CH-1: INDIAN REGULATORY FRAMEWORK iii.

Department of Justice
5. The Securities and Exchange Board of India (SEBI)
What is law: set of obligations and duties imposed by the 6. Reserve Bank of India (RBI)
government for securing welfare and providing justice to 7. Insolvency and Bankruptcy Board of India (IBBI)
society
Structure of the Indian Judicial System:
Sources of law: the constitution; the statues and laws made
by the Parliament and State Assemblies; precedents of the Functions of Judiciary system of India:
judicial decisions of various courts; established customs and
Hierarchy of Courts:
usages
1. The Supreme Court (26th January, 1950): 7
The process of making law: law proposed in parliament is
members increased to 34 including Chief Justice of
bill, has to pass in Lok Sabha; has to pass in Rajya Sabha;
India; Writ petition under Article 32
has to obtain the assent of the president; notified by
2. High Courts: Article 214; Appellant, original and
government in Official Gazette of India; becomes applicable
supervisory jurisdiction; 25 high courts and 6
from the effective date mentioned in the notification; called
states share a single high court; Writ petition
an Act of Parliament
under Article 226
Types of laws in the Indian legal system: 3. District Courts: Pecuniary jurisdiction
4. Metropolitan Courts: Established in cities having
1. Criminal law: Indian Penal Code, 1860 and Code of population 10 lakh or more
Criminal Procedure, 1973
2. Civil law: Code of Civil Procedure, 1908 CH-7: THE NEGOTIABLE INSTRUMENTS ACT,
3. Common law: Article 141 of the Indian 1881
Constitution; Doctrine of Stare Decisis (to stand by
that which is decided) Meaning of Negotiable Instruments: Section 13 provides
4. Principles of natural justice: Jus Natural (natural no definition but only three kinds of negotiable instrument:
justice); Nemo judex in causa Sua (no one should bills of exchange, promissory notes and cheques payable
be made a judge in his own cause); Audi alteram either to order or bearer.
partem (hear the other party or give the other
Essential Characteristics of negotiable instruments:
party a fair hearing)
written; signed; transferrable; title free from defects; can
Enforcing the law: be transferred number of times; unconditional
promise/order to pay; certainty of sum payable, time of
1. The Ministry of Finance: Departments: payment and the payee; delivered
i. Department of Economic Affairs
ii. Department of Expenditure Promissory notes: an instrument in writing containing an
iii. Department of Revenue unconditional undertaking signed by the maker, to pay a
iv. Department of Financial Services certain sum pf money only to, or to the order of, a certain
v. Department of Investment and Public person, or the bearer of the instrument
Asset Management
 Parties to promissory note:
vi. Department of Public Enterprises
 Maker/debtor/payer
2. Ministry of Corporate Affairs
 Bearer/creditor/payee
3. Ministry of Home Affairs: Departments:
 Essential characteristics of promissory note:
i. Department of Border Management
written; express promise to pay; definite and
ii. Department of Internal Security
unconditional; signed by the maker; to pay money
iii. Department of Jammu, Kashmir and
only; certain sum; maker and payee must be
Ladakh Affairs
certain, definite and different persons; stamping
iv. Department of Official Language
 Central Translation Bureau Bills of exchange: an instrument in writing containing an
 Central Hindi Training Institute unconditional order, signed by the maker, directing a
 Directorate of Census Operations certain person to pay a certain sum of money only to, or
v. Department of States the order of, a certain person or to the bearer of the
4. Ministry of Law and Justice: Departments: instrument
i. Department of Legal Affairs
ii. Legislative Department  Parties to bill of exchange:
  Drawer 6. Ambiguous instrument: an instrument which may
 Drawee/debtor be construed as a promissory note or a bill of
 Payee exchange, the holder may at his election treat it as
 Essential characteristics of bill of exchange: either; in other words, one whose nature is not
written; express order to pay; definite and clear
unconditional; signed by drawer or debtor;
drawer, drawee and payee must be certain, Negotiation (transfer) of negotiable instrument:
definite and different persons; certain sum; order Negotiation means transfer of a negotiable instrument by
to pay money only; stamped one person to another in order to make the transferee the
 Process of bill of exchange: Mr. X (drawer); sold holder of the instrument.
goods to Mr. Y (drawee) and draws a BoE; BoE is
 Modes of negotiation:
delivered to Mr. Y and accepted by drawee
 In case where p/n, BoE or cheque payable
unconditionally; on maturity drawer present the
to bearer is negotiable by actual or
instrument to drawee for payment; drawer
constructive delivery
receives payment
 In case where p/n, BoE or cheque payable
Difference between promissory note and bill of exchange: to order is negotiable by the holder by
indorsement and delivery thereof
1. Definition  Importance of delivery in negotiation: Section 46
2. Nature of Instrument
3. Parties Dishonour of cheque for insufficiency of funds:
4. Acceptance
 Debt – Cheque was issued to discharge a legally
5. Payable to bearer
enforceable debt
Cheques: a bill of exchange drawn on a specified banker  Reason for dishonour – insufficiency of funds
and not expressed to be payable otherwise than on  Presentment of cheque – within 3 months
demand; payable to demand means it should be payable  Demand made from drawer – within 30 days of
whenever holder chooses to present it to the drawee (the dishonour (notice period)
banker)  Default by drawer to pay – within 15 days of
demand made
 Parties to cheque:
 Drawer/debtor Presumption in favour of holder:
 Drawee/banker
Defense which may not be allowed in any prosecution
 Payee/creditor
under Section 138: that the drawer had no reason to
 Essential characteristics of cheque: all essential
believe when he issued the cheque that the cheque may be
characteristics of a bill of exchange; drawn on
dishonored on presentment
specified banker; payable on demand; last 2
distinguish cheques from bills, thus, all cheques Presentment of Instruments:
are bills but all bills are not cheques
 Presentment for acceptance:
Classification of negotiable instruments:  Presentment of promissory note for sight:
 Drawee’s time for deliberation:
1. Bearer instrument: one which is expressed to be
 Presentment for payment:
payable to its bearer or which has last
 Hours of presentment:
indorsement in blank
 Presentment for payment of instrument payable
2. Order instrument: one which is expressed to be
after date or sight:
payable to a particular person
 Presentment for payment of promissory note
3. Inland instrument: a negotiable instrument drawn
payable by instalments:
or made in India and made payable in, or drawn
 Presentment for payment of instrument payable
upon any person resident in India
at a specified place and not elsewhere:
4. Foreign instrument: a negotiable instrument
 Instrument payable at specified place:
drawn or made outside India and made payable in
 Presentment where no exclusive place specified:
or outside India
 Presentment when maker, etc., has no known
5. Inchoate instrument: one that is signed and duly
place of business or residence:
stamped but otherwise wholly or partially blank
 Presentment of cheque to charge drawer:
  Presentment of cheque to charge any other 10. Small LLP: LLP, the contribution of which does not
person: exceed INR 25 lakh or such higher amount as may
 Presentment of instrument payable on demand: be prescribed which does not exceed INR 5 crore
 Presentment by or to agent, representative of and the turnover of which does not exceed INR 40
deceased, or assignee of insolvent: lakh or such higher amount as may be prescribed
 Excuse for delay in presentment for acceptance or which does not exceed INR 50 crore
payment:
 When present unnecessary: maker, drawee or Partners: (Section 5) an individual or body corporate; but
