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MBA 4th semester Sub: Business Laws

Unit-1

Indian Contract Act, 1872


The Indian Contract Act, 1872 prescribes the law relating to contracts in India and is the key
act regulating Indian contract law. The Act is based on the principles of English Common Law.
It is applicable to all the states of India. It determines the circumstances in which promises made
by the parties to a contract shall be legally binding. Under Section 2(h), the Indian Contract Act
defines a contract as an agreement enforceable by Law.

Development
The Act as enacted originally had 266 Sections,

 General Principles of Law of Contract – Sections 01 to 75


 Contract relating to Sale of Goods – Sections 76 to 123
 Special Contracts- Indemnity, Guarantee, Bailment & Pledge and Agency – Sections
124 to 238
 Contracts relating to Partnership – Sections 239 to 266
At present the Indian Contract Act may be divided into two parts:

 Part 1: Deals with the General Principles of Law of Contract – Sections 1 to 75


 Part 2: Deals with Special kinds of Contracts such as
o Contract of Indemnity and Guarantee
o Contract of Bailment and Pledge
o Contract of Agency.

Important Definitions (Section 2)


1. Offer 2(a): An offer refers to a promise that is dependent on a certain act, promise, or
forbearance given in exchange for the initial promise.
2. Acceptance 2(b): When the person to whom the proposal is made, signifies his assent there to,
the proposal is said to be accepted.
3. Promise 2(b): A proposal when accepted becomes a promise. In simple words, when an offer
is accepted it becomes promise.
4. Promisor and Promisee 2(c): When the proposal is accepted, the person making the proposal
is called as promisor and the person accepting the proposal is called as promisee.
5. Consideration 2(d): 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.
Price paid by one party for the promise of the other Technical word meaning QUID-PRO-
QUO i.e. something in return.
6. Agreement 2(e): Every promise and every set of promises forming the consideration for each
other. In short,
MBA 4th semester Sub: Business Laws

7. Reciprocal Promises 2(f): Promises which form the consideration and part of the
consideration for each other are called 'reciprocal promises'.
8. Void agreement 2(g): An agreement not enforceable by law is void.
9. Contract 2(h): An agreement enforceable by Law is a contract. Therefore, there must be an
agreement and it should be enforceable by law.
10. Voidable contract 2(i): An agreement is a voidable contract if it is enforceable by Law at the
option of one or more of the parties there to (i.e. the aggrieved party), and it is not enforceable by
Law at the option of the other or others.
11. Void contract 2(j): A contract becomes void when it ceases to be enforceable by law.

Offer
According to Section 2(a), an offer refers to a promise that is dependent on a certain act,
promise, or forbearance given in exchange for the initial promise.
Types of Offer

 Express offer: The offer made by using words spoken or written is known as an


express offer. (Section 9)
 Implied offer: The offer which could be understood by a conduct of parties or
circumstances of case.
 General offer: It is an offer made to public at large with or without any time limit.
 Specific offer: It is a type of offer, where an offer is made to a particular and
specified person, it is a specific offer.
 Cross offer: When a person to whom proposal (offer) is made signifies his assent,
the proposal is said to be accepted.
 Continuous offer: An offer which is made to the public at large and if it is kept open
for public acceptance for a certain period of time.
 Counteroffer: Upon receipt of an offer from an offeror, if the offeree instead of
accepting it straightway, imposes conditions which have the effect of modifying or
varying the offer.

Acceptance in contract act


According to Section 2(b), "When the person to whom the proposal is made, signifies his assent
thereto, the offer is said to be accepted. A proposal, when accepted, becomes a promise."
Rules for valid acceptance

1. Acceptance should be absolute and unqualified.. If the parties are not concurred
on all matters concerning the offer and acceptance, there is no valid contract. For
example, "A" says to "B" "I offer to sell my car for Rs. 50,000/-. "B" replies "I
will purchase it for Rs. 45,000/-". This is not acceptance and hence it amounts to
a counter offer.
MBA 4th semester Sub: Business Laws

2. It should be communicated to the offeror. To conclude a contract between


parties, the acceptance must be communicated in some prescribed form. A mere
mental determination on the part of offeree to accept an offer does not amount to
valid acceptance.
3. Acceptance must be in the mode prescribed. If the acceptance is not according
to the mode prescribed or some usual and reasonable mode (where no mode is
prescribed) the offeror may intimate to the offeree within a reasonable time that
acceptance is not according to the mode prescribed and may insist that the offer
be accepted in the prescribed mode only. If he does not inform the offeree, he is
deemed to have accepted the offer. For example, "A" makes an offer to "B" says
to "B" that "if you accept the offer, reply by voice. "B" sends reply by post. It will
be a valid acceptance, unless "A" informs "B" that the acceptance is not
according to the prescribed mode.
4. Acceptance must be given within a reasonable time before the offer lapses. If
any time limit is specified, the acceptance must be given within the time, if no
time limit is specified it must be given within a reasonable time.
5. It cannot precede an offer. If the acceptance precedes an offer it is not a valid
acceptance and does not result in contract. For example, in a company shares
were allotted to a person who had not applied for them. Subsequently, when he
applied for shares, he was un aware of the previous allotment . The allotment of
share previous to the application is not valid.
6. Acceptance by the way of conduct.
7. Mere silence is no acceptance.
Silence as Acceptance
Silence does not per-se amounts to communication- Bank of India Ltd. Vs. Rustom
Cowasjee- AIR 1955 Bom. 419 at P. 430; 57 Bom. L.R. 850- Mere silence cannot amount to
any assent. It does not even amount to any representation on which any plea of estoppel may be
found, unless there is a duty to make some statement or to do some act free and offeror must be
consent.

1. Acceptance must be unambiguous and definite.


2. Acceptance cannot be given before communication of an offer.

Lawful consideration
According to Section 2(d), Consideration is defined as: "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 abstain from doing something, such act or abstinence or promise is called
consideration for the promise". Consideration means 'something in return'.
Essentials of Valid Consideration
An agreement must be supported by a lawful consideration on both sides. Essentials of valid
consideration must include:-

 It must move at the desire of the promisor. An act constituting consideration must


have been done at the desire or request of the promisor. If it is done at the instance of
MBA 4th semester Sub: Business Laws

a third party or without the desire of the promisor, it will not be good consideration.
For example, "A" saves "B"'s goods from fire without being ask him to do so. "A"
cannot demand payment for his service.
 Consideration may move from the promisee or any other person. Under Indian
law, consideration may be from the promisee of any other person i.e., even a stranger.
This means that as long as there is consideration for the promisee, it is immaterial
who has furnished it.
 Consideration must be an act, abstinence or forbearance or a returned promise.
 Consideration may be past, present or future. Past consideration is not
consideration according to English law. However it is a consideration as per Indian
law. Example of past consideration is, "A" renders some service to "B" at latter's
desire. After a month "B" promises to compensate "A" for service rendered to him
earlier. When consideration is given simultaneously with promise, it is said to be
present consideration .. For example, "A" receives Rs. 50/- in return for which he
promises to deliver certain goods to "B". The money "A" receives is the present
consideration. When consideration to one party to other is to pass subsequently to
the maker of the contract, is said to be future consideration. For example. "A"
promises to deliver certain goods to "B" after a week. "B" promises to pay the price
after a fortnight, such consideration is future.
 Consideration must be real. Consideration must be real, competent and having some
value in the eyes of law. For example, "A" promises to put life to "B"'s dead wife, if
"B" pay him Rs. 1000/-. "A"'s promise is physically impossible of performance hence
there is no real consideration.
 Consideration must be something which the promisor is not already bound to do.
A promise to do something what one is already bound to do, either by law, is not a
good consideration., since it adds nothing to the previous existing legal consideration.
 Consideration need not be adequate. Consideration need not be necessarily be equal
to value to something given. So long as consideration exists, the courts are not
concerned as to adequacy, provided it is for some value.
INDEMNITY AND GUARANTEE
The contract of indemnity and contract of guarantee are specific types of contracts. The
provisions relating to these contracts are contained in Sections 124 to 147 (Chapter VIII) of the
Indian Contract Act, 1872.
Meaning and Definition of Contract of Indemnity
Ordinarily, the term indemnity means to make good any loss or to compensate any person who
has suffered some loss. According to Section 124 of the Indian Contract Act, “A contract, by
which one party promises to save the other from loss caused to him by the conduct of the
promisor himself, or by the conduct of any other person, is called a contract of indemnity”. The
person who makes the promise to make good the loss is called the indemnifier. The person whose
loss is to be made good is called indemnity holder. A contract of indemnity refers to a promise
made by one person to make good any loss or damage another has incurred or may occur by
acting at his request or for his benefit. As such, a contract of indemnity is a type of contingent
contract. The performance of the contract is dependent on happening or non-happening of a
MBA 4th semester Sub: Business Laws

contingency, which may cause losses to another party. A contract of indemnity may be express or
implied.
Essentials of the Contract of Indemnity
The definition of a contract of indemnity in Section 124 of the Indian Contract Act makes it clear
that, besides having the basic elements of a valid contract, a contract of indemnity must have the
following two elements:
a) The indemnifier expressly promises to indemnify the indemnity holder.
b) The promise is to protect the indemnity holder against loss that could be the result of an act
on the part of the promisor

Rights of Indemnity Holder (Section 125)


