CHAPTER - VI

LEGALITY OF OBJECT
When is an object unlawful
IF IT IS FORBIDDEN BY LAW;

IF IT IS OF SUCH NATURE THAT, IF PERMITTED, IT WOULD DEFEAT THE PROVISIONS OF ANY LAW;

IS FRAUDULENT;

INVOLVES OR IMPLIES INJURY TO THE PERSON OR PROPERTY OF ANOTHER;

IS REGARDED AS IMMORAL BY A COURT OR OPPOSED TO PUBLIC POLICY.

AGREEMENT OPPOSED TO PUBLIC POLICY

1. TRADING WITH AN ALIEN ENEMY;

2. INTERFERENCE WITH ADMINISTRATION OF JUSTICE;
3. MARRIAGE BROKERAGE AGREEMENTS;
4. TRAFFICKING IN PUBLIC OFFICES;
5. UNFAIR OR UNREASONABLE DEALINGS
EFFECT OF PARTIAL ILLEGALITY
 CHAPTER – VII

VOID AGREEMENT
 DIFFERENCES
VOID AGREEMENT VERSUS VOID CONTRACT; AND

VOID AGREEMENT VERSUS ILLEGAL AGREEMENT

AGREEMENT EXPRESSLY DECLARED VOID

AGREEMENT BY OR WITH PERSONS INCAPABLE OF CONTRACTS;

AGREEMENT ENTERED INTO UNDER MUTUAL MISTAKE OF FACTS;

AGREEMENT OF WHICH CONSIDERATION AND OBJECTS ARE UNLAWFUL IN

FULL OR IN PART

AGREEMENT WITHOUT CONSIDERATION;

• AGREEMENT IN RESTRAINT OF MARRIAGE;
• AGREEMENT IN RESTRAINT OF TRADE;
Exceptions:
1.) Statutory Exceptions;
2.) Judicially Interpretative Exceptions :-
a) Trade Combinations (FICCI, GIC, CIA)
b) Exclusive Dealing Agreement
c) Restraints Upon Employees
• AGREEMENT IN RESTRAINT OF LEGAL PROCEEDING;
Exceptions:
a) Referring dispute to arbitration;
b) Referring question that have already arisen to
arbitration
• AGREEMENT – THE MEANING OF WHICH IS UNCERTAIN;
• AGREEMENT BY WAY OF WAGER;
• AGREEMENT TO DO AN IMPOSSIBLE ACTS.
ESSENTIAL OF WAGERING AGREEMENT:

 Uncertain Even;
 Mutuality;
 Neither party to have control over the even;
 No proprietary interest in the event.

EXCEPTIONS TO WAGERING AGREEMENT:

• Horse Race;
• Prize Competition;
• Contracts of Insurance - (Insurable Interest).
 CHAPTER – VIII
CONTINGENT CONTRACTS
DEFINITIONS: “A contract, the performance of which depends on the
happening or non-happening of an uncertain even, incidental to such
contract.”

ESSENTIAL OF CONTINGENT CONTRACT

- SUBJECT TO HAPPENING OR NON HAPPENING OF AN UNCERTAIN EVEN,
COLLATERAL TO IT;
- CONTINGENT EVENT IS OF UNCERTAIN NATURE;
- UNCERTAIN EVENT ON WHICH THE PERFORMANCE OF A CONTINGENT
CONTRACT DEPENDS IS COLLATERAL OR INCIDENTAL TO THE CONTRACT;
- CONTINGENCY SHOULD DEPEND ON THE WILL OF THE PROMISOR OR THE
PROMISEE.
ENFORCEMENT OF CONTINGENT CONTRACT

1. Contingent contract depends on uncertain future event – contract

can not be enforced unless and until that event happen.
2. Contingent contract depends on uncertain future even – contract
can be enforced only after happening of events become impossible.
DIFFERENCE BETWEEN CONTINGENT CONTRACT AND
WAGERING AGREEMENT

1.) Validity:
2.) Reciprocal Promises;
3.) Event – collateral v/s. sole determinant factor;
4.) Real Interest.
 CHAPTER – XI
INDEMNITY AND GUARANTEE
CONTRACT OF INDEMNITY:

A contract, by which one party promise to save 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.

