Spring 2010(Jan-June)

MBA-SEM III
MB0035 – Legal Aspects of Business

Assignment Set- 1

Q1. ‘All contracts are agreements but all agreements are not contracts.’ Discuss
Answer : All contracts are agreement but all agreement are not contracts. A contract is a
legally binding agreement or relationship that exists between two or more parties to do or
abstain from performing certain acts. A contract can also be defined as a legally binding
exchange of promises between two or more parties that the law will enforce. For a contract to
be formed an offer made must backed acceptance of which there must be consideration. Both
parties involved must intend to create legal relation on a lawful matter which must be entered
into freely and should be possible to perform.

An agreement is a form of cross reference between different parties, which may be written,
oral and lies upon the honor of the parties for its fulfillment rather than being in any way
enforceable.

All contracts are agreement because there must be mutual understanding between two
parties for a contract to be formed. All parties should agree and adhere to the terms and
conditions of an offer.

The following cases illustrate ways in which all contracts are agreements;

In the case of invitation to treat, where an invitation to treat is merely an invitation to make
an offer. When a firm's offer is accepted it results into a contract provided other elements of
contracts are accepted.

Considering person A buying a radio on hire purchase from person B who deals with
electronics and its appliances. Both parties must come to an agreement on payment of
monthly installment within specified period of time. Such an agreement result to specialty
contract which a contract under seal.

All contracts are agreement until avoided for example, avoidable contract where one of the
parties can withdraw from it if s/he wishes. This occurs due to minor agreement and
misrepresentation or undue influence. Considering a case where person A make contract with
person B but during the contract period B realizes that he was engaged to perform an
agreement under undue influence.

Definition of contract

According to section 2(h) of the Indian Contract Act: " An agreement enforceable by law is a
contract." A contract therefore, is an agreement the object of which is to create a legal
obligation i.e., a duty enforceable by law.

From the above definition, we find that a contract essentially consists of two elements: (1) An
agreement and (2) Legal obligation i.e., a duty enforceable by law. We shall now examine
these elements detail.
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1. Agreement. As per section 2 (e): " Every promise and every set of promises, forming the
consideration for each other, is an agreement." Thus it is clear from this definition that a
'promise' is an agreement. What is a 'promise'? the answer to this question is contained in
section 2 (b) which defines the term." When the person to whom the proposal is made
signifies his assent thereto the proposal is said to be accepted. A proposal, when accepted,
becomes a promise."

An agreement, therefore, comes into existence only when one party makes a proposal or offer
to the other party and that other party signifies his assent (i.e., gives his acceptance) thereto.
In short, an agreement is the sum total of 'offer' and 'acceptance'.

On analyzing the above definition the following characteristics of an agreement become

evident:

(a) At least two persons. There must be two or more persons to make an agreement because
one person cannot inter into an agreement with himself.

(b) Consensus-ad-idem. Both the parties to an agreement must agree about the subject matter
of the agreement in the same sense and at the same time.

2. Legal obligation. As stated above, an agreement to become a contract must give rise to a
legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating a duty
enforceable by law. It is not a contract. Thus an agreement is a wider term than a contract. "
All contracts are agreements but all agreements are not contracts,"

Agreements of moral, religious or social nature e.g., a promise to lunch together at a friend's
house or to take a walk together are not contracts because they are not likely to create a duty
enforceable by law for the simple reason that the parties never intended that they should be
attended by legal consequences

Q2. ‘ Not all persons have the capacity to enter into a contract.’ Discuss this statement.

Answer: Not all people are completely free to enter into a valid contract. The contracts of the
groups of people listed below involve problematic consent, and are dealt with separately, as
follows:

 people who have a mental impairment;

 young people (minors);
 bankrupts;
 corporations (people acting on behalf of a company); and
 prisoners.
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PEOPLE WHO HAVE A MENTAL IMPAIRMENT

Generally speaking, people are free to enter into contracts even though they may have a
mental impairment, or are temporarily disabled by drugs or alcohol. They are, however,
sometimes vulnerable to being bound by contracts they do not fully understand. The question
of capacity to make the contract often arises only after the contract is in place.