acceptor prevents the presentment; payable at not a person of unsound mind, undischarged insolvent
business place and that’s closed on business day
Minimum number of partners: 2 partners
during usual business hours; payable at specified
place and liable party doesn’t attend such place; Designated partners: at least 2 designated partners and
not payable at specified place and liable party not one of them must be a resident in India; resident in India
found after due search; liable party engaged to pay means ‘a person who has stayed in India for a period not
notwithstanding non-presentment; liable party less than 120 days during the immediately preceding year
makes part payment; liable party waives off his
right to take advantage; if drawer could not suffer Characteristics of LLP:
damage from want of such presentment
1. Body corporate
 Liability of banker for negligently dealing with bill
2. Perpetual succession
presented for payment:
3. Separate legal entity
Rules of compensation: In case of dishonour of negotiable 4. Mutual agency
instrument, holder can claim: 5. LLP agreement
6. Artificial legal person
1. Amount due on negotiable instrument 7. Common seal
2. Expenses incurred in presenting, noting and 8. Limited liability
protesting 9. Management of business
3. Interest 18% p.a. from due date of payment to 10. Minimum and maximum number of partners
date of realization 11. Business for profit only
12. Investigation
In case of foreign currency, current rate of exchange.
13. Compromise or arrangement
14. Conversion into LLP
CH-5: THE LIMITED LIABILITY PARTNERSHIP
15. E-filling documents
ACT, 2008 16. Foreign LLPs
LLP meaning: new form of nosiness entity with limited
Advantages of LLP:
liability; alternative corporate business vehicle; allow the
partners the flexibility of organizing their internal structure; 1. Organized and operates on the basis of an
LLP itself will be liable for the full extent of its assets; agreement
liability of the partners will be limited; In short, LLP as a 2. Provides flexibility without imposing detailed legal
separate legal entity and nosiness organisation is an and procedural requirements
alternative corporate business form that gives the benefits 3. Easy to form
of limited liability of a company and the flexibility of a 4. All partners enjoy limited liability
partnership. 5. Flexible capital structure
6. Easy to dissolve
Important Definitions:
Incorporation of LLP:
1. Body corporate:
2. Business:  Incorporation document: two or more persons
3. Designated partner: shall subscribe their names to the incorporation
4. Entity: document, in such manner with such fees as may
5. Financial year: be prescribed; and with a statement that all
6. Foreign LLP: requirements have been complied with signed by a
7. LLP: CA/CS/advocate
8. LLP agreement: Incorporation document shall be in a form as may
9. Partner: be prescribed containing name, proposed
 business, address of registered office of the LLP Difference between LLP and limited liability company:
along with the name and address of each partner.
If such statement made is false, such person is 1. Regulating act
punishable with imprisonment for 2 years and fine 2. Members/partners
from INR 10,000 to INR 5,00,000 3. Internal governance structure
 Incorporation by registration: the registrar shall 4. Name
retain the incorporation document and register 5. Number of members/partners
the document and give a certificate that the LLP is 6. Liability of members/partners
incorporated by the name specified therein 7. Management
 Registered office of LLP and change therein: every 8. Minimum number of directors/designated
LLP shall have a registered office to which all partners
communications and notices may be addressed;
such address can be changed by filing a notice with CH-6: THE COMPANIES ACT, 2013
the registrar; on contravening the provisions, the Company meaning: artificial person created with distinct
LLP and every partner will be fined INR 500 per day characteristics of separate legal entity and perpetual
to the maximum of INR 50,000 succession
 Effect of registration: on registration, a LLP, by its
name, shall be capable of suing and being sued; Features of a company: separate legal entity; perpetual
acquiring, owning, holding and developing or succession; limited liability; artificial legal person; common
disposing of property; having a common seal, if it seal
decides to have one; doing and suffering such
other acts and things as bodies corporate may Corporate veil theory: a concept whereby a company is
lawfully do and suffer identified separately from the members of the company;
 Name: use of words “Limited Liability Partnership” leading case: Saloman vs. Saloman and Co Ltd.
is necessary or its acronym “LLP”; no such name,
 Lifting of corporate veil:
which in the opinion of the central govt. is
 To determine the character of the
undesirable or identical or too nearly resembles to
company, i.e. to find out whether co-
any other LLP firm
enemy or friend
 Reservation of name: a person may apply for
 To protect revenue/tax
reservation of a name set out in the application as
 To avoid a legal obligation
the name of a proposed LLP or the name to which
 Formation of subsidiaries to act as agent
an LLP proposes to change its name
 Company formed for fraud/improper
 Change of name of LLP: If name of registered LLP
conduct or to defeat law
is identical or too nearly resembles to any other
partnership/LLP firm/company/registered trade Classes of companies:
mark, central govt. may direct such LLP to change
its name within 3 months (on application) 1. On the basis of liability:
a. Companies limited by shares
Difference between LLP and partnership: b. Companies limited by guarantees
c. Unlimited company
1. Regulating act
2. On the basis of members:
2. Body corporate
a. One person company: Significant points:
3. Separate legal entity
 Only one person as member
4. Creation
 Minimum paid-up capital – no limit
5. Registration
prescribed
6. Perpetual succession
 MoA shall indicate the name of
7. Name
nominee
8. Liability
 Prior written consent of nominee
9. Mutual agency
shall be filed with Registrar
10. Designated partners
 Such nominee may withdraw his
11. Common seal
consent
12. Legal compliances
 Member of OPC may at any time
13. Annual filing of documents
change the name of nominee by
14. Foreign partnership
giving notice to the company and the
15. Minor as partner
company to the Registrar
  Such change shall not be deemed to 3. On the basis of control:
be an alteration of the MoA a. Holding and subsidiary companies: a
 Only a natural person who is an company is a holding company in relation to a
Indian citizen and resident in India subsidiary company when the holding
can be a member or nominee company controls the composition of BOD or
 One person can be a member or exercises control over one-half of the total
nominee of one OPC at any point of voting power of such subsidiary company
time b. Associate company: in here, in relation to
 No minor shall become member or another company, associate means a
nominee of the OPC or can hold company in which that other company has a
share with beneficial interest significant influence (controls at least 20% of
 OPC cannot be converted into a total voting power), but which is not a
Section 8 company but may be subsidiary company of that company having
converted to public or private such influence and includes a joint venture
company (joint arrangement whereby the parties have
 OPC cannot carry out Non-banking joint control)
Financial Investment activities 4. On the basis of access to capital:
b. Private company: A company having a a. Listed company: a company which has any of
minimum paid-up share capital as may be its securities listed on any recognized stock
prescribed; exchange
 No minimum paid-up capital b. Unlisted company: company other than listed
requirement company
 Restricts the rights to transfer its 5. Other companies:
shares a. Government company: a company in which
 Limits the number of members from not less than 51% of the paid-up share capital
2 to 200 is held by the central govt. or any state govt.