SCOPE OF CONTRACT OF INDEMNITY:

AS PER SECTION 24 OF INDIAN CONTRACT ACT, 1872, THE SCOPE OF
INDEMNITY CONTRACT RESTRICT TO ONLY SUCH CASES WHERE THE
LOSS, PROMISED TO BE REIMBURSED, IS CAUSED BY THE CONDUCT OF
THE PROMISOR OR OF ANY OTHER PERSON. IT DOES NOT COVER THE
CASES OF LOSS ARISING FROM EVENTS OR ACCIDENTS SUCH AS FIRE,
OR PERILS OF THE SEAS.
ESSENTIALS OF VALID CONTRACT OF INDEMNTY:

1.] PROMISE BY INDEMNIFIER TO MAKE GOOD THE LOSS;

2.] CONTRACT OF INDEMNITY IS PRIMARILY CONTINGENT CONTRACT;
3.] LIABILITY OF INDEMNIFIER COMMENCES AS SOON AS THE LIABILITY OF
THE INDEMNITY HOLDER CLEAR AND CERTAIN;

RIGHTS OF INDEMNITY HOLDER:

THE INDEMINITY HOLDER IS ENTITLED TO RECOVER FROM THE
INDEMNIFIER THE FOLLOWING AMOUNTS:

1.] ALL DAMAGES WHICH HE/SHE MAY BE COMPELLED TO PAY;

2.] ALL COST WHICH HE/SHE MAY BE COMPELLED TO PAY;
3.] ALL SUMS WHICH HE/SHE MAY HAVE PAID UNDER THE TERMS OF
ANY COMPROMISE OF ANY SUCH SUIT.
CONTRACT OF GUARANTEE:

A CONTRACT OF GUARANTEE IS A CONTRACT TO PERFORM THE

PROMISE, OR DISCHARGE THE LIABILITY, OF A THIRD PERSON IN CASE OF
HIS DEFAULT.

A CONTRACT OF GUARANTEE IS ENTERED INTO WITH AN OBJECTIVE TO

ENABLE
Sr. Points of Contract of Indemnity Contract of Guarantee
No. Difference
1 Parties Indemnifier & Indemnity Debtor, Creditor and
Holder Surety
2 Object To make good the loss To enable a person to
obtain Loan or Goods on
credit or even
employment
3 Nature of Contract is for Re- Contract is for the security
Contract imbursement of loss. of the creditor.
4 Nature of Liability Liability of Indemnifier is Liability of Surety is
Primary and Independent Collateral
5 Independence of Indemnifier acts Surety gives guarantee
promisor independently without only at the request of
any request of the debtor debtor
6 Right to sue third Indemnifier can not sue Surety can step into shoes
parties third parties in his own of creditor after
name unless there be satisfaction of debt.
assignment in favor of
indemnifier.
EXTENT OF SURETTYS LIABILITY

KINDS OF GUARANTEE:
1. SPECIFIC GUARANTEE
2. CONTINUING GUARANTEE

- REVOCATION OF CONTINUING GUARANTEE

- BY NOTICE OF REVOCATION
- BY DEATH OF SURETY
- IN CASE OF DISCHARGE OF SURETY
RIGHTS OF SURETY:
1. Rights against the principal debtor:
- Right of subrogation
- Right of Indemnity

2. Right against the creditor

- Right to security
- Right of set-off

3. Rights against the Co – sureties

- Right against the co-sureties
- Where sureties become liable to contribute equally
DISCHARGE OF SURETY:
1. By notice of Revocation;
2. By death of surety;
3. By novation;
4. By variance in terms of contracts;
5. By release or discharge of principal debtor;
6. By impairing surety remedy;
7. By loss of security;
8. By Invalidation of contract
 CHAPTER – XII
BAILMENT AND PLEDGE
BAILMNT:
A bailment is a situation wherein the owner of goods entrusts their
possession into the care of an other person for some purpose.