People with disabilities and their advocates will find some protection in the rule that a
contract is not valid and enforceable unless there was genuine consent to its making.

Capacity to give consent involves a general understanding of the nature of the contract (not
necessarily its fine details). A person with a mental impairment, for example, may have the
capacity to understand some contracts (for example, buying a loaf of bread), but not to
understand other, more complicated contracts (for example, buying a car on credit).

Where a person with a disability did not understand the general nature of the contract, a court
can intervene to set aside the contract only if:

 the other party knew (or ought to have known) of the disability or lack of capacity;

 the person with the disability can give back most of the benefit they received under
the contract; and

 the benefit received by the other person has not been sold to a third party who did not
know the previous transaction might not be valid. Generally, to escape the
consequences of a contract, the other party should be notified of the intention not to
be bound by the contract within a reasonable time.
If the contract was made during a period when the person was able to understand it (legally
termed a "lucid interval"), the contract will be binding even though the other party knew of
the disability.

A person with an intellectual or psychiatric disability will be liable to pay only a reasonable
price for necessaries sold and delivered. "Necessaries", and the rules applicable here, are
dealt with in "Young people".

YOUNG PEOPLE

The term young person is used here to refer to anyone under the age of 18 years. Sometimes
legal writing refers to minors or infant.

The exact capacity of young people to bind themselves and be bound by contract is limited
but also unclear, because no Act of Parliament completely covers this area of law.
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Binding contracts and young people

Contracts for the supply of "necessaries" will generally be binding. There are no hard and fast
rules to identify what is "a necessary", but it does include the sorts of things the young person
needs to live a reasonable lifestyle. It includes basics such as:

 food;
 clothing;
 a place to live;
 medicine,
and so on.

It will also include any contracts relating to the young person's education, apprenticeship or
something very similar, if it can be shown to be of benefit to the young person. While a court
has not yet considered the issue specifically, mobile phones are probably not necessaries.

The young person contracting in this situation will be held bound to pay a reasonable price
(although that may not be the contract price) for necessaries actually sold and delivered.
("Delivery" is a technical term. Generally, delivery takes place when the seller has given the
buyer the power to take the goods away.) Where necessaries have been sold but there has
been no delivery, the young person does not have to take delivery or pay for the goods.

Non-binding contracts and young people

Two classes of contracts are not binding on a young person, namely:

• contracts which are not for necessaries; and

• contracts for the repayment of money lent or to be lent (that is, any form of credit
contract).
Where a young person has already paid money under a non-binding contract, that money will
not be recoverable unless no benefit has been received by the young person. The young
person can, however, refuse to make any further payments under the contract. It is not certain
who then owns goods that are not necessaries. It appears that they become the property of the
young person unless the young person has fraudulently misrepresented their age.

Even after turning 18, a person cannot confirm a prior contract and then become bound by it.
Any money paid by a young person under such circumstances may be recovered.

BANKRUPTS
Bankrupt people are not deprived of their general capacity to contract.

CORPORATIONS
A corporation is an artificial body created by law. The corporation has a legal existence
separate from the individual people who comprise it. However, a company has the legal
capacity of a natural person and therefore has the capacity to enter contractual relations. This
is so even if there is an express prohibition contained in the company's constitution. Such
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transactions are not deemed void and beyond the company's powers simply because the
exercise of such powers is in breach of the restrictions placed in the company's constitution.

A company has the capacity to enter contractual relations, but such relations are only binding
on the company if those acting on behalf of the company do so with the company's express or
implied authority. The courts have been quite liberal in their interpretation of implied
authority. It has been found that in cases where directors with express authority have
acquiesced and allowed a director with no authority to frequently enter contractual relations
on behalf of the company, that such directors have implied authority and therefore can
contractually bind the company.