 Prohibits any invitation to the public or partly by both govts.
to subscribe for any securities of the b. Foreign company: a company incorporated
company outside India which has a place of business in
i. Small company: a private company: India or conducts any business activity in India
 Paid-up share capital of c. Section 8 company: significant points:
which does not exceed INR  Formed for the promotion of
50 lakh or such higher commerce, art, science, religion,
amount as may be charity, protection of environment,
prescribed which shall not sports, etc.
be more than INR 10 crore  Requirement of minimum share
 Turnover of which does not capital doesn’t apply
exceed INR 2 crore or such  Uses its profits for the promotion of
higher amount as may be the objective for which it is formed
prescribed which shall not  Doesn’t declare dividend to members
be more than INR 100 crore  Operates under a special license from
 Should not be Section 8 central govt.
company or a  Need not use the word Ltd./Pvt. Ltd.
holding/subsidiary company In its name and adopt a more
ii. OPC can be formed only as a private suitable name such as club/chambers
company of commerce, etc.
c. Public company: A company which is not a  License revoked if conditions
private company; contravened
 Shares freely transferrable  On revocation, central govt. may
 No minimum paid-up capital direct it to convert its status and
requirement change its name or wind-up or
 Minimum members – 7 and amalgamate with another Section 8
maximum members – no limit company having similar objects
 Subsidiary of a public company is
deemed to be a public company
  Can call its general meeting by giving Name availability for proposed co.
a clear 14 days’ notice instead of 21 Preparation of MoA and AoA
days Application for incorporation of co.
 Requirement of minimum number of Duty of Registrar ROC to scrutinize
directors, independent directors, etc. documents
does not apply  On satisfaction with documents filed, ROC
 Need not constitute nomination and will issue COI (Certificate of
remuneration committee and Incorporation)
shareholders relationship committee  Incorporation of company:
 A partnership firm can be a member 1. Filing of the documents and information with
of Section 8 company the registrar: signed by all the subscribers;
d. Dormant company: a company formed to declaration by a person who is engaged in the
hold asset or intellectual property and has no formation of the company and by a person
significant accounting transaction; inactive named in the articles; declaration from each
company means one which has not carried of the subscribers to the memorandum and
any business operation for the last 2 financial from the persons named as the first directors;
years; significant accounting transaction address of correspondence; particulars of
means anything other than every subscriber; particulars of the members
 Payment of fees to Registrar mentioned in the articles as subscribers to the
 Payment of any expense to fulfil the memorandum; particulars of the interests of
requirement of the act the persons mentioned in the articles
 Allotment of shares 2. Issue of certificate of incorporation on
 Payment for office and records registration:
maintenance 3. Allotment of Corporate Identity Number (CIN):
e. Nidhi companies: Nidhi or mutual benefit 4. Maintenance of copies of all documents and
society is a company declared by the central information:
govt. mainly for cultivating the habit of thrift 5. Furnishing of false or incorrect information or
and savings amongst its members suppression of material fact at the time of
f. Public Financial Institutions: for an institution incorporation:
to be PFI, it should be established under any 6. Company already incorporated by furnishing
legal act and 51% of its shares must be held by any false or incorrect information or
the central govt. or any state govt. or partly by representation or by suppressing any material
both of them fact:
 Life Insurance Corporation of India 7. Order of the tribunal:
 Infrastructure Development Fin. Co.
Ltd. Simplifies Proforma for Incorporating Company
 Specified company referred to in the Electronically (SPICe):
Unit Trust of India
 Effect of registration:
 Institutions notified by the central
 From the date of incorporation, the
govt.
company becomes a legal person by the
Mode of registration/incorporation of company: name contained in the memorandum and
capable of exercising all the functions of
 Promoters: a person – an incorporated company
 Who has been named as such in a  The issue of COI is considered as
prospectus or annual return or conclusive evidence as to compliance of
 Who has control over the affairs of co., all the legal formalities in respect of
directly or indirectly or registration of co.
 In accordance with whose advice,  Effect of memorandum and articles:
directions or instructions the BOD is
accustomed to act Classification of capital:
 Formation of company:
1. Nominal or authorized or registered capital: capital
 Obtain DSC (Digital Signature Certificate)
authorized by the MoA to be the maximum capital
 Obtain DIN (Director Identification
of the company
Number)
2. Issued capital: capital issued for subscription
 3. Subscribed capital: capital subscribed by members 4. Liability clause
of company 5. Capital clause
4. Called-up capital: capital called for payment 6. Association clause
5. Paid-up capital: aggregated amount of money
credited as paid on shares issued not including any Doctrine of ultra vires:
other amount received in respect of such shares
 Ultra means ‘beyond’ Vires means ‘powers’
Shares:  Any act beyond the object clause of MoA is ultra
vires the company and null and void
 Nature of shares: means a share in the share  Ultra vires act cannot be ratified even by
capital of a company and includes stock; every unanimous consent of all the shareholders
share is distinguished by its distinctive number;  Act ultra vires the directors, but intra vires the
shares are a movable or transferrable property company can be ratified by the shareholders
 Kinds of shares:  Act ultra vires the AoA can be ratified by altering
1. Equity share capital: with voting rights; or with AoA
differential rights as to dividend, voting and  AoA can be altered by the shareholders but MoA
otherwise in accordance with prescribed rules cannot be altered without filing such alteration
2. Preference share capital: a part of issued and giving notice to the ROC
share capital which carries preferential right
to: payment of dividend and repayment of Articles of association: It is a document containing rules,
capital regulations and by-laws of a company. It lays down the
form on which the business has to be carried on.