Section 125 enumerates the rights of an indemnity holder in a contract of indemnity. According
to this section, an indemnity holder (or indemnified) is entitled to recover the following from the
promisor: 1. Right to Damages:
An indemnity holder is entitled to recover the amount of damage that he has been compelled to
pay the other party in a suit to which the contract of indemnity is applicable.
2. Right to Costs:
An indemnity holder is also entitled to claim all the costs which he has incurred for defending
himself in a suit to which the promise of indemnity is applicable. Such costs may include all
incidental charges and legal expenses paid in that suit.
3. Sums paid under the conditions of compromise:
The indemnity holder is entitled to recover all sums which he may have paid under the terms of
any compromise of any such suit, provided such compromise is not contrary to the orders of the
promisor and was one which it would have been prudent for the indemnity holder to make.
Definition of Contract of Guarantee
Section 126 of the Indian Contract Act defines a contract of guarantee as a contract to perform
the promise, or discharge the liability, of a third person in case of his default. The contract of
guarantee is made to ensure performance of a contract or discharge of obligation by the promisor.
In case he fails to do so, the person giving assurance or guarantee becomes liable for such
performance or discharge.
Essential Features of a Contract of Guarantee
Like in a contract of indemnity, a contract of guarantee also must have all the essential elements
of a valid contract. According to Section 126, the following are the essential features of a
contract of guarantee —
1. Existence of a Principal Debt: A contract of guarantee pre-supposes the existence of a liability
enforceable at law. If no such liability exists, there can be no contract of guarantee. The surety
undertakes to be liable only if principal debtor fails to discharge his obligation.
2. Benefit to principal debtor is sufficient consideration: Section 127 clearly provides that
anything done or any promise made for the benefit of the principal debtor may be a sufficient
MBA 4th semester Sub: Business Laws

consideration to the surety for giving the guarantee. Thus, any benefit received by the debtor is
adequate consideration to bind the surety. There must be a fresh consideration moving from the
creditor. Past consideration is no consideration for contract of guarantee.
3. Consent of surety not obtained by misrepresentation or concealment: A contract of guarantee
is not a contract of uberrimaefidei i.e., one requiring complete disclosure of all the material facts
by the principal debtor or the creditor to the surety before the contract is entered into by him.
Thus, when a guarantee is given to a bank, it is not bound to inform the surety of matters
affecting the credit of the debtor, or of any circumstances connected with the transaction which
may render the position of the surety more onerous. The contract of guarantee is invalid in case
of misrepresentation, concealment or when co-surety does not join.
4. A contract of guarantee may be either oral or written. It may be expressed or implied from the
conduct of the parties.
5. Surety can be proceeded without proceeding against the principal debtor first.
6. A contract of guarantee can only be between at least three parties — surety, principal debtor
and creditor.
7. Free consent of all parties is essential for a contract to be valid.
BAILMENT

The term Bailment is derived from a French word “ballier” which means ‘to deliver’. It means
any kind of ‘handing over’ of goods from one person to another. Bailment implies ‘voluntary
change of possession from one person to another’. It involves change of possession and not
transfer of ownership. It denotes a contract resulting from delivery. Section 148 of the Contract
Act defines bailment 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
Essential Features of Bailment
The essential features of bailment as stated in Section 148 of the Contract Act are as follows:
(i) Delivery of goods: The first important feature of bailment is the delivery of
goods from one person to another. Delivery involves change of possession
from one person to another and not a change of ownership. Mere custody
without possession does not create bailment.
(ii) (ii) Delivery of goods must be for some purpose. Section 148 requires that
there must not only be a delivery of goods, but the delivery must be for some
purpose. Where some goods are delivered by mistake, there is no bailment.
Delivery of goods being for a purpose, the bailee is bound to return the goods
as soon as the purpose is achieved.
(iii) (iii) Contract: Bailment is based upon a contract between the parties. The
relationship of bailer and bailee is the creation of a contract. The contract may
be expressed or implied. In certain exceptional cases, bailment is implied by
law as between a finder of goods and the owner.
MBA 4th semester Sub: Business Laws

(iv) (iv) Movable goods: The bailment can only be of movable goods. Money is
not included in movable goods. Transfer of immovable property does not
constitute bailment.
(v) (v) Return of goods: Bailment of goods is always for some purpose and is
subject to the condition that when the purpose is achieved the goods will be
returned to the bailor or disposed of according to his directions. If there is no
contract to deliver back or otherwise to dispose of the goods according to his
directions, there is no bailment at all.

Negotiable Instruments Act, 1881


A negotiable instrument is a piece of paper that guarantees the payment of a certain sum of
money, either immediately upon demand or at any predetermined period, and whose payer is
typically identified. It is a document that is envisioned by or made up of a contract that
guarantees the unconditional payment of money and may be paid now or at a later time. 

Key features of negotiable instruments in the Negotiable Instruments Act of 1881 

The key features of the Act of 1881 can be understood by discussing various negotiable
instruments covered under this Act. The same has been provided hereunder.

Promissory Note (Section 4 of the Negotiable Instruments Act, 1881)

1. Regardless of whether it is negotiable or not, an instrument that complies with the


definition in Section 4 of the Negotiable Instruments Act, of 1881 must be regarded as
a promissory note.
2. According to Section 4 of the Negotiable Instruments Act of 1881, a written
instrument (not a banknote or currency note) that contains an unconditional
undertaking, signed by the maker with the promisor with the promise to pay a specific
amount of money only to, or at the direction of, a specific person, or to the bearer of
the instrument, qualifies as a negotiable instrument.
3. It must be signed, sealed, and written down;
4. There must be a commitment or undertaking to pay; The mere admission of debt is
insufficient;
5. There must be no conditions;
6. It must include a commitment to pay just money;
7. A promissory note’s maker and payee, or its parties, must be certain;
8. It is repayable immediately or following a specific date; and
MBA 4th semester Sub: Business Laws

9. The amount owing must be certain.

Cheque (Section 6 of the Negotiable Instruments Act, 1881)

1. A cheque involves three parties: the drawer, the drawee bank, and the payee;
2. It must be in writing and has the drawer’s signature;
3. Payee is confident;
4. The payment is always due upon demand;
5. It must contain a date in order for the bank to honour it; otherwise, it is invalid;
6. The sum must be expressly stated, both verbally and numerically. If the amount
undertaken or ordered to be paid is stated differently in figures and in words, the
amount stated in words shall be the amount undertaken or ordered to be paid,
according to Section 18 of the Negotiable Instruments Act, 1881;
7. When a cheque is truncated, it is scanned, an electronic image of the cheque is
created, and instead of a physical cheque being communicated in a clearing cycle, the
image is instantly used to replace any further physical movement of the cheque; and
8. No one other than the Reserve Bank of India or the Central Government may draw,
accept, make, or issue any Bill of Exchange or Pro

Fact of dishonour 

A negotiable instrument may occasionally be dishonoured, which means the party responsible
for payment neglects to make the payment. After submitting the proper notice of dishonour, the
holder has the right to file a lawsuit for the recovery of the sum. However, he is allowed to have
a Notary Public’s certification about the actuality of dishonour before he files the lawsuit. A
statement like that is referred to as “protest.” The court will assume that there has been dishonour
based on the verification of such a dissent. 

Liabilities under the Negotiable Instruments Act 1881

The various liabilities that are provided in the Act of 1881 have been laid out hereunder:

1. Liability of agent signing (Section 28): A promissory note, bill of exchange, or


cheque that an agent signs without specifying that he is acting as an agent or that he
does not intend to assume personal liability makes the agent personally liable for the
instrument, with the exception of those who persuaded him to sign under the
impression that only the principal would be held responsible.
MBA 4th semester Sub: Business Laws

2. Liability of legal representative signing (Section 29): A promissory note, bill of


exchange, or cheque that a legal representative of a deceased person signs binds him
personally unless he expressly restricts his duty to the amount of assets he received in
that capacity.
3. Liability of drawer (Section 30): If the drawee or acceptor of a bill of exchange or
cheque dishonoured it, the drawer is obligated to pay the holder compensation,
provided that the drawer has received or been given the proper notice of the dishonour
as described further below.
4. Liability of drawee of cheque (Section 31): The drawee of a cheque must pay the
cheque when required to do so and, in the event that payment is not made as required,
must reimburse the drawer for any losses or damages resulting from the default. This
is true even if the drawee has sufficient funds in his possession that are legally
applicable to the payment of the cheque.
5. Liability of maker of note and acceptor of bill (Section 32): The maker of a
promissory note and the acceptor of a bill of exchange prior to maturity are obligated
to pay the amount due at maturity in accordance with the apparent tenor of the note or
acceptance, respectively, in the absence of a contract to the contrary, and the acceptor
of a bill of exchange at or after maturity is obligated to pay the amount due to the
holder upon demand. Any party to the note or bill who is not paid as required by the
note or bill must be reimbursed by the maker or acceptor for any losses or damages
they suffer as a result of the default.
6. Liability of indorser (Section 35): Without a contract to the contrary, whoever
indorses and delivers a negotiable instrument before maturity without, in such
indorsement, expressly excluding or making conditional his own liability, is bound by
such indorsement to every subsequent holder, in case of dishonour by the drawee,
acceptor, or maker, to compensate such holder for any loss or damage caused to him
by such dishonour. Every indorser who does dishonour is accountable as if they were
a demand-payable instrument.

PARTIES TO NEGOTIABLE INSTRUMENTS


The various parties to the three different kinds of negotiable instruments are:
A. Parties to a Promissory Note
1) Maker or drawer: He is the person who makes the promissory note in which he promises to
pay another person a fixed sum of money.
2) Payee: The person who has to receive the payment for the promissory note is called the
payee.
3) Holder: He is the person who has the right to possess the promissory note in his name and to
receive the amount due thereon. He may either be the original payee or the endorsee who has
purchased the promissory note.
4) Endorser: he is the holder of a promissory note who endorses it in favour of another person.
5) Endorsee: he is the person in whose name the promissory note has been endorsed.
MBA 4th semester Sub: Business Laws

B. Parties to a Bill of Exchange


1) Drawer: The drawer is the person who draws the bill of exchange.
2) Drawee: The drawee is the person on whom the negotiable instrument has been drawn and
who is directed to pay.
3) Acceptor: The person who accepts the bill of exchange and is liable for the amount thereon is
called the acceptor. Normally, the drawee is also the acceptor of the bill; however, some other
person may also accept it on behalf of the drawee.
4) Payee: The person who has to receive the payment of the bill of exchange is known as the
payee. The payee is usually the drawer or the person ordered by the drawer as payee.
5) Holder: Holder of a bill of exchange means any person who is legally entitled to the
possession of it and to receive or recover the amount due thereon from the parties. He is either
the payee or endorsee. In case the bill has been drawn as payable to bearer, the bearer of the
instrument shall be the holder thereof.
6) Endorser: when the holder of a bill of exchange endorses it in favour of another person, then
he is known as the endorser.
7) Endorsee: the endorsee is the person in whose name the bill of exchange is endorsed.
8) Drawee in case of need: The drawer of a bill or even an endorser may write in the instrument
the name of as person directing the holder to resort to such person in case on need..
9) Acceptor for honour: Any person may voluntarily become a party to a bill as an acceptor by
accepting it for the honour of the drawer or of any person.
C. Parties to a Cheque
1) Drawer: He is the person who draws the cheque.
2) Drawee: The drawee in the case of a cheque is always a bank on which the cheque is drawn.
3) Payee: He is the person who is to receive payment for the cheque.
4) Holder: Holder of a cheque is a person who is legally entitled to the possession of the cheque.
5) Endorser: The person who endorses the cheque in favour of another person is called the
endorser.