PRISONERS
During their imprisonment, prisoners may enter contracts, including contracts to buy and sell
property. The usual restrictions about supervision and censorship of anything coming into the
prison still apply, so that the permission of Corrections Victoria is required before a prisoner
may sign for, deliver or receive any document

Q3. Discuss how a contract can be discharged by breach?

Answer : Breach of contract by a party thereto is also a method of discharge of a contract, because
“breach” also brings to an end the obligations created by a contract on the part of each of the parties.
Of course the aggrieved party i.e., the party not at fault can sue for damages for breach of contract as
per law; but the contract as such stands terminated.
Breach of contract may be of two kinds: (1) Anticipatory breach; and (2) Actual breach.

1. Anticipatory breach: An anticipatory breach of contract is a breach of contract occurring

before the time fixed for performance has arrived. It may take place in two ways: (a)
Expressly by words spoken or written. Here a party to the contract communicates to the
other party, before the due date of performance, his intention not to perform it. (b)
Impliedly by the conduct of one of the parties. Here a party by his own voluntary act
disables himself from performing the contract. When a party to a contract has refused to
perform or disabled himself from performing, his promise in its entirity, the promisee
may put an end to the contract, unless he has signed, by words or conduct his acquiscence
in its continuance.
2. Actual breach: Actual breach may also discharge a contract. It occurs when a party fails
to perform his obligations upon the date fixed for performance by the contract. Actual
breach entitles the party not in default to elect to treat the contract as discharged and to
sue the party at fault for damages for breach of contract.

Remedies for Breach of Contract

Whenever there is breach of a contract, the injured party becomes entitled to any one or more
of the following remedies against the guilty party:

1. Rescission of the contract.

2. Suit for damages.
3. Suit upon quantum merit.
4. Suit for specific performance of the contract.
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5. Suit for an injunction.

As regards the last two remedies stated above, the law is regulated by the Specific Relief Act,
1963.

1 Rescission of the contract: When there is a breach of contract by one party, the other party
may rescind the contract and need not perform his part of obligations under the contract. But
in case the aggrieved party intends to sue the guilty party for damages for breach of contract,
he has to file a suit for rescission of the contract. When the court grants rescission, the
aggrieved party is free from all his obligations under the contract and becomes entitled to
compensation for any damage which he has sustained through the non-fulfilment of the
contract (Sec. 75).

2. Suit for damages: Damages are a monetary compensation allowed to the injured party for
the loss or injury suffered by him as a result of the breach of contract. The fundamental
principle underlying damages is not punishment but compensation. By awarding damages the
court aims to put the injured party into the position in which he would have been, had there
been performance and not to punish the defaulting party. As a general rule, “compensation
must be commensurate with the injury or loss sustained, arising naturally from the breach.”
“If actual loss is not proved, no damages will be awarded.

3. Suit upon quantum merit (Sections 65 and 70): The third remedy for a breach of
contract available to an injured party against the guilty party is to file a suit upon quantum
merit. The phrase quantum merit literally means “as much as is earned” or “in proportion to
the work done.” This remedy may be availed of either without claiming damages (i.e.,
claiming reasonable compensation only for the work done) or in addition to claiming
damages for breach (i.e., claiming reasonable compensation for part performance and
damages for the remaining unperformed part).

The aggrieved party may file a suit upon quantum merit and may claim payment in
proportion to work done or goods supplied in the following cases:

1. Where work has been done in pursuance of a contract, which has been discharged by
the default of the defendant.
2. Where work has been done in pursuance of a contract which is ‘discovered void’ or
‘becomes void’.
3. When a person enjoys benefit of non-gratuitous act although there exists no express
agreement between the parties. One of such cases is provided in Section 70 (other
cases are covered under quasi-contracts). Section 70 lays down that when services are
rendered or goods are supplied by a person, (i) without any intention of doing so
gratuitously, and (ii) the benefit of the same is enjoyed by the other party, the latter
must compensate the former or restore the thing so delivered.
4. A party who is guilty of breach of contract may also sue on quantum merit provided
both the following conditions are fulfilled: (a) the contract must be divisible and (b)
the other party must have enjoyed the benefit of the part which has been performed,
although he had an option of declining it.

