Ans 1) (Chapter 1)

The words proposal and offer are synonymous and are used interchangeably.
[Section 2(a)] of the Indian Contract Act defines a proposal as when, one person
signifies to another his willingness to do or to abstain from doing anything, with a
view to obtaining the assent of that other to such act or abstinence, he is said to
make a proposal. The following are the three essentials of a proposal:
(i)

It must be an expression of the willingness to do or to abstain from doing

something.

(ii)

The expression of willingness to do or to abstain from doing something must

be to another person. There can be no proposal by a person to himself.

(iii) The expression of willingness to do or to abstain from doing something must

be made with a view to obtaining the assent of the other person to such act or
abstinence.
The person making the proposal or offer is called the promisor or offeror,
the person to whom the offer is made is called the offeree, and the person
accepting the offer is called the promisee or acceptor.
Legal Rules Regarding a Valid Offer
A valid offer must be in conformity with the following rules:
1.

An offer may be express or implied: An offer may be made either in

words or by conduct. An offer which is expressed in words, spoken or written, is

called an express offer and the one which is inferred from the conduct of a
person or the circumstances of the case is called an implied offer.
2.

An offer must be capable of creating legal relations: If the offer does not
intend to give rise to legal consequences, it is not a valid offer in the eye of the
law. In social agreements or domestic arrangements, the-presumption is that
the parties do not intend legal consequences to follow the breach of
agreement. But in the case of agreements regulating business transactions the
presumption is just the other way. In business agreements it is taken for
granted that parties intend legal consequences to follow.

3.

The terms of the offer must be certain and not loose or vague: If the
terms of the offer are not definite and certain, it does not amount to a lawful
offer Unless all the material terms of the contract agreed, there is no binding
obligation.

4.

An invitation to offer is not an offer: In the case of an invitation to receive

an offer, the person sending out the invitation does not make an offer but only
invites the other party to make an offer. His object is merely to circulate
information that he is willing to deal with anybody who, on such information, is
willing to open negotiations with him. Such invitations for offers are therefore
not offers in the eye of the law and do not become agreements by their
acceptance. Likewise, quotations, catalogues of prices or display of goods with
prices marked thereon do not constitute an offer.

5.

An offer may be specific or general: An offer is said to be specific

when it is made to a definite person or persons. Such an offer can be accepted
only by the person or persons to whom it is made. A general offer, on the
other hand, is one which is made to the world at large or public in general and
may be accepted by any person who fulfils the requisite conditions. [Carlill vs
Carbolic Smoke Ball Co.]

6.

An offer must be communicated to the offeree: An offer is effective only

when it is communicated to the offeree. Until the offer is made known to the
offeree, there can be no acceptance and no contract. Doing anything in
ignorance of the offer can never be treated as its acceptance, for, there was
never a consensus of wills. This applies to both specific and general offers.

7.

An offer should not contain a term the non-compliance of which would

amount to acceptance: Thus an offeror cannot say that if acceptance is not
communicated up to a certain date, the offer would be presumed to have been
accepted. If the offeree does not reply, there is no contract, because no
obligation to reply can be imposed on him, on the grounds of justice.

8.

An offer can be made subject to any terms and conditions. An offeror

may attach any terms and conditions to the offer he makes. He may even
prescribe the mode of acceptance. The offeree will have to accept all the terms
of the offer. There is no contract unless all the terms of the offer are complied
with and accepted in the mode prescribed.

9.

Two identical cross-offers do not make a contract: When two parties

make identical offers to each other, in ignorance of each others offer, the
offers are cross-offers. Cross-offers do not constitute acceptance of ones
offer by the other and as such there is no completed agreement.

Lapse and revocation of offer

An offer lapses and becomes invalid (i.e., comes to an end) in the following
circumstances:
1.

An offer lapses after a stipulated or reasonable time: An offer lapses if

acceptance is not communicated within the time prescribed in the offer, or if
no time is prescribed, within a reasonable time [Sec. 6 (2)]. Reasonable time
depends upon the circumstances of each case.

2.

An offer lapses by not being accepted in the mode prescribed: An offer

lapses by not being accepted in the mode prescribed, or if no mode is
prescribed, in some usual and reasonable manner. But, according to (Section
7), if the offeree does not accept the offer according to the mode prescribed,
the offer does not lapse automatically. It is for the offeror to insist that his
proposal be accepted only in the prescribed manner, and if he fails to do so he
is deemed to have accepted the acceptance.

3.

An offer lapses by rejection: An offer lapses if it has been rejected by the

offeree. The rejection may be express, i.e., by words spoken or written, or
implied. Implied rejection is one: (a) where either the offeree makes a counter
offer or (b) where the offeree gives a conditional acceptance.

4.

An offer lapses by the death or insanity of the offeror or the offeree

before acceptance: If the offeror dies or becomes insane before acceptance,
the offer lapses provided that the fact of his death or insanity comes to the
knowledge of the acceptor before acceptance [Sec. 6(4)1. An acceptance in
ignorance of the death or insanity of the offeror is a valid acceptance, and
gives rise to a contract. Thus the fact of death or insanity of the offeror would
not put an end to the offer until it comes to the notice of the acceptor before
acceptance.

5.

An offer lapses by revocation: An offer is revoked when it is retracted by the

offeror. An offer may be revoked, at any time before acceptance, by the
communication of notice of revocation by the offeror to the other party [Sec. 6
(1)].

6.

Revocation by non-fulfillment of a condition precedent to acceptance:

An offer stands revoked if the offeree fails to fulfill a condition precedent to
acceptance [Sec. 6(3)].

7.

An offer lapses by subsequent illegality or destruction of subject

matter: An offer lapses if it becomes illegal after it is made, and before it is
accepted. An offer may lapse if the substance, which is the subject matter of
the offer, is destroyed or substantially impaired before acceptance.

Ans 1) (Chapter 1)
Definition:
Literally: Void means having no legal value and agreement means
Arrangement, promise or contract made with somebody. So void agreement
means an agreement that has no legal value.
Traditionally: An agreement not enforceable by law is said to be void. [Sec
2(g)]
A void agreement has no legal effect. An agreement which does not satisfy the
essential elements of contract is void. Void contract confers no rights on any
person and creates no obligation.
Example of void agreement: An agreement made by a minor, agreement
without consideration, certain agreements against public policy etc.
Agreement which become void:
An agreement, which was legal and enforceable when it was entered in to, may
subsequently become void due to impossibility of performance, change of law
or other reason. When it become void the agreement ceases to have legal
effect.
EXPRESSLY DECLARED VOID AGREEMENT
There are certain agreements, which are expressly declared to be void.
They are as follows:
(1)
Agreement by a minor or a person of unsound mind.[Sec(11)]
(2)
Agreement of which the consideration or object is unlawful[Sec(23)]
(3)
Agreement made under a bilateral mistake of fact material to the
agreement[Sec(20)]
(4)
Agreement of which the consideration or object is unlawful in part and
the illegal part can not be separated from the legal part [Sec(24)]
(5)
Agreement made. without consideration.[Sec(25)]
(6)
Agreement in restraint of marriage [Sec(26)]
(7)
Agreement in restrain of trade [Sec(27)]
(8)
Agreement in restrain of legal proceedings[Sec(28)]
(9)
Agreements the meaning of which is uncertain [Sec(29)]
(10) Agreements by way of wager [Sec(30)]

(11)
(12)

Agreements contingent on impossible events [Sec(36)]

Agreements to do impossible acts [Sec(56)]

Some discussions on void agreement are as follows:

(1) Agreement by a Minor Or a Person of Unsound MindA person who has not completed his or her 18 years of age signifies as minor.
Law acts as the guardian of minors and protects their rights, because their
mental facilities are not mature- they do not possess the capacity of judge
what is good and what is bad for them. Accordingly, where is a minor charged
with obligations and the other contracting party seeks to enforce those
obligations against the minor, the agreement is deemed as void.
A person who does not possess a sound mind or whose mental powers are not
arranged or whose mental condition is not under his or her own control. Any
agreement by person of unsound mind is absolutely void because he has no
capacity to judge, what is good and what is bad for him.
Illustration
(a) A, 15 years old boy, made an agreement with B to give him Tk.1000. This
is a void agreement.
(b) A mentally disordered man made an agreement with X to marry her, but
this is not a valid agreement.
(2) Agreement Made Without ConsiderationAn agreement made without consideration is void, unless
1) it is expressed in writing and registered under the law for the time being
enforce for the registration of(documents), and is made on account of natural
love and affection between parties standing in a near relation to each other; or
unless.
2) It is a promise to compensate, wholly or in part, a person who has already
voluntarily done something for the promisor, or something which the
promissory was legally compellable to do, or unless.
3) It is a promise, made in writing and signed by the person to be charged
therewith, or by his agent generally or specially authorized in the behalf, to
pay wholly or in part a debt of which the creditor might have enforced
payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract.
Explanation 1Nothing in this section shall affect the validity, as between the
donor and donee, of any gift actually made.
Explanation 2- An agreement to which the consent of the promisor is freely
given is not void merely because the consideration may be taken into account

by the court in determining the question whether the consent of the promisor
was freely given.
Illustrations
a) A promises for no consideration, to give to B Rs. 1000; this is a void
agreement.
b) A, for natural, love and affection, promises to give his son, B Rs. 1000. A
puts his promise to B into writing and registers it. This is a contract.
c) A finds be Bs purse and gives it to him. B promises to give A Rs. 50. This
is a contract.
d) A supports Bs infant son. B promises to pay As expenses in so doing.
This is a contract.
(3) Agreements in Restraint of MarriageEvery individual enjoys the freedom to marry and so according to section 26
of the contract act every agreement is restraint of the marriage of any
person, other than a minor, is void. The restraint may be general or partial
but the agreement is void, and therefore, an agreement agreeing not to marry
at all, or a certain person or, a class of persons, or for a fixed period, is void.
However, an agreement restraint of the marriage of a minor is valid under the
section.
It is interesting to note that a promise to marry a particular person does not
imply any restraint of marriage and is, therefore, a valid contract.
This section enact that agreement in restraint of the marriage of any person,
other than a minor is void. In the interest of the society, contracts for marriage
are scrutinized with a close and vigilant suspicion of undue influence, fraud or
imposition. The law presumes constrictive fraud, on grounds of public policy, in
agreements respecting marriages since marriages of a suitable nature are of
the deepest importance of the wellbeing of the society, as upon the equality
and mutual affection much of their happiness, sound morality, and mutual
confidence, hence every temptation of the exercise often undue influence, or a
seductive interest in procuring a marriage is suppressed, for there is infinite
danger that it may, under the guises of friendship, confidence, flattery or
falsehood, accomplish the ruin of person especially females. So the law
(a) prevents improvident, ill-advised, and often fraudulent matches;
(b) Avoid all such contracts as tend to the deceit and injury, or encourage
artifices and improper attempts to control the exercise of free judgment;
(c) Discountenances secret contracts made with prevents and guardians,
whereby on a marriage, they to receive a benefits
(d) Renders invalid certain agreements in restraint of marriage.
Illustrations

(a) A agrees with B for good consideration that she will not marry C. It is a
void agreement.
(b) A agrees with B that she will marry him only; it is a valid contract of
marriage.
(4) Agreement in Restraint of TradeThe constitution of India guarantees that the freedom of trade and commerce
to every citizen and therefore section 27 declares every agreement by which
any one is restrained from exercising a lawful profession, trade or business of
any kind, is to that extent void. Thus no person is at livery to deprive himself
of the fruit of his labor, skill or talent, by any contracts that he enters into.
It is to be noted that whether restraint is responsible or not, if it is in the nature
of restraint of trade, the agreement is void always, subject to certain
exceptions provided for statutorily.
Illustration
An agreement whereby one of the parties agrees to close his business in
consideration of the promise by the other party to pay a certain some of
money , is void, being an agreement is restraint of trade, and the amount is
not recoverable, if the other party fails to pay the promised some of money.
(Mad hub Chander vs. Raj Kumar).
But agreements merely restraining freedom of action necessary for the
carrying on of business are not void, for the law does not intend to take away
the right of a trade to regulate his business according to his own discretion and
choice.
Illustration
An agreement to sell all produce to a certain party, with stipulation that the
purchaser was bound to accept the whole quantity, was held valid because it
aimed to promote business did not restrained it (Mackengie vs. Striramiah).
But where in a similar agreement the purchaser was free to reject the goods
(i.e. was not bound to accept the whole quantity tendered) it was held that the
agreement was void as being in restraint of trade (Sheikh Kalu vs. Ram Saran)
(5) Agreement in restraint of legal proceedingsEvery agreement, by which any party thereto is restricted absolutely from
enforcing his right under or in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits the time within which he
may thus enforce his rights, is void to that extent. Section 28 declares the
following two kinds of agreements void:
(a) An agreement by which a party is restrained absolutely from taking usual

legal
Proceeding, in respect of any rights arising from a contract.
(b) An agreement which limits the time within which one may enforce his
contract
Rights, without to the time allowed by the limitation act.
Illustration
In a contract of fire insurance, it was provided that if a claim is rejected and a
suit is not filed within three months after such rejection, all benefits under the
policy shell be forfeited. The provision was held valid and binding and the suit
filed after three months was dismissed. (Baroda spinning Ltd. vs. Satyanarayan
Marine and Fire Ins. Com. Ltd.)
Exception 1: This section shell not render illegal a contract by which two or
more persons agree that any dispute which may arise between them in respect
of any subject or class of subjects shell be referred to arbitration and that only
the amount awarded in such arbitration shell be recoverable in respect of the
dispute so referred.
Exception 2: Nor shell this section render illegal any contract in writing, by
which two or more persons agree to refer to arbitration any question between
them which has already arisen, or affect any provision of any law in force for
the time being as to references to arbitration.
(6) Uncertain AgreementsAgreements, the meaning of which is not certain, or capable of being made
certain, are void (Sec-29). Through Sec-29 the law aims to ensure that the
parties to a contract should be aware of the precise nature and scope of their
mutual rights and obligation under the contract. Thus, if the word used by the
parties are or indefinite, the law cannot enforce the agreement.
Illustration
(a) A agrees to sell to B a hundred tons of oil. There is nothing whatever to
show what kind of oil was intended. The agreement is void for uncertainty.
(b) A who is dealer in coconut oil only, agrees to sell to B a hundred tons if
oil. The nature of As trade affords an indication of the meaning of the words,
and A has entered into a contract for the sale of one hundred toms of coconut
oil.
(c) A agrees to sell to B one thousand mounds of rice at a price to be fixed
by C. As the price is capable of being made certain, there is no uncertainty
here to make the agreement void.
(d) A agrees to sell to his white house for rupees five hundred or rupees
one thousand. There is nothing to show which of the price was to be given.
The agreement is void.

