Business Laws

K.V.RAMESH
Asst. Professor
Institute of Public Enterprise
Syllabus outline
 Unit 1 Indian contract Act, 1872, Companies Act, 2013,
Sale of Goods Act, 1930, Negotiable Instruments Act1881

 Unit 2 Consumer protection Act,1986,Competition Act,2002 ,

Information Technology Act 2000, FEMA 1999

 Unit 3 Factories Act 1948, Industrial dispute Act1947,

Payment of Bonus Act1965, Payment of Gratuity Act 1972
THE INDIAN CONTRACT ACT, 1872.
Introduction
 Branch of law which determines the
circumstances in which promises made by
the parties to a contract shall be legally
binding them.
 It provides definiteness in business
transactions.
 It conveys remedies in a court of law.
BASIC DEFINITIONS
 Sec 2(h) Contract : An agreement enforceable by
law .
 Sec 2(e) Agreement : Every promise and every
set of promises forming consideration for each
other .
 Sec 2(b) Promise : When the person to whom the
proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when
accepted becomes a promise.
 Essential elements of a valid contract
1. Offer and Acceptance.

2. Intention to create legal relationship.

Case law BALFOUR Vs BALFOUR

3. Lawful consideration.

4. Capacity of parties.

5. Free and genuine consent.

Essential elements

6.Lawful object.

7. Agreement not declared void.

8. Certainty and possibility of performance.

9. Legal formalities.
Classification of Contracts
 Validation

 Formation

 Performance
Validation
Voidable contract

Void agreement

Void contract

Illegal agreement

Unenforceable contract
Formation

Express contract

Implied contract

Quasi-contract

E-Commerce contract
Performance

Executed contract

Executory contract
OFFER
 Offer is a proposal by one party to another to
enter into a legally binding agreement with
him.

 The person making the offer is known as the

Offeror, Proposer or Promiser.

 When the offeree accepts the offer he is

called the Acceptor or Promisee.
Legal rules
 Offer must be such as in law is capable of being accepted
and giving rise to legal relationship.

 Terms of offer must be definite, unambiguous and

certain and not loose and vague.

 An offer may be distinguished from

A declaration of intention and an announcement.
 An invitation to make an offer or do business.
Rules of offer
 Offer must be communicated.
Lalman Vs Gauri Dutt

 Offer must be made with a view to obtaining the assent.

 Offer should not contain a term the non-compliance of which may

be assumed to amount to acceptance.

 A statement of price is not an offer.

Acceptance
 Acceptance is the act of assenting by the offeree
to an offer. A contract emerges from the
acceptance of an offer.
Legal Rules :
 It must be absolute and unqualified, it must
conform with the offer.

 It must be communicated to the offeror.

Rules of Acceptance
 It must be according to the mode usual or prescribed
and reasonable mode.

 It must be given within a reasonable time.

 It cannot precede an offer.

 It must show an intention on the part of the acceptor

to fulfill terms of the promise.
Rules of Acceptance
 It must be given by the party or parties to whom
the offer is made.

 It must be given before the offer lapses or before

the offer is withdrawn.

 It cannot be implied from silence.

CONSIDERATION
 Sec2(d) Consideration :
“ When at the desire of the promiser, 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”.
Kedar Nath Vs Gauri Mohamed
LEGAL RULES
 It must move at the desire of the promiser.

 It may move from the promisee or any other

person.

 It may be an act, abstinence or forbearance or a

return promise.
 It may be past, present, and future.
 It need not be adequate.
Legal Rules
 It must be real and not illusory.
i.e: Physical impossibility, Legal impossibility,
Uncertain consideration and Illusory
consideration.

 It must be something which the promisor is not

already bound to do.

 It must not be illegal, immoral, or opposed to

public policy.
Exceptions
 Love and Affection.

 Compensation for voluntary services.

 Promise to pay a time barred debt.

 Completed Gift.

 Agency.
Capacity to contract
 Sec11 declares Minors, Unsound mind and persons
disqualified by any law to which they are subject.
Minor’s position
 An agreement with or by a minor is void and
inoperative abinitio.
Mohiri Bibi Vs Dharmodas Ghose
 He can be a promisee or a beneficiary.
 His agreement cannot be ratified by him on attaining
the age of majority.
Position of Minor’s agreements
 If he has received any benefit under a void agreement,
he cannot be asked to compensate or pay for it.

 He can always plead minority.

 There can be no specific performance of the

agreements entered into by him as they are void
abinitio.
 He cannot be adjusted insolvent.
Minor/ Unsound mind
 He is liable for necessaries supplied whom he is
legally bound to support.