Memorandum of association: it is known as charter of
company. It is a fundamental document of a co. containing  Contents and models of the AoA:
the fundamental conditions upon which a co. is to be 1. Contains regulations:
incorporated. 2. Inclusion of matters:
3. Manner of inclusion of the entrenchment
 It lays objects and scope of activities and provision:
limitations on the powers of a company 4. Notice to the registrar of the entrenchment
 MoA of a company as originally framed or as provision:
altered from time to time in pursuance of any 5. Forms of articles:
previous accompany law or of this act 6. Model articles:
 Object of registering MoA: 7. Company registered after the commencement
 It contains objects of company of this act:
 It shows company’s powers
 Every person dealing with company is Difference between MoA and AoA:
presumed to have knowledge of MoA
1. Objective
shareholders know for what his money is
2. Relationship
used
3. Alteration
 Memorandum shall be drawn up as per:
4. Ultra vires
1. Table A: is a form for MoA of a company
limited by shares Doctrine of Indoor Management:
2. Table B: is a form for MoA of a company
limited by guarantee and not having a share  Doctrine of constructive notice:
capital  MoA and AoA are public documents open
3. Table C: is a form for MoA of a company and accessible to all
limited by guarantee and having a share  Any person dealing with co. is presumed
capital to have read MoA and AoA irrespective of
4. Table D: is a form for MoA of an unlimited whether he reads it or not
company  Not only read these documents but have
5. Table E: is a form for MoA of an unlimited also understood their proper meaning
company and having share capital  Doctrine of indoor management (turquand rule):
 Content of the memorandum:  Exception to doctrine of constructive
1. Name clause notice
2. Registered office clause  protects outsiders against company who
3. Object clause acted in good faith
  persons dealing with company are 1. Legal status
presumed to have read the registered 2. Agency
documents and to see that the proposed 3. Distribution of profits
dealing is not inconsistent therewith, but 4. Extent of liability
they need not enquire into the regularity 5. Property
of internal proceedings as required by 6. Transfer of shares
MoA and AoA 7. Management
 Exceptions to the doctrine of indoor 8. Registration
management: 9. Winding up
 Limitations of doctrine of indoor management: 10. Number of members
1. Actual or constructive knowledge or 11. Duration of existence
irregularity:
2. Suspicion of irregularity: Difference between partnership and club:
3. Forgery:
1. Definition
2. Relationship
CH-4: THE INDIAN PARTNERSHIP ACT, 1932
3. Interest in the property
4. Dissolution
UNIT-1: GENERAL NATURE OF PARTNERSHIP

Definition of partnership: relationship between two or Difference between partnership and Hindu Undivided
more persons who have agreed to share the profits of the Family (Joint Hindu Family):
business carried on by all or any of them acting for all;
1. Mode of creation
persons who have entered into the partnership are
2. Death of a member
individually called ‘partners’; firm; firm name
3. Management
Elements of partnership: 4. Authority to bind
5. Liability
1. Association of two or more persons 6. Calling got accounts on closure
2. Agreement between two or more persons: this 7. Governing law
element relates to voluntary contractual nature; 8. Minor’s capacity
thus, partnership is voluntary and contractual 9. Continuity
3. Agreement to carry on some business 10. Number of members
4. Agreement to share profits of the business: 11. Share in the business
agreement to share losses is not an essential
element; if no provision is there, losses will be Difference between partnership and co-ownership (the
borne in profit-sharing ratio relation which subsists between persons who own
5. Business must be carried on by all or any of them property jointly or in common):
acting for all: (mutual agency) cardinal principle of
1. Formation
partnership law; true test of partnership is mutual
2. Implied agency
agency rather than sharing of profits
3. Nature of interest
 Partnership agreement is also known as
4. Transfer of interest
partnership deed.
 A company being a separate legal entity can join a Difference between partnership and association:
partnership but a partners’ firm cannot be a
member of another partnership because firm is 1. Meaning
not a recognized person in the eyes of law. 2. Examples
 Number of partners 2 to 50.
Kinds of partnership:
True test of partnership:
1. With regard to duration:
 For determining the existence of partnership: a. Partnership at will:
 Agreement:  no provision is made for duration of
 Sharing of profits: partnership
 Mutual agency:  partnership may be dissolved by any
partner by giving a notice to that
Difference between partnership and joint stock company: effect to all the other partners
 b. Partnership for fixed period: take part in the conduct of the business; liable to
 Partnership created for a particular third parties for all acts of the firm; public notice of
period of time his retirement; his insanity does not dissolve firm
 Such partnership comes to an end on 4. Partner in profits only: it is a person entitled to
the expiry of the fixed period share of profits only and liable to the third parties
2. With regard to extent of business: for all acts of profits only; not liable for the losses
a. Particular partnership: 5. Incoming partner: it is a person who comes into a
 Partnership is formed for a particular partnership firm already in existence with the
period or for a specific venture consent of all existing partners; no liability for any
 Partnership is automatically dissolved acts of the firm done before his admission as a
at the expiry of the fixed term of on partner
the completion of the venture 6. Outgoing/retiring partner: it is a partner who
 If the partners decide to continue, it leaves the firm either due to retirement, expulsion,
becomes a partnership at will insolvency or death; rest of the partners continues
b. General partnership: to carry on business; remains liable to third parties
 Partnership which is constituted with for all acts of the firm until public notice is given of
respect to business in general his retirement
7. Sub-partner: a partner agrees to share his share of
Partnership deed: It is document in writing containing the profits in a partnership firm with and outsider;
various terms and conditions as to the relationship of the such an outsider is called a sub-partner; neither
partners to each other. has rights against the firm nor is he liable for the
debts of the firm
 Content of partnership deed:
8. Partner by holding out: when a person represents
 Name of the partnership
himself or knowingly permits himself to be
 Name of all the partners
represented as a partner in a firm (when in fact he
 Nature and place of the business of the
is not a partner), he is liable like a partner in the
firm
firm to anyone who on the faith of such
 Date of commencement of partnership
representation has given credit to the firm
 Duration of the partnership firm
 Capital contribution of each partner
UNIT-2: RELATIONS OF PARTNERS
 Profit sharing ratio of the partners
 Admission and retirement of a partner Relation of partners to one another:
 Rates of interest on capital, drawings and
loans 1. General duties of partners: the partners should
 Provisions for settlement of accounts in carry the business to the greatest common
the case of dissolution of the firm advantage and they should render information to
 Provisions for salaries or commissions each other on a regular basis
payable to the partners, if any 2. Duty to indemnify for loss caused by fraud: The
 Provision for expulsion of a partner in partner committing fraud is obliged to indemnify
case of gross breach of duty or fraud the innocent partners and the innocent ones can
divide the amount so brought among themselves.