A bailment is 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 OF BAILMENT
- Contract;
- Subject Matter;
- Delivery of Goods;
- Delivery may be actual or constructive;
- No change in Ownership;
- Purpose;
- Return of Goods;
Kinds of Bailment
1. Gratuitous Bailment; and
2. Non – Gratuitous Bailment.

DUTIES OF THE BAILOR

1. Duty to disclose fault;
2. Duty to repay bailee expenses;
3. Duty to indemnify the bailee;
4. Duty to compensate bailee for breach of warranty;
5. Duty to claim back the goods
RIGHTS OF THE BAILOR
1. Right to enforce bailee performance;
2. Right to claim damages;
3. Right to claim compensation against unauthorized use of goods;
4. Right to terminate the contracts;
5. Right to demand return of goods along with accretion thereto, if any.

DUTIES OF BAILEE
1. Duty to take reasonable care of goods whilst they are in possession;
2. Duty not to make any unauthorized use of the goods bailed;
3. Duty not to set up jus terti (adverse title);
4. Duty not to mix the goods bailed with his own goods;
5. Duty to return the goods in accordance with the contract;
6. Duty to return any accretion to the goods.
 RIGHTS OF THE BAILEE
Because of reciprocity of relationships, most of the duties of the
bailor are the rights of bailee. Accordingly, bailee enjoys the
following rights.

 Right to enforce bailor duties:

1.] To Claim damages from the bailor if any loss suffered due to
non disclosure of defects in the goods.
2.] To claim all necessary expenses from bailor in case of non
– gratuitous bailment.
3.] To be indemnified against any loss or damages caused due to
defect in title of the bailor.
 Right of Lien:
 Right to sell the goods:
Right to return the goods to any of the joint – bailor

TERMINATION OF A BAILMENT:

 Unauthorized use of goods bailed.

Expiry of term bailment.
Accomplishment of purpose.
Death of either party.
Destruction of subject matter.
LIEN
IT REFERES TO THE RIGHT OF BAILEE TO RETAIN THE POSSESSION OF
BAILED GOODS TILL HE IS NOT PAID HIS DUES

TYPES OF LIEN
PARTICULAR LIEN: it is available only against the goods in
respect of which the bailee has rendered any service.

GENERAL LIEN : It is the right to hold the goods for any

lawful dues.
 PARTIES ENTITLED TO GENERAL
LIEN
Bankers
Attorney of high court
Wharfingers
Policy Broker
 FINDERS OF LOST GOODS
A person who finds an article belonging to another is called
the finder of lost goods. In the eyes of the law, the position
of a finder of lost goods is exactly that of bailee.

Duties and Rights of Finder of Lost Goods

1)To exercise reasonable care in preserving the goods found.
2)To find the actual owner and restore the goods to him.
3)Not to make any personal use of the Goods found.
4)Not to mix the goods found with his own goods.
5)Not to set up any adverse title to the goods found.
To Retain the goods.
To sue the owner for rewards
To sell the found goods
PLEDGE
A pledge or pawn is a kind of bailment. It is the bailment of
moveable thing as security for the repayment of a debt or
performance of a promise.

Difference between Pledge and Bailment

Purpose: Pledge is for some specific purpose. While bailee use the
goods if the terms of bailment so provide.

Use of Goods: Pawnee has no right to make any use of the goods
pledged. While the bailee uses the goods if the terms of bailment
so provide.
 RIGHTS & DUIES OF PAWNEE
AND PAWNOR
It is similar to the rights and duties of bailor
(Pawnor) and bailee (Pawnee).
THE CONSUMER PROTECTION
ACT, 1986
 IMPORTANT DEFINITIONS