Further, an agreement to enter into an agreement in future is void for

uncertainty unless all the terms of the proposed agreement are agreed
expressly or implicitly. Thus, an agreement to engage a servant some time
next year, at a salary to be mutually agreed upon is a void agreement.
(7) Wagering AgreementLiterally the word wager means a bet something stated to be lost or won on
the result of a doubtful issue, and, therefore, wagering agreements are nothing
but ordinary betting agreements. Thus where A and B mutually agree that if it
rains today A will pay B Tk.100 and if it does not rain B will pay A Tk.100 or C
and D entered into agreement that on tossing up a coin, if it fall head upwards
C will pay D Tk.50 and if falls tail upwards D will pay C Tk.50, there is a
wagering agreement.
In Tracker vs. Hardy Cotton, L.J., described a wager ad follows: The essence
of gaming and wagering is that one party is to win and the other to lose upon a
future event which at the time of the contract is of an uncertain nature- that is
to say, if the event turns out the other way he will win.
Agreement by way of wager, void. Section 30 lays down that agreements by
way of wager are void; and no suit shell be brought for recovering anything
alleged to be won on any wager, or entrusted to any person to abide the result
of any game or other uncertain event on which any wager is made, Thus,
where A and B enter into an agreement which provides that if Englands cricket
team wins the match, A will pay B Rs. 100, and if it loses B will pay Rs. 100 to
A, nothing can be recovered by the winning party under the agreement, it
being a wager. Similarly, whether C and D enter into a wagering agreement
and each deposits Rs.100 with Z instructing him to pay or give the total sum to
the winner, no suit can be brought by the winner for recovering the bet amount
from Z, the stake-holder. Further, if Z had paid the sum to the winner, the
looser cannot bring a suit, for recovering his Rs.100, either against the winner
or against, the stake-holder, even if Z had paid after the losers definite
instructions not to pay. Of course the looser can recover back his deposit if he
makes the demand before the stake-holder had paid it over to the winner
(Ratnakalli vs. Vochalapu). But even such a deposit cannot be recovered by a
loser in the States of Maharashtra and Gujarat where such an agreement is
void and illegal.
(8) Agreement Contingent on Impossible EventsContingent agreements to do or not to do anything if an impossible event
happens are void, whether the impossibility of the event is know on not to the
parties to thr agreement at the time when it is made. (Sec. 36)

Illustration
(a) A agrees to pay B Rs.1000 (as a loan) if two straight line should enclosed
a space. The agreement is void.
(b) A agrees to pay B Rs.1000 (as a loan) if B will marry As daughter, C. C
was dead at the time of the agreement, the agreement is void.
(9) Agreements to do Impossible ActAn agreement to do an act impossible in itself is void. (Sec, 56 Part-1)
Illustration
(a) A agrees with B to discover treasure by magic. The agreement is void.
[Section 56].
(b) A agrees with B to run with a speed of 100 Kilometer per hour. The
agreement is void

Ans. 2) (Chapter 4)

CONDITIONS AND WARRANTIES

Conditions

A representation which is subsequently made part of the contract ceases to be a representation

and becomes something more, viz., a promise that such a thing is or shall be. Anson, Contract,
15th ed., 1920,p. 182.
The question then arises whether this representation, which has ceased to be a mere
representation, and has become a term of the contract, is a condition or is a warranty.
A "warranty" is defined in the Sale of Goods Act (Ont. s. 2; U. K. s. 62) as meaning:
An agreement with reference to goods which are the subject of a contract of sale, but collateral to
the main purpose of such contract, the 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. An earlier definition is that of
Lord Abinger in Chanter v. Hopkins, 1838, 4M. & W. 399, at p. 404:
A warranty is an express or implied statement of something which the party undertakes shall be
part of a contract; and, though part of the contract, yet collateral to the express object of it. A

"condition" is not defined in the statute. A condition is a term which is "of the essence" of the
contract or, in other words, which is " regarded by the parties as a vital term going to the root of
the contract."
Anson, op. cit., pp. 183, 186.
A valuable note as to the terms "condition" and "warranty," with quotations from many sources,
is contained in Chalmers, Sate of Goods, 7th ed. 1910, pp. 191 ff.
In Wallis v. Pratt, in a judgment which was approved by the House of Lords, ([1911] A.C. 394),
Fletcher Moulton L.J. said ([1910] 2 K.B. 1003, at p. 1012):
A party to a contract who has performed, or is ready and willing to perform, his obligations
under that concract is enabled to the performance by the other contracting part of all the
obligations which rest upon him. But from a very early period of our law it has been recognized
that such obligations are not all of equal importance. There are some which go so directly to the
substance of the contract or, in other words, are so essential to its very nature that their nonperformance may fairly be consi-derel by the other party as a substantial failure to perform the
contract at all. On the other hand there are other obligations which, though they must be
performed, are not so vital that a failure to perform them goes to the substance of the contract,
Both classes are equally obligations under the contract, and the breach of any one of them
entitles the other party to damages. But in the case of the former class he has the alternative of
treating the contract as being completely broken by the non-performance and (if he takes the
proper steps) he can refuse to perform any of the obligations resting upon himself and sue the
other party for a total failure to perform the contract. Although the decisions are fairly consistent
in recognizing this distinction between the two classes of obligations under a contract there has
not been a similar consistency in the nomenclature applied to them. I do not, however, propose to
discuss this matter, because later usage has consecrated the term "condition" to describe an
obligation of the former class and "warranty" to describe an obligation of the latter class.
The Sale of Goods Act (Ont. s. 13; U.K. s. 11) provides: 13 - (2) Whether a stipulation in a
contract of sale is a condition, the breach of which may give rise to a right to treat the contract as
repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a
right to reject the goods and treat the contract as repudiated, depends in each case on the
construction of the contract. A stipulation may be a condition, though called a warranty in the
contract.
In Bentsen v. Taylor, [1893] 2 Q.B. 274, at p. 281, Bowen L.J. said:
Of course it is often very difficult to decide as a matter of construction whether a representation
which contains a promise, or which can only be explained on the ground that it is in itself a

substantive part of the contract, amounts to a condition precedent, or is only a warranty. There is
no way of deciding that question except by looking at the contract in the light of the surrounding
circumstances, and then making up one's mind whether the intention of the parties, as gathered
from the instrument itself, will best be carried out by treating the promise as a warranty sounding
only in damages, or as a condition precedent by the failure to perform which the other party is
relieved of his liability. In order to decide this question of construction, one of the first things
you would look to is, to what extent the accuracy of the statement - the truth of what is promised
- would be likely to affect the substance and foundation of the adventure which the contract is
intended to carry out.
Examples of conditions:
Behn v. Burness, 1863, 3 B. & S. 751, 6 R.C. 492 (vessel "now in the port of Amsterdam").
Varley v. Whipp, [1900] 1 Q.B. 513 (reaping machine described as new the previous year and as
having been used to cut only 50 or 60 acres) ; as to this case see 56.
Fisher, Reeves & Co. v. Armour & Co., [1920] 3 K.B. 614 (goods "ex store Rotterdam").
Examples of warranties:
New Hamburg Mfg. Co. v. Webb, 1911, 23 O.L.R. 44 (" rebuilt" engine).
Cameron v. McIntyre, 1915, 35 O.L.R. 206, 26 D.L.R, 638 (promise to give a written warranty
that horse sound).
Hart-Parr Co. v. Wells, 1918, 47 Can. S.C.R. 344, 43 D.L.R. 686, affirming 11 Sask. L.R. 132. 40
D.L.R. 169 (warranty of good material and certain horse-power capacity) .
Case Threshing Machine Co. v. Mitten, 1919, 59 Can. S.C.R. 118, 49 D.L.R. 30, reversing l2
Sask. L.R. 1, 44 D.L.R. 40 (warranty excluded by terms of contract).
In the United Kingdom the definition of warranty already quoted (Ont. s. 2; U. K. s. 62) applies
only to England and Ireland; and the Sale of Goods Act U. K. s. 62) provides. As regards
Scotland, a breach of warranty shall be deemed to be a failure to performa material part of the
contra 2t. The statute further provides (U. K s. 11 (2) ) :
11. - (2) In Scotland, failure by the seller to perform any material part of a contract of sale is a
breach of contract, which entitles the buyer either within a reasonable time After delivery to
reject the goods and treat the contract as repudiated, or to retain the goods and treat the failure to
perform such material part, as a breach which may give rise to a claim for compensation or
damages.

In the United States the use of the terms "condition" and " warranty" is different from their use in
the Sales of Goods Act. In the latter statute the terms indicate two kinds of stipulations or
promises - the performance of a condition being essential, and its breach therefore giving rise to
the right to repudiate the contract, the performance of a warranty not being essential, and its
breach therefore merely giving rise to a claim for damages. In the Uniform Sales Act, on the
other hand, this distinction is obliterated, both kinds of promises being designated warranties,
and the right to rescind the-contract and reject the goods being allowed for breach of warranty.
The term "condition" is apparently used in the narrower sense of a term by which the obligation
of either of the parties is made subject to the happening of a contingency or event, and not as
including a promise, the performance of which is essential. See 54, where the relevant provisions
of the Uniform Sales Act are quoted.

WARRANTY
A warranty is denned as the collateral agreement, that is annexed to the agreement transferring
the property right in the thing sold, by which warranty, the seller vouches for, either expressly or
impliedly, the title, the condition and the quality of the subject matter of the sale. An express
warranty is an express or positive declaration or assertion made by the seller, relating to some
fact respecting the thing sold, which statement may be taken by the buyer as true, and one on
which there is an obligation on which he may hold the vendor. A representation is the statement
that precedes the agreement of sale, on which the contract of sale is founded, and if the
representation is relied on, it is the inducement of the contract. A false representation may, if it
amounts to fraud, give the injured party the right to rescind the contract itself, or hold the other
party in damages for its breach.
A warranty is likewise to be distinguished from condition. If there is a condition which forms the
basis of the contract, and the condition be broken, the contract is at an end. A breach of warranty
does not bring the contract to an end; it merely gives a right in damages for the breach.
A warranty may arise without the vendor of goods using the word warranty, no particular words
are necessary to bind the vendor, but any language used from which a warranty might be inferred
is sufficient.1
1 Stone vs. Denny, 4 Metc. (Mass.), 151.
The warranty need not be in writing. The decision as to whether a warranty exists or not may be
one of law or fact. Where it is a question of fact, as to whether or not the representation is made,
then the solution of the question in a law suit, is one for the jury,2 under instructions from the

court, but where the facts are not in dispute or the statement is a written one, the question is one
for the court

SECTION 18. WARRANTY

With every contract of sale is the collateral agreement of warranty, which may be either express
or implied, but since the warranty is always auxiliary to the main contract which transfers the
title in the goods, whatever defeats the original contract, likewise terminates the contract of
warranty. A warranty is to be distinguished from statements or representations which are the
basis or inducement of the contract. A false representation may make the contract voidable, a
breach or warranty could not affect the validity of the original contract. In other words, a
warranty cannot exist without the original contract of which it is annexed,4 but the existence of
the contract is not affected by the warranty.
The distinction between representation is well made in the well known old case of Hopkins vs.
Tan-query.5 The defendant had sent a horse to a sale to be sold; before the horse was sold the
plaintiff kneeled down and was examining the horse's legs; thereupon the defendant told the
plaintiff that it was unnecessary, that the horse was perfectly sound in every way. The plaintiff
desisted from further examination and said he was satisfied, and the following day, on the sale
the plaintiff bought the horse, no warranty being made, but the plaintiff, acting on the
representation of defendant previously made, bought the horse. The horse proving unsound, the
plaintiff instituted this action. It was held that the statement made in reference to the horse's
condition did not constitute a warranty, and further that the plaintiff could not recover since it
appeared that the defendant acted in good faith.