Unit-2
CONTRACT OF SALE
Meaning and Definition
According to Section 4 (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 certain price”.
According to Blackstone, when one person transfers the ownership of goods to another the
consideration of a price, a sale is have to be made
Essentials of a Contract of Sale
MBA 4th semester Sub: Business Laws

To constitute a valid contract of sale, the following essentials must be present:


1. Valid Contract: A contract of sale is just like any other contract made under Indian Contract
Act, 1872. Therefore, to constitute a valid contract of sale it should satisfy all the essentials of a
valid, contract namely a valid offer, a valid acceptance, free consent of the parties, a valid and
lawful consideration, parties must be competent to contract and lawful object etc.
2. Two parties: To constitute a contract of sale, there must be a transfer or agreement to transfer
the property in goods by the seller to the buyer. It means that there must be two persons, one the
seller and the other the buyer. ‘Buyer’ means a person who buys or agrees to buy goods [Sec. 2
(1)]. ‘Seller’ means a person who sells or agrees to sell goods [Sec.2 (13)]. The seller and the
buyer must be two different persons, for a man cannot purchase his own goods. The parties must
be competent to contract.
3. Agreement for the transfer of ownership: To constitute a valid contract of sale, there should be
immediate transfer or an agreement to transfer the general property in goods sold or agreed to be
sold. It is essential to transfer the general property in the goods from the seller to the buyer with
or without physical possession of the goods.
4. Goods: The subject-matter of the contract of sale must be goods, the property which is to be
transferred from the seller to the buyer. According to section 2(7), goods means every kind of
movable property other than actionable claims and money; and includes stock and shares;
growing crops, grass, trees and things attached to or forming part of the land which are agreed to
be severed it before sale or under contract of sale.
5. Price: To constitute a valid contract of sale, consideration for transfer must be money paid or
promised
Sale and Agreement
To Sell The distinction between a sale and an agreement to sell is very necessary to determine
the rights and the liabilities of the parties to the contract. The main points of distinction are:
1. Nature of contract: An agreement to sell is an executory contract, a contract pure and simple
and no property passes; whereas a sale is an executed contract plus a conveyance.
2. Transfer of property: In sale, the property in goods passes from seller to buyer immediately at
the time of contract and buyer becomes the owner of the goods immediately. But in an agreement
to sell, the property in goods passes from seller to buyer at some future date or subject to the
fulfillment of certain conditions.
3. Risk of loss:Unless there is a contract to the contrary, in a sale, if the goods are destroyed, the
risk of loss falls on the buyer even if the goods were in the possession of the seller because the
risk of loss passes with the ownership. But in an agreement to sell, if goods are destroyed the risk
of loss falls on the seller even if the goods were in the possession of buyer because ownership
has not passed from the seller to the buyer and the risk passes with the ownership.
4. Consequences of the breach: On breach of an agreement to sell by the seller, the buyer has
only a personal remedy against the seller. But if after a sale, the seller breaks the contract the
buyer may sue for delivery of the goods or for damages. In an agreement to sell, if the buyer fails
to accept the goods the seller may sue for damages only and not for the price. In a sale, if the
buyer does not pay the price, the seller may sue him for the price even though the goods are still
in his possession.
MBA 4th semester Sub: Business Laws

5. Insolvency of the buyer: In a sale, if the buyer is adjudged an insolvent, the seller in the
absence of a lien over the goods is bound to deliver the goods to the Official Receiver or
Assignee. The seller will, however, be entitled to a rateable dividend for the price of the goods.
In an agreement to sell, when the buyer becomes insolvent before he pays for the goods, the
seller may not part with the goods until he is paid for

CONDITIONS AND WARRANTIES

CONDITIONS:
Section 12 (2) of the sale of Goods Act defines a condition as “a stipulation essential to the main
purpose of the contract, the breach of which gives right to treat the contract as repudiated”. In
other words, if an express stipulation is a part of the contract, i.e., its fulfillment is essential to be
completed, it is deemed to be a condition. If the condition is not met, the aggrieved party is
entitled to terminate the contract. It may well be said that ‘condition’ is the foundation of the
edifice of a contract of sale — the moment it is broken, the whole edifice collapses, and the
contract terminates.
Essentials of Conditions
1. It is essential to the main purpose of the contract.
2. The non-fulfillment of condition causes irreparable damage to the aggrieved party which
would defeat the very purpose for which the contract is made.
3. The breach of a condition gives a right to the aggrieved party to rescind the contract and
recover the damages for breach of condition
WARRANTIES:
According to section12 (3), “A warranty is a stipulation collateral to the main purpose of the
contract, thee 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”. It is clear from the definition that warranty is not an
essential object of the contract; it only helps expedite the execution of the contract.
Essentials of Warranties
1. It is collateral to the main purpose of the contract.
2. The breach of warranty causes damage to the aggrieved party and does not defeat the main
purpose of the contract.
3. The aggrieved party can only claim the damages for breach of warranty but can not repudiate
the contract. If the condition of the contract is violated, the contract terminates..
Difference between a Condition and Warranty
Following are the main points of distinction between the conditions and warranties:
1. Nature: condition is a stipulation which is essential to the main object of the contract whereas
warranty is a stipulation which is collateral to the main object of the contract.
MBA 4th semester Sub: Business Laws

2. Consequences of Breach: The breach of condition gives the aggrieved party to repudiate the
contract and claim damages from the defaulting party, whereas the breach of warranty does not
entitle the aggrieved party to repudiate the contract and only entitles the aggrieved party a right
to claim damages from the other party.
3. Legal Effect: The contract ceases to be legal on the breach of condition whereas a breach of
warranty does not have any legal effect on the contract.
4. Option of Treatment: In the case of condition, a breach of condition can be treated as a breach
of warranty as an option on the part of the aggrieved party and the aggrieved party can only be
compensated by damages it receives from the other party whereas in breach of warranty there is
no such option available to the aggrieved party i.e., breach of warranty can never be treated as
breach of condition.
Express and Implied Conditions and Warranties
The conditions or warranties of a contract of sale may be express or implied. The conditions and
warranties that have been specified by the parties in express words either spoken or written at the
time of making contract are called express conditions and warranties.
Implied conditions and warranties (contained in Secs. 14 to 17) are the ones that are applicable in
a contract of sale by operation of law. These are the conditions and warranties which do not form
a part of contract of sale at the time of contract between the parties, but they automatically come
into existence by operation of law. In the case of implied conditions and warranties, the purpose
of the law is to infer the intention of the parties when making the contract because in the absence
of a contract to the contrary, such warranties and conditions are deemed to be part of the
contract. Sec. 16 (4) further provides that an express warranty or condition does not negative an
implied warranty or condition unless the express warranty or condition is inconsistent with the
implied warranty or condition.
A. Implied Conditions
A contract of sale has the following implied conditions:
1. Condition as to title (Section 14): Subject to a contrary intention, there is an implied condition
on the part of the seller that in the case of a sale, he has a right to sell 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. This is called condition as to title.
2. Sale by Description (Sec. 15): Where goods are sold by description, there is an implied
condition that the goods shall correspond with the description given by the seller, i.e., the goods
must be what they are described to be. If the description of the article tendered is different in any
respect, it is not the article bargained for and the other party is not bound to take it. The word
description has not been defined in the Act. It usually means a particular class, kind or variety of
goods.
3. Sale by Sample as well by Description (Sec 15): If the sale is by sample as well as by
description, it is not sufficient that the bulk of the goods shall correspond with the sample, if the
goods do not also correspond with the description. In other words, there is an implied condition
that the goods shall correspond both with the sample as well as with the description.
4. Condition as to quality or fitness[Sec. 16(1)]: Subject to the provisions of this Act and of any
other law for the time being in force, there is no implied condition as to the quality or fitness for
MBA 4th semester Sub: Business Laws

any particular purpose of goods supplied under a contract of sale. The buyer must examine the
goods thoroughly before he buys them in order to satisfy himself that the goods will be suitable
for the purpose for which he is buying them.
5. Condition as to merchantability[Sec. 16 (2)]: There is always an implied condition in a
contract of sale that the goods purchased should be of a merchantable quality. In order to apply
the implied condition as to merchantability, the following requirements must be satisfied, namely
: (a) The goods should have been bought by description and (b) from a seller who deals in the
goods of that description.
6. Sale by sample[Sec. 17]: In a contract of sale by sample, there is a term in the contract,
express or implied that the bulk of the goods are, or shall be equal to the sample. In a contract of
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 reasonable opportunity of comparing that bulk with the
sample. c) that the goods shall be free from any defect rendering them unmerchantable, which
would not be apparent on a reasonable examination of the sample.
7. Condition implied by custom or usage of trade [Sec. 16(3)]: An implied condition as to
quality or fitness for a particular purpose may be annexed by custom or usage of trade. If an
order for goods is placed with the manufacturer, it is an implied condition that the goods supplied
must be manufactured by the seller and not procured from others.
8. Condition as to Wholesomeness: When the goods are eatables and other provisions, in
addition to the implied conditions as to merchantability, there is another condition that the goods
shall be wholesome, i.e., the article should be fit for consumption and are not injurious to the
health of the consumer.
B. Implied Warranties The implied warranties in a contract of sale are as follows:
1. Implied warranty of quiet and peaceful possession: According to Section14 (6), the contract
of sale, has an implied warranty that the buyer has the right to quiet and peaceful possession of
goods, which implies that, when the buyer has received the possession of goods, he has the right
to use and enjoy them. The implied warranty of quite possession is a warranty against
disturbance of possession. On breach of this warranty, the seller is liable to the buyer in damages.
2. Implied warranty of freedom from charge or encumberance [Sec.14 (c)]: There is an implied
warranty on the part of the seller that the goods are free from any charge or encumberance. A
breach of this warranty will occur when the buyer discharges the amount of encumberance.On
breach of this warranty, the remedy of the buyer is to sue for damages.
3. Implied warranty annexed by usage of trade [Section 16(3)]: A warranty as to fitness for a
particular purpose may be annexed to a contract of sale by a custom or usage of trade.
4. Implied warranty to disclose dangerous nature of goods: If the goods are easily destroyable
(e.g., inflammable), or dangerous to handle, it becomes the duty of the seller to forewarn the
buyer of the danger in handling such goods so that the buyer takes specific care in their usage,
otherwise he will be liable in damages. That is the reason why some medicines come with labels,
warning the consumer to keep them in a cool dry place, or to use them only according to the
advice of a registered medical practitioner
CAVEAT EMPTOR
MBA 4th semester Sub: Business Laws