 He can be an agent.

 Minor is liable in tort.

Unsound mind
 Lunatics.
 Idiots and Drunken persons.
Free Consent
 Sec13/Sec14 Consent means agree upon same
thing in the same sense is to be free when it is
not caused by Coercion, Undue influence,
Fraud, Misrepresentation and Mistake.

 Sec15 Coercion includes fear, physical

compulsion. Committing or Threaten to
commit , unlawful detaining.
Chikham amiraju Vs Seshamma
Free Consent
 Sec16 Undue influence refers to the relations
subsisting between the parties are such that one of
the parties is in a position to dominate the will of
the other and uses that position to obtain an unfair
advantage over the other. It is Moral coercion.
 Sec17 Fraud is a false representation has been made
knowingly or without belief in its truth or recklessly
not caring whether it is true or false and the maker
intended the other party to act upon it or there is a
concealment of a material fact to deceive.
Two M’s
 Sec18 Misrepresentation is a false statement
which the person making it honestly believes to
be true or which he does not know to be false. It
is not only mis-statement of facts but also from
suppression of material facts.
 Sec20 to Sec22 Mistake is erroneous belief about
something. Mistakes can be mistake of law or
mistake of fact.
Legality of Object
When the object is unlawful?
 If it is forbidden by law.
 If it is of such a nature that, if permitted, it would
defeat the provisions of an law.
 If it is fraudulent.
 If it involves or implies injury to the person or
property of another.
 If the court regards it as immoral, and/or opposed
to public policy.
Performance of contract
By whom must contracts be performed?
 Promisor himself.

 Agent.

 Legal representatives.

 Third persons.

 Joint promisors.
Three rules
Rules as regards performance of JP’s.
 Any one of the joint promisors may be
compelled to perform.

 A joint promiser compelled to perform may

claim contribution.

 Sharing of loss arising from default.

Discharge of contract
Discharge means termination of the contractual relation
between the parties.
A contract may be discharged
 By performance.
 By Agreement or consent.
 By Impossibility of performance.
 By Lapse of time.
 By Operation of law.
 By Breach of contract.
Agreement or Consent
 Novation : When a new contract is substituted
for an existing one between the same parties or a
contract between two parties is rescinded in
consideration of a new contract with a third
party.
 Rescission : Takes place when all or some of the
terms of the contract are cancelled. It may occur
by mutual consent or failure of a party in the
performance of his obligation.
Discharge by consent
 Alteration : One or more of the terms of the contract is
altered by mutual consent of the parties.
 Remission : Means acceptance of a lesser fulfillment
of the promise made.
 Waiver : Takes place when the parties to a contract
agree that they shall no longer be bound by the
contract.
 Merger : When an inferior right accruing to a party
under a contract merges into a superior right accruing
to the same party.
Discharge by impossibility
The law does not recognise what is impossible
and
What is impossible does not create an obligation
The contract is not discharged in the following cases
 Difficulty of performance.

 Commercial impossibility.

 Impossibility due to failure of a third person.

 Strikes, lockouts and civil disturbances.

 Failure of one of the objects.

Impossibility
 Existing at the time  Arising subsequently.
of agreement Destruction of subject
matter of contract.
Known to the parties.
Frustration of the contract
Unknown to the or non-occurrence of a
parties. particular state of things.
Death or Incapacity for
personnel service.
Change of law.
Outbreak of war.
Discharge
 By lapse of time : Contract should be performed within a specified
period called period of limitation.

 By operation of law :
by death
by merger
by insolvency
by unauthorised alteration of the terms of a written
agreement.
by rights and liabilities becoming vested in the same
person.
.
 By breach of contract.
Breach of contract and remedies
Breach refers to breaking of the obligation which a
contract imposes.
Remedies
 Rescission of the contract.

 Suit for damages.

 Suit upon quantum meruit.

 Suit for specific performance of the contract.

 Suit for Injunction.

Quasi- Contracts

Quasi- contract is not a contract at all.

It is a contract which is intentionally
entered into and is created by law.
Kinds of quasi contracts
 Supply of necessaries.
 Responsibility of Finder of goods.
 Mistake or Coercion.
 Obligation to pay non-gratuitous acts.
Kinds of quasi contracts
 Payment by an interested person, subject to
conditions. Namely

Payment should be bonafide for the protection

of one’s interest.

The payment should not be a voluntary one.