Difference Between Condition and Warranty:

Ans 2) Chapter 6
(a) Service:
Section 2 (1) (0)provides that Service means service of any description which is made
available to potential users and includes the provision of facilities in connection with banking,
financing, insurance, transport, processing, supply of electrical or other energy, boarding or
lodging or both, housing cohstruction, entertainment, amusement or the purveying of news or
other information, but does not include the rendering of any service free of charge or under a
contract of personal service.

b) Defects in Goods:

Defect
According to Section 2(1) (c), Cbnsumer Protection Act, 1986, as amended hy the Amendment
Act, 1993, a 'defect' means any 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 js claimed by the trader in any
manner whatsoever in relation ta anygoods.
A ration shop s~pplieda ration$-holder napwe& oil adulterated with known toxic
adulterants. The complainant, an#his family, as result of that rapeseed oil consumption
suffered severely. He was attacked with paralysis of lower limbs and inspite of prolonged
treatment he did not recover fully. His wife, inspite of medical treatment, was not able to carry
on her ordinary avocation as housewife because of ailment. His two daughters and a son, all
growing children were also affected and medical report was that they had severe attack. Their
educational carrier was doomed. Considering all these facts, the Commission awarded a sum of
Rs. 1,50,000/- to the complainant and Rs. 50,0001- for his wife and Rs. 25,0001- to each of the
children resulting in awarding of toal of Rs. 2,75,000/- (Barsad Ali vs. ~ a h a ~ i Dn igre ctor,
West Bengal Essential Commodities Supplies Corp. 1993, CCJ 476).

c) Deficiency
parallel to 'defect' in case of goods, 'deficiency' is relevant in case of services. The expression
in defined under Section 2(1) (g) of the Consumer Protection Act, 1986. It ineans any 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 otherwise
in relation to any service.
A number of judicial decisions on deficiency of service are available. Some of these are being
given here under:
I) Maina Devi Bairalia v. Life Insurance Corporatidn of Iadia (decided by the National
Commisison on 11 S.1993). In this case, Maina Devi's husband took a life insurance policy for
Rs. 50,000. Before the second premium fell due, he died due to sudden illness. The claim made
by Smt. Maina Devi, the widow of the insured, was not entertained for as long as 14 years. It
was only when she got her miseries published in newspapers and certain MPs took up thc
matter in Parliament that she was sent a cheque for Rs. 50,310.
On a suit before National Commission, it was held that the Corporation had been highly
negligent in the performance of its services. Smt. Maina Devi, the complainant, had suffered
hardship and loss on account of deficiency in service. She was held entitled to interest a 12 p.a.
from the date of expiry of 3 months from the date of death of assured till the amount was paid
to her. The Commission also awarded her compensation Rs. 15,000 for mental torture and
harassment.
2) Telecom District Manager v. Umesh Chandra Patnaik (decided on 15.3.1993). In this case,
the complainant had alleged that he was not receiving telephone bills regularly and therefore on
account of non-payment of some bills his telephone had been disconnected.
Held, in the absence of any provision'in the Telegraph Act, on the basis of the rules requiring
that telephone bills should be despatched by registered post, the Department could not be said
to have committed any deficiency in service.
3) Skypack Couriers Pvt. Ltd. &Another v. MIS. Anupama Bagla (1992). In this case, nondelivery
o l a vidco cassette by a courier service company resulting in the complainant losing ,
admission to the desired college was held to be 'deficiency' in service as the conlplainant was
put to serious hardship and loss by reason of the neglect and failure on the part of the courier to
deliver the article entrusted to them for carriage. Accordingly, compensation of Rs. 10,000 was .
warded to the complainant.
4) In Lucknow Development Authority v. Roop Kishore Tandon (1990), the failure on the

part of a Housing Board to glve possession of the flat after receiving the price and after
registering it in favour of the allottee was held to be deficiency in service.
5) Airpak Couriers (India) Pvt. Ltd. V. S. Suresh (decided on 11.3.1993). A consignment of
important papers was handed over to the courier MIS. Airpak Couriers Pvt. Ltd. The.
consignment did not reach its destination. The State Commission held it to be a case of
deficiency in service and granted a compensation of Rs. 1 lakh for the loss.
In appeal, the appellant contended that the consignor agreed to the terms and conditions of the
courier that its liability was limited and restricted to Rs. 100 only, that according to IAT9
regulations no important documents were to be sent through courier service and since the
consignment was lost in transit, they were liable to the extent of Rs. 100 only as damages. The
consignor was bound to disclose the nature of contents before sending the consignment and the
value of the consignment was not specially stated in the column assigned for it in the
consignment note.
d

Held, if the documents which were sent were of great value, the consignor ought to have
insured them. No such sep was taken nor was its value disclosed in the consignment note. It
was not clear why the consignor could not have sent duplicate copies of the lost documents
when the loss came to light.
The compensation awarded by the State Commission was not justified. Since there had been
deficiency of service, a sum of Rs. 100 only was awarded.
6) Indian Oil Corporation Ltd. v. Venkataraman (decided on 18.12.1992). In this case, the
State Commission as well as the National Commission held that the supply of a gas cylinder
with a defective value and the failure of the distributor's supplyman to check the defect at the
time of delivery amounted to deficiency of service. Accordingly, the Indian Oil Corporation
was held liable to compensate for loss of life and injury resulting from fire caused by the
leakage from the defective value. A sum of Rs. 1,50,000 was awarded.
7) State Bank of India v. N. Raveendran Nair (decided on 3.8.i992). A demand draft of
Rs. 98,000 was issued by the State Bank of Travancorc on the State Bank of India, Surat. When
presented at the drawee branch, the payment was refused on the ground that under the
signature of one of the persons signing the draft, (accountant), the capacity to which he signed
the same was not mentioned. Held, the refusal amounted to deficiency in service and the bank
should be held liable for the inconvenience and consequent loss to the payee of the draft.

Ans 3) (Chapter 3)

The Meaning and Definition of Partnership

A partnership is an association of two or more persons to carry on, as co-owners, a
business and to share its profits and losses. The persons who own the business are
individually called partners and collectively called partnership firm. A business
enterprise entered into for profit which is owned by more than one person each of
which is a "partner." A partnership may be created by a formal written agreement,
but may be based on an oral agreement or just a handshake. Each partner invests a
certain amount (money, assets and/or effort) which establishes an agreed-upon
percentage of ownership, is responsible for all the debts and contracts of the
partnership even though another partner created the debt or entered into the
contract, has a share in management decisions, and shares in profits and losses

according to the percentage of the total investment. Often a partnership agreement

may provide for certain division of management, shares of investment, profit,
and/or rights to buy out a partner upon leaving the partnership or death. Each
partner owes the other partners a duty of full disclosure of information which affects
the business and cannot commandeer for himself/herself business opportunities
which rightfully belong to the partnership. A partnership which does business under
a trade name must file with the county or state a certificate of "doing business
under a fictitious name" which gives notice to the public of the names of partners
and the business address. A "limited partnership" limits the responsibility for debts
beyond the investment to the managing "general partners." The investing "limited
partners" cannot participate in management and are limited to specific percentages
of profit. A partnership differs from a "joint venture," which involves more than one
investor for only a specific short-term project and prompt division of profits.
Partnerships are traditionally the most fragile of business arrangements and are
often dissolved and subject to disputes.
John A, Shubin "Two or more individuals may form a partnership by making a
written or oral agreement that they will jointly assume full responsibility for the
conduct of business". According to Shubin two or more persons join together to
share business responsibility. The liability part is mainly given as a base of
partnership.
L.H. Haney "The relationship between persons who agree to carry on a business in
common with a view to private gain". Haney has given more emphasis on sharing of
gains. The coming together of persons to share the gains of a business is called
partnership.
Kimball and Kimball "A partnership firm as it is often called, is then a group of
men who have joined capital or services or the prosecution of some enterprise".
The bringing together of financial resources and services by persons for carrying on
some work has been called partnership in this definition. One person may contribute
money, the other may provide service, meant to carry on an enterprise.
Willian R. Spriegal "Partnership has two or more members, each of whom is
responsible for the obligation of the partnership. Each of the partners may bind the
others and the assets of the partners may be taken for debts of partnership".
Spriegal has given a broad-based definition of partnership. Besides relationship of
two or more persons, partnership gives implied authority to partners to bind the
firm for their acts. The business liabilities cannot only be recovered from business
property but also form partners' assets. This brings in the unlimited liability aspect
of partnership into picture.
English Partnership Act, 1690 "Partnership is the relation which subsists
between persons carrying on a business in common with a view of profits.

Essentials of Partnership
The main features of partnership are given below:
1.

Relationship: Partnership is the abstract relationship between partners.

2.

Agreement: There must be agreement between the parties concerned. This is

the most important characteristics of partnership. Without agreement
partnership cannot be formed. "No agreement no partnership." But only
competent persons are entitled to make a contract. There are some provisions
contained in the partnership agreement. These are determined clearly before
the commencement of business. But it differs from business to business. This
documents may be written or oral. But it must be written so that disputes may
be settled according to the provisions of agreement. It contains details relating
to:

name of the firm and the names of the partners,

nature and place of business,

the date of commencement and the duration of partnership,

capital and banking account,

sharing of profits and losses,

management,

accounts

arbitration etc.

3.

Number of partnership: There should be more than one person to form a

partnership. But there is restriction for the maximum number of partners. In
case of ordinary business, the partners must not exceed 20 and in case of
banking must not exceed 10 (before nationalization).

4.

Business: The object of the formation of partnership is to carryon any type of

business. It may be manufacturing or merchandise type small or large scale
business. But it should not be illegal business in the country concerned.

5.

Profit motive: The basic motive of the formation of partnership is to earn

profit. This profit is distributed among the partners according to agreed
proportion. If there is loss it will be sustained by all partners except the minor.

6.

Conduct of business: The business of partnership is conducted by all the

partners or any of them acting for all. But each partner is allowed to
participate in the management by law.

7.

Entity: It has no separate entity apart from its members. It is not independent
of the partners. Law has not granted it any legal entity.

8.

Unlimited liability: This is the prominent feature of partnership that the

liability of each partner is not limited to the amount invested but his private
property is also liable to pay the business obligations.

9.

Investment: Each partner contributes his share in the capital according to the
agreement. Some persons become partners without investing any capital to
the business. But they devote their time, energy and ability to their business
instead of capital and receive profit.

10.

Transferability of share: There is restriction to transfer the share from one

partner to another person without the consent of existing partners. So the
investment in the partnership remains confined into few hands.

11. Position: One partner is an agent as well as principal to other partner. He can
bind the other person by his act. In the position of an agent he can make
contract with another person or parties on behalf of his concerned firm.
12. Mutual confidence: The business of the partnership cannot be conducted
successfully without the element of mutual confidence and cooperation of
partners. So the members must have trust and confidence in each other.
13. Free operation: There are no strict rules and regulations to control the
partnership activities in our country i.e. no restriction for the audit of accounts,
submission of various reports and other copies to any government authority.
So this organization may operate freely without any interference.
14. Carried on by all or any of them acting for all: Each partner acts as an
agent as well as a principal. Each one can act in the course of business and
bind the other partners by his acts. As such, he can be called an agent. Since
he is also bound by the acts of the other partners, he can be called the
principal. Thus, the law of partnership is a branch of the general law of agency
as every partner has implied power to bind other partners for the acts of the
firm, done in the course of conduct of the business.

Formation of Partnership
The formation of a partnership requires a voluntary "association" of persons who
"co-own" the business and intend to conduct the business for profit. Persons can
form a partnership by written or oral agreement, and a partnership agreement often
governs the partners' relations to each other and to the partnership. The term
person generally includes individuals, corporations, and other partnerships and
business associations. Accordingly, some partner-ships may contain individuals as
well as large corporations. Family members may also form and operate a
partnership, but courts generally look closely at the structure of a family business
before recognizing it as a partnership for the benefit of the firm's creditors.

Certain conduct may lead to the creation of an implied partnership. Generally, if a

person receives a portion of the profits from a business enterprise, the receipt of the
profits is evidence of a partnership. If, however, a person receives a share of profits
as repayment of a debt, wages, rent, or an Annuity, such transactions are
considered "protected relationships" and do not lead to a legal inference that a
partnership exists.