4. Suit for specific performance: Specific performance means the actual carrying out of the
contract as agreed. Under certain circumstances an aggrieved party may file a suit for specific
performance, i.e., for a decree by the court directing the defendant to actually perform the
 Spring 2010(Jan-June)

promise that he has made. Such a suit may be field either instead of or in addition to a suit for
damages.

A decree for specific performance is not granted for contracts of every description. It is only
where it is just and equitable so to do, i.e., where the legal remedy is inadequate or defective,
that the courts issue a decree for specific performance. It is usually granted in contracts
connected with land, buildings, rare articles and unique goods having some special value to
the party suing because of family association. In all these contracts monetary compensation is
not an adequate relief because the injured party will not be able to get an exact substitute in
the market.

Q4. Discuss the essentials of a contract of guarantee.

Answer : Contract of Guarantee :It is a contract to perform the promise or discharge the
liability of a third person in case of his default. Surety is a person who gives the guarantee.
The person is respect of whose default the guarantee is given is called ‘principal debtor’. The
person to whom the guarantee is meant for is called the “Creditor”.

Essential of Contract of Guarantee:

1. Form: A contract of guarantee is just like any other contract which may be either oral
or in writing.
2. Tripartite agreement: Every contract of guarantee involves three agreements
between (i) the creditor and principal debtor, (ii) the surety and the creditor, and
(iii) the surety and the principal debtor.

Consent of The parties: There must be consent of all the three parties.

Example: X sells and delivers goods to Y. X afterwards request Z to pay in default of Y.

Z agrees to do so. Here, Z cannot become surety without the consent of Y.

3. Secondary Liability : The test which applied to determine whether the contract is
one of guarantee or indemnity is whether the obligation has been undertaken at the
debtor’s request in which case the contract is one of guarantee. If the obligation is
undertaken without any request of the debtor, the contract is one of indemnity. The
intention of the parties is also important whether one making oneself primarily or
collaterally liable. Hence, the promise to be primarily and independently liable is not
a guarantee, though it may be an indemnity. Hence in a contract of guarantee, the
primary liability is with the principal debtor.

4. Existing liability: It is not necessary that the principal contract must be in existence
at the time the contract of guarantee is made; the original contract by which the
principal debtor undertaken to repay the money to the creditor may be about to come
into existence.
1. The promise to pay must be conditional: In other words, the liability of the surety
should arise only when the principal debtor makes a default.

2. Consideration: Something done for the benefit of the principal debtor is considered
as consideration for the guarantee to make the contract valid. The legal detriment
incurred by the promise at the promisor’s request is sufficient to constitute the
element of consideration.
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3. Competency: The principal debtor, surety and creditor must be a person competent to
contract. However, under certain circumstances, a surety is liable though the principal
debtor is not i.e. the original contract is void as is the case of a contract with a minor
in which the surety is liable not only as surety but also as principal debtor. A person
of unsound mind or an undischarged insolvent cannot give a valid guarantee.

4. Consent: There must be free consent; otherwise the contract of guarantee may become
void or voidable. Generally a contract of guarantee is not the contract of utmost good
faith i.e. uberrimae fidei, but it is sometimes a first cousin to it. More non-disclosure
will not effect the contract of surety unless there is an intentional concealment.

Q5. How can negotiable instruments be endorsed? Discuss in detail.

Answer : Section 15 defines endorsement as follows: “When the maker or holder of a
negotiable instrument signs the same, otherwise than as such maker, for the purpose of
negotiation, on the back or face thereof or on slip of paper annexed thereto, or so signs for the
same purpose a stamped paper intended to be completed as negotiable instrument, he is said
to endorse the same, and is called the endorser.”