 COMPLAINANT:
a) A Consumer;
b) Any voluntary consumer association registered under section 25 of the
Companies Act, 1956 or under any other law for the law for the time
being in force;
c) The Central Government or state Government;
d) One or more consumers where there are numerous consumers having
same interest;
e) In case of death of consumer, his heir or legal representative.
 CONSUMER: means any person who:-
a) Buys any goods for a consideration which has been paid or promised or
partly paid and partly promised or under any system of deferred
payment and includes any user of such goods other than the person
who buys such goods for consideration paid or promised or partly paid
or partly promised, or under any system of deferred payment when
such use is made with the approval of such person, but does not
include a person who obtains such goods for resale or for commercial
purpose.
b) Hires or avails of any services for a consideration which has been paid
or promised or partly paid and partly promised or under any system of
deferred payment, and includes any beneficiaries of such services other
than the person who hires or avails of the services for consideration
paid or promised, or partly paid and partly promised, or under any
system of deferred payment when such services are availed of with the
approval of the first mentioned person.
 DEFECTS: means ay fault, imperfection or shortcoming in the
quality, quantity, potency, purity or standard which is required
to be maintained by or under any law for the time being in force
or under any contract, express or implied, or as is claimed by the
trader in any manner whatsoever in relation to any goods.

 DEFICIENCY: means nay fault, imperfection, shortcoming or

inadequacy in the quality, nature, and manner of performance
which is required to be maintained by or under any law for the
time being in force, or has been undertaken to be performed by
a person in pursuance of a contract or otherwise in relation to
any service.
 OBJECTS OF CONSUMER PROTECTION COUNCIL

a)The right to be protected against the marketing of goods (and

services) which are hazardous to life and property;
b)The right to be informed about the quality, quantity, potency,
purity, standard and price of goods or services so as to protect
the consumer against unfair trade practice;
c)The right to be assured, wherever possible, access to a variety
of goods and services at competitive prices;
d)The right to be heard and to be assured that consumers interest
will receive due consideration at appropriate forums;
e)The right to seek redressal against unfair trade practice or
restrictive trade practices or unscrupulous exploitation of
consumers; and
f)The right to consumer education.
 ORGANISATIONAL SET UP

ADJUDICATIVE BODIES
ADVISORY BODIES [Consumer Disputes Redressal
[Consumer Protection Council]
Agencies ]

Central State District District State National

Council Council Council Forum Commission Commission
 JURISDICTION
FORUM JURISDICTION
 Claim up to Rs. 20 lakhs;
 Complainant resides within the local limits of
District Forum;
District Forum
Opposite party resides or actually carry on business
or branch office;
Cause of action, wholly or in part, arises.

 Claim between Rs. 20 Lakhs to Rs. 1 Crore.

State Commission  Appellate Jurisdiction;
 Revisionary Power

Claim above Rs. 1 Crore.

National Commission  Appellate Jurisdiction;
 Revisionary Power
 PROCEDURE ON ADMISSION OF
COMPLAINT
C. F. forward Opposite party reply
Complainant files
complaint to within 15 days – admit
complaint before
opposite party the defect or allege
Consumer Forum
within 21 days the defect

Take sample of goods On denial of defects

Lab. Test the sample
and submit them to by opposite party, C.
and gives its report.
Specified Lab. For F. proceed to settle
analysis. the dispute
Each Party receive
one copy of report C. F on hearing the parties and on
and place their the basis of evidence & documents
opinion before C . F. presented, gives its decision.
 FINDINGS OF CONSUMER
FORUMS
 To remove the defect pointed out by the appropriate laboratory from the
goods in question;
 To replace the goods with new goods of similar description which shall be
free from any defects;
 To return to the complainant the price, or, as the case may be, the charges
paid by the complainants;
 To pay such amounts as may be awarded by it as compensation to the
consumer for any loss or injury suffered by the consumer, due to the
negligence of the opposite party;
 To remove the defects in goods or deficiency in the services in question;
 To discontinue the unfair trade practice or the restrictive trade practice or
not to repeat them;
 Not to offer hazardous goods for sale;
 To withdraw the hazardous goods from being offered for sale;
 To cease manufacture of hazardous goods and to desist from offering
services which are hazardous in nature;
 To pay such sum as may be determined by it if it is of the opinion that loss or
injury has been suffered by a large number of consumer who are not
identifiable conveniently;
 To issue corrective advertisement to neutralize the effect of misleading
advertisement at the cost of the opposite party responsible for issuing such
misleading advertisement;
 To provide for adequate costs to parties.