TEST OF PARTNERSHIP
In determining whether a partnership exists or not, or whether a person is a partner
or not, the real relation between the parties as shown by all relevant facts, must be
taken into consideration.
The joint use of property in common in business for sharing of profits is evidence
that a partnership exists. But this is not conclusive evidence to show that a
partnership exists. Likewise, an active participation in the conduct of business is
evidence that a partnership exists. But again, it is not conclusive evidence to
establish the fact of existence of partnership. For example, a servant may manage
the affairs of a firm. Yet he is not a partner. In the same way, a joint venture having
no object of profit sharing is not a partnership, while sharing of profits is evidence,
though not conclusive, that a partnership exists. So, Section 6 lays down that the
receipt of a share of profit, or a payment contingent or varying with the profits does
not itself, make the recipient a partner. Therefore, the true test of partnership is not
sharing of the profit, but whether the relationship of agency exists or not.

Ans. 3) (Chapter 3)
Dissolution of Partnership
Dissolution of partnership simply means a change in the relation of the partners.
Such a change is usually caused when a firm is reconstituted i.e., when a new
partner is admitted or when an existing partner retires, dies, becomes
insolvent or is expelled. The dissolution of partnership may or may not involve
the dissolution of a firm. A firm, after a change in relation of the partners, may
decide to continue as a reconstituted firm. But, when a firm is dissolved, it
necessarily involves the dissolution of partnership.

For example, A, B, C and D are carrying on trading business as a partnership firm. A,

is declared insolvent by the court. The partnership between A, B, C and D
comes to an end and a new partnership between B, C and D comes into
existence. This new partnership between B. C and D shall be known as
'reconstituted firm. Thus, on declaration of A as insolvent, the partnership
stands dissolved, but the firm continues with the remaining partners B, C and
D.
Dissolution of Firm
Dissolution of a firm means the dissolution of partnership between all the partners
of a firm (Section 39). It occurs when there is complete breakdown of
relationship between all the partners. In such a situation, the business of the
firm is completely stopped, its assets are realised, the liabilities paid off and
the surplus distributed among the partners according to their share in the
property of the firm. Thus, the partnership is completely discontinued.

MODES OF DISSOLUTION OF FIRM

The dissolution of firm may take place either without the order of the court or by an
order of the court.

Dissolution without the Order of Court

Dissolution of firm without the order of the court may take place in the following
ways:
1 Dissolution by mutual agreement: You know that a firm comes into existence by
mutual agreement, I t can also be dissolved by mutual agreement among the
existing partners.

2 Compulsory dissolution: A firm is automatically dissolved.

i) if all the partners, or all but one partner, of the firm are declared insolvent, or
ii) if some event takes place which makes it unlawful for the business of the firm to
be carried on. For example, a war breaks out and some partners of the firm are
declared alien enemy. In such a situation, it becomes unlawful for the business of
the firm to be carried on. Take another case where a firm is carrying on the business
of trading in sugar and a law is passed by which trading in war is prohibited. In this
case also the business of the firm becomes unlawful and so the firm will have to be
compulsorily dissolved. In this connection, you should also note that where a firm is
carrying on more than one business, the illegality of one o r more shall not
necessitate the dissolution of the firm. The firm can carry on those ventures which
remain lawful.
3 Dissolution on the happening of certain contingencies: According t o Section 42, in
the absence of a contract to the contrary, a firm will be dissolved o n the happening
of the following contingencies:
i) where the firm 'is constituted for a fixed term, it is dissolved by the expiry of the
fixed term,
ii) where the firm is constituted for completion of one or more adventures or
undertakings, thc firm is dissolved when those adventures o r undertakings have
been completed.
iii) on the death of a partner, and
iv) on the adjudication o f n partner as insolvent.
4 Dissolution by notice: When a partnership is at will, the firm may be dissolved
by any partner by giving notice in writing to all the other partners of his intention to
dissolve the firm.
If the partner has, in his notice, mentioned some specific date for the dissolution of
the firm, the firm is dissolved from that date. But if no date has been mentioned,
the firm is dissolved from the date when the notice is communicated. It should be
noted that a notice once given, cannot b e withdrawn without the consent of all
other partners.

Dissolution by an Order of Court

Section 44 of the Partnership Act deals with those situations where the court may,
on receipt of a petition by a partner, order for the dissolution of the firm, provided it
is satisfied that in the interest of justice, it is necessary to order for the dissolution
of the firm. Under this section, the court can order even for premature dissolution
when the firm is created for a fixed period. When a petition is brought before the
court, the court will give other partners an opportunity t o put forward their defence

against passing an order for dissolution of firm. It is only after evaluating all the
evidences before the court that the court shall pass an order for dissolution of the
firm. Let us now study the grounds on which a petition can be presented before the
court for obtaining a dissolution order.
These grounds are:
1 Insanity: When a partner becomes insane, he is incapable of forming a rational
judgment. Hence, it is treated as a valid ground for the dissolution of the firm. On
this ground a suit may be filed either by ally other partner of the firm or by the next
friend of the partner who has become of unsound mind. In either case the court
may order dissolution of the firm. In the case of a dormant partner, however, the
court may not order dissolution because such a partner does take an active part in
the conduct of firm's business.
2 Permanent incapacity: When a partner has become permanently incapable of
performing his duties as a partner, any other partner can file a petition for the
dissolution of firm. However, the court will not pass an order for dissolution if the
incapacity of a partner is only temporary. For example, a partner in a firm had an
attack of paralysis. Another partner of the firm filed a petition for dissolution of the
firm. The court refused t o pass on order, according to doctors, paralysis was of a
temporary nature and the patient's condition was improving. (Whitwell v. Arthur)
3 Misconduct: When a partner, other than the partner suing, is guilty of
misconduct which is likely t o adversely affect the carrying on of the business, the
court may dissolve the firm. In determining the gravity of misconduct to order
dissolution, regard is t o be had to the nature of business. For example, an immoral
conduct of
a partner in a firm of medical men may be considered an adequate ground for
dissolution but it may not be so in case of n firm trading in Coal.
4 Persistent breach of agreement: When a partner, other than the partner
suing, willfully or persistently commits breach of agreement relating t o the
management of the affairs of the firm o r he conducts himself in such a manner or
that it is not practicable for other partners to reasonably carry on the business in
partnership with him. Thus, embezzlement, fraudulent breach of trust, or keeping
erroneous accounts may be sufficient ground for the court t o order dissolution of
the firm.
5 Transfer of interest: The court, at the instance of any other partner, may
dissolve the firm when a partner has in any way
i) transferred the whole of his interest in a firm t o a third party, or
ii) allowed his share t o be charged on account of a decree passed by a court
towards payment of liabilities of that partner, or
iii) allowed his share to be sold in the recovery of arrears of land revenue.

6 Perpetual losses: When the firm is continuously suffering losses and it is

apparent that in future also the business cannot be carried on except at n loss, the
court may order for the dissolution of the firm at the instance of any partner.
7 Any other just and equitable ground: If on any other ground, it can be proved
to the satisfaction o f the court that it is just and equitable lo dissolve the firm, the
court may order dissolution of the firm. Examples of such ground are continued
quarrelling between the partners, refusal to meet on matters of business.

Ans 4) (Chapter 5)

PROSPECTUS
[Sec. 2(36)] defines a prospectus as, any document described or issued as a
prospectus and includes a notice, circular, advertisement or other document inviting
deposits from the public or inviting offers from the public for the subscription or
purchase of any shares in or debentures of a body corporate.
Thus any document inviting the public to buy its shares or debentures comes under
the definition of prospectus. It also applies to advertisements inviting deposits from
the public.

Contents of the Prospectus

Part I of Schedule II matters to be specified:
I.

General information
1.

Name and address of Registered Office of the Company.

2.

(a)

Consent of the Central Government for the present issue.

(b)

Letter of content/industrial license. Declaration of the Central

Government about non-responsibility for financial soundness on
correctness of statements.

3.

Name of Stock Exchanges where the present issue is to be listed.

4.

Declaration about refund of the issue if minimum subscription of 90 per

cent is not received within 90 days from the closure of the issue.

5.

(a)

Date of opening of the issue.

(b)

Date of closing of the issue.

II.

III.

IV.

V.

6.

Date of earliest closing of the issue.

7.

Name and address of auditors and lead managers.

8.

Whether rating form CRISIL or any other rating agency has been obtained
for the proposed debenture/preference share issue. If yes, the rating
should be indicated.

9.

Names and addresses of the underwriters and the amount underwritten

by them and declaration of the board that the underwriters have
sufficient resources.

Capital structure of the company

1.

Authorized, issued, subscribed and paid-up capital.

2.

Size of present issue giving separately reservation for preferential,

allotment to promoters and others.

3.

Paid-up capital after the present issue.

Terms of the present issue

1.

Terms of payments.

2.

Rights of the instrument holders.

3.

How to apply, availability of forms, prospectus and mode of payment.

4.

Any special tax benefits for company and its shareholders.

Particulars of the issue

1.

Objects.

2.

Project cost.

3.

Means of financing including contribution of promoters.

Company management and project

1.

History and main objects and present business of the company.

2.

Subsidiaries of the company, if any.

3.

Names, addresses and occupations of Manager, Managing Director and

other Directors including nominee Directors, whole-time directors.

4.

Location of project.

5.

Plant and Machinery, technology, process etc.

6.

Foreign collaboration.

7.

Infrastructure facilities.

8.

Schedule of the implementation of the project and progress so far made.

9.

Nature of products, marketing set up and export possibilities and export

obligation, if any.

10. Future prospectus expected capacity utilization during the first three
years, from the date of commencement of production and the expected
year when the company would be able to earn cash profit and net profit
and stock market data.
VI.

Particulars in regard to the company and other listed companies under the
same management within the meaning of (Sec. 370 IB) which made any
capital issue during the last three years.

VII. (1)

Outstanding litigation of the company.

(2)

Particulars of default, if any, in meeting statutory dues, institutional dues,

and towards instrument holders like
debentures, fixed deposits and
arrears of cumulative preference shares etc.

(3)

Any material development after the date of the latest balance sheet, and
its impact on performance and the prospects of the
company.

VIII. Management perception of risk factors

The Company has taken due care in estimating its fund requirements. The
deployment of funds is based on the Companys current perception of business
prospects and orders on hand. In case of significant changes in the business,
the timing of deployment of funds and allocation among the same may be
different from those currently estimated.
For example, sensitivity to foreign exchange rate fluctuations, non-availability
of raw materials, cost time overrun etc.
Part II of Schedule II
A.

General information
1.

Consent of directors, auditors, advocates, managers to issue, registrar of

issue, bankers to the company, and bankers to the issue.

2.

Expert opinion, if any.

3.

Change, if any, in directors and auditors during the last three years and
reasons thereof.

4.

Authority for the issue and details of resolution passed for the issue.

5.

Procedure and time schedule for allotment and issue of certificates.

6.

Name and address of the company secretary, legal adviser, lead

managers, auditors, bankers to the company, banker to the issue and
brokers to the issue.

B.

Financial information
1.

2.

Report by auditors: A report by the auditors of the company with

respect to,
(a)

its profit and loss and assets and liabilities, and

(b)

the dividends paid by the company during the five financial years
immediately preceding the issue of the prospectus.

Report by accountants
(a)

A report by the accountants who shall be named in the prospectus

on the profits or losses of the business for the preceding five
financial years, and on the assets and liabilities of the business to be
acquired on a date which shall not be more than one hundred and
twenty days before the date of the issue of the prospectus.
(b) A similar report on the accounts of a body corporate by an
accountant who shall be named in the prospectus if the proceeds of
the issue are to be applied in the purchase of shares of a body
corporate so that it becomes a subsidiary of the acquiring company.
(c) Statutory and other information:
1.
Minimum subscription.
2.
Expenses of the issue.
3.
Underwriting commission and brokerage.
4.
Details of previous public or right issue.
5.
Issue of shares otherwise than for cash.
6.
Debenture and redeemable preference shares and other
instruments, issued by the company outstanding and terms of
issue.
7.
Option to subscribe.
8.
Details of purchase of property.
9.
Details of directors, whole-time directors, managing directors,
as to their appointment, remuneration, interest of directors,
borrowing powers, qualification shares etc.
10. Rights of members regarding voting, dividend, lien on shares.
11. Restriction if any on the transfer or transmission of shares or
debentures.
12. Revaluation of assets if any.
13. Material contracts and inspection of documents.
Part III of Schedule II
Provisions applying to Parts I and II of the Schedule.

(1)

In the case of a company which has been carrying on business for less than
five financial years, reference to five financial years means reference to that
number of financial years for which business has been carried on.

(2)

The report shall make any adjustments as respect of the figures of profits or
losses or assets and liabilities and indicate that such adjustments have been
made.

(3)

There should be a declaration that all the relevant provisions of the Companies
Act, 1956 and the guidelines issued by the Government have been complied
with and no statement made in prospectus is contrary to the provisions of
Companies Act, 1956 and rule made there under.