Types of partners: 3. Determination of rights and duties of partners by
contract between the partners: All the mutual
1. Active/actual/ostensible partner: it is a person rights and duties may be determined by a contract
who has become a partner by agreement and between the partners.
actively participated in the conduct of the 4. The conduct of the business:
partnership; acts as an agent of other partners; i. Right to take part in the conduct of the
public notice of his retirement business:
2. Sleeping/dormant partner: it is a person who is a ii. Right to be consulted: Every partner shall
partner by agreement and does not actively take have the right to express his opinion on
part in the conduct of the partnership business; any matter rising in the conduct of the
liable like any other partner; no public notice of his business.
retirement; his insanity doesn’t dissolve firm iii. Right to access to books: Every partner,
3. Nominal partner: it is a person who lends his may it be active or sleeping, has the right
name to the firm without having any real interest
in firm; not entitled to share of profits; does not
 to access to the books of the firm, but  If a partner derives any kind of profit from any
such right must exercise bona fide. transaction of the firm or from the property of the
iv. Right of legal heirs/representatives/their firm or from firm name, he shall account for it and
duly authorized agents: pay it to the firm
5. Mutual rights and liabilities:  If a partner carries on a competing business of
i. Right to remuneration: When it is same nature of the firm, he shall account for it and
customary to pay remuneration to a pay all the profits earned by him in that business
partner for conducting the business of the to the firm
firm, he can claim it even in the absence
of a contract to the contrary. Rights and duties of partners after a change in the firm:
ii. Right to share profits: In the absence of
a. After a change in the firm: When a change occurs
an express agreement regarding the
in the constitution of the firm, the mutual rights
profit-sharing ratio, the profits must be
and duties of the partners remain the same as it
distributed among partners equally.
was before reconstitution.
iii. Interest on capital: There must be an
b. After the expiry of the term of the firm: Even after
express agreement and a statutory
the expiry of the term, the mutual rights and
provision which entitles a partner to the
duties will remain the same, but the partnership
interest on capital.
for a fixed period will become partnership at will.
iv. Interest on advances: A partner
c. Where additional undertakings are carried out:
advancing funds to the firm is entitled to
Even when the additional adventures or
interest of 6% p.a.
undertakings are carried out by the firm, the
v. Right to be indemnified: A partner has
mutual rights and duties will be the same.
the right to be paid or compensated for
any act done by him in an emergency kind Relation of partners to third parties:
of situation where any person of ordinary
prudence would have done to protect his 1. Partner to be an agent of the firm: As far as a
own business. partner act for himself and in his own interest in
vi. Right to indemnify the firm: A partner the common concern of the partnership, he may
must indemnify the firm for any loss properly be deemed as principal and so far, as he
caused to it by willful neglect in the acts for his partners, he may properly be deemed
conduct of the business by that partner. as an agent.
2. Implied authority of partner as agent of the firm:
Partnership property:  Mode of doing act to bind firm:
a. Acts within implied authority of
1. The property of the firm: The property which is
partner:
deemed as belonging of the firm: capital, assets
 Purchase goods
and goodwill.
 Sell the goods
 Goodwill: The value of the reputation of a
 Settle accounts
business house in respect of profits
 Receive payments of firm
expected in future over and above the
 Engage servants for firm
normal level of profits earned by
 Engage a lawyer to defend
undertaking belonging to the same class
an action brought against
of business.
the firm
 Property of a partner: A property
 Borrow money for firm’s
exclusively belonging to a partner will not
business
become a property of the partnership just
 Pledge the goods of the firm
because it was used for the business.
as security for the
Such property will become the firm’s
repayment of borrowings
property only after an express agreement.
made for firm’s business
2. Application of the property of the firm: No
 Draw, accept, and endorse
partner can have interest in the property of the
bill of exchange and other
firm, only a share in the profits earned by the firm
negotiable instrument in the
using that property.
name of the firm
Personal profit earned by partners: b. Acts beyond implied authority of
partner:
  Submit a dispute relating to the ordinary course of business of the firm with
the business of the firm to the authority of the partners causing loss or injury
arbitration to a third party.
 Open a banking account on 3. Liability of firm for misapplication by partners: If a
behalf of the firm in his own partner receives money/property from a third
name party for the firm and that partner misuses or
 Compromise or relinquish misapplies it, or if the firm receives it and any
(cease to exist) any claim or partner misapplies it, in both cases the firm must
portion of a claim by the make good the loss.
firm
 Withdraw a suit or Rights of transferee of a partner’s interest:
proceedings filed on behalf
 During the continuance of partnership, such
of the firm
transferee is not entitled to
 Admit any liability in a suit
i. Interfere with the conduct of the business
or proceedings against the
ii. Require accounts
firm
iii. Inspect books of the firm
 Acquire immovable property
iv. Such transferee is only bound to receive
on behalf of the firm
the share of the transferring partner and
 Transfer immovable
cannot challenge the accounts
property belonging to the
 On dissolution of firm or retirement of transferring
firm
partner, the transferee is entitled
 Enter into partnership on
i. To receive the share of the assets of the
behalf of the firm
firm
3. Extension and restriction of partners’ implied
ii. For the purpose of ascertaining the share
authority: Section 20 simply tells us that if the
third party is aware of restrictions on implied Minors admitted to the benefits of partnership: a minor
authority of a partner, then he cannot recover the cannot be a partner but can enter into partnership with
money from the firm. But if the third party us not consent of all partners for the benefits only
aware of any restrictions, then he can recover full
money from the firm. 1. Rights:
4. Partners’ authority in an emergency: Partner has  Right to receive his agreed share of
authority to do all such acts for the purpose of property and of the profits of the firm
protecting the firm from loss as would be done by  Right to have access, inspect and to take
a person of ordinary prudence in his own case copies of the books of accounts of the
under similar circumstances. firm
 Not entitled to take part in day-to-day
Effect of admission by a partner: partners, as agents can affairs of the firm
make binding admissions but only in relation to partnership  Right to bring a suit against the partners
transaction; they will affect the firm when tendered with for an account or payment of his share of
third parties; they may not have same effect in case of property or profits of the firm
disputes between the partners themselves 2. Liabilities:
i. Before attaining majority:
Effect of notice to acting partner: even if one of the
 Liability of minor is confined only
partners, especially active partner, has the notice of
to the extent of his share in
something important, it will be considered as if all the
profit or property of the firm
partners had the notice of it, therefore everyone will be
 No personal liability for the debts
held liable.