LIMITATION PERIOD FOR MAKING COMPLAINT WITH CONSUMER

FORUMS (2 YEARS).
COMPANIES ACT, 1956
DEFINITION: As per section 3 of Companies Act,
1956, a company means a company formed and
registered under this act or an existing company .

A Company is an association of person come together to incorporate themselves

into Distinct Legal Entity to do some common business activities and to share
profit arises there from.

A company is an artificial person created by law, having separate entity , with a

perpetual succession and common seal.
SALIENT FEATURES OF COMPANY:

1)Independent Legal Entity;

2)Limited Liability;
3)Separate property;
4)Flexibility of Investment;
5)Capacity to sue and being sued;
6)Separation of ownership and management;

ILLEGAL ASSOCIATION:
In following cases, a Partnership Firm can be called Illegal Association
 In case partnership firm carrying on banking business, having more than 10 partners;
In case partnership firm carrying any other business, having more than 20 partners.
In case any association carrying on business of chit fund.
 TYPES OF COMPANY:
1] Private Company: A Company can be defined as private company if it meets
following conditions :
• Restrict the number of its members to Fifty;
•Restrict the transferability of its shares;
•Prohibits any invitation to public to subscribe for any shares or debentures;
•Prohibits any invitation or acceptance of deposits from persons other than its
members, directors or their relatives;
•Have minimum paid up share capital of Rs. 1 lakhs.
2] Public Company: A company can be defined as public company if it meets the
following conditions:
•If it is not private Company;
•It has minimum paid up capital of Rs. 5 lakhs;
•It is private company if it is subsidiary of company which is not private company.
3] Limited Company: A company can be called as limited Company if the liability
of its members is limited.
4] Unlimited Company: A Company can be called as an unlimited company if the
liability of its members is unlimited.
5] Section 25 Company: The central government may permit the registration of
company under section 25 of companies act, 1956 if it meets the following
conditions:
• The Company is formed for promoting commerce, science, art,
religion, charity, or any other socially useful objects and does not
have profit motive;
• The Company does not intends to pay dividend to its members but
apply its profits and other income in promotion of its objectives.
6] Government Companies: A company can be called as government
company in which not less than 51 per cent of the paid up share
capital is held by
 The Central Government; or
 The State Government; or
 Partly by Central Government and partly by on or more state govt.
7] Foreign Company: A company can be called Foreign Company if a company is
incorporated outside India and having established place of business in India.

8] Chapter IX Company: A company can be called as Chapter IX company if it is

incorporated as per the provisions contained under Chapter IX of Companies
act, 1956, i.e. when a partnership firm converted into company.

 CORPORATE VEIL:

 LIFTING OF CORPROATE VEIL:

 PROCEDURES FOR INCORPORATION OF COMPANY:

1. Applying for Director Identification Number.

2. Get the Digital Signature of any one Promoter.
3. Application for Name Availability.
4. Draft Memorandum and Articles of Association.
5. File Memorandum and Articles of Association and other documents on MCA
portal, www.mca.gov.in.
6. Certificate of Incorporation by ROC.
7. Certificate of Commencement of Business.
 COMPANY MANAGEMENT:

• DIRECTOR:
As per section 2(13) of the Companies Act, 1956, director including any person
occupying the position of director by whatever name called.

• Who Can be a Director – Any Individual.

 Qualification Shares (Section 270)
 No Other criteria for appointment of director except as provided under
Schedule XIII to the Act for appointment of Managing Director and section
274 & 283.

 TYPES OF DIRECTOR:
 Inside Director (In full time employment of company)
 Outside Director (Not in full time employment of company)
 Professional Director (Specialist in Some Field)
 Nominee Director (director appointed by bIanks, FI, Etc.)
 Independent Director (Clause 49 of Listing Agreement / Corporate
Governance).
 Whole Time Director:
 Managing Director: As per section 2 (26) of the act, a director who, by
virtue of an agreement with the company or of a resolution passed by the
company in general meeting or by its board of directors or by virtue of its
memorandum or articles of association, is entrusted with substantial
powers of management which would not otherwise be exercisable by him
and includes a director occupying the position of a Managing Director, by
whatever name called.