Voluntary disclosure
The prospectus is the window through which an investor can look into the
soundness of the companys venture. The prospective buyer of shares is entitled to
all true disclosures in the prospectus. It should not conceal any matter which ought
to be revealed. In a nutshell, the prospectus should tell the truth, the whole truth
and nothing but truth. This ruling is called the golden rule for framing a
prospectus. This ruling as laid down by V.C. Kindersley in New Brunswick and
Canada Railway and Land Company vs. Muggeridge liabilities for mis-statement in
prospectus Under Sec.65 of the Companies Act, a prospectus will be deemed to
contain an untrue statement, if,
(a)

the statement included in the prospectus is misleading in the form or in the

context in which it is included; and

(b)

there is an omission from the prospectus of any matter which is calculated to

misled [Sec. 65(1)].

Liabilities for Mis-statement in Prospectus

L ia b ilit ie s fo r M is -s ta t e m e n t in P r o s p e c tu s

C iv il lia b ility

A g a in s t C o m p a n y

T o r e s c in d
th e c o n tra c t

C la im s f o r
dam ages

C r im in a l lia b ilit y

A g a in s t D ir e c t o r s

C o m p e n s a t io n

D a m a g e s fo r
n o n - c o m p li a n c e
u n d e r s e c .5 6

Dam ages under

g e n e r a l la w

F o r in n o c e n t
m is r e p re s e n ta tio n

F o r fr a d u le n t
m is r e p re s e n t a tio n

Civil Liability for Mis-statement

Civil liability arises when there is a mis-statement or misrepresentation of fact in a
prospectus or an omission of material fact calculated to misled, and such a
statement or omission has induced a shareholder to buy shares on the faith of such
statement. Every director or promoter of a company, and all other persons including
an expert who has authorised the issue of such prospectus are liable for such
misstatement or misrepresentation to the allottee of shares. The shareholder who
has purchased shares on the faith of such mis-statement has remedy in a civil
action against the company, as well as directors, promoters, experts etc. for any
loss or damage suffered by him.
Remedies Against the Company
For mis-statement or misrepresentation in a prospectus, the remedies available to a
shareholder against the company are: (i) rescission of the contract, and (ii)
damages for deceit. Any person, who takes shares on the faith of statements
contained in a prospectus, can apply to the Court for rescinding or setting aside the
contract on the ground that the statements are false or fraudulent or that some
material information has been withheld.
Remedies against directors, promoters etc.
Against the directors, promoters, experts and other persons, the remedies available
are: (i) damages for fraudulent misrepresentation under the general law; (ii)
compensation for loss or damage under Sec.62 of the Act; and (iii) damages or loss
suffered due to omission of statement under Sec.56 of the Act.
(1)

Under the General Law, a shareholder can hold persons responsible for the
issue of a prospectus (directors, promoters etc.) liable for damages for any
fraudulent misrepresentation or misstatement in the prospectus, if he was
deceived by reason of acting on the faith of such prospectus. But the directors
(or promoters etc.) will not be held liable for such mis-statement, if they
honestly believed what they said in the prospectus to be true.

(2)

Compensation under Sec.62. If a person purchases shares or debentures of a

company on the faith of statements made in the prospectus and thereby
suffers any damage or incurs loss, he is entitled to claim compensation for the
loss or damage in a civil action against the directors, promoters, and all other
persons who have authorised the issue of the prospectus [Sec.62(1)].

(3)

Damages under Sec.56. If there is an omission from the prospectus of any

matter required to be included by Sec.56, any subscriber for shares who has
suffered loss due to the omission can bring action for damages, even if such
omission does not make the prospectus false or misleading.

Criminal Liability for Mis-statement

Knowingly including an untrue statement in the prospectus or fraudulently inducing
a person to invest money in shares, gives rise to criminal liability on the part of the

persons authorizing the issue of such a prospectus. Section 63 and 68 of the

Companies Act provide for heavy punishment for such criminal liability.
If a prospectus contains any untrue statement, every person who has authorised the
issue of the prospectus is punishable with imprisonment for a term which may
extend to two years, or with fine which may extend to five thousand rupees, or with
both.
The Act has also laid down that if a person knowingly or recklessly makes any
statement, promise or forecast which is false, deceptive or misleading, or
dishonestly conceals material facts, and thereby induces or attempts to induce
another person to subscribe to the shares of a company, he shall be punishable with
imprisonment for a term which may extend to five years, or with fine which may
extend to ten thousand rupees, or with both (Sec.68).

Ans 4) (Chapter 5)
Minimum number of directors
Every public company ( other than a deemed public company ) must have at least three
directors. Every other company must have at least two directors.
The directors of a company collectively are referred to as the "Board of directors" or "Board".
Only individuals can be appointed as directors. No body corporate, association or firm can be
appointed director of a Company.
In case the first directors are not appointed by the promoters of a company, subscribers of
the memorandum who are individuals, shall be deemed to be the directors of the company,
until the directors are duly appointed.
Appointment of directors and proportion of those who are to be retire by rotation
Unless that articles provide for the retirement of all directors at every annual general
meeting, at least two-thirds of the total number of directors of a public company, or of a
private company which is subsidiary of a public company, must :(a) retire by rotation
(b) be appointed by the company in general meeting, except where otherwise provided by
the Companies Act.

The remaining directors in the case of any such company, and the directors generally in the
case of a private company which is not a subsidiary of a public company, must also be
appointed by the company in general meeting, unless otherwise provided in any regulations
in the articles of the company.
Ascertainment of directors retiring by rotation and filling of vacancies
At every annual general meeting of a public company, or a private company which is a
subsidiary of a public company, one-third of the directors liable to retirement by rotation or if
their number is not three or a multiple of three, then, the number nearest to one-third, shall
retire from office.
The directors to retire by rotation at every annual general meeting shall be those who have
been longest in office since their last appointment, but as between persons who became
directors on the same day, those who will have to retire is to be determined by lot, unless
otherwise agreed to among themselves.
At the annual general meeting at which a director retires as aforesaid the company may fill
up the vacancy by appointing the retiring director or some other person thereto. In other
words, a retiring director is eligible for re-appointment at the same meeting.
If the place of the retiring director is not so filled up and the meeting has not expressly
resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the
next week, at the same time and place, or if that day is a public holiday, till the next
succeeding day which is not a public holiday, at the same time and place.
If at the adjourned meeting also, the place of the retiring director is not filled up and that
meeting also has not expressly resolved not to fill the vacancy the retiring director shall be
deemed to have been re-appointed at the adjourned meeting, unless

i.

a resolution for the re-appointment of such director has been put to the meeting and
lost

ii.

the retiring director, has by a notice in writing addressed to the company or its Board
of directors, expressed his unwillingness to be so re-appointed

iii.

he is not qualified or is disqualified for appointment

iv.

a resolution, whether special or ordinary, is required for his appointment or reappointment in virtue of any provisions of this Act.

Right of persons other than retiring directors to stand for directorship

A person who is not a retiring director shall, subject to the provisions of this Act, be eligible
for appointment to the office of director at any general meeting, if he or some member
intending to propose him has, given notice in writing to the company at its registered office
of at least 14 days before the meeting, signifying his candidature for the office of director or
the intention of such member to propose him as a candidate for that office along with a
deposit of rupees five hundred ( refundable on successful election ).

The company must inform its members of such candidature by giving at least 7 days prior
notice. Such notice may not be required if the company advertises such candidature at least
7 days before the meeting in at least 2 newspapers circulating in the place where the
registered office of the company is situated, one of which must be in English and the other in
the regional language.
This provision shall not apply to a private company, unless it is a subsidiary of a public
company.
Right of company to increase or reduce the number of directors
A company, at a general meeting may, by ordinary resolution, increase or reduce the
number of its directors within the limits fixed in that behalf by its articles.
Increase in number of directors to require Government sanction
In the case of a public company, or a private company which is a subsidiary of a public
company, any increase in the number of its directors, beyond the maximum number of
directors permitted by the Articles of the Company as first registered, shall not have any
effect unless approved by the Central Government and shall become void if, and in so far as,
it is disapproved by that Government.
However, where such permissible maximum is 12 or less, no approval of the Central
Government is required provided the increase does not increase the number of directors
beyond 12.
Additional directors
The Board of directors may appoint additional directors if such power is conferred on it by
the articles of the company. Such additional directors shall hold office only up to the date of
the next annual general meeting of the company.
Provided further that the number of the directors and additional directors together shall not
exceed the maximum strength fixed for the Board by the articles.
Filling of casual vacancies among directors
In the case of a public company or a private company which is a subsidiary of a public
company, if the office of any director appointed by the company in general meeting is
vacated before his term of office will expire in the normal course, the resulting casual
vacancy may, in default of and subject to any regulations in the articles of the company, be
filled by the Board of directors at a meeting of the Board.
Any person so appointed shall hold office only up to the date up to which the director in
whose place he is appointed would have held office if it had not been vacated as aforesaid.
Appointment and term of office of alternate director
The Board of directors of a company may, if so authorised by its articles or by a resolution
passed by the company in general meeting, appoint an alternate director to act for a
director during his absence for a period of not less than three months from the State in
which meetings of the Board are ordinarily held.

An alternate director so appointed shall not hold office for a period longer than the period for
which the original director hold office and vacate office if and when the original director
returns to the State in which meetings of the Board are ordinarily held.
Appointment of directors to be voted on individually
At a general meeting of public company or of a private company which is a subsidiary of a
public company, each director has to be appointed separately by a separate resolution.
However, appointment of more than one director through the same resolution will be valid if
it has been passed unanimously. A resolution moved in contravention of the aforesaid
provision shall be void, whether or not objection was taken at the time to its being so
moved:
Consent of candidate for directorship to be filled with Registrar
A person shall not act as director of a company unless he has, by himself or by his agent
authorised in writing, signed and filed with the Registrar, a consent in writing to act as such
director within 30 days of his appointment. This provision shall not apply to a private
company unless it is a subsidiary of a public company.
Option to company to adopt proportional representation for the appointment of
directors
If the articles of a company provide for the appointment of not less than two-thirds of the
total number of the directors of a public company or of a private company which is a
subsidiary of a public company, according to the principle of proportional, representation,
whether by the single transferable vote or by a system of cumulative voting or otherwise.
Such appointments may be made once in every three years and interim casual vacancies
being filled by the Board of Directors as Casual Vacancies. This may enable minority
shareholders to have a proportional representation on the Board of Directors of the
company.
Restrictions on appointment or advertisement of director
A person shall not be capable of being appointed director of a company by the articles,
unless before the registration of the articles, the publication of the prospectus, or the filing
of the statement in lieu of prospectus, as the case may be , he has, by himself or by his
agent authorised in writing
(a) signed and filed with the Registrar a consent in writing to act as such director; and
(b) either ;-

i.

signed the memorandum for shares not being less in number or value than
that of his qualification shares, if any, or

ii.

taken his qualification shares, if any, from the company and paid or agreed to
pay for them; or

iii.

signed and filed with the Registrar and undertaking in writing to take from the
company his qualification shares, if any, and pay for them; or

iv.

made and filed with the Registrar an affidavit to the effect that shares, not
being less in number or value than that of his qualification shares, if any, are
registered in his name.