The payment must be such as other party was

bound by law to pay.
Indemnity and Guarantee

A contract by which one party promises to

save the other from loss caused to him by
the conduct of the promisor himself, or by
the conduct of any other person.
Indemnifier or Promiser : The person who
promises to make good the loss.

Indemnified or Promisee : The person whose

loss is to be made good.
Guarantee
A contract to perform the promise or discharge the
liability of a third party in case of his default.
Surety: The person who gives the guarantee.

Principle debtor: The person in respect of whose

default the guarantee is given.

Creditor: The person to whom the guarantee is given.

Essential features
 Concurrence of THREE parties.

 Primary liability in some person.

 Essentials of valid contract.

 Writing not necessary.

 Guarantee
Guarantee can be for---
 Repayment of a debt.
 Payment of the price of the goods sold on
credit.
 Good conduct or honesty of person
employed in a particular office.

Types of Guarantee
Specific and Continuing
Bailment and Pledge
A Bailment is defined as the delivery of
goods by one person to another for some
purpose upon a contract that they shall, when
the purpose is accomplished, be returned or
otherwise disposed of according to the
directions of the person delivering them.
Bailor: The person delivering the goods.
Bailee: The person to whom they are delivered.
Essentials of Bailment
 Contract

 Delivery of possession

 For some purpose

 Return of specific goods

PLEDGE

The bailment of goods as security for

payment of a debt or performance of a
promise is Pledge.

The bailor is pawnor or pledger.

Bailee is pawnee or pledgee.

Differences
Pledge Bailment
 Bailment of goods as a Bailment is for a
security for the purpose of any kind.
performance of a
specific performance.
 In case of default by
pawnor to repay the The bailee may either
debt, the pawnee may retain the goods or sue
after giving notice to the for his charges.
pawnor sell the goods
pledged with them.
Pledge & Bailment

The pawnee has no The bailee may do

right to use the so if the terms of
goods pledged with bailment so
him. provide.
Agency

Agent is a person employed to do any

act for another, or to represent another
in dealings with third persons.

The person for whom such act is done

or who is so represented is called the
Principal.
Essentials of Agency
Agreement between the principal and the agent.
No consideration is necessary.
Intention of the agent to act on behalf of the
principal.
RULES
 Whatever a person can do personally, he can do

so through an agent.
 He who does an act through another does it by
himself.
Who can /may
Who can ‘employ' Agent?
 Any person who is of age of majority, and of sound
mind may employ an agent.
Who may be an Agent?
 Any person who is authorised to act as such may be
an agent.
Sub-agent: Is a person employed by and acting under the
control of original agent in the business of agency. He
is the agent of the original agent.
Co-agent Or Substituted agent: Is a person who is named
by the agent on an express or implied authority from
the principal to act for the principal.
Companies Act, 2013
 Lok Sabha passed Companies Bill, 2012
on 18th December,2012.

 Rajya Sabha on 8th August, 2013.

 The President of India assented on 29 th

August, 2013.
 COMPANY Act,2013
DEFINITION A voluntary association of persons formed for
some common purpose. It has capital divisible into parts, known as shares.
The Act extends to whole of India except as regards to state of Nagaland,
Goa,Daman and Diu,Jammu&Kashmir.

CHARACTERISTICS OF A COMPANY

 Separate legal entity- Salomon vs Salomon & Co. Ltd

 Limited liability
 Perpetual succession
 Common seal
 Transferability of shares
 Separate property
 Capacity to sue
 KINDS OF COMPANIES
Companies are classified on the basis of following

Incorporation Liability Number of members Control Ownership

Statutory Unlimited Private Holding Govt

Registered Limited Public Subsidiary Non Govt

By shares By guarantee
 Associate Company - A company is considered to be an
associate company of the other, if the other company has
significant influence over such company (not being a
subsidiary) or is a joint venture company.
 Significant influence means control of at least 20 per cent.
of total share capital of a company or of business decisions
under an agreement.
 Dormant Company - Where a company is formed and
registered under this Act for a future project or to hold an
asset or intellectual property and has no significant
accounting transaction, such a company or an inactive
company may make an application to the Registrar for
obtaining the status of a dormant company.
 Foreign company means any company or
body corporate incorporated outside India
which
 has a place of business in India whether by
itself or through an agent, physically or
through electronic mode; and
 conducts any business activity in India in
any other manner.
 Small company has been defined as a company
other than a public company having a paid-up
share capital of which
 does not exceed fifty lakh rupees or
 such higher amount as may be prescribed not
exceeding Rs.5 crore or
 turnover of which does not exceed two crore
rupees or
 such higher amount as may be prescribed not
exceeding twenty crore rupees.
 One person company
means a company which has
only one person as a member.
 Associations not for profit- sec 25