As a general rule, the doctrine of caveat emptor or ‘buyer beware’ is applicable in a contract of
sale, unless the contract does not specify anything to the contrary. Caveat emptor means ‘Let the
buyer beware’ i.e., in a contract of sale of goods, the seller is under no obligation to reveal
unflattering truths about the goods sold and that ordinarily, a buyer must buy goods only after
satisfying himself of their quality or fitness.
Exceptions to the rule of caveat emptor:
If this law is adhered to strictly to letter, there would be many buyers who would be put to
trouble. Every buyer is not clever enough or has the skill to evaluate the goods in terms of their
quality and suitability. To protect the interest of such buyers, the law provides some exceptions to
the rule (Section 16).
1. Where the buyer relies on the skill and judgement of the seller: The doctrine of caveat emptor
will not apply and the seller will be held liable for breach of implied condition as to quality or
fitness of the goods, if the buyer has known to the seller the particular purpose for which he
required the goods or how he intends to use them and the buyer has relied on the skill and
judgement of the seller, who deals in such goods.
2. Merchantable quality of goods: Where the goods are bought by description from a seller who
deals in goods of that description, there is an implied condition that goods shall be of
merchantable quality. But if the buyer has examined the goods there is no implied condition as
regards defects which such examination ought to have revealed [Sec.16 (2)].
3. Consent by fraud: The doctrine of caveat emptor shall not apply to all those purchases which
have been made by a buyer under a contract where his consent was obtained by the seller by
fraud i.e, where the buyer relies on false representation of the seller and suffers damages.
4. Usage of trade: An implied condition or warranty as to quality or fitness for a particular
purpose may be annexed by the usage of trade. [Sec. 16 (3)].
5. Sale by description: When the sale of goods is made by description, it involves some implied
conditions and warranties and the caveat emptor doctrine is not applicable. The goods sold must
match their description, otherwise the buyer can refuse to accept the goods and is entitled to
receive damages from the seller.
6. Sale under a patent or a trade name: in the case of contract for the sale of a specified article
under its patent or other trade name, there is no implied condition that the goods shall be
reasonably fit for any particular purpose [Proviso to Sec. 16(1)].
PERFORMANCE OF CONTRACT OF SALE
According to Section 31 of the Sale of Goods Act, the gist of a contract of sale is the
performance of their obligations by the parties to the contract. Performance of a contract of sale
means as regards the seller, delivery of the goods to the buyer, and as regards the buyer,
acceptance of the delivery of the goods and payment for them, in accordance with the terms of
the contract of sale. The contract is completed when both parties have carried out their
obligations

UNPAID SELLER AND HIS RIGHTS


MBA 4th semester Sub: Business Laws

Definition of unpaid seller


A person who has sold good to another person but has not been paid for the goods, or has been
paid partially, is called an unpaid seller. According to Section 45 (1) of the Sale of Goods Act, an
unpaid seller is one —
a) Who has not been paid the whole of the price of the goods he has supplied, or has been
partially paid for the goods.
b) Who has been given a negotiable instrument like a bill of exchange that has been received as a
conditional payment, and the condition on which it was received has not been fulfilled by reason
of the dishonor of the instrument
Rights of an Unpaid Seller
The Sale of Goods Act has expressly given two kinds of rights to an unpaid seller of goods,
namely — A. Rights against the goods
a) When the property in the goods has passed
i) Right of lien
ii) Right of stoppage of goods in transit
iii) Right if re-sale These rights of an unpaid seller do not depend upon agreement, express or
implies between the parties. They arise by the implication of law.
b) When property in the goods has not passed
i) Right of withholding delivery.
B. Rights against the buyer of goods personally
i) Right to sue for price
ii) Right to sue for damages
iii)Right to see for interest
iv)Repudiation of contract before due date
A. Rights against Goods According to Section 46, when the buyer has not paid the full or partial
price of the goods supplied to him, the seller who has transferred the ownership of goods to the
buyer has the following rights with regards to the goods:
i) Right of Lien [Secs.46(1) (a) and 47 to 49]
Lien is the right to retain possession of goods until payment in respect of them is paid [Sec. 46
(1)]. According to section 47, if the seller of goods has not been paid, and the ownership of
goods has been transferred to the buyer but the goods are in the possession of the seller, the seller
has the right to retain the goods till he receives the price of goods from the buyer. Section 47 (1)
describes the circumstances in which an unpaid seller may exercise his right of lien —
a) When 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.
MBA 4th semester Sub: Business Laws

Termination of Lien [Sec. 49]:


The right of lien is linked with the possession of the goods and this right is lost if the possession
is lost. According to Section 49, the lien of an unpaid seller terminates in the following
circumstances:
a) By delivery to carrier: When the seller delivers the goods to a carrier or any other bailee for
the purpose of transmission to the buyer without reserving the right of disposal of goods, the
right of lien is lost, but the seller still has a right to stoppage in transit.
b) By delivery to buyer: the right of lien is also lost when the buyer or his agent lawfully obtains
the possession of goods.
c) By waiver: when the seller has waived the right of lien on the goods, which may be express or
implied, the right of lien is lost. A waiver is express where the contract itself provides that the
seller shall not be entitled to retain possession of the goods even if the buyer does not pay the
price of the goods. A waiver is implied where the seller sells the goods on credit or grants a fresh
term of credit.
 PARTNERSHIP ACT
Section1 SHORT TITLE EXTENT AND COMMENCEMENT.
(1) This Act may be called the Indian Partnership Act, 1932.
(2) It extends to the whole of India except the State of Jammu and Kashmir.
(3) It shall come into force on the 1st day of October, 1932, except section 69 which shall come
into force on the 1st day of October, 1933.
Section2 DEFINITIONS.
In the Act, unless there is anything repugnant in the subject or context,
(a) an "act of a firm" means any act or omission by all the partners, or by any partner or agent of
the firm which gives rise to a right enforceable by or against the firm;
(b) "business" includes every trade, occupation and profession;
(c) "prescribed" means prescribed by rules made under this Act;
(c-1) "Registrar" means the Registrar of Firms appointed under sub-section (1) of section 57 and
includes the Deputy Registrar of Firms and Assistant Registrar of Firms appointed under sub-
section (2) of that section;
(d) "third party" used in relation to a firm or to a partner therein means any person who is not a
partner in the firm; and
(e) expressions used but not defined in this Act and defined in the Indian Contract Act, 1872,
shall have the meanings assigned to them in that Act.
Section3 APPLICATION OF PROVISIONS OF ACT IX OF 1872.
The unrepealed provisions of the Indian Contract Act, 1872, save in so far as they are
inconsistent with the express provisions of this Act, shall continue to apply to firms. Section4
DEFINITION OF "PARTNERSHIP", "PARTNER", "FIRM" AND "FIRM-NAME".
"Partnership" is the relation between persons who have agreed to share the profits of a business
MBA 4th semester Sub: Business Laws

carried on by all or any of them acting for all. Persons who have entered into partnership with
one another are called individually, "partners" and collectively "a firm", and the name under
which their business is carried on is called the "firm-name".

Limited Liability Partnership Act, 2008


The Limited Liability Act 1855 (18 & 19 Vict. c. 133) was an Act of the Parliament of the
United Kingdom that first expressly allowed limited liability for corporations that could be
established by the general public in England and Wales as well as Ireland. [2] The Act did not
apply to Scotland,[3] where the limited liability of shareholders for the debts company debts had
been recognised since the mid-Eighteenth century with the decision in the case of Stevenson v
McNair.[4] Although the validity of the decision in that case had come to be doubted by the mid-
Nineteenth century,[5] the Joint Stock Companies Act 1856 – which applied across the UK – put
the matter beyond doubt, settling that Scottish 'companies' could be possessed of both separate
legal personality and limited liability.

Under the Act, shareholders were still liable directly to creditors, for the unpaid portion of
their shares. The modern principle that shareholders are liable to the corporation was introduced
by the Joint Stock Companies Act 1844.
The 1855 Act allowed limited liability to companies of more than 25 members
(shareholders). Insurance companies were excluded from the act, though it was standard practice
for insurance contracts to exclude action against individual members. Limited liability for
insurance companies was allowed by the Companies Act 1862.

Unit-3
Concept of Company:
According to Section 2 (20) of the Company Act 2013 "Company means a company
incorporated under this Act or any previous Company Law."

In general, a company is an artificial person, created by law that has a separate legal entity,
perpetual succession, and common seal and has limited liability. It is a voluntary association of
person who together contributes in the capital of the company to do business.

Generally, the capital of a company is divided into small parts known as shares, the ownership of
which is transferable subject to certain terms and conditions.
MBA 4th semester Sub: Business Laws

Characteristics of Company-

(i) Incorporated Association : A company comes into existence through the operation of law.
Therefore, its incorporation under the Companies Act is must. Without such registration, no
company can come into existence.