Qualification shares are the minimum number of shares a person must own, as provided
in the articles of the company, in order to qualify to become a director of the company.
Qualification shares must be acquired by a director within 2 months of his appointment. The
articles cannot require a director to acquire qualification shares within a shorter period. The
face value of the qualification shares cannot exceed five thousand rupees, or if the face
value of one share is more than five thousand rupees, then the qualification share will be
one qualification share.
Every director, not being a technical director of a director appointed, by the Central or a
State Government, shall within two months after his appointment file with the company a
declaration specifying the qualification shares held by him. If, after the expiry of the said
period of two months, any person acts as a director of the company when he does not hold
the qualification shares, he shall be punishable with the fine which may extend to fifty
rupees for every day between such expiry and the last day on which he acted as a director.
The above provisions do not apply to-

a. a company not having a share capital;

b. a private company;
c. a company which was a private company before becoming a public company; or
d. a prospectus issued by or on behalf of a company after the expiry of one year from
the date on which the company was entitled to commence business.
Managing Directors
Managing Director means a person who, by virtue of an agreement with the company or of a
resolution passed by the company in a 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 could not otherwise be exercisable by him and includes a director
occupying the position of a managing director, by whatever name called. The power merely
to do administrative acts of a routine nature, when so authorised by the Board such as the
power to affix the common seal of the company on any document or to draw and endorse
any cheque on the account of the company in any bank or to draw and endorse any
negotiable instrument or to sign any share certificate or to direct registration of share
transfers will not be deemed to be included within substantial powers of management. The
managing director must exercise his powers subject to the superintendence, control and
direction of the Board.
Certain persons not to be appointed managing directors
No company can, appoint or employ, or continue the appointment or employment of, any
person as its managing or whole time director who-

a. is an undischarged insolvent, or has at any time been adjudged an insolvent

b. suspends, or has at any time suspended, payment to his creditors or makes, or has at
any time made, a composition with them

c. is, or has at any time been, convicted by a Court in India of an offence involving
moral turpitude.
Every public company or a private company which is a subsidiary of a public company,
having a paid up share capital of Rs. 5 crores or more must have a managing director or
wholetime director or manager.
Appointment of managing director or wholetime director or manager of a public company or
a private company which is a subsidiary of a public company requires the approval of the
Central Government unless the appointment is in accordance with the conditions specified in
Schedule XIII of the Companies Act, 1956 and a returm in Form 25 C is filed within 30 days of
appointment.
Application for approval must be made to the Central Government if Form 25 A within 90
days of appointment. The Central Government shall grant its approval if it is satisfied that :-

a. the managing director or wholetime director or manager is in its opinion, a fit and
proper person

b. such appointment is not against public interest

c. the terms and conditions of the appointment are fair and reasonable.
The Central Government may grant approval for a period less that the period for which
approval is sought.
In case the approval of the Central Government is refused, the appointed person shall
vacate his office on the date of communication of the decision of the Central Government to
the company and if he omits to do so, he shall be liable to a fine of Rs. 500/- for each day of
default.
The Central Government, on information received by it or suo moto, is of the opinion that
such appointment made without approval of the Central Government contravenes the
conditions given in Schedule XIII, it may refer the matter to the Company Law Board for
decision.
On receipt of the order of the Company Law Board against the company,:-

a. The company shall be liable to fine of upto Rs. 5000/b. Every officer of the company in default shall be liable to a fine of Rs. 10000/-

c. The appointment shall be deemed to have come to an end and the appointed person
shall in addition to being liable to pay a fine of Rs. 10000/-, refund to the company
the entire amount of remuneration received by him from such appointment.
Number of companies of which one person may be appointed managing director
No public company or private company which is a subsidiary of a public company can,
appoint or employ any person as managing director, of he is either the managing director or
the manager of any other company, except as provided below.
A public company or a private company which is the subsidiary of a public company may
appoint or employ a person as its managing director, if he is the managing director or
manager of one, and of not more than one, other company provided that such appointment
or employment is made or approved by a unanimous resolution passed at a meeting of the
Board and of which meeting, and of the resolution to be moved thereat, specific notice has
been given to all the directors then in India.
In addition to the above provision, the Central Government may, by order, permit any
person to be appointed as a managing direct of more than two companies if the Central
Government is satisfied that it is necessary that the companies should, for their proper
working, function as a single unit and have a common managing director.
Managing director not to be appointed for more than five years at a time
No company can, appoint or employ any individual as its managing director for a term
exceeding five years at a time.
However, a person may be re-appointed, re-employed, or his term of office extended by
further periods not exceeding five years on each occasion. Such re-appointment, reemployment or extension cannot be sanctioned earlier than two years from the date on
which it is to come into force.
This provision does not apply to a private company unless it is a subsidiary of a public
company.
Disqualifications of directors
A person shall not be capable of being appointed director of a company, if,

a. he has been found to be of unsound mind by a Court of competent jurisdiction and

the finding is in force

b. he is an undischarged insolvent
c. he has applied to be adjudicated as an insolvent and his application is pending
d. he has been convicted by a Court of any offence involving moral turpitude and
sentenced in respect thereof to imprisonment for not less than six months, and a
period of five years has not elapsed from the date of expiry of the sentence

e. he has not paid any call in respect of shares of the company held by him, whether
alone or jointly with others, and six months have elapsed from the last day fixed for
the payment of the call

f. an order disqualifying him for appointment as director has been passed by a court
and is in force unless the leave of the court has been obtained for his appointment in
pursuance of that section.
The Central Government may, by notification in the Official Gazette, remove :-

i.
ii.

the disqualification incurred by any person in virtue of clause (d) either generally or
in relation to any company or companies specified in the notification; or
the disqualification incurred by any person in virtue of clause (e)

A private company which is not a subsidiary of a public company may, by its articles,
provide that a person shall be disqualified for appointment as a director on any grounds in
addition to those specified above.
No person to be a director of more than twenty companies
No person shall, hold office at the same time as director in more than twenty companies.
Where a person already holding the office of director in twenty companies is appointed, as a
director of any other company, the appointment :-

a. shall not take effect unless such person has, within fifteen days thereof, effectively
vacated his office as director in any of the companies in which he was already a
director; and

b. shall become void immediately on the expiry of the fifteen days if he has not, before
such expiry effectively vacated his office as director in any of the other companies
aforesaid.
Where a person already holding the office of director in nineteen companies or less is
appointed, as a director of other companies, making the total number of his directorships
more than twenty, he shall choose the directorships which he wishes to continue to hold or
to accept so however that the total number of the directorships, old and new, held by him
shall not exceed twenty.
None of the new appointments of director shall take effect until such choice, is made; and all
the new appointments shall become void if the choice is not made within fifteen days of the
day on which the last of them was made.
In calculating the number of companies of which a person may be a director, the following
companies shall be excluded :-

a. a private company which is neither a subsidiary nor a holding company of a public

company

b. an unlimited company
c. an association not carrying on business for profit or which prohibits the payment of
dividend

d. a company in which such person is only an alternate director, that is to say, a director
who is only qualified to act as such during the absence or incapacity of some other
director.
Any person who holds office, or acts, as a director of more than twenty companies in
contravention of the foregoing provisions shall be punishable with fine which may extend to
five thousand rupees in respect of each of those companies after the first twenty.
Vacation of office by directors
The office of a director shall become vacant if :-

a. he fails to obtain within the time specified ( 2 months ) or at any time thereafter
ceases to hold, the share qualification, if any, required of him by the articles of the
company

b. he is found to be of unsound mind by a Court of competent jurisdiction

c. he applies to be adjudicated an insolvent
d. he is adjudged an insolvent
e. he is convicted by a Court of any offence involving moral turpitude and is sentenced
in respect thereof to imprisonment for not less than six months

f. he fails to pay any call in respect of shares of the company held by him, whether
alone or jointly with others, with in six months from the last date fixed for the
payment of the call unless the Central Government has, by notification in the Official
Gazette removed such disqualification.

g. he absents himself from three consecutive meetings of the Board of directors, or from
all meetings of the Board, for a continuous period of three months, whichever is
longer, without obtaining leave of absence from the Board

h. he, whether by himself or by any person for his benefit or on his account or any firm
in which he is a partner or any private company of which he is a director, accepts a
loan, or any guarantee or security for a loan, from the company in contravention of
section 295 ( without due authorization of the Central Government )

i. he acts in contravention of section 299 ( failure to disclose interest in any transaction

with the company )

j. he becomes disqualified by an order of Court under section 203

k. he is removed by the members by- resolution at a general meeting
l. having been appointed a director by virtue of his holding any office or other
employment in the company, he ceases to hold such office or other employment in
the company.
The disqualification referred to in clauses (d). (e) and (j) shall not take effect,-

a. for thirty days from the date of the adjudication sentence or order
b. where any appeal or petition is preferred within the thirty days aforesaid against the
adjudication, sentence or conviction resulting in the sentence, or order until the
expiry of seven days from the date on which such appeal or petition is disposed of

c. where within the seven days aforesaid, any further appeal or petition is preferred in
respect of the adjudication, sentence, conviction, or order, and the appeal or petition,
if allowed, would result in the removal of the disqualification, until such further
appeal or petition is disposed of.
If a person functions as a director, knowing that his office has vacated on account of the
above provisions, shall be liable to a fine upto Rs. 500/- per day of default.
A private company which is not a subsidiary of a public company may, by its articles,
provide, that the office of director shall be vacated on any grounds in addition to those
specified in above
Removal of directors
A company may, by ordinary resolution, remove a director (not being a director appointed by
the Central Government in pursuance of section 408) before the expiry of his period of
office. This provision shall not apply where the company has availed itself of the option given
to it of proportional representation on the Board of Directors to appoint not less than twothirds of the total number of directors according to the principle of proportional
representation.
Special notice shall be required of any resolution to remove a director, or to appoint
somebody instead of a director so removed at the meeting at which he is removed.
On receipt of notice of a resolution to remove a director under this section, the company
shall forthwith send a copy thereof to the director concerned, and the director (whether or
not he is a member of the company) shall be entitled to be heard on the resolution at the
meeting.

Where notice is given of a resolution to remove a director and the director concerned makes
representations in writing to the company (not exceeding a reasonable length) and requests
their notification to members of the company, the company shall, unless the representations
are received by it too late for it to do so :-

a. in any notice of the resolution given to members of the company state the fact of the
representations having been made; and

b. send a copy of the representations to every member of the company to whom notice
of the meeting is sent
If a copy of the representations is not sent as aforesaid because they were received too late
or because of the company's default, the director may (without prejudice to his right to be
heard orally) require that the representations shall be read out at the meeting.
However, copies of the representations need not be sent out and the representations need
not be read out at the meeting if, on the application either of the company or of any other
person who claims to be aggrieved, the Company Law Board is satisfied that the rights
conferred by this provision are being abused to secure needless publicity for defamatory
matter and the Company Law Board may order the company's costs on the application to be
paid in whole or in part by the director.
A vacancy created by the removal of a director if he had been appointed by the company in
general meeting or by the board in on a casual vacancy, be filled by the appointment of
another director in his stead by the meeting at which he is removed, provided special notice
of the intended appointment has been given.
A director so appointed shall hold office until the date up to which his predecessor would
have held office if he had not been removed as aforesaid.
If the vacancy is not filled, it may be filled as a causal vacancy in accordance with the
provisions.
The above provisions of removal of a director shall not affect :-

a. any compensation or damages payable to him in respect of the termination of his

appointment as director or of any appointment terminating with that as director

b. any other power to remove a director which may exist apart from this provision.

Ans 5)
(a)Kinds of Mistakes in a Contract (Chapter 2)
Mistake of law
Mistake of law may be (1) mistake of law of the country, or (2) mistake of law of a
foreign country.

1. Mistake of law of the country: Ignorantia juris non excusat, i.e. ignorance of
law is no excuse, is a well settled rule of law. A party cannot be allowed to get any
relief on the ground that it had done a particular act in ignorance of law. A mistake
of law is, therefore, no excuse, and the contract cannot be avoided.
Example: A and B enter into a contract on the erroneous belief that a particular debt
is barred by the Indian Law of Limitation. This contract may be voidable.
2. Mistake of law of a foreign country: Such a mistake is treated as mistake of
fact and the agreement in such a case is void. (Sec. 21).

Mistake of fact
Mistake of fact may be (1) a bilateral mistake, or (2) a unilateral mistake.
1. Bilateral Mistake
Where both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, there is a bilateral mistake. In such a case, the
agreement is void (Sec. 20). The following two conditions have to be fulfilled for the
application of Sec. 20:

(i) The mistake must be mutual, i.e. both the parties should misunderstand each
other and should be at cross-purposes.
Example: A agreed to purchase Bs motor-car which was lying in Bs garage.
Unknown to either party, the car and garage were completely destroyed by fire a
day earlier. The agreement is void.
(ii) The mistake must relate to a matter of fact essential to the agreement. As to
what facts are essential in an agreement will depend upon the nature of the
promise in each case.
Example: A man and a woman entered into a separation agreement under which
the man agreed to pay a weekly allowance to the woman, mistakenly believing
themselves lawfully married. Held, the agreement was void as there was mutual
mistake on a point of fact which was material to the existence of the agreement.
The various cases which fall under bilateral mistake are as follows:

Mistake as to the Subject-Matter:

Where both the parties to an agreement are working under a mistake relating to the
subjectmatter, the agreement is void. Mistake as to the subject-matter covers the
following cases:
(1) Mistake as to the existence of the subject-matter: If both the parties
believe the subject-matter of the contract to be in existence, which in fact at the
time of the contract is non-existent, the contract is void.
Example: A agrees to buy from B a certain goat. It turns out that the goat was dead
at the time of the bargain, though neither party was aware of the fact. The
agreement is void.
(2) Mistake as to the identity of the subject-matter: It usually arises where
one party intends to deal in one thing and the other intends to deal in another.
Example: W agreed to buy from R a cargo of cotton to arrive ex-peerless from
Bombay. There were two ships of that name sailing from Bombay, one sailing in
October and the other in December. W meant the former ship R meant the latter.
Held, there was a mutual or a bilateral mistake and there was no contract
(3) Mistake as to the quality of the subject-matter: If the subject matter is
something essentially different from what the parties thought it to be the
agreement is void.
Example: A sells to B a piece of silk. B thinks that it is foreign silk. A knows that B
thinks so but knows that it is Indian silk only.

