Master of Business Administration- MBA Semester 3

MB0035 – Legal Aspects of Business - 4 Credits

(Book ID: B0764)

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q1. ‘All contracts are agreements but all agreements are not contracts.’ Discuss.

According to Sec. 2 (h) - An agreement enforceable by law is a

contract. There must be an agreement to make a contract and that
should be enforceable by law.

Whereas, Agreement is defined as every promise and every set of

promises forming consideration for each other. A promise is defined as
an accepted proposal. Thus, every agreement in its ultimate analysis
is made of a proposal from one side and its acceptance by the other.

To become a contract an agreement must be enforceable by law. Sec. 10

of the act lays down the condition of enforceability. An agreement
becomes enforceable only when it is coupled with obligation. An
obligation is the legal bond, which binds the parties to a contract.
The obligations springing from agreements should be legal obligations
and not moral, social or religious obligations.

All contracts are agreements but all agreements need not be contracts.
The agreements that create legal obligations only are contracts. The
validity of an enforceable agreement depends upon whether the
agreement satisfies the essential requirements laid down in the Act.
Section 10 lays down that all the agreements are contracts if they are
made by the free consent of the parties competent to contract for a
lawful object and are not hereby expressly declared to be void.

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

Under Contractual Capacity, legal disability of the parties would

render the agreement entered into between them unenforceable in a
court of law. In fact, even a desirable person may enter into an

Page 1 of 10
agreement. Law does not infringe his freedom of making an agreement
with anybody he likes. But by declaring certain classes of persons
having no contractual capacity, law seeks to protect their interests
from being exploited by unscrupulous persons.

Section II lays down that “Every person is competent to contract who

is of the age of majority according to the law to which he is subject
and who is of sound mind and is not disqualified from contracting by
any law to which he is subject.” This section declares following
persons to be incompetent (1) Minors (2) Persons of unsound mind and
(3) Persons disqualified by law to which they are subject.

A minor is a person who has not attained the age of majority.

According to Indian Majority Act, 1875 the age of 18 years is a major.
However, if a guardian is appointed by the court or if the minor or
his property is under the supervision of a court of wards, the age of
majority is 21 years.

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

When the rights and obligations arising out of a contract are

extinguished, the contract is said to be discharged or terminated. A
contract may be discharged by breach. 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.

It can be categorized into two types: (1) Anticipatory Breach (2)

Actual 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: - 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, secondly, 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

Page 2 of 10
contract has refused to perform or disabled himself form performing,
his promise in its entirety, the promise may put an end to the
contract, unless he has signed, by words or conduct his acquiescence
in its continuance.

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.

Q4. Discuss the essentials of a 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 in 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.

There are following essentials of Contract of Guarantee:

• Tri-party Agreement – Every contract of guarantee involves three

agreements between – the creditor and principal debtor, the
surety and the creditor & the surety and the principal debtor.

There must be consent of all the three parties. For example – X

sells and delivers goods to Y. X afterwards requests Z to pay in
default of Y. Z agrees to do so. Here, Z cannot become surety
without the consent of Y.

• From – A contract of guarantee is just like any other contract

which may be either oral or in writing.

• 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.

• 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

Page 3 of 10
 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.

• 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.

• 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.

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

According to Section 12, when a promissory note, bill of exchange or

cheque is transferred to any person, so as to constitute that person
the holder thereof, the instrument is said to be negotiated. Thus
negotiation implies a transfer of negotiable instrument so as to
constitute the transferee a holder thereof, who should be entitled in
his own name to sue on the instrument and recover the amount due
thereon.

Every maker, drawer, payee or indorsee, and if there are several

makers, drawers, payees or indorsees, all of them jointly can
negotiate an instrument, provided the negotiability of such instrument
has not been restricted or excluded by any express words used in the
instrument. But the maker, drawer, payee or indorsee cannot negotiate
an instrument, unless he is in lawful possession or is holder thereof.

A negotiable instrument may be negotiated until payment or

satisfaction thereof by the maker, drawee or acceptor at or after
maturity, but not after such payment or satisfaction. Thus,
negotiability of an instrument stops only when the party ultimately
liable thereon pays it at or after maturity. It can be negotiated even

Page 4 of 10
at or after maturity if it has not been paid or satisfied. A payment
before maturity does not stop negotiability. The acceptor or maker who
receives the instrument after payment but before maturity may reissue
it.