(ii) Separate Legal Entity : A company has a separate legal entity, which is not affected by
changes in the ownership. Therefore being a separate entity, a company can contract, sue and be
sued in its corporate name and capacity.

(iii) Artificial Person: A company is an artificial and juristic person that is created by law.

(iv) Limited Liability : Every shareholder of a company has limited liability. His liability is
limited to the extent of the unpaid value of the shares held by him. If such shares are fully paid
up, he is subject to no further liability.

(v) Perpetual Existence : The existence of company is not affected by the death, retirement, and
insolvency of its members. That is, the life of a company remains unaffected by the life and the
tenure of its members in the company. The life of a company is infinite until it is properly wound
up as per the Companies Act.

(vi) Common Seal : The company is not a natural person and has no physical existence. Hence,
it cannot put its signature. Thus, the common seal acts as an official signature of a company that
validates the official documents.

(vii) Management and Ownership : A company is not managed by all members but by their
elected representatives called Directors. Thus, management and ownership are different.

(viii) Transferability of Shares : Shares of a company are freely transferable, except in case of


private companies. Transfer of shares of private companies is regulated by Articles of
Association.

Formation of Company
 Formation of a Company is a time-consuming process that requires the completion of
numerous legal formalities and processes,
 There are three important steps in this process:

A. Promotion 
B. Incorporation  
C. Subscription of capital
 Unlike a public limited company, which is forbidden from raising funds from the public,
a private corporation is not required to produce a prospectus or complete the formalities
of a minimum subscription.
MBA 4th semester Sub: Business Laws

A. Promotion of Company
 It entails conceptualizing a business idea and taking the initiative to start a company so
that the available business opportunity can be put into practice.

Promoter
 The term Promoter is defined in Section 2(69) of the Companies Act 2013 as 
o who has been named as such in a prospectus or is identified by the company in the
annual return referred to in section 92; or
o who has control over the affairs of the company, directly or indirectly whether as
a shareholder, director or otherwise; or
o in accordance with whose advice, directions or instructions the Board of Directors
of the company is accustomed to act:
Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a
professional capacity.

Functions of Promoter
1. Identification of business opportunity
 The opportunity could be in the form of developing a new product or service, making a
product available through a new channel, or any other investment opportunity.
 The technical and economic feasibility of the opportunity is next assessed.

2. Feasibility studies
 Converting all potential business ideas into actual projects may not be viable or lucrative.
As a result, the promoters do extensive feasibility assessments.
 The feasibility studies listed below may be carried out:
o Technical feasibility: An excellent idea may be technically impossible to
implement. It could be due to a lack of readily available raw materials like
material, labour, location, infrastructure, or technology.
o Financial viability: Every company activity necessitates the use of capital. The
promoters must calculate the amount of money needed to pursue the recognised
business idea. If money cannot be secured, the project must be abandoned.
o Economic feasibility: The project might be technically and financially possible,
but it may have a slim possibility of being profitable. Hence this step focuses on
the cost-benefit analysis of the company to find out its future viability.

3. Name approval
 The promoters must choose a name for the company and file an application for approval
to the registrar of companies in the state where the firm's registered office will be located.
 If the proposed name has been rejected, an alternate name may be accepted.
 In the application to the Registrar of Companies, three names are submitted in priority
order.
MBA 4th semester Sub: Business Laws

4. Fixing up Signatories to the Memorandum of Association:


 The members who will sign the proposed company's Memorandum of Association must
be decided by the promoters.
 Those who sign the memorandum are also the company's first directors.
 Their signed consent to serve as Directors and to purchase the company's qualification
shares is required.

5. Appointment of professionals:
 The promoters select specialists such as mercantile bankers, auditors, and others to assist
them in preparing the essential documents that must be filed with the Registrar of
Companies.

6. Preparation of necessary documents:


 The promoter takes measures to prepare necessary legal documents that must be
submitted to the Registrar of Companies for the company to be registered under the law.
 The Memorandum of Association, Articles of Association, and Consent of Directors are
the documents required.

Documents required to be submitted


There are Six documents in total, they are:
1. Memorandum of Association
 It identifies the company's goals. The Memorandum of Association is duly stamped,
signed, and witnessed. In the case of a public business, it must be signed by at least seven
members. For a private business, however, two members' signatures are sufficient.
 No corporation can legally engage in activities that are not outlined in its memorandum
of association.
 The following clauses are included in the MoA:
o Name Clause: This section contains the name of the business that has already
been approved by the Registrar of Companies.
o Registered office clause: It specifies the state in which the company's registered
office is proposed to be located. Although an exact address is not required, it must
be provided to the Registrar within thirty days of the company's formation.
o Object’s clause: This specifies the reason for the company's formation. A firm is
not legally permitted to engage in any action that is not related to the objectives
set forth in this clause.
o Liability clause: This clause restricts the members' liability to the amount owed
on the shares they own.
o Capital clause: This clause establishes the maximum amount of capital that the
company may raise through the issuance of shares. The proposed company's
permitted share capital, as well as its partition into the number of shares with a
fixed face value, is defined.
MBA 4th semester Sub: Business Laws

o Subscription Clause: The subscription provision, which is the sixth and last
clause of the MOA, shall declare the subscribers' intent to incorporate the
company and agree to take shares in the firm based on the number stated in the
Memorandum.

2. Articles of Association
 They are the rules that govern a company's internal management.
 These regulations are an addendum to the Memorandum of Association; they should not
conflict with or supersede anything in the Memorandum of Association.
 According to Section 2(5) of the Companies Act, 2013, "articles" refers to a company's
articles of organization as initially drafted, as amended from time to time, or as
implemented in accordance with any previous company law or this Act.

3. Consent of Proposed Directors


 In addition to the Memorandum and Articles of Association, everyone nominated as a
director must sign a written permission stating that they accept to function in such
capacity and agree to purchase and pay for qualification shares.

4. Agreement
 Another document that must be presented to the Registrar for the company to be
registered under the Act is the agreement that the firm forms with an individual as a
Director or a full-time Director or Manager. 

5. Statutory Declaration
 A declaration confirming that all legal conditions for registration have been met must be
presented to the Registrar along with the above-mentioned documents for the company to
be legally registered.

6. Receipt of Payment of Fee


 The necessary payments for the company's registration must be paid.
 The amount of such fees will be determined by the company's authorized share capital.

Position of Promoter
 A firm's promoters have a fiduciary relationship with the company, which they must not
abuse.
 They can only make a profit if it is publicly revealed; they cannot make any hidden gains.
 In the event of non-disclosure, the company has the right to cancel the contract and
reclaim the money paid to the promoters.
 It can also sue for damages or losses incurred because of material information not being
disclosed.
 Promoters do not have the legal right to claim expenses incurred in the company's
promotion. The company, on the other hand, may choose to reimburse them for their pre-
incorporation costs.
 The corporation may also pay the promoters a lump sum payment or a commission on the
purchase price of property obtained through them or on the shares sold as compensation
for their efforts.
MBA 4th semester Sub: Business Laws

 The corporation may also provide them stock or debentures or give them the opportunity
to buy the securities later.

B. Incorporation
 The application must be filed with the Registrar of Companies in the state where the
company's registered office will be located.
 A registration application must be accompanied by specified papers. They are as follows:
o A duly stamped, signed, and witnessed Memorandum of Association. In the case
of a public business, it must be signed by at least seven members. However, two
members' signatures are sufficient for a private company.
o As with the Memorandum, the Articles of Association must be legally stamped
and witnessed.
o The prospective directors' written approval to serve as directors, as well as an
agreement to purchase qualification shares.
o The prospective Managing Director, Manager, or full-time director has reached an
agreement if one exists.
o A copy of the letter from the Registrar authorizing the company's name.

o A legislative declaration attesting to the fact that all registration requirements


have been met. This document must be properly signed.
o Along with these documents, a notification containing the exact address of the
registered office may be submitted.

Effect of the Certificate of Incorporation


 The date inscribed on the Certificate of Incorporation marks the beginning of a
company's legal existence.
 On that date, it becomes a legal entity with eternal succession. It gains the ability to enter
legally binding contracts.
 The Certificate of Incorporation is indisputable documentation of a company's regular
incorporation.

C. Capital Subscription
 SEBI clearance is required to raise funds from the public. The Registrar of Companies
will receive a copy of the prospectus or a statement in lieu of the prospectus. Bankers,
brokers, underwriters, and other professionals are hired.
 A request for approval to trade in shares or debentures must be made to the stock
exchange.

Process of Capital Subscription:


1. SEBI Approval
 SEBI (Securities and Exchange Board of India), our country's regulatory body, has
developed recommendations for information disclosure and investor protection.
MBA 4th semester Sub: Business Laws

 A public firm seeking funding from the public must make full disclosure of all relevant
facts to potential investors and must not withhold any material information.

2. Filing of Prospectus
 Section 2(70) of the Companies Act of 2013 defines a prospectus as. “Any document that
is described or issued as a prospectus” is how a prospectus is defined. This includes any
notification, circular, advertisement, or other document that serves as an invitation to
public offers.
 The Registrar of Companies receives a copy of the prospectus or a statement in lieu of the
prospectus. A Statement in Lieu of Prospectus is submitted with the Registrar of
Companies (ROC) when a company does not issue a prospectus to the public for the
subscription of the shares.
 All of the directors or their authorised agents must sign the declaration in writing. It's
similar to a prospectus, with the exception that it's only a few pages long.

3. Appointment of Bankers, Brokers, Underwriters


 Raising money from the general people is a huge undertaking. The money for the
application will be received by the company's bankers.
 The brokers try to sell the shares by handing out application forms and pushing others to
apply. If the public does not subscribe to the shares, the underwriters promise to buy
them.

4. Minimum Subscription
 To prevent enterprises from starting into business with insufficient resources, the
company must obtain applications for a particular minimum number of shares before
proceeding with the issuance of shares. This is referred to as the ‘minimum subscription'
under the Companies Act.
 If the number of applications for the shares received is less than 90% of the issue size, the
allocation cannot be made, and the application money must be refunded to the applicants.