(4) Mistake as to the quantity of the subject-matter: If both the parties are
working under a mistake as to the quantity of the subject-matter, the agreement is
void.
Example: A silver bar was sold under a mistake as to its weight. There was a
difference in value between the weights of the bar as it was and as it was supposed
to be. Held, the agreement was void.
(5) Mistake as to the title to the subject-matter: If the seller is selling a thing
which he is not entitled to sell and both the parties are acting under a mistake, the
agreement is void.
Example: A person took a lease of a fishery which, unknown to either party, already
belonged to him. Held, the lease was void.
(6) Mistake as to the price of the subject-matter: If there is a mutual mistake
as to the price of the subject-matter, the agreement is void.
Example: C wrote to D offering to sell certain property for Rs.15,000. He had earlier
declined an offer from D to buy the same property for Rs.20,000. D who knew that
his offer of Rs.15,000 was a mistake for Rs.25,000, immediately accepted the offer.
Held, D knew perfectly well that the offer was made by mistake and hence the
contract could not be enforced.

Mistake as to the Possibility of Performing the Contract

Consent is nullified if both the parties believe that an agreement is capable of being
performed when in fact this is not the case. The agreement, in such a case, is void
on the ground of impossibility.
Impossibility may be
(i) Physical Impossibility.
Example: A contract for the hire of a room for witnessing the coronation procession
of Edward VII was held to be void because, unknown to the parties, the procession
had already been cancelled.
(ii) Legal Impossibility: A contract is void if it provides that something shall be
done which cannot, as a matter of law, be done.

2. Unilateral Mistake
When in a contract only one of the parties is mistaken regarding the subject-matter
or in expressing or understanding the terms or the legal effect of the agreement,

the mistake is a unilateral mistake. According to Sec. 22, a contract is not voidable
merely because it was caused by one of the parties to it being under a mistake as to
a matter of fact. A unilateral mistake is not allowed as a defence in avoiding a
contract unless the mistake is brought about by the other partys fraud or
misrepresentation.
Example: A offers to sell his house to B for an intended sum of Rs.44,000. By
mistake he makes an offer in writing of Rs.40,000. He cannot plead mistake as a
defence.

b) Types of Goods in a Contract of Sale(Ch 2)

Ans. b) Existing or future goods (1) The goods which form the subject of a
contract of sale may be either existing goods, owned or possessed by the seller, or
future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the
seller depends upon a contingency which may or may not happen.
(3) Where by a contract of sale the seller purports to effect a present sale of future
goods, the contract operates as an agreement to sell the goods.
-Specific Goods sec. 2(14):- Goods identified and agreed upon at thetime of the
making of the contract of sale.
Ascertained Goods :- goods identified in accordance with the agreement after the
contract of sale is made.
Unascertained goods:- goods which are not specifically identified at the time of
contract of sale (goods defined by the description)
Future goods sec. 2(6):- means goods to be manufactured or produced or acquired
by the seller after making the contract of sale
Contingent Goods sec. 6(2):- there may be a contract for the sale of goods, the
acquisition of which by the seller depends upon a contingency which may or may
not happen.
Goods perishing before making of contract Where there is a contract for the
sale of specific goods, the contract is void if the goods without the knowledge of the
seller have, at the time when the contract was made, perished or become so
damaged as no longer to answer to their description in the contract.
Goods perishing before sale but after agreement to sell Where there is an
agreement to sell specific goods, and subsequently the goods without any fault on

the part of the seller or buyer perish or become so damaged as no longer to answer
to their description in the agreement before the risk passes to the buyer, the

c) Admission of New Partner (Ch 3)

Ans. c) Admitting a new partner into the firm is a relatively straightforward process once the
qualified candidate is found. Generally, the applicant is known to the firm either through
association for an extended period of time or, the candidate has experience acquired elsewhere
and was employed as the result of this skill and professional background. Once the firm decides
that it has the right candidate, there are still some basics that have to be reviewed. Following is a
brief overview of the various issues that must be dealt with in order to set the stage for admitting
a new partner to the law firm.
Voting for Admission
In order to admit a new member to the firm, most law firm partnership agreements require a vote
of either the majority, 66-2/3 or 75 percent of the partners. In the smaller firm a new partner
must receive a unanimous vote. As the firm grows larger the chance for a unanimous vote all but
disappears, and the odds of an applicant receiving a veto increase. Some partnership agreements
stipulate that the vote reflect individual partners rather than partnership interests, viewing the
"one-partner, one-vote" as more democratic and avoiding placing weighted votes in the hands of
more powerful or senior partners.
Equity Interest
The next item that will probably be considered involves the new partner's share in the profits and
losses of the firm. There is no standard answer to this question. Consideration will be based on
many factors including, but not limited to, the applicant's salary history, contribution (measured
generally by chargeable hours or clients brought to the firm), and the nature and quality of the
work performed. Even a brief list of the many possible factors involved in setting a new
partner's income share reveals the subjective nature of this question and how it will vary from
firm to firm. In setting the income share of the new partner, the partners will become aware that
the pie must now be cut in a different way, with more pieces and not necessarily more income to
be divided. In some firms either a committee or the senior partner sets the new partner's share of
profits for the initial year (and sometimes for a few years thereafter). The new partner is then
deemed to have an ownership interest in the firm that is determined by the ratio of his/her
distribution for the year to the firm's total profits. It is recommended that the new partner be
informed of his/her share of income and losses, and the method for determining the profit
distribution.

Amount of Draw
In conjunction with setting the new partner's share of profits and losses, the partnership must also
determine the partner's monthly or other periodic draw. The amount of the draw will, like the
share of the profits and losses, be based on several factors. These include the salary of the
attorney while an associate at the firm, the amounts drawn by the other partners, the cash flow
position of the firm at various times during its fiscal year, the expected annual distribution of the
partner, etc. In some firms, in addition to the monthly or semi-monthly draws regular quarterly
or other special draws are scheduled, usually in connection with required estimated tax
payments.
Capital Contribution
It is more than likely that the capital of the firm will change as the result of admission of the new
partner. Either at the time of election or at some point thereafter, the partners will be faced with
the question of how much capital the new partner will be asked to contribute to the firm. Here
again, the answers vary widely, with no known formula fitting the requirements of all firms. In
some firms, a "free-ride" is given to the new partner for a specified period of time. The
supposition is that the applicant is not as capable of meeting a financial obligation at the time of
admission as he/she will be later. As a solution, this merely postpones the decision for a time and
means that the remaining partners must carry the obligation in the interim. In some cases, a
token contribution is requested. The amount required is usually based on the financial condition
of the newly admitted partner.
Sooner or later, however, the capital contribution of the new partner will have to be resolved.
The partnership will have to determine whether the new partner will contribute to the firm some
portion of the firm's capital account in existence at the time of admission, or whether the
newcomer will be expected to contribute his/her share for all future capital requirements. Every
firm will have to determine its own method for resolving this question. In general, the amount of
capital contribution will be proportionate to the new partner's share of income and losses.
Dissemination of Firm
Financial Information Firms vary in their practice of how much and when to divulge financial
information to the new partner. From the point of "disclosure," it is generally believed that the
better practice is to promptly provide the new partner with the firm's recent financial statements.
Most managing partners readily agree that no purpose is served by keeping relevant information
from the new partner, and failure to disclose pertinent information may result in extreme
discomfort for both parties, or indeed more serious difficulties for the firm.

Alternate Status

Some firms are considering the use of "alternative" forms of membership instead of the more
traditional form of partnership status. The alternatives are being given various titles such as
senior associate, junior partner or non-equity partner among others. The practice is being used,
quite extensively, by the larger firms. The primary motivation for considering an alternative is
monetary. The reason is simple. Chief among the changes brought about by the addition of a
new partner is the resultant reduction in the distribution available to the other partners. In today's
marketplace, increasing financial pressures accompanied by a rise in operating expenses and
stiffer competition, may give a firm little choice but to consider alternative forms of full
membership.
The critical variation in this kind of affiliation involves the applicant's limitation in terms of the
net income (or loss) of the partnership. Consequently, for many purposes, this individual is a
salaried employee although he/she may be able to vote or otherwise participate in the governance
or operations of the firm. Another way of limiting the candidate's participation is to restrict
his/her vote to specific matters, or to deny the vote altogether. In addition, attendance and/or
participation in firm meetings may be permitted on a full or limited scale, as required. Since the
principal impetus for placing limits on partnership is financial, the use of this category will result
in decreasing the right of specified individuals to share in the profits of the firm.
Although consideration of the use of alternative forms of law firm partnership has increased
substantially in the past several years, the firm should proceed with caution. The consequences
for both the firm and the individual should be fully considered. From the firm's viewpoint, it will
have to determine whether it will be required to insure that it is not presenting to the public as a
partner an individual who, in fact, is not a partner but may be held to be one. How should the
firm characterize a partner who in one or more ways is less than a full partner when, for instance,
preparing a list of partners and associates for submission to a directory such as MartindaleHubbell, or new stationery? In addition, the firm must consider the effect the "limited
partnership" will have on the attorney in question. A "half-way" partnership can present both
psychological and financial barriers for the candidate who has spent perhaps years of service at
the firm. In today's highly mobile environment, the firm may well find that the candidate opts to
reject the form of partnership being offered, and begins to search for an opportunity elsewhere.
Partner Departure
A departing partner, whether by death or otherwise, leaves a gap in the performance of
administrative duties as well as in providing services to clients of the firm. Assumption of
partnership obligations and debts must be provided for, lest a creditor seeks to place the burden
on one or several of the continuing partners rather than the partnership as a whole. Although the
partnership bears primary responsibility for the firm's obligations, a contract clause providing
that the departing partner shall be indemnified from continuing or new obligations of the

partnership should be included in the agreement. The agreement should also provide that the
departing partner remain liable for obligations incurred prior to the withdrawal.
The agreement may also provide that the withdrawing partner must assume some part of the
continuing obligations whether the firm continues or not. The two most common continuing
liabilities relating to a departing partner are the office lease and bank borrowing (usually for
furniture and fixtures). It is often desirable to deal with these directly in the lease or loan
agreement.
Payout Provisions
Withdrawing partners are entitled to a return of their capital and to their proportionate share of
partnership earnings. Against this, however, there may be set-offs for debts of the withdrawing
partner. Further, the withdrawing partner may have committed acts that are in breach of the
provisions of the agreement. Consequently, a clause providing for payment of capital accounts
should contain provisions to deal with such matters, including set-off of overdrawing and other
financial obligations (including perhaps a litigation reserve). In addition, the clause may contain
language withholding payment in the event of a breach of the agreement by the withdrawing
partner until the breach is satisfied.
The immediate payment of capital and income accounts to withdrawing partners may, however,
severely damage the continuing firm's financial condition. Consequently, the payout provisions
should also provide for deferred payments with the right to further defer payment if the
continuing firm's liquidity is severely affected by the payout.
Provisions regarding disposition of fees earned up to the time of departure, prospective fees on
completion of matters in process, and disposition of matured interests of the departing partner in
his or her contributed capital and retirement funds, should also be included. The allocation of
retainers for services performed over a period of time is often a point of contention. This may be
avoided by providing that these are to be considered on a monthly basis.
Another important question to be addressed is whether the departing partner is entitled to an
evaluation of the partnership assets and his continuing share of the profits or liabilities accrued
up to the date of his departure. Absent a clause dealing with payouts, the withdrawing partner is
entitled to an accounting. We suggest that the firm avoid the possibility of being involved in
proceedings requiring a formal accounting by including in the agreement a provision stipulating
that the report of the firm's independent accountant shall be binding.

d) MEMORANDUM OF ASSOCIATION (Chapter 4)

MEMORANDUM OF ASSOCIATION
The Memorandum of Association is the charter of the company, and provides the
foundation on which the structure of the company is built. It defines the scope of
the companys activities as well as its relation with the outside world.
[Section 2(28)] of the Companies Act defines a memorandum as the memorandum
of association of a company as originally framed or as altered from time to time in
pursuance of any previous Company Laws or of this Act. Section 13 of the Act
specifies the contents of the memorandum. The importance of the memorandum is
that it lays down the ambit of the powers of the company, the area within which the
company can operate and beyond which it cannot go.
The purpose of the Memorandum is to enable the shareholders, creditors and those
who deal with the company to know what its permitted range of enterprise is. The
Memorandum of Association must be (a) printed, (b) divided into paragraphs,
numbered consecutively, and (c) signed by each subscriber.

Contents of the Memorandum

(1) Name clause: The Memorandum of every company must state the name of
the company with the word Limited as the last word of the name in the case
of public limited company and with Private Limited as the last words of the
name in the case of private limited company.
(2) Domicile (or) situation clause: This clause mentions the name of the State
in which the registered office of the company will be situated. This determines
the jurisdiction of the Court and indicates the domicile and nationality of the
company. The full address of the company should be communicated to the
Registrar within thirty days from the date of registration.
(3) Objects clause: The Memorandum must include under this clause statement
of (a) the main objects of the company and objects incidental or ancillary to
the main objects, and (b) any other objects. The objects clause lays down the
scope of activities of the company and defines the extent of its powers. It
states affirmatively the ambit and extent of powers which are given to the
company by law.
(4) Liability clause: A limited company has the liability of its members limited to
the face value of the shares held by them. The liability clause of the
Memorandum contains a clear statement to this effect. The effect of this
clause is that no member can be held liable for debts of the company beyond
the amount which he has agreed to contribute to the share capital of the
company. If the shares held by a member of the company are fully paid-up, his
liability in the debts of the company will be nil. Similarly, in the case of a
company limited by guarantee, the liability of the member is limited to the
amount of guarantee given by him.