 A minor cannot be declared
Liability to third parties: insolvent, but if the firm is
declared insolvent, minor can
1. Liability of a partner for acts of the firm: All the recover his share on
partners are jointly and severally liable to third proportionate basis from official
parties for any act or omission by all the partners assignee
or by any partner of agent of the firm. ii. After attaining majority: on attaining
2. Liability of the firm for wrongful acts of a partner: majority, he can decide, within 6 months,
The firm is liable for any act of any partner done in whether he would continue or not and
 give public notice of his decision. agreement to above effect (E.g. dealing
Otherwise, he will be liable for debts with between the third party and the
retrospective effect reconstituted firm after the third party
a. When he becomes partner: had the knowledge of the retirement
 His share in the profits and 3. Expulsion of a partner:
property of the firm  Conditions for a Bonafide expulsion:
becomes liable to the third i. Power of expulsion must have
parties for all acts of the firm existed in the contract
since he was admitted ii. Power has been exercised by
 His share remains the same majority of partners
to which he was entitled to iii. It has been exercised in good
as a minor faith
b. When he elects not to become a  Otherwise, expelled partner may claim re-
partner: instatement as a partner, or may sue for
 His rights and liabilities the refund of his share of capital and
continue to be those of a profits in the firm
minor  Rights and liabilities will be same as that
 His share shall not be liable of a retiring partner
after the date of notice  The partner to be expelled must be
 He shall be entitled to sue served with notice and must be given an
the partners for his share opportunity of being heard
4. Insolvency of a partner:
Legal consequences of partner coming in and going out:  The insolvent partner cannot be
continued as a partner from the very date
1. Introduction of a partner:
on which the order of adjudication is
 Rights and liabilities of new partner:
made
ordinarily, the liabilities of the new
 The estate of the insolvent is not liable for
partner commence from the date of
the acts of the firm done after the date of
admission unless he agrees to be liable
order of adjudication and vice-versa
for the obligations prior to the date of
 No public notice is required on insolvency
admission. The creditors, on the basis of
of a partner and such insolvency may not
novation in the firm proposed by the new
result in dissolution of the firm if the
firm, can discharge the old partners and
remaining partners agree to carry on the
accept the new firm as their debtor
business
 In case of partnership of two partners:
5. Liability of estate of deceased partner:
this provision is not applicable to a
 The firm is dissolved unless otherwise
partnership of two members because the
specifically provided in deed
firm already dissolves by the death of one
 The estate of the deceased partner is not
of them
liable for any act of the firm done after his
2. Retirement of a partner:
death
 a partner may retire either –
 No public notice is required of the death
 with the consent of all existing
of a partner
partners, or
 as per partnership deed, or Rights of outgoing partner to carry on competing business:
 where the partnership is at will, to carry on competing business but he may not:
by giving notice in writing to all
the other partners i. Use the firm name
 Liability of the retiring partner: A retiring ii. Represent himself as carrying on the business
partner continues to be liable as partner of the firm
after the retirement until public notice is iii. Solicit the customers who were dealing with
given of the retirement the firm before he ceased to be a partner
 Discharge of retiring partner for acts of
the firm done before his retirement: By Rights of outgoing partner in certain cases to share
an agreement between third party and subsequent profits: in the absence of a contract to the
remaining partners or by an implied contrary, if the final settlement is pending, legal
representatives of the deceased partner or the retiring ix. To contribute equally to the losses of the firm
partner are entitled to any of the following two options: x. To indemnify the firm for loss caused by his
willful neglect or fraud
i. Share of the profit earned after death or
retirement UNIT-3: REGISTRATION AND DISSOLUTION OF A
ii. Claim interest at the rate of 6% p.a. on the FIRM
amount of his share in the property
Registration of firms: Getting registered with the Registrar
Provided that whereby contract between the partners, an of firms.
option is given to surviving or continuing partners to
purchase the interest of deceased or outgoing partner, and  Application for registration: The procedure is to
that option is duly exercised, the estate of the deceased or apply with prescribed form with prescribed fees.
outgoing partner is not entitled to any further share of The contents of the application form:
profits i. Name of the firm
ii. Principal and other places of business of
Revocation of continuing guarantee by change in firm: the firm
whenever there is any change in the constitution of firm, iii. Date when each partner joined the firm
the continuing guarantee given by the firm will also come iv. Names and addresses of the partners
to an end v. The duration of the firm
 Registration: The registration of firm becomes
Rights of a partner: effective from date of filing the form when the
registrar becomes satisfied and issues a certificate
i. Take part in the conduct of the business
of registration.
ii. Express his opinion
 Late registration on payment of penalty: If the
iii. Access to and inspect and copy any of the
statement is not delivered to the registrar within
books
the specified time, then the firm may be registered
iv. Share profits and property
on a payment of penalty of INR 100 per year
v. Interest on capital
vi. Interest on advance Consequences of non-registration:
vii. To be indemnified
viii. Not to be expelled unless majority partners i. No suit in a civil court by firm or other co-
agree and provision to that effect exists in partners against third party:
agreement ii. No relief to partners for set-off of claim:
ix. Resist the introduction of a new partner iii. Aggrieved partner cannot bring legal action
x. Right to retire against other partner or the firm:
xi. Right of outgoing partner to carry on a iv. Third party can sue the firm:
competing business
xii. Right of outgoing partner to share subsequent Exceptions (Rights not affected by non-registration):
profits
i. Right of third parties to sue the firm or any
xiii. Right to dissolve the firm
partner
Duties of a partner: ii. Power of an official assignee or receiver of the
court
i. Carry on the business of the firm iii. Right of the partners to sue for the dissolution
ii. To be just and faithful to each other of the firm or for the accounts of a dissolved
iii. To tender true accounts and full information firm or for the realization of the property of a
iv. To attend diligently to his duties without any dissolved firm
remuneration iv. Rights of the firm or partners of firm having no
v. Not to carry on any business other than that place of business in India
of the firm while he is partner, if restrained by v. Right to sue or claim a set-off if the value of
an agreement with other partners the suit upto INR 100
vi. If a partner carries on any business competing vi. Rights of partners to sue for the criminal
with that of the firm, he shall account for and proceedings against other partners of the firm
pay to the firm all profits made by him in that and against the third parties
business
vii. To account for secret profit, from the firm Dissolution of firm: It means discontinuation of the legal or
viii. Not to assign his share jural relation between all the partners of the firm.