5. Application to Stock Exchange


 At least one stock exchange is approached for approval to trade in its shares or
debentures.
 If such approval is not obtained within ten weeks of the subscription list's closing date,
the allotment becomes worthless, and any money received from applicants must be
returned to them within eight days.

6. Allotment of Shares
 The money received for the application should be kept in a separate bank account and not
used by the company until the shares are distributed.
 If the number of shares allocated is fewer than the number applied for, or if no shares are
assigned to the applicant, any excess application money must be returned to the
applicants or applied to allotment money owed to them.
 Successful allottees receive their allotment letters. Within 30 days of allotment, a ‘return
of allotment' signed by a director or secretary is filed with the Registrar of Companies.
MBA 4th semester Sub: Business Laws

Difference Between Memorandum of Association and Article of Association


Basis of
Memorandum of Association Article of Association
Difference

The purposes for which the The company's management is


company's internal rules are governed by the articles of
Objectives
developed are defined in the association. They describe how the
Memorandum of Association. company's goals will be met.

This is a supporting document that


This is the company's primary
exists alongside the Memorandum
Position document, and it is governed by the
of Association and the Companies
Companies Act.
Act.

The company's interaction with


Articles clarify the members' and
Relationship outsiders is defined by the
company's connection.
Memorandum of Association.

Acts that go beyond the


Memorandum of Association are Members can ratify acts that go
Validity void and cannot be ratified by the beyond the Articles as long as they
members even if they vote don't contradict the Memorandum.
unanimously.

Articles of Association are not


required to be filed by a public
A Memorandum of Association is
Necessity limited business. Table F of the
required for every business.
Companies Act of 2013 may be
adopted.

Stages in Formation of a Company

Formation of a company is considered to be a long and challenging process, as seen in the


Business Studies Class 11 Chapter 7 notes. So to make it simpler and understandable, the process
is divided into the following four stages.
Promotion Stage: It is the first stage in the formation of a company process. The term
promotion refers to the activities that are designed for the purpose of bringing an enterprise to
perform business operations.
Registration Stage: It is the second stage in the formation of a company process. In this stage, a
company gets registered under the Companies Act. This stage is explained in detail in the Class
11 bst Chapter 7 notes.
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Certificate of Incorporation: After the registration of the company with the submission of the
required documents, the registrar issues a certificate of incorporation certifying that the company
is registered under the Companies Act. The bst Class 11 Chapter 7 notes provide a thorough
explanation of the Certificate of Incorporation stage.
Certificate of Commencement: A private company can start its operations with the Certificate
of Incorporation, but a public company needs a Certificate of Commencement to start its
business. This certificate is issued to a company that has raised its share capital. Students can
learn more about this topic from Ch 7 bst Class 11 notes.

Documents Required in Formation of a Company


Chapter 7 Formation Of A Company notes provide students a clear understanding of the
documents required in the formation of a company process. Let us discuss the documents
required for the formation of a company.
Memorandum of Association: The memorandum of association is considered an important
document in the process of registration of the company. This document is also termed as a
memorandum. A detailed explanation of this document is given in Business Studies Class 11
Chapter 7 notes.
Articles of Association: These documents provide information regarding the rules and
regulations of the company as well as the purpose or goal of the company. This is also
considered important in the registration process because it specifies how the tasks in the
company are going to be executed.

What Is Board of Directors (B of D)?

A board of directors (B of D) is the governing body of a company, elected by shareholders in


the case of public companies to set strategy and oversee management. The board typically
meets at regular intervals. Every public company must have a board of directors. Some private
companies and nonprofit organizations also have a board of directors.

KEY TAKEAWAYS

 The board of directors of a public company is elected by shareholders.


 The board makes key decisions on issues such as mergers and dividends, hires senior
managers, and sets their pay.
 Board of directors candidates can be nominated by the company's nominations
committee or by outsiders seeking change.
 The New York Stock Exchange and the Nasdaq require listed companies to have a
majority of outside, or independent, directors on their board.

Roles

Typical duties of boards of directors include:


MBA 4th semester Sub: Business Laws

 Governing the organization by establishing broad policies and setting out strategic
objectives
 Selecting, appointing, supporting and reviewing the performance of the chief
executive (of which the titles vary from organization to organization; the chief
executive may be titled chief executive officer, president or executive director)
 Terminating the chief executive
 Ensuring the availability of adequate financial resources
 Approving annual budgets
 Accounting to the stakeholders for the organization's performance
 Setting the salaries, compensation and benefits of senior management

Functions of Board of Directors

Board committees are smaller groups of board members that are created to focus on specific
issues or areas of responsibility. The exact structure and function of board committees may vary
depending on the organization, but some of the most common types of committees include:

 Audit Committee: This committee is responsible for overseeing the company’s financial
reporting and internal control processes. They work closely with the company’s external
auditors to review the financial statements, ensure compliance with accounting standards,
and identify any potential areas of risk.
 Compensation Committee: This committee is responsible for setting and reviewing the
compensation packages for senior executives and board members. They ensure that the
company’s compensation practices are aligned with its strategic goals and are competitive
within the industry.
 Nominating and Governance Committee: This committee is responsible for identifying
and evaluating potential candidates for board membership, as well as overseeing the
governance practices of the company. They ensure that the board is composed of
individuals with the necessary skills and expertise to guide the company’s strategic
direction.
 Risk Management Committee: This committee is responsible for identifying and
managing potential risks to the company, including operational, financial, and strategic
risks. They develop risk management strategies and ensure that the company has
appropriate policies and procedures in place to mitigate potential risks.
 Corporate Social Responsibility Committee: This committee is responsible for overseeing
the company’s efforts to promote social responsibility and environmental sustainability.
They ensure that the company is adhering to best practices for corporate social
responsibility and is taking a leadership role in addressing social and environmental
issues.
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Unit-4

Social Responsibility of Business

What Is Social Responsibility?

Social responsibility means that businesses, in addition to maximizing shareholder value, must


act in a manner benefiting society, not just the bottom line. Social responsibility has become
increasingly important to investors and consumers who seek investments that not only are
profitable but also contribute to the welfare of society and the environment. While critics have
traditionally argued that the basic nature of business does not consider society as a stakeholder,
younger generations are embracing social responsibility and driving change.

Need for Social Responsibility


Although an organization exists with the aim of maximizing profits; however, it should not be
its sole motive and should commit to society. An organization needs social responsibility
because of the following reasons:
 Changing expectations of society: Today’s world has changed a lot compared to
the past years. Now, society expects different things from a business besides the
supply of goods and services. As society provides companies with different
resources like labour, natural resources, etc., it expects something good in return for
their welfare.
 Reputation: Companies spend a lot of money on brand building and a good image
in society. To do so, an organization can also perform socially responsible practices
that will it result in profitability, increased sales, sustainable growth, a good image
and attraction of talent.
 Avoidance of government interference: Government has enacted various laws,
putting moral and legal pressure on the companies to perform socially responsible
activities. If the company fails or avoids these practices, the government will
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interfere in the business. Therefore, to avoid such interference by the government,


companies need to perform their social responsibilities.
 Long-term self-interest: Practicing socially responsible practices not only helps
society, but also proves to be beneficial for the companies in the long run. It means
that if a company has an image in the market as a brand or firm that serves society
besides earning a profit, it will build the company’s image and will be good for its
self-interest.
 Contribution to social problems: Businesses create some of the social problems,
like pollution, inequality, discrimination, unsafe workplace, etc. Therefore, it is
those firms’ duty and obligation to perform socially responsible activities to solve
these social problems and make society better and safe.
 Better environment for business: Businesses use natural resources for their daily
activities of the business and usually degrade the environment in the process.
Therefore, business organizations need to avoid environmental degradation caused
by them. It not only benefits society, but also gives firms a chance to grow their
business in a healthy and safe environment.
 Growth of Consumer: The consumer of the present world is more educated and
aware of their rights and powers as compared to the past. They know when a
business is engaged in unfair trade practices, giving them bad quality goods and
services, charging more price, etc., and what measures they can take for the same.
Therefore, organizations need to work with social responsibility to retain existing
customers and attract more.
 Optimum utilization of resources: One of the aims of businesses while producing
and selling goods and services to customers is optimum utilization of resources. As
we know that with the increase in population, resources have become scarce, and
we need to save them for future generations. Therefore, business organizations need
to make optimum utilization of resources and work with social responsibility.
Types of Social Responsibilities
1. Economic Responsibility
As we know, a business organization is an economic entity; therefore, economic responsibility
is its primary social responsibility. In simple terms, economic responsibility means producing
goods and services according to the needs and wants of the customers and selling them the
same at a profit. It means that the organizations should understand whether the customers are
demanding quality or price and then provide them with the same. Earning profit is a
responsibility of the business as it ultimately increases the incentives of the employees.
Therefore, the economic growth of an organization affects society as a whole.  
2. Legal Responsibility
It is the duty and responsibility of an organization to legally abide by the rules, laws, and
regulations while performing business activities. As the authorities enact these laws for the
good of society, an organization following these rules is a socially responsible firm. Besides,
an organization performing activities as per the laws gets no interference from the government.
Legal responsibilities include paying taxes on time to the government, keeping its books of
accounts and financial statements clean and accurate, etc. 
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3. Ethical Responsibility
It is the behaviour expected from the business organizations’ by society; however, it is not
codified in the law. Therefore, there is no legal obligation on the companies to perform
ethically responsible activities. Ethical responsibility is beyond the laws and includes fair trade
practices, respecting the religious sentiments of people, maintaining and protecting the
environment, etc. It also means that a business should not get involved in black marketing,
adulteration, fraud, etc. 

4. Discretionary Responsibility
It is a philanthropic responsibility and is completely voluntary. It includes charitable services,
providing education facilities to poor people, helping the people affected by floods or other
natural calamities, donating to healthcare facilities for those who cannot afford them, etc.

What is the Consumer Protection Act?

The Consumer Protection Act, implemented in 1986, gives easy and fast compensation to
consumer grievances. It safeguards and encourages consumers to speak against insufficiency and
flaws in goods and services. If traders and manufacturers practice any illegal trade, this act
protects their rights as a consumer. The primary motivation of this forum is to bestow aid to both
the parties and eliminate lengthy lawsuits.