The CG may grant license when it is proved to the satisfaction of CG

That it-
IS about to be formed as a limited company for promoting commerce,
science, religion, charity or any other useful object and
Intends to apply its profits, if any, or other income in promoting its
objects and to prohibit the payment of any dividend to its members
Key Managerial Personnel (KMP)

in relation to a company, means—

(i) the Chief Executive Officer or the Managing Director or
the Manager,
(ii) the Company Secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed
FORMATION OF COMPANY
Documents to be filed with the Registrar
 MOA
 AOA
 AGREEMENT
 LIST OF DIRECTORS
 DECLARATION
Within 30 days of the date of incorporation of the Company, a
notice of the situation of the registered office of the Company
shall be given to the Registrar who shall record the same.
certificate of in corporation is conclusive evidence that all the
requirements of the Companies Act have been complied. (Sec 35)
Jubilee Cotton Mills Ltd Vs Lewis
 Effects of registration Sec34

 Distinct legal entity

 Perpetual succession
 Company’s property is not the property of the shareholders

Pre-incorporation or preliminary contracts

position of promoters as regards pre-incorporation contracts
 Company not bound by pre-incorporation contract
 Company cannot enforce pre-incorporation contract
 Promoters personally liable

Kelner Vs Baxter

Provisional contracts
Refer to contracts entered into by a public company after its incorporation but before it is issued the
certificate of commencement of business
MEMORANDUM OF ASSOCIATION

CONTENTS OF MEMORANDUM Sec13

 Name clause

 Registered office clause

 Objects clause

 Capital clause

 Liability clause

 Association clause

DOCTRINE OF ULTRA VIRES

A Company has the power to do all such things as are –
 Authorised to be done by the Companies Act, 1956

 Essential to the attainment of its objects specified in the MOA

 Reasonably and fairly incidental to its objects

MANAGEMENT AND
ADMINISTRATION
Director U/S 2(13) includes any person occupying the position
of director, by whatever name called . He is a person having
control over the direction , conduct, management of the affairs
of company.

Every public company shall have at least three directors and

in case of private company at least 2 directors.
A public company having a paid up capital of Rs 5cr
or more and 1000 or more small share holders shall have at
least one director elected by such small share holders in the
manner as may be prescribed.
Small shareholder means a shareholder holding shares of
nominal value of Rs 20000 or less in a public company
QUALIFICATIONS AND DIS
QUALIFICATIONS
A director must be an individual, competent to contract and hold a share
qualification, if so, required by AOA.
Disqualifications
 A person of unsound mind.
 An undischarged insolvent.
 Application pending with respect to a person to be adjudicated as an
insolvent.
 A person who has been convicted by a Tribunal of any offence involving
moral turpitude and sentenced for not less than six months, and a period
of five years has not elapsed from the date of expiry of the sentence.
 A person calls in arrear held for more than six months.
 A person who is disqualified for appointment as director by an order of Tribunal.
 A person who is a director of a public company which has not filed returns for any three
continuous financial years or
 Has failed to repay its deposits or interests.

Number of Directorships:-20 of which not more than 10 can be Public companies

Note:-The following companies shall be excluded
 A private company which is neither a subsidiary or holding company of a public company.
 An unlimited company.
 Sec 25 companies.
 An alternate director.

Duration of directorship: 5years

Maximum number of directors :15

Minimum : Public company -3 Private -2 , OPC-1

At least one woman director shall be on the Board of such class or classes of companies as
may be prescribed
Concept of independent directors
 All listed companies shall have at least one-third of the Board as independent
directors.

 Such other class or classes of public companies as may be prescribed by the Central
Government shall also be required to appoint independent directors.

 Nominee director nominated by any financial institution, or in pursuance of any

agreement, or appointed by any government to represent its shareholding shall not
be deemed to be an independent director.

 An independent director shall not be entitled to any remuneration other than sitting
fee, reimbursement of expenses for participation in the Board and other meetings
and profit related commission as may be approved by the members.

 An Independent director shall not be entitled to any stock option.