 LEGAL POSITION OF DIRECTOR:

 Agent ;
 Trustee.
 APPOINTMENT OF DIRECTOR:

 Appointment of First Director:

 Appointment by the Company;
 Re-appointment of Retiring Director;
 Re – appointment of Retiring Directors:
A retiring director will not be deemed to be re-appointed under any of
the following conditions.
 A resolution for his re-appointment has been lost.
 The director express his inability to continue as director.
 He is not qualified for appointment (Section 274 & 283).
 A specific resolution is required for appointment of that director.

Appointment by Board of Directors:

 Additional Director (sec. 260);
 Casual Director (Section 262);
 Alternate Director (Section 313).

 Appointment by the Central Government (section 408).

 Appointment by Third Parties.

 Appointment by proportional representation:

 WINDING UP OF COMPANY

MODES OF WINDING UP [Sec. 433]:

A High Court may order for winding up in the following cases:

• Special Resolution passed by shareholders of company;

• Default in filing statutory report or holding statutory meeting ;
• Failure to commence business within time prescribed u/s. 433 (c);
• Reduction of membership;
• Inability to pay debts;
• Just and equitable.
 WINDING UP OF COMPANY

PERSONS ELIGIBLE TO FILE PETITION:

 The Company;
 The Creditors of Company;
 Contributories;
 All or any of the parties jointly together or separately;
 The Registrar of Companies;
 Any person authorized by Central Government u/s. 243.
 WINDING UP OF COMPANY

OFFICIAL LIQUIDATOR:

 Only an Individual can be appointed as Liquidator;

 There shall be attached to every high court an offical liquidator appointed by
the Central Government;
 Statement of affairs to be prepared by BOD and handover to the OL , the
statement of affairs should contain the following and verified by an affidavit:

 Assets of Company;
 Debts and Liabilities;
 Names, residencies and occupancies of creditors;
 Debts due to the company and details of persons entitles to such debts;
 Further information as prescribed or as required by OL.
 WINDING UP OF COMPANY

DUTIES OF OFFICIAL LIQUIDATOR:

 To submit preliminary report;

 To takeover assets of company;

 To convene an meeting of creditors and contributories;

 To keep books of account;

 To submit accounts;

 To submit information in pending liquidation.

 PROCEDURE FOR VOLUNTARY WINDING UP OF COMPANY

 Declaration of Solvency is made and file with the ROC;

Company shall appoint Liquidator for the purpose of winding up affairs of company;
 On appointment of liquidator, all powers of BOD ceases and vested with the liquidator;
 Company to give notice of appointment of liquidator to the ROC;
 Liquidator has to start winding up procedure and also to obtain necessary approvals;
 In case the winding up continues for more than on year, general meeting of company
should be convened and placed thereat accounts of his all dealings, acts and conduct of
winding up.
 As soon as the affairs of company are fully wound up, the liquidator has to make an
accounts of the winding up and required to summon general meeting. Within a week of
holding meeting, the liquidator must send to the Registrar and the OL a copy of the
account;
 The Registrar shall register the accounts. While the OL, based on the accounts and
returns received from the liquidator, scrutinize them, prepare a report and submit the same
to the high court;
 On receiving report and on further investigation, the high court make an order.
 PROCEDURE FOR COMPUSORY WINDING UP

Where a declaration of solvency is not filed, it become winding up by creditor.

• The meeting of creditor has to be convened. At the meeting, statement of affairs

of company, name of each creditor should be present before the meeting;
• The Creditor may appoint Committee of inspection.
 DIFFERENCE BETWEEN VOLUNTARY AND COMPULSORY
WIND UP OF COMPAMY

VOLUNTARY WIND UP COMPULSORY WIND UP

It is possible in case of solvent company. It is assumed that company is insolvent.
In case members and creditors nominate
Member appoint liquidator. difference liquidator, then liquidator
nominated by creditor shall be appointed.
Creditors may appoint committee of
No provision for Committee of inspection
inspection.
Meeting of both member and creditors is
Only meeting of member is necessary.
necessary.