Thus, an endorsement consists of the signature of the holder usually made on the back of the
negotiable instrument with the object of transferring the instrument. If no space is left on the
back of the instrument for the purpose of endorsement, further endorsements are signed on a
slip of paper attached to the instrument. The person making the endorsement is called an
‘endorser’ and the person to whom the instrument is endorsed is called an ‘endorsee’

Kinds of Endorsements : Endorsements may be of the following kinds:

1. Blank or general endorsement : If the endorser signs his name only and does not specify
the name of the endorsee, the endorsement is said to be in blank. The effect of a blank
endorsement is to convert the order instrument into bearer instrument which may be
transferred merely by delivery.

2. Endorsement in full or special endorsement : If the endorser, in addition to his

signature, also adds a direction to pay the amount mentioned in the instrument to, or to
the order of, a specified person, the endorsement is said to be in full.

3. Partial Endorsement : Section 56 provides that a negotiable instrument cannot be

endorsed for a part of the amount appearing to be due on the instrument. In other words, a
partial endorsement which transfers the right to receive only a part payment of the amount
due on the instrument is invalid.

4. Restrictive Endorsement : An endorsement which, by express words , prohibits the

endorsee from further negotiating the instrument as directed by the endorser is called
‘restrictive’ endorsement. The endorser except the right of further negotiation.

5. Conditional Endorsement : If the endorser of a negotiable instrument, by express

words in the endorsement, makes his liability, dependent on the happening of a specified
event, although such event may never happen, such endorsement is called a ‘conditional’
endorsement.
 Spring 2010(Jan-June)

In the case of a conditional endorsement the liability of the endorser would arise only upon
the happening of the event specified. But the endorsee can sue other prior parties e.g the
maker, acceptor etc., if the instrument is not duly met at maturity, even though the specified
event did not happen.

Q6. Why do you think an agreement to take a person to moon for a holiday cannot be a
contract?
Answer : The essentials of a valid contract state that “the term of agreement should be
capable of being performed and should be certain”. Taking a person to the moon for holiday
cannot be valid contract because neither the activity is being is capable of being performed in
the near future nor it is certain that someone making such kind of promise will be able to
fulfill. We all know that moon missions are multi-billion projects and are funded by
governments, so someone making such promise would only be a fraud. The government law
has also not yet authorized any agency or person to make such contracts so any agency or
person promising someone a holiday on the moon is unlawful which is also an essential term
of a valid contract.
 Spring 2010(Jan-June)

MBA-SEM III
MB0035 – Legal Aspects of Business

Assignment Set- 2

Q1. What is process for an enterprise to get incorporated as a company?

Answer : Any seven or more persons or where the company to be formed will be a private
company, any two or more persons, associated for any lawful purpose may, by subscribing
their name to a memorandum of associations and otherwise complying with the requirement
of this Act in respect of registration, form an incorporated company, with or without limited
liability.

Documents to be filed for registration: After ascertaining the availability of name, the
promoter should proceed to prepare the following documents and file with the Registrar of
companies:

1. Memorandum of Association: The memorandum of association is the charter of the

company. This includes its objectives, its name, the address of its registered office,
the capital which the company is authorised by law, the nature of liability of members
as well as the names, addresses and agreement of people who agree to form a
company.
2. Articles of Association: The other important document is the articles of association
which contains the rules and regulations relating to the internal management of the
company. However, it is not necessary for a public company limited by shares to file
the Articles of Association. If such public company does not file Articles of
Association, it is deemed to have adopted “Table A” of schedule I of the Act.
3. Copy of proposed agreement: If a company purposes to enter into an agreement
with any individual for appointment as a Managing Director, or a whole-time director
or manager, a copy of such an agreement should also be filed with the Registrar of
companies.
4. Consent of the Directors: According to Section 266, in the case of a public limited
company having share capital, a person cannot be appointed as a Director by the
Articles of Association unless, he has, before the registration of the articles, either
himself or through his agent, signed and filed, with the Registrar his consent in
writing to act as Director.

Q2. Describe in detail the clauses in the Memorandum of Association.