 Only an independent director can be appointed as alternate director to an

independent director.
Corporate Social Responsibility
 Every company having a net worth of Rs. 500 crore or
turnover of Rs.1000 crores or more or net profit of Rs.5
crore or more during any financial year has to constitute
a “CSR Committee of the Board” consisting of at least 3
directors and out of these three directors, one has to be
an independent director.
 This is a foolproof provision ensuring that the committee
is not just a quasi committee addressing the whims of the
board but is in fact taking up an initiative.
 These companies have to spend minimum 2% of “net
profits” (Average of last three years) towards CSR
policy. If not spent, board has to give detailed reasons for
not spending on CSR in the Director’s Report.
initiatives can include
 (i) eradicating extreme hunger and poverty
 (ii) promotion of education
 (iii) promoting gender equality and empowering women
 (iv) reducing child mortality and improving maternal health
 (v) combating the human immunodeficiency virus, acquired immune
deficiency syndrome, malaria and other diseases
 (vi) ensuring environmental sustainability
 (vii) employment enhancing vocational skills
 (viii) social business projects
 (ix) contribution to the Prime Minister's National Relief Fund or any
other fund set up by the Central Government or the State
Governments for socioeconomic development and relief and funds
for the welfare of the Scheduled Castes, the Scheduled Tribes, other
backward classes, minorities and women.
 APPOINTMENT OF DIRECTORS
1.First directors
 AOA
 MOA
 Subscribers of the Memorandum.
2.By the Company
At least 2/3rds of the total number of directors shall be liable to retire
by rotation , Rotational directors.
3. By directors
 As additional directors
 As alternate director
 In a casual vacancy
4. By third parties.
5. By proportional representation- appointment shall be made once in
three years as provided in AOA.
6. By CG- appointment will be for a period not exceeding three years
on any one occasion.
POSITION OF DIRECTORS
 As agents.
 As employees.
 As officers.
 As trustees.
Removal of directors
 Shareholders
 CG
 CLB
Duties of directors
act in accordance with the articles of the company.
act in good faith in order to promote the objects of the company for
the benefit of its members as a whole, and in the best interests of the
company, its employees, the shareholders, the community and for
the protection of environment.
exercise his duties with due and reasonable care, skill and diligence
and shall exercise independent judgment.
not involve in a situation in which he may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of
the company.
not achieve or attempt to achieve any undue gain or advantage either
to himself or to his relatives, partners, or associates and if such
director is found guilty of making any undue gain, he shall be liable
to pay an amount equal to that gain to the company.
not assign his office and any assignment so made shall be void.
MEETINGS AND
PROCEEDINGS
1) Statutory Meeting- This is the first meeting of share holders
of a public company and is held only once in lifetime of a
company. Meeting shall be called upon within a period of not
less than one month nor more than six months from the date
at which the company is entitled to commence business.

2) Annual General Meeting- There shall not be an interval of

more than 15 months between one AGM of the company and
the next . A company may hold its first AGM within a period of
18 months from the date of its incorporation.

3) Extraordinary General Meeting- To be convened by the

BOD
REQUISITES OF A VALID
MEETING

 Proper authority – BOD should pass resolution.

 Notice of meeting- Not less than 21 days notice in writing.

 Quorum- public company 5 members personally present and in

case of any other company to

 Chairman of the meeting- Presiding officer.

 Minutes of meeting-record of what the company and directors

do in meetings.
RESOLUTIONS
The Questions which generally come for consideration at the
general meeting of a company are presented in the form of
proposals called motions. The motion after close discussion, is
formally put to vote by a show of hands. The final result is
declared after the poll is taken. If a motion is carried. It becomes a
resolution
KINDS OF RESOLUTIONS
Ordinary resolution-passed at a general meeting of a company by
simple majority of votes.
WHEN REQUIRED ? .
 Rectification of name or adoption of new name
 Issue of shares at discount
 Alteration of share capital
 Adoption of statutory report.
 Passing of annual accounts.
 Appointment of auditors and fixation of remuneration.
 Appointment of first directors who are liable to retire by rotation.
 Increase reduction in the number of directors within the limit fixed
by AOA.
 Removal of a director and appointment in his place.
 Appointment of managing director.
 Winding up of a company voluntarily.
Special resolution – Within 30 days of passing of the resolution, be
filed with the registrar.
when required ?
 Alteration of MOA&AOA.
 Payment of interest out of capital.
 Reduction of share capital.
 RESOLUTIONS REQUIRING A SPECIAL NOTICE.

The notice shall be given not less than 14 days before the meeting
at which the resolution is to be moved.
When required ?

 Appointment of an auditor other than retiring ones.

 Retiring auditor shall not be re appointed.

 Removal of a director before the expiry of his period.

 Appointment of a director in place of one who is removed