through the use of computer technology such as email, phones, text
messages, web cams, websites or videos.
Cyber Theft: Using a computer to steal. This includes activities related to: breaking and entering, unlawful
appropriation, identity theft, fraud, malicious hacking and piracy.
Cyber security: Privacy policy: Before submitting your name, email address, or other personal information on
a web site, look for the site's privacy policy. Evidence that your information is being encrypted: To protect
attackers from hijacking your information, any personal information submitted online should be encrypted.
Many sites use SSL or secure sockets layer, to encrypt information. Protecting your privacy Keep software up to
date: If the seller releases patches for the software operating your device, install them as soon as possible.
Installing them will prevent attackers from being able to take advantage. Use good passwords: Select passwords
that will be difficult for thieves to guess. Do not choose options that allow your computer to remember your
passwords.
Disable remote connectivity: Some PDA‘s and phones are equipped with wireless technologies, such as
Bluetooth, that can be used to connect to other devices or computers. You should disable these features when
they are not in use.

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