(5) Capital clause: In the case of a limited company having share capital, the
Companies Act requires that the memorandum shall state the amount of share
capital with which the company is to be registered and the division thereof into
shares of a fixed amount [Sec. 13(4)]. This is the maximum amount of share
capital that the company is authorized by the memorandum to raise. Hence, it
is called the authorized, registered or nominal capital.
(6) Association clause: Under this clause, subscribers to the Memorandum
express their assent to form a company and signify their agreement to
associate for that purpose. The statement of agreement to form a company
also mentions the subscribers consent to take the number of shares shown
against their respective names.

Doctrine of Ultra Virus

Ultra means beyond and virus means powers. The term ultra virus a company
means that the doing of the act is beyond the legal power and authority of the
company. The doctrine of ultra virus is important in defining the limits of the powers
conferred on the company by its Memorandum of Association. According to this
doctrine, the virus (power) of a company to enter into a contract or transaction is
limited by the ambit of the Objects Clause of the Memorandum and the provisions of
the Companies Act. Whatever is not permitted by the Objects Clause and the Act is
prohibited by the doctrine of ultra virus. If a company engages in any activity or
enters into any contract which is ultra virus (outside the power conferred by) the
Memorandum or Act, it will be null and void so far as the company is concerned and
it cannot be subsequently ratified or validated even if all the shareholders give their
consent. Thus under this doctrine, a company has powers to engage in only such
activities or enter into such transactions:

which are essential to the attainment of the objects specified in the

memorandum?

which are reasonably and fairly incidental to the main objects; and

which are permitted by the provisions of the Companies Act?

The doctrine of ultra virus was first enunciated in the celebrated case Ashbury
Railway Carriage and Iron Co. Ltd. vs. Riche. The company was registered with the
following objects:

to make, and sell, or lend on hire, railway carriages and wagons;

to carry on the business of mechanical engineers and general contractors;

to purchase, lease, work and sell mines, minerals, land and buildings.

The directors contracted with M/s. Riche to purchase a concession for laying a
railway line in Belgium. The contract was ratified by a special resolution. Later, the
contract was repudiated by the company on the ground of its being ultra virus and
Riche brought an action on the ground of breach of contract.

It was held by the House of Lords that the contract was ultra virus the company so
void ab initio. It was also held that, not even the assent of the whole body of
shareholders can ratify such a contract, as the contract was ultra virus the objects
clause.
Effects of ultra virus transactions
If a company enters into transactions, which are ultra virus, it will have the following
effects:
(1)

Injunction: Whenever a company goes beyond the scope of the object

clause, any of its members can get an injunction from the court to restrain the
company from undertaking the ultra virus act.

(2) Personal liability of directors: If the transaction is ultra virus, for instance,
if the funds of the company are misapplied, the directors will be held
personally liable.
(3) Ultra virus contracts: Contracts entered into by a company, which are ultra
virus, are void ab initio and unenforceable.
(4) Property acquired ultra virus: If a company acquires any property under an
ultra virus transaction, it has the right to hold the property and protect it
against damage by other persons.
(5) Ultra virus torts: A company is not liable for torts committed by its agents or
employees in the course of ultra virus transactions.

Alteration of Memorandum
1.

Alteration of name clause: A company may change its name by a special

resolution and with the approval of the Company.
Law Board (CLB) signified in writing. But a change of name which merely
involves the deletion or addition of the word Private on the conversion of a
private company into a public company or vice versa does not require the
approval of the CLB.
If through inadvertence or otherwise, a company is registered by a name
which, in the opinion of the CLB, is identical with, or too nearly resembles, the
name of an existing company, the company,
(a)

may change its name, by ordinary resolution and with the previous
approval of the CLB.
(b) shall change its name if the CLB so directs within twelve months of its
first registration or registration by its new name, as the case may be.
Where a company changes its name, the Registrar shall enter the new name in
the Register in the place of the old name and issue a fresh certificate of
incorporation with the necessary alterations embodied therein to the company.
2.

Alteration of situation clause: This may involve:

(a)

Change of registered office from one place to another place in the same
city, town or village.
(b) Change of registered office from one town to another town within the
State.
(c) Change of registered office from one State to another State.
In case of change of registered office from one place to another place in the
same city, a notice is to be given within thirty days after the date of the
change to the Registrar who shall record the same.
In case of change of registered office from one town to another town within the
State, a special resolution is required to be passed at the general meeting of
the shareholders and a copy of it is to be filed with the Registrar within thirty
days. Then within thirty days of shifting of the office, a notice has to be given
to the Registrar of the new location of the office.
In case of change of registered office from one State to another State, a special
resolution is required to be passed at the general meeting of the shareholders
and a copy of it is to be filed with the Registrar within thirty days. The
alteration shall take effect only when it is confirmed by the CLB. A certified
copy of the order confirming the alteration shall be filed by the company with
the Registrar of each of the States and the Registrar of each State shall
register the same. All the records of the company shall be transferred to the
Registrar of the State in which the registered office of the company is
transferred.
3.

Alteration of object clause: By [Sec.17 (1)], the objects of a company may

be altered by special resolution so as to enable the Company,

to carry on its business more economically or more efficiently.

to enlarge or change the local area of its operations.

to carry on some business which under existing circumstances may

conveniently or advantageously be combined with the objects specified in
the Memorandum.

to restrict or abandon any of the objects specified in the Memorandum.

to sell or dispose of the whole, or any part, of the undertaking, or of any

of the undertakings, of the company, or

to amalgamate with any other company or body of persons.

4.

Alteration of liability clause: A company limited by shares or guarantee

cannot change its Memorandum so as to impose any additional liability on the
members or to compel them to buy additional shares of the company unless all
the members agree in writing to such change.

5.

Alteration of capital clause: The procedure for alteration of capital and the
power to make such alteration are generally provided in the Articles of

Association of a company. If the power and procedure are not laid down in the
Articles the company must alter the Articles by passing a special resolution. If
so authorized by the Articles, a company may alter its share capital so as to,

increase the amount of its share capital;

consolidate and divide its share capital into shares of higher

denomination;

subdivide the existing shares into shares of lower denomination; however,

the proportion between the amount paid and the amount, if any, unpaid
on each reduced share must be the same as it was for the share before
reduction;

cancel the unissued capital;

convert all or any of its fully paid shares into stock and reconvert stock
into shares.

Ans e) (Chapter 6) For the first time in the history of consumers legislation in India, the
Consumer Protection Act,
1986 extended a statutory recognition to the rights of consumers. Section 6 of the Act
recognises the following six rights of consumers :

Right to Safety
Right to safety means the right to be protected against marketing of goods and services which
are hazardous to life and property.

Right to be Informed
The Right to be informed about the quality, quantity, potency, purity, standard and price of
goods or services, as the case may be, so as to protect the consumer against unfair trade
practices.
The right to be informed now goes beyond avoiding deception and the protection against
misleading advertising, labelling or other practices. Consumers should be provided with
adequate information enabling them to act wisely and responsibly.

Right to Choose
It means light to be assured, wherever possible, access to a variety of goods and services at
competitive price. In case of monopolies, say, railways, telephones, etc., it means right to be
assured of satisfactory quality and service at a fair price.

Right to be Heard
The consumers' interests will receive due consideration at appropriate fora. It also includes
right to be represented in various fora formed to consider the consumers' welfare.

Right to SeekRedressal

It means the right to seek redressal against unfair practices or restrictive trade practices or
unscrupulous exploitation of consumers. It also includes right to fair settlement of the genuine
grievances of the consumers.

Right to Consumer mucation

It means the right to acquire the knowledge and skill to be an informed consumer.

Other Rights
1) The right to a Healthy Environment
It means the right to a physical, environment that will enhance the quality of life.
This right involves protection against environmental problems over which the individpal
consumer has no control. It acknowledges the need to protect and improve the environment for
present and future generations.
2) Rade Codes
In view of rising consumer consciousness, State interest and market competition during last
few years some noticeable change has also taken place among business organisations and their
Associations or Federations. As result many of them have formulated certain trade codes and
ethics for improving the general image of the business community. Theseorganisations also
promise to look into the complaints of the Consumers against violation of these codes. As
such, here also, consumers get some rights. In the context an example can be cited of a code of
1 conduct evolved by the Council for Fair Business Practices, a prominent organisations of
business. The code consists of the following fundamental obligations of the businessmen.
1) They charge only fair and reasonable prices and take every possible step to ensure that
prices to be charged to the consumer are brought to his notice.
2) To take very possible step to ensure that the agents or dealers appointed by him do not
charge prices higher than what are fixed.
3) In times of scarcity, not to withhold or suppress stocks of goods with a view to hoarding
and/or profiteering.
4) Not to produce or trade in spurious goods; or goods of standards lower that specified.
5) Not to adulterate goods supplied.
6) Not to publish misleading advertisements.
7) To invoice goods exported or imported at their correct price,
8) To maintain accuracy in weights and measures of goods offered for sale.
9) Not to deal knowingly in smuggled goods.

f) Annual General Meeting (Chapter 5)

Ans. f) The annual general meeting of the company is an important means through
which the shareholders get the opportunity to exercise their power of control. It is at
this meeting that the director's retire and seek re-election. The shareholders get an
opportunity of reviewing and evaluating the overall performance of the company
during a year. The shareholders can place their views before the management and
can seek clarifications on matters about which they are not satisfied. Thus, an
annual general meeting is very important. Unlike the statutory meeting which is
held only once in the life-time of the company, the annual general meeting is held
every year Every company, public or private, must in each calendar year, hold in
addition to any other meeting a general meeting as its annual general meeting and
the notice must specify that it is the annual general meeting. The holding of an
annual general meeting is a statutory requirement.
Following are the rules regarding annual general meetings:

i) The first annual meeting of the company must be held within a period of 18
months from the date of its incorporation, and if such a general meeting is held
within that period, it shall not be necessary for the company to hold any annual
general meeting in the year of its incorporation or in the following year. For
example, a company is incorporated on 5th October, 6989 and holds its first annual
general meeting 10th March, 1991 (i.e. within 18 months of incorporation), then it
need not hold any other annual general meeting in 1990 and 1991. But from the
year 1992onwards, it must hold such a meeting in every calendar year.
ii) The gap between two annual general meetings must not exceed 15 months. The
Registrar may, however, for any special reason extend the above time by a period
not exceeding three months.
iii) At least 21 clear days' notice of the meeting in writing must be given to every
shareholder, directors and auditors of the company, A shorter notice may also be
given if it is agreed to by all the members entitled to vote at the meeting.
iv) The annual general meeting of the company must be called on a working day
during business hours either at the registered office of the company or at some
other place within the city in which the registered office of the company is situated.
Thus, no meeting can be called on a public holiday, for example on 15th August,
2nd October and 26th January. If any day is declared by the Central Government to
be a public holiday after the issue of notice convening the annual general meeting,
it shall not be deemed to be a public holiday and the meeting could be held on that
day as scheduled.
v) The Board of directors can cancel or postpone the holding of the meeting on the
scheduled date, but this power should be exercised by the Board bonafide and for
proper reasons. The better course for the Board will be to hold the meeting and then
have the matter decided by the meeting.
Consequences of not holding Annual General Meeting
Holding of the annual general meeting is a statutory requirement. If a company
makes a default in holding the annual general meeting in accordance with the
provisions of Section 166 of the Companies Act, the following two consequences will
follow:
i) Any member of the company can apply to the Company Law Board for calling the
meeting. On such applications, the Company Law Board may order the calling of the
meeting, or it may issue directions for calling the meeting, which may even include
a direction that one person present in person or proxy shall constitute the annual
general meeting. A meeting called by the order of the Company Law Board shall be
deemed to be annual general meeting of the company.
ii) The company and every officer of the company in default shall be punishable
with fine upto Rs. 5,000 and if the default continues, with a further fine upto Rs. 250
for every day after the first day of default during which the default continues.
The Business to be transacted: According to Section 173 of the Companies Act,
at the annual general meeting ordinary business is to be transacted. Any other
business can also be transacted at the annual general meeting, but that will be

termed as 'special business'. Thus, the annual general meeting can transact both
ordinary and special business. The following ordinary business is generally
transacted at every annual general meeting:
i) The consideration of the accounts, balance sheet and the reports of the Board of
directors and auditors;
ii) the declaration of dividend;
iii) the appointment of directors in the places of those retiring; and
iv) the appointment of the auditors and fixing their remuneration.
If any other business (other than those mentioned above) is to be transacted at the
annual general meeting, it shall be treated as special business. Special business can
be transacted annual general meeting provided the articles of association do not
prohibit. It and the notice of the meeting mention it as special business.