This Protection Act covers all goods and services of all public, private, or cooperative sectors,
except those exempted by the central government. The act provides a platform for a consumer
where they can file their complaint, and the forum takes action against the concerned supplier
and compensation is granted to the consumer for the hassle he/she has encountered.

Consumer Rights and Responsibilities:

The Rights of the Consumer

 Right to Safety- Before buying, a consumer can insist on the quality and guarantee of the
goods. They should ideally purchase a certified product like ISI or AGMARK.
 Right to Choose- Consumer should have the right to choose from a variety of goods and
in a competitive price.
 Right to be informed- The buyers should be informed with all the necessary details of
the product, make her/him act wise, and change the buying decision.
 Right to Consumer Education- Consumer should be aware of his/her rights and avoid
exploitation. Ignorance can cost them more.
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 Right to be heard- This means the consumer will get due attention to express their
grievances at a suitable forum.
 Right to seek compensation- The defines that the consumer has the right to seek redress
against unfair and inhumane practices or exploitation of the consumer.
The Responsibilities of the Consumer

 Responsibility to be aware – A consumer has to be mindful of the safety and quality of
products and services before purchasing.
 Responsibility to think independently– Consumer should be well concerned about what
they want and need and therefore make independent choices.
 Responsibility to speak out- Buyer should be fearless to speak out their grievances and
tell traders what they exactly want
 Responsibility to complain- It is the consumer’s responsibility to express and file a
complaint about their dissatisfaction with goods or services in a sincere and fair manner.
 Responsibility to be an Ethical Consumer- They should be fair and not engage
themselves with any deceptive practice.

How to File a Complaint?

 Within two years of purchasing the product or services, the complaint should be filled.
 In the complaint, the consumer should mention the details of the problem. This can be an
exchange or replacement of the product, compensation for mental or physical torture.
However, the declaration needs to be reasonable.
 All the relevant receipts, bills should be kept and attached to the complaint letter.
 A written complaint should be then sent to the consumer forum via email, registered post,
fax or hand-delivered. Acknowledgement is important and should not be forgotten to
receive.
 The complaint can be in any preferred language.
 The hiring of a lawyer not required.
 All the documents sent and received should be kept.

Consumer Protection Council 


What is Consumer Protection Council?
The Consumer Protection Council is a group that offers Indian consumers legal support. They
achieve this through creating and supporting efficient consumer protection policies, as well as by
informing individuals of their legal rights. It provides a wide range of services, such as credit
information, consumer disputes, and product liability. The council also runs awareness
programmes to inform individuals of their legal rights as consumers. The council provides free
advice and assistance to people who have been wronged by businesses or government
organisations. The Consumer Protection Council can therefore assist you whether you have been
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a victim of fraud or simply feel that you have been treated unfairly in the past.

The Consumer Protection Council's goals


It's time to study more about the crucial duties and goals of the Consumer Protection Council
now that you have a basic understanding of its makeup. The Consumer Protection Council offers
customers unbiased guidance and assistance regarding their legal rights. Its members are
authorities in consumer protection and represent many sectors of the corporate world. Together,
they support and guide customer concerns in a neutral, objective manner. The council also works
to protect businesses from unfair customer behaviour and to raise consumer understanding of
their rights.
It carries out tasks like:
 to develop policy directives for the defence and advancement of consumer interests.
 to offer direction on issues pertaining to consumer protection.
 to provide government advice on all matters pertaining to consumer protection.
 to keep an eye on adherence to rules and regulations imposed by the government or any
other authority or organisation in accordance with its directives.
 to hear consumer complaints about infringements or failures to adhere to any provision.
Consumer Forum Redressal
 Under the Consumer Protection Act, a three-tier machinery has been set for the redressal
of consumer grievances and complaints. The machinery works at the District level, State
level and National level and are known as District Consumer Dispute Redressal Forum
(or District Forum), State Consumer Dispute Redressal Commission (State Commission)
and National Consumer Dispute Redressal Commission (National Commission)
respectively. The following is a brief explanation of the machinery under the Consumer
Protection Act.
 1. District Forum
 District Forum is set up in each district by the concerned State Government. It comprises
of a president and two or more members, one of whom should be a woman. A consumer
can to file a complaint in a District forum in case the value of goods in question, along
with the compensation that is claimed is less than Rs 20 lakh. As the Forum receives the
complaint, it refers it to the concerned party against whom the compliant is registered.
After considering the tests and reports and on hearing both the concerned parties, the
forum passes a judgement order. Moreover, in case the party filing the complaint is not
satisfied with the order, an appeal can be filed in the State Commission within 30 days of
passing the judgment.
 2. State Commission
 The State Government sets up State Commission for the redressal of consumer
grievances. Alike District Forum, State Commission also comprises of a President and
two or more members one of whom should be a woman. In State Commission, a
complaint can to be filed by a consumer in case the value of goods /services in question
along with the compensation claimed is more than Rs 20 lakh but is less than Rs 1crore.
After receiving the complaint, the commission refers the complaint to the party against
whom the compliant is registered. If necessary, the sample of the good are sent for testing
in the laboratory. After considering the tests of the reports and on hearing the concerned
MBA 4th semester Sub: Business Laws

parties, the commission passes an order. An appeal can be filed against the order of the
Commission before the National commission within 30 days of judgement.
 3. National Commission
 The National Commission is set up by the Central Government. It consists of a President
and four or more members one of whom is a woman. A consumer can file a complaint in
the National Commission in case the value of goods in question along with the
compensation claimed is more than Rs 1 crore. After referring to the sample proofs and
on hearing the concerned party, the commission passes an order. In case the aggrieved
party is not satisfied with the order, an appeal can be filed before the Supreme Court.
 Available Reliefs
 In case the concerned forum passes an order in favour of the aggrieved party, it can pass
one or more of the following directions to the opposite party.
 i. Repair the defective goods or remove the deficiency in the service.
 ii. Replacement of the defective good with a new one.
 iii. Refund the price paid by the consumer for the good or the service.
 iv. Payment of compensation in cash for the loss or injury suffered.
 v. Payment of punitive damages.
 vi. Removal of misleading advertisement and issue of a correct advertisement.
 vii. Payment of an appropriate amount (not less than 5% of the good in question) to be
credited to Consumer Welfare Fund.

The Right to Information Act of 2005

The act is one of the most important acts which empowers ordinary citizens to question the
government and its working. This has been widely used by citizens and media to uncover
corruption, progress in government work, expenses-related information, etc.

The primary goal of the Right to Information Act is to empower citizens, promote openness and
accountability in government operations, combat corruption, and make our democracy truly
function for the people. It goes without saying that an informed citizen is better equipped to keep
a required track on governance instruments and hold the government responsible to the
governed. The Act is a significant step in informing citizens about the activities of the
government.

Objectives of the RTI Act

1. Empower citizens to question the government.


2. The act promotes transparency and accountability in the working of the government.
3. The act also helps in containing corruption in the government and work for the people in
a better way.
4. The act envisages building better-informed citizens who would keep necessary vigil
about the functioning of the government machinery.
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Important provisions under the Right to Information Act, 2005

 Section 2(h): Public authorities mean all authorities and bodies under the union
government, state government or local bodies. The civil societies that are substantially
funded, directly or indirectly, by the public funds also fall within the ambit of RTI.
 Section 4 1(b): Government has to maintain and proactively disclose information.
 Section 6: Prescribes a simple procedure for securing information.
 Section 7: Prescribes a time frame for providing information(s) by PIOs.
 Section 8: Only minimum information exempted from disclosure.
 Section 8 (1) mentions exemptions against furnishing information under the RTI Act.
 Section 8 (2) provides for disclosure of information exempted under the Official Secrets
Act, 1923 if the larger public interest is served.
 Section 19: Two-tier mechanism for appeal.
 Section 20: Provides penalties in case of failure to provide information on time, incorrect,
incomplete or misleading or distorted information.
 Section 23: Lower courts are barred from entertaining suits or applications. However, the
writ jurisdiction of the Supreme Court of India and high courts under Articles 32 and 226
of the Constitution remains unaffected.

Significance of the RTI Act

 The RTI Act, 2005 empowers the citizen to question the secrecy and abuse of power
practised in governance.
 It is through the information commissions at the central and state levels that access to
such information is provided.
 RTI information can be regarded as a public good, for it is relevant to the interests of
citizens and is a crucial pillar for the functioning of a transparent and vibrant democracy.
 The information obtained not only helps in making government accountable but also
useful for other purposes which would serve the overall interests of the society.
 Every year, around six million applications are filed under the RTI Act, making it the
most extensively used sunshine legislation globally.
 These applications seek information on a range of issues, from holding the government
accountable for the delivery of basic rights and entitlements to questioning the highest
offices of the country.

Unit-5
Meeting of Directors and Shareholders
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 The word ‘meeting engagement’ implies an act of coming face to face or coming together
to have a discussion. The word ‘shareholders’ means the actual persons who have taken a
stake in the corporation, interested in the company’s profits or loss of the business.
 Please note that the shareholders do not manage the company. To manage the company’s
affairs, shareholders appoint a few experts in the management field. All such experts are
collectively termed “Board of Directors” (BOD). BOD is also called the company’s
management by taking decisions and seeking the approval of the company’s shareholders.

An annual general meeting (AGM) is a yearly gathering of a company's interested shareholders.


At an AGM, the directors of the company present an annual report containing information for
shareholders about the company's performance and strategy.

Shareholders with voting rights vote on current issues, such as appointments to the


company's board of directors, executive compensation, dividend payments, and the selection
of auditors.