Answer : Section 2(28) defines it as “The Memorandum of Association of a company as
originally framed or as altered from time to time in pursuance of any previous companies or
of this Act”. It sets out the constitution of the company and defines the scope of the activities
of the company. It is the foundation on which the structure of the company depends. It also
defines the relationship of the company with the public. As the interests of the shareholders,
creditors and other members of the public are to be protected by law, this document cannot be
altered easily. It was regarded as an unalterable charter of a company in England, until the
year 1980, when the Act was amended to allow alterations in certain cases and to a certain
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extent. Section 16 of the Indian Companies Act lays down that the conditions in the
memorandum cannot be altered except in the cases and in the manner and to the extent
provided in the Act.

Contents of Memorandum of Association (Section 13):

i) Name clause: A company may have any name which is not undesirable in the view of
the Central Government. For example, the name cannot be identical or similar to the
name of another existing company. It must contain at its end, the word ‘Limited’ if it is a
public limited company or the words ‘Private Limited’ if it is a private limited company.
But companies formed for the promotion of art, science, etc., may be exempted from
adding words “Limited” or “Private Limited” as the case may be, by means of general or
special order granted by the Central Government under Section 25. Section 147(1) lays
down that the name must appear on the outside of every office or place of business in a
conspicuous manner and on all bills, notices, etc., of the company.

ii) The Situation Clause: It shows the State in which the registered office of the
company is situated.

iii) The Objects Clause: It states separately (1) the main objects and objects ancillary or
incidental to the main objects to be pursued by the company and (2) other objects. It
defines the powers of the company beyond which, the company cannot act. But it cannot
contain the objects or powers which are contrary to the provisions of the Act.

iv) The Liability Clause: It states whether the liability of the members is limited to the
extent of the nominal value of the shares or the extent of the amount guaranteed by the
members or unlimited.

v) The Capital Clause: It states the amount of the capital and the way in which it is to
be divided into shares.

vi) The Association and Subscription Clause: All the signatories of the memorandum
make a declaration that they are desirous of forming themselves into a company and that
they agree to take the number of shares mentioned against their respective names given
therein, with their addresses and occupations.

Q3. Discuss the need for the development of cyber laws.

Answer : In the 49th year of Indian independence, Internet was commercially introduced in
India. The beginnings of Internet were small and the growth of subscribers painfully slow.

However, as Internet has grown, the need has been felt to enact the relevant Cyber laws,
which are necessary to regulate Internet in India. This need for Cyber laws was propelled by
numerous factors.

Firstly, India has an extremely detailed and well-defined legal system in place. Numerous
laws have been enacted and implemented and the paramount among them is The Constitution
of India. We have various laws like Indian Penal Code, 1860, The Indian Evidence At, 1872,
The Banker’s Book Evidence Act, 1891, The Reserve Bank of India Act, 1934, The
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Companies Act, 1956, and so on. However, the arrival of Internet signaled the beginning of
the rise of new and complex legal issues. It may be pertinent to mention that all the existing
laws in place in India were enacted keeping in mind the relevant political, social, economic,
and cultural scenario of that time. Nobody then could really visualize the emergence of the
Internet. Despite the brilliant acumen of our master draftsmen, the requirements of
cyberspace could hardly be anticipated. The advancement of Internet led to the emergence of
numerous ticklish legal issues and problems, which necessitated the enactment of Cyber
Laws.

Secondly, the existing laws of India could not be interpreted in the light of the emerging
cyberspace, to include all aspects relating to different activities in cyberspace.

Thirdly, none of the existing laws gave any legal validity or sanction to the activities in
Cyberspace. For example, the Net is used by a large majority of users for email purposes.
Yet, e-mail was not “legal” in our country. There was no law in the country, which accorded
legal sanctity to e-mail and the electronic format. The judiciary in our country had been
reluctant to grant judicial recognition to the legality of e-mail in the absence of any specific
law having been enacted by Parliament on the subject. Thus the need arose for enacting
Cyber Law in our country.

Fourthly, Internet requires an enabling and supportive legal infrastructure in time with the
times. This legal infrastructure can only be given by the enactment of the relevant Cyber
Laws as the traditional laws have failed to provide it. E-commerce, the biggest future of
Internet, can only be possible if necessary legal infrastructure complements the same to
enable its vibrant growth. As such, an urgent need was felt for enacting Cyber Law in our
country. Because of the anonymous nature of Internet, it is possible to engage in a variety of
criminal activities with impunity, and people with intelligence, have been grossly misusing
this aspect of the Internet to commit criminal activities in cyberspace. The field of cyber
crime is just emerging and new forms of criminal activities in cyberspace are coming to the
forefront each day. For example, child pornography on Internet constitutes one serious cyber
crime. Similarly, online pedophiles, using Internet to induce minor children into sex, are as
much cyber crimes as any others.

Q4. What do you mean by award with reference in arbitration?

Answer : Award means an arbitral award. It is a final decision or judgement of the arbitral tribunal on
all matters referred to it. An award in order to be valid must be final, certain and must decide all the
matters referred to. An award by the arbitrator is as binding in its nature as the judgement of a court.

Arbitral award includes an interim award

There are two types of decisions to be made by the arbitral tribunal i.e. decision on the merits
of the dispute and decision on questions of procedure. Decision on merits of dispute is to be
made by the, majority of members of the arbitral tribunal but question of procedure can be
decided by the presiding arbitrator, if authorised by the parties or all members of the arbitral
tribunal. In the absence of such authorisation by the parties or other members of the tribunal,
the decision on question of procedure is also to be made by majority of members of the
arbitral tribunal. In the absence of such authorisation by the parties or other members of the
tribunal, the decision on question of procedure is also to be made by majority of members of
the arbitral tribunal. The presiding arbitrator has not been given any special power and he acts
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like any other arbitrator. All arbitrators have been given equal power irrespective of mode of
appointment.

Essentials of an Arbitral Award

Section 31 deals with the form and contents of the arbitral award. The provisions of Section
31 are discussed in the form of essentials which are as under:

1. An arbitration agreement is required to be in writing. Similarly, a reference to

arbitration and award is also required to be made in writing. The arbitral award is
required to be made on stamp paper of prescribed value. An oral decision is not an
award under the law.
2. The award is to be signed by the members of the arbitral tribunal. However, the
signatures of majority of all the members of the tribunal are sufficient if the reason for
any omitted signature is stated.
3. Unless the agreement provides otherwise, the arbitrator must give reasons for the
award. Thus, the making of an award is a rational process which is accentuated by
recording the reasons. However, there are two exceptions where award without
reasons is valid i.e.

(a) Where the arbitration agreement expressly provides that no reasons are to
be given, or

(b) Where the award has been under section 30 of the new Act i.e. where the
parties settled the dispute and the arbitral tribunal has recorded the settlement in
the form of an arbitral award on agreed terms.

4. The award should be dated i.e. the date of the making of the award should be
mentioned in the award.

5. The arbitral tribunal shall state the place of arbitration in the award.

6. The arbitral tribunal may include in the sum for which award is made, interest up to
the date of award and also a direction regarding future interest. The rate of interest shall
be eighteen per cent.

7. The award may also include decisions and directions of the arbitrator regarding the
cost of the arbitration.

8. After the award is made, a signed copy should be delivered to each party for
appropriate action.

9. The arbitral tribunal may, at any time during the arbitral proceedings, make an
interim arbitral award on any matter with respect to which it may make a final arbitral
award.
 Spring 2010(Jan-June)

Q5. How is a consumer defined in the Consumer Protection Act? Discuss.

Answer : ‘Consumer’ means any person who: (i) “Buys any goods for a consideration which
has been paid or promised, or partly paid and partly promised, or under a system of deferred
payment,” or (ii) Hires any services for a consideration which has been paid or promised, or
partly paid and partly promised, or under a system of deferred payment i.e., in respect of hire-
purchase, transactions, [Sec. 2(d)].