Q6. Why do you think an agreement to take a person to moon for a holiday cannot be a
contract?
An agreement to take a person to moon for a holiday cannot be
contract. Because of acceptance whether a person is willing to accept
or not. According to Sec. 2(b) when the person to whom the proposal is
made signifies his willingness thereto the proposal is said to be
accepted. A proposal, when accepted, becomes a promise.
As in the above case, there is no willingness to accept the proposal.
Hence, there is no promise.
By accepting the offer, the acceptor expresses his willingness to be
bound by the terms and conditions of the offer. An acceptance turns
the offer into a binding obligation.

Spring 2010(Jan-June)
Master of Business Administration- MBA Semester 3

MB0035 – Legal Aspects of Business - 4 Credits

(Book ID: B0764)

Assignment Set- 2 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

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

In corporation of company, 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.

Page 5 of 10
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.

• 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 authorized by law, the nature of liability of members
as well as the names, addresses and agreement of people who agree
to form a company.

• Articles of Association – The other important document is the

articles of association which contains the rules and regulations
relating to their internal management of the company. However, it
is not necessary for a public company limited by shares to file
the Articles of Association.

• 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.

• Consent of 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 he articles, either himself or
through his agent, signed and filed, with the Registrar his
consent in writing to act as Director.

Certificate of Commencement of Business: A private company can

commence business immediately after incorporation. However, in the
case of companies other than the private company and a company having
no share capital, further requirement is to be complied with, namely,
obtaining a certificate of commencement of business before it can
commence its business.

Memorandum of Association: 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.

Page 6 of 10
Q2. Describe in detail the clauses in the Memorandum of Association.

Memorandum of Association: 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.

Clauses in the Memorandum of Association:

• 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.

• The Situation Clause: It shows the State in which the registered

office of the company is situated.

• 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.

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

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

There is a great need for the development of cyber laws. 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.

• Enables Legal recognition to Electronic Transaction / Record.

• Provides for acceptance of contract expressed by electronic

means.

• Facilitates Electronic Governance.

• Facilitates electronic filing of documents.

• Enables retention of documents in electronic form.

Page 7 of 10
 • Where the law requires the signature, digital signature satisfies
the requirement.

• Ensures uniformity of rules, regulations and standards regarding

the authentication and integrity of electronic records or
document.

• Enables interception of any message transmitted in the electronic

or encrypted form.

• Prevent computer crime, forged electronic records and so on.

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

Award means an arbitral award. It is a final decision or judgment 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 matters referred to. An award by the arbitrator is as binding in
its nature as the judgment of a court.

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 authorized by the
parties or all members of the arbitral tribunal.

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

Consumer means any person who a) Buys any goods for a consideration
which has been paid or promised, or party paid and partly promised, or
under a system a system of deferred payment. B) 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 ie. In respect
of hire-purchase, transactions.

Thus, consumer is a person who a) buys any goods for a consideration,

or b) hires or avails any services for a consideration.

Page 8 of 10
Consumer protection act, 1986 seeks to provide for better protection
of the interests of consumers. This act seeks, inter alia, to promote
and protect the basic rights of consumers such as:

• Right to be informed about quality, quantity, potency, purity,

standard and price of goods to protect the consumers against
unfair trade practices.

• Right to choose – The right to be assured, wherever possible,

access to a variety of goods at competitive prices.

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.

A detailed survey of 20 shops was undertaken and following provisions

were observed in these shops as per the shops and establishment act:

• Opening and Closing Hours of Shops : No shops 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 or an hour immediately following such
an hour.

• Employment of Children and Young Persons: They are allowed to

work only between 6 a.m. and 7 p.m. Young persons are not allowed
to work for more than 7 hours in any day and 40 hours in any
week. There are also not allowed to work overtime.

• Cleanliness, Ventilation, Light and Precautions against Fire: The

premises of every establishment should be kept clean by lime
washing. Colour washing, painting, varnishing, disinfecting and
deodoring. Proper ventilation and sufficient lighting should also
be provided in accordance with such standards and by such methods
prescribed by the Inspector Precautions against fire should be
provided as prescribed.

• 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

Page 9 of 10
 persons work for any period in excess of the time limit fixed, he
is entitled to overtime wages.

Thus, we see the provisions followed by them are in accordance with

the as per the Shops and Establishments Act.

Page 10 of 10