How an Annual General Meeting (AGM) Works

An annual general meeting, or annual shareholder meeting, is primarily held to allow


shareholders to vote on both company issues and the selection of the company's board of
directors. In large companies, this meeting is typically the only time during the year when
shareholders and executives interact

The exact rules governing an AGM vary according to jurisdiction. As outlined by many states in
their laws of incorporation, both public and private companies must hold AGMs, though the
rules tend to be more stringent for publicly traded companies

Qualifications for an Annual General Meeting (AGM)

The corporate bylaws that govern a company, along with its jurisdiction, memorandum,
and articles of association, contain the rules governing an AGM. For example, there are
provisions detailing how far in advance shareholders must be notified of where and when an
AGM will be held and how to vote by proxy. In most jurisdictions, the following items, by law,
must be discussed at an AGM:

 Minutes of the previous meeting: The minutes of the previous year's AGM must be
presented and approved.
 Financial statements: The company presents its annual financial statements to its
shareholders for approval.
 Ratification of the director's actions: The shareholders approve and ratify (or not) the
decisions made by the board of directors over the previous year. This often includes the
payment of a dividend.
 Election of the board of directors: The shareholders elect the board of directors for the
upcoming year
MBA 4th semester Sub: Business Laws

Types of Shareholder’s Meeting

Before going into the details of the types of shareholders’ meetings, let’s have a bird’s eye view
of the different types of company meetings:

#1 – Annual General Meeting (AGM)

 It is the most important meeting which is compulsorily held every year. They are
mandatory for both private companies as well as public companies.
 The gap between the two AGMs should not exceed more than 15 months. In case of any
difficulty arises in the conduct of an AGM within a prescribed time limit, the company
may seek for extension of time from the Minister for special reasons only. However, such
an extension shall be not more than three months.
 AGM should be held during business hours only.
 A notice period of a minimum of 21 days is required to be given before calling for
an AGM. However, the notice period can be served by shorter notice if the consent of all
the members who are entitled to attend and vote is obtained.

#2 – Extra-Ordinary General Meeting (EGM)

 An extraordinary meeting means a meeting called in the unique circumstances of the


company. The Board of Directors has the power to call an extraordinary general meeting
whenever they deem fit.
 The primary reason for calling an EGM is to discuss any urgent matters (i.e., to transact a
special business) or any crisis, and it requires the special attention of the members. Thus,
the management cannot wait until AGM is called upon.
 An EGM can be held on any day, including holidays unlikely like an AGM must be held
on days other than national holidays. An EGM can be called on the request of
shareholders, members, or on the order of the tribunal.

#3 – Class Meetings

 Class meetings are also called special shareholders’ meetings.


 Such meetings are required when the company must pass a resolution where such
resolution affects only a particular class of shareholders.
 Let’s take an example. Say, the share capital structure is as follow:
o 20,000 shares of $10 each, fully paid up
o 50,000 shares of $10 each, the party paid up $ 5 only
o 10,000 shares of $ 5 each, fully paid up

Winding up and Dissolution of a Company


MBA 4th semester Sub: Business Laws

Winding up and Dissolution of a Company are two separate steps in the process of closing a
company. Winding Up is a process led by a liquidator under the Tribunal of laws where he settles
and distributes the assets of the company amongst its creditors and shareholders’ before the
company is dissolved.
Wind Up of Company
Winding Up is defined as the liquidation of the company in the Insolvency and Bankruptcy
Code, 2016, and the type of Wind up of the company is as follows:

 Compulsory winding up of Company


o Compulsory winding up of a Company could be a compulsory winding up as
enforced by the creditors of the company
 Voluntary winding up of Company
o Voluntary winding up of Company of private limited company procedure as
brought in by the corporate person.

Wind up of a Company is a two-step process, first Insolvency Resolution Process takes place and
then liquidation of the company occurs. While the winding of the company is taking place the
corporate entity still exists however after dissolution, the existence of the corporate entity is put
to an end.

Dissolution of Company
The Dissolution of a company may take place in two ways.

First in which the company is transferred to another company under the scheme of reconstruction
or amalgamation. In such a case, the transfer of the company will be dissolved by an order of the
Tribunal without it being wound up.

In the second scenario, the company shall undergo a winding-up process where the assets of the
company shall be realized and proceeds shall be used to pay its liabilities. Once the debts have
been settled, the remaining amount, if any, shall be distributed amongst the stakeholders, and
Tribunal shall pass the order of dissolution of the company and strike its name off the register of
the Registrar of the Companies.
MBA 4th semester Sub: Business Laws

Difference between Winding-up and Dissolution

Particulars Winding-up Dissolution

Meaning Winding up means Dissolution means to dissolve the company completely. Any
appointing a liquidator further operations cannot be done in the company name.
to sell off the assets of
the company, divide the
proceeds among
creditors, and file to the
NCLT for dissolution.

Process Winding up is one of Dissolution is the end


the methods through process/result of winding up and getting the name stuck off
which the dissolution of from the Register of Companies.
a
company is carried on.

Existence of The legal entity of the The dissolution of the company brings an end to its legal
Company company continues and entity status.
exists at
the commencement and
during the winding-up
process.

Continuation A company can be The company ceases to exist


of allowed to continue its upon its dissolution.
Business business during the
winding-up process if it
is
required for the
beneficial winding up of
the company.

Moderator The liquidator carries The NCLT passes the order of dissolution.
out the process of
winding up.

Activities Filling of winding up Filing of resolutions, declarations, and other required


Included resolution or petition, documents to the NCLT to pass dissolution order.
the appointment of the
liquidator, receiving
declarations, preparation
of reports, disclosures to
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ROC, and filing for


dissolution to the
NCLT.

Ethics
Ethics comes from the Greek word ‘ethos’ which means character or ways of behaviour • It
refers to a generally accepted set of principles and standards used by an individual, institution,
profession or society in general (as part of social ethics, professional ethics etc) to guide their
thoughts, behaviour and actions; to determine the goodness/badness or rightness/wrongness of
thoughts, behaviour and action • Ethics is essentially about making the right choices/decisions •
Ethics is both positive and negative: It enjoins virtues of honesty, integrity, compassion, loyalty,
beneficence etc; at the same time, it imposes reasonable restrictions to refrain from malfeasance
such as stealing, lying, slander etc
Morals
Morals is derived from the Latin word ‘mores’ meaning custom, or habit • It refers to the values,
ideas and beliefs of an individual which are used to determine the goodness/badness or
rightness/wrongness of thoughts, behaviour and action
Importance of ethics:
Individual level Intrinsic value:
• As a guide to a good and fulfilling life; being ethical is a part of what defines us as human
beings; we are rational, thinking, choosing creatures; we have the capacity to make conscious
choices; every rational human being has a reason to cultivate virtues and develop a strong moral
character
• Self realization and self actualization (Maslow’s Need Hierarchy)
• “In considering why I should be ethical, I should take a long term view of myself, of what I
should be, and seek the answer to the question of what I should do in that light. Developing a
habit of taking bribes, for example, will corrupt my very being and rob me of my mental peace.”
(Aristotle)
• Instrumental value: Knowledge of ethics helps in resolving ethical dilemmas; right v/s right
dilemmas Relationship between ethics and law Examples Ethical Legal Guidelines to protect
‘Good Samaritan’ Ethical Illegal Section 377, civil disobedience (during freedom struggle)
Societal level:
Natural tendency of any society is towards ‘entropy’; ethics is needed to move towards negative
entropy. Ethics has a social dimension and forms the very basis of human society;
• Societies and civilizations rise and fall due to ethical/unethical behaviour of either the leaders
or commoners (Roman empire, Mughals, Arab Spring, case of Japan)
• Without ethics, society would be reduced to the type of animal behaviour that is seen in nature.
Hunt, kill, feed and fornicate.
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• In contemporary times, ethics needed for achieving the objectives of inclusive and sustainable
development; need for ethical behaviour on part of citizens and public servants for fighting social
evils such as dowry and corruption
• Special need for ethics in public life
Dimensions of Ethics
1. Meta-ethics:
• It is the branch of ethics that deals with the philosophical questions about the nature of ethical
theory itself
• It addresses questions such as ‘what is good?’; ‘what is bad?’; ‘what is right?’; ‘what is
wrong?’; Ethical Relativism and Ethical Absolutism; Ethical Skepticism
• What is happiness?
• What is patriotism?
2.Normative ethics:
• It is the branch of ethical philosophy that examines how one should act
• It investigates the standards and principles to assess the rightness/wrongness or
goodness/badness of actions
• It entails different ethical theories and principles that help us to assess the goodness/badness or
rightness/wrongness of thoughts, behaviour and actions; they guide us to make right decisions in
cases of ethical dilemmas

Ethical Practices

1. Integrity

One of the most important workplace ethics is integrity. By definition, integrity is the “quality of

being honest and having strong moral principles, a personal code of conduct that goes above the

level of good conduct and encompasses the spirit of good conduct.” Employees with integrity are

usually the ones you can count on, the ones with the highest moral values and the ones who are

bent on doing the right thing at all times.

2. Honesty

Being an honest individual means you do not deceive others by giving out misleading

information. This includes the truthful way of conduct that is usually without the intention of
MBA 4th semester Sub: Business Laws

lying, cheating or any form of falsification. Customers typically only deal with a business or a

service provider whom they trust. In a workplace, an honest employee is the one you can rely on

to continue doing their best in their jobs for the company’s benefits.

3. Discipline

At times, an employee may be talented in his line of work but lacks the commitment and

dedication to complete the tasks given. It requires a certain level of discipline to not only

complete the tasks within a certain time frame but to also execute them well, instead of doing

just the bare minimum at the very last minute. Disciplined employees are extremely important as

they ensure that all assignments and projects are delivered and executed in a timely manner.

4. Fair and respect

Achieving an ethically strong workplace involves the cooperation of every employee, from top

decision-makers/leaders to entry-level employees. No matter which level you are at, you need to

ensure that all your actions are fair and just, particularly if you are entrusted with a position to

lead. This will ensure a positive work culture in your organisation. Always remember that every

one of your staff deserves to be treated with respect and dignity, regardless of who they are or

which position they are at.

5. Responsible and accountable

If an employee has a strong sense of responsibility, he or she would undoubtedly turn up for

work on time and complete the tasks given with the best effort that he or she can offer.

Nevertheless, there will be a time when an employee may make a mistake, hence it is important

to also be able to acknowledge these mistakes, be accountable for it and accept any

consequences. In certain scenarios, an ethical manager will take accountability for their staff or

colleagues for reasons that are not for self-interest but for the well-being of all parties involved.
MBA 4th semester Sub: Business Laws

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