Thus, consumer is a person who (i) buys any goods for a consideration, or (ii) hires or avails
any services for a consideration. In addition to buyer(s) of goods or hirer(s) or user(s) of
services, any beneficiary of such services, using the goods/services with the approval of
purchaser or hirer or user would also be a deemed a ‘Consumer’ under the Act. The widow of
the deceased Policy holder was held as consumer under the Act by the State Commission of
A.P. in the case of A vs. LIC of India. The consideration may be either paid or promised, or
partly paid and partly promised or under any system of deferred payment. The Act thus
covers transactions for the supply of goods and rendering of services.

Buyer of goods for consideration: The Act, unlike the Sale of Goods Act, does not insist on
money consideration only. Transactions of transfer of services, or barter, or exchange will
come within the purview of the Act. The user of such goods, with the approval of the buyer
of goods, is also a consumer as per the Act. But according to Section 2(d) of the Act, the term
consumer does not include a person who obtains such goods for resale or for any commercial
purpose. Thus a purchaser of goods for reselling them or a purchaser of a taxi for plying the
same on hire, a purchaser of a V.C.R. for running a video library, or purchaser of machinery
for his commercial establishment is not a consumer. However, according to Consumer
Protection (Amended) Act 1993, a person who purchases tools or machinery under self-
employment scheme is also a consumer.

Hirer of services for consideration: Any person who hires services for a consideration is a
consumer. Consumer, not only means merely one who hires services for consideration, but
also includes a person who is a beneficiary of such services. For example, the user of a
telephone, even though he is not himself the subscriber is a consumer under the Act. Services
include all kinds of professional services, be it the routine services of a barber or the technical
services of a highly qualified person. For example, supply of electricity has been held to be a
service and not sale of goods. The services must be of commercial nature in the sense that
they must be on payment. The payments may be in cash or kind. It may be made either at
once, or partly at once, or partly on credit. The services may be rendered wholly or partly on
credit. However, free services or personal service under a contract have been excluded from
the protective spell of the Consumer Protection Act
 Spring 2010(Jan-June)

Q6.Undertake a survey of 20 shops and write a report on the provisions being

maintained in these shops as per the Shops and Establishments Act.

Answer : Provisions Applicable to Shops (Sections 7-11)

Opening and Closing Hours of Shops: No shop shall on any day be opened earlier or closed
later than such hours as fixed by the State Government. Any customer who was being served
or was waiting to be served in any shop at the hour fixed for its closing may be served during
the quarter of an hour immediately following such an hour. No person shall carry on, in or
adjacent to a street or public place, the sale of any goods after the hour fixed for closing of
shops dealing in the same class of goods except newspapers in that locality, i.e., selling
outside the shop is prohibited after closing hour.

Daily and Weekly Hours of Work in Shops: No person employed in any shop shall be
required or allowed to work therein for more than eight hours in any day and 48 hours in any
week. If any such persons work for any period in excess of the time limit fixed, he is entitled
to overtime wages. However, the period of work including overtime work, shall not exceed
10 hours in any day and in the aggregate 50 hours in any week. Further, he should be given
an interval for rest of at least one hour after four hours of work in any day. The spread-over
of work periods of such a person is not to exceed more than 12 hours in any including the
intervals for rest.

Closing of Shops and Grant of (Weekly and Additional) Holidays: Every shop is to
remain entirely closed on one day of the week. The shop-keeper has to specify that day in a
notice exhibited in a conspicuous place in the shop and the day so specified is not to be
altered by the shop-keeper more than once in three months. Every person employed in a shop
is to be allowed in each week a holiday of one whole day. This provision is not applicable to
any person whose period of employment, in the week including any days spent on authorised
leave, is less than six days or a person who has been allowed a whole holiday on the day on
which the shop has remained closed.

Besides one whole day, the State Government may by Notification require shops to be closed
at such hour in the afternoon of one weekday in every week. Every person employed in any
such notified shop(s) is to be allowed in each week an additional holiday of one-half day. The
State Government may, for this purpose fix different hours for different shops or different
classes of shops or for different areas or for different times of the year. There should be no
deduction of wages of any person employed in a shop on account of weekly holiday (one
whole day) and additional holiday (one-half day).