 Modes of dissolution of a firm: vi. Continuous/perpetual losses:
1. Dissolution without the order of the court or dissolution by court on the grounds
voluntary dissolution: of continuing loss for past few
i. Dissolution by agreement (mutual): financial years
Dissolution with the consent of all the vii. Just and equitable grounds: deadlock
partners or as per contract between in the management, partners not in
the partners. talking terms, loss of substratum
ii. Compulsory dissolution (by (trust and faith), gambling by a
operation of law): Dissolution partner on a stock exchange can lead
because of all but one of the partners to dissolution by court
are adjudicated as insolvent or by the
happening of an event which makes Difference between dissolution of firm and dissolution of
the partnership unlawful. partnership:
iii. Dissolution on the happening of
1. Continuation of business
certain contingencies: Dissolution
2. Winding up
unless otherwise agreed
3. Order of court
 on the expiry of fixed term
4. Scope
 on completion of purpose of
5. Final closure of books
any adventures or
undertaking for which the Consequences of dissolution:
firm was formed
 on the death of a partner i. Liability for acts of partners done after
 on the insolvency of a dissolution:
partner  After a firm is dissolved, the firm and
iv. Dissolution by notice of partnership all partners remain liable for acts
at will: Firm may dissolve as from the done by any partner in the firm’s
date of dissolution mentioned in the name until public notice of
notice or as in case of no date dissolution is given.
mentioned, from the date of  If a partner act on behalf of the firm
communication of notice after dissolution and the third party is
2. Dissolution by the court: Court may dissolve a unaware of the of the dissolution, the
firm on the following grounds: firm is still liable.
i. Insanity: Where a partner (not the  To stop this liability, the firm must
sleeping partner) has become of issue a public notice
unsound mind. Temporary sickness is  Once the notice is given, the firm is
no ground for dissolution. not responsible for any new acts by
ii. Permanent incapacity: permanent partners.
incapacity may result from physical  Exemption – if the third party knew
disability or illness, etc. the firm was dissolved, no liability
iii. Misconduct: where a partner, other arises – even without public notice
than the partner suing, is guilty of ii. Right of partners to have business wound up
conduct which may affect the after dissolution: Every partner is entitled to
carrying on of business prejudicially have the property of the firm applied in
iv. Persistent breach of agreement: payment of the debts and liabilities of the fir,
embezzlement, keeping erroneous and to have to surplus distributed among the
accounts, holding more cash than partners.
allowed, refusal to show accounts iii. Continuing authority of partners for purposes
despite repeated request, etc. can of winding up: Even after the dissolution of
lead to dissolution by the order of the firm, the partners still have the authority
court to act on behalf of the firm only for winding
v. Transfer of interest: where a partner, up the firm’s affairs and completing unfinished
other than the partner suing, has transactions that started before dissolution.
transferred the whole of his interest iv. Mode of settlement of partnership accounts:
in the firm to a third party When a firm is dissolved, the money is first
used to pay: all the creditors; any loans from
 the partners; each partner’s capital; and seller acknowledges to the buyer that he
finally, if any left, the profit divided among the holds the goods on buyer’s behalf
partners. iii. Symbolic delivery: Delivery of the
If there is loss, the settlement is first made out document of title to goods to buyer in
of profits; then from capital and if still not token of transfer of something else.
covered, partners must pay personally in their D. Document of title of goods: Document of title of
profit-sharing ratio. goods includes bill of lading, dock-warrant,
v. Payment of firm debts and of separate debts: warehouse keeper’s certificate, wharfinger’s
The assets of the firm shall be used to pay the certificate, railway receipt, multimodal transport
liabilities of the firm first and if any balance is document, warrant or order for the delivery of
left it shall be used for the payment of goods
separate debts of the partners. Similarly, the E. Mercantile agent: An agent, who in the customary
properties of the partners shall be used to pay course of business, has authority either to sell
off the partners’ separate debts first and goods or to consign goods for the purpose of sale
balance, if any, shall be used for paying the or to buy goods or to raise money on the security
joint debts of the firm. of the goods. Mercantile agent can borrow money
by pledging the goods.
CH-3: THE SALE OF GOODS ACT, 1930 F. Property: transfer of ownership from the seller to
the buyer
UNIT-1: FORMATION OF THE CONTRACT OF SALE G. Insolvent: A person is said to be insolvent when he
ceases to pay his debts or cannot pay his debts as
Definitions:
they become due
A. Buyer and seller: The two terms, ‘buyer’ and H. Price: It means the money consideration for a sale
‘seller’ are complementary and represent the two of goods.
parties toa contract od sale of goods. I. Quality of goods: It includes the state or condition
B. Goods and other related terms: Goods means of goods.
every kind of movable property other than
Sale and agreement to sell: A contract of sale may be
actionable claims and money. Actionable claims
absolute or conditional.
are claims which can be enforced only by an action
or suit, e.g. debt.  Sale: Transfer of property in the goods from the
Classification of goods: seller to the buyer.
i. Existing goods: Goods owned or  Agreement to sell: Transfer of property in the
possessed by the seller at the time of sale goods is to take place at a future time or subject to
a. Specific goods: Goods identified and some conditions thereafter to be fulfilled.
agree upon at the time a contract of  When agreement to sell becomes sale: An
sale is made agreement to sell becomes a sale when the time
b. Ascertained goods: Goods become elapses or the conditions are fulfilled subject to
ascertained subsequent to the which the property in the goods is to be
formation of contract of sale transferred.
c. Unascertained goods: Goods  Essentials of a sale: Two parties; price; transfer of
unidentified or lying in huge bulk general property; essential elements of a valid
defined only by description contract
ii. Future goods: Goods to be manufactured
or produced or acquired by the seller Difference between sale and agreement to sell:
after making of contract of sale
iii. Contingent goods: Goods, the acquisition 1. Transfer of property
of which by the seller depends upon a 2. Nature of contract
contingency 3. Remedies for breach
C. Delivery: Voluntary transfer of possession from 4. Liability of parties
one person to another 5. Burden of risk
Forms of delivery: 6. Nature of rights
i. Actual delivery: When the goods are 7. Right of resale
physically delivered to the buyer 8. In case of insolvency of seller
ii. Constructive delivery: When a person in 9. In case of insolvency of buyer
possession of goods belonging to the
Difference between sale and hire purchase: Ascertainment of price:

1. Time of passing property  Ascertainment of price: The price may be fixed by

2. Position of the party the contract; or agreed to be fixed in a manner
3. Termination of contract provided by the contract, i.e. by a valuer; or
4. Burden of risk of insolvency of the buyer determined by the course of dealings between the
5. Transfer of title partners.
6. Resale  Ascertainment to sell at valuation:
 If the price is to be fixed by a third party,
Difference between sale and bailment: the contract is valid.
 If the third party fails to fix the price, the
1. Transfer of property
agreement becomes void.
2. Return of goods
 But if no party is at fault for the third
3. Consideration
party not fixing the price, the other party
Difference between sale and contract for work and labour: may claim damages.
A contract of sale of goods is one in which some goods are  If the buyer has already received the
sold or are to be sold for a price. But where no goods are goods and the price wasn’t fixed, buy
sold, and there is only the doing or rendering of some work must pay a reasonable price.
of labour, then the contract is only work and labour and not
of sale of goods. UNIT-2: CONDITIONS AND WARRANTIES

Conditions and warranties: A condition is a stipulation

Contract of sale how made:
essential to the main purpose of the contract, the breach of
 It is made be an offer to buy or sell goods for a which gives right to treat the contract as repudiated and
price and acceptance of such offer claim damages. Whereas, a warranty is a stipulation
 There may be immediate delivery collateral to the main purpose of the contract, the breach
 There may be immediate payment but delivery at of which gives rise to a claim for damages only.
a later date
Difference between condition and warranty:
 There may be immediate delivery as well as
immediate payment 1. Meaning
 The delivery and payment, both can be agreed to 2. Right in case of breach
be in instalments 3. Conversion of stipulations
 The delivery and payment, both can be agreed to
be made at a future date When condition is to be treated as warranty: as a result of
which the buyer loses his right to rescind the contract and
Subject matter of contract of sale: can claim damages only
 Existing or future goods: A seller can sell goods he  Voluntary waiver: waives performance of
already has or will have in future contract; elect to treat condition as warranty
 Goods perishing before making of contract: The  Compulsory waiver: non-severability of contract;
contract of sale of specific goods is void where at fulfillment of conditions excused by law
the time of making of the contract, the goods
perished or became so damaged that they no Express conditions and warranties: Express conditions and
longer answer to their description without the warranties are those, which are agreed upon between the
knowledge of the seller. parties at the time of contract and are expressly provided in
 Goods perishing before sale but after agreement the contract.
to sell: if the specific goods perish after agreement
but before ownership passes to the buyer, and Implied Conditions:
neither party is at fault, the contract becomes
i. Condition as to title: The seller must be the
void.
owner and has the right to sell the goods at
 Perishing of future goods: If the future goods are
the time of passing of property. If seller’s title
specific, the destruction of such goods will amount
is defective, the buyer must return the goods
to supervening impossibility (performance
to the true owner and recover the damages
becomes impossible) and the contract shall
from the seller.
become void.
 ii. Sale by description: The buyer is entitled to seller to make the buyer aware of such danger
repudiate the contract, if the goods tendered or else the seller may be liable in damages.
do not correspond to their description
whether the buyer is able to inspect them or Caveat Emptor: This means “let the buyer beware”, i.e. it’s
not. the buyer’s duty to examine the goods thoroughly before
iii. Sale by sample: In a contract od sale by he buys the goods.
sample, the bulk shall correspond with the
 Conditions to be satisfied:
sample and the buyer shall have a reasonable
 The buyer has made known to the seller,
opportunity of comparing the bulk with the
the purpose of his purchase
sample.
 The buyer relied on the seller’s skill and
iv. Sale by sample as well as description: In a
judgement
contract of sale by sample as well as
 Seller’s business to supply goods of that
description, the bulk must correspond to the
description
sample as well as the description or the buyer
 Exceptions:
can repudiate the contract.
 Fitness as to quality or use: If the buyer
v. Condition as to quality or fitness: This implied
makes known to the seller the particular
condition will not apply if goods are sold
purpose for which the goods are required,
under a trademark or patent name. Ordinarily,
he relies on the skill and judgement of the
the implied condition is that the goods should
seller. And it is the duty of the seller to
be reasonably fit for the purpose made known
supply such goods as are reasonably fit
by the buyer to the seller.
for the purpose.
vi. Condition as to merchantability: The goods
 Goods purchased under patentor brand
should be of merchantable quality and there
name: The buyer relies on the particular
are two requirements for this condition to
brand name and there is no implied
apply; goods should be bought by description
condition that the goods shall be fit for
and the seller should be a dealer in goods of
any particular purpose.
that description.
 Goods sold by description: The seller is
vii. Condition as to wholesomeness: In case of
responsible if the goods don’t correspond
eatables and provisions, in addition to the
to their description.
implied condition as to merchantability, there
 Goods of merchantable quality: The rule
is another implied condition that the goods
of caveat emptor is not applicable for
shall be wholesome.
latent defects. But where the buyer has
Implied Warranties: examined the goods and there was no
way the buyer would have known any
i. Warranty as to undisturbed possession: If the such defects by an ordinary inspection,
buyer having got possession of the goods, is this rule shall apply.
later on disturbed in his possession, he is  Sale by sample: The rule of caveat
entitled to sue the seller for the breach of the emptor does not apply if the bulk does
warranty. not correspond with the sample.
ii. Warranty as to non-existence of  Goods by sample as well as description:
encumbrances (charges): The goods shall be The rule of caveat emptor does not apply
free from any charge or encumbrance in if the goods correspond neither to the
favour of any third party not declared or sample nor the description.
known to the buyer before or at the time of  Trade usage: An implied warranty or
entering into the contract. condition as to quality or fitness for a
iii. Warranty as to quality or fitness by usage of particular purpose may be annexed by the
trade: The rule followed under this implied usage of trade and if the seller deviates
warranty is ‘let the buyer beware’, i.e. the from that, this rule shall not be
seller is under no duty to reveal unflattering applicable.
truths about the goods sold.  Seller actively conceals a defect or is
iv. Disclosure of dangerous nature of goods: If guilty of fraud: If the seller knowingly
the goods are dangerous and the buyer is misrepresents or does fraud related to
unaware of such danger, it is the duty of the goods or conceals some defect in goods
so that the same could not be discovered
 by the buyer on a reasonable 2. Delivery of the goods to the carrier: When
examination, then the rule of caveat the seller delivers the goods to the buyer or to
emptor will not apply. a carrier for the purpose of transmission to
buyer, and doesn’t reserve the right of
UNIT-3: TRANSFER OF OWNERSHIP AND DELIVERY disposal, he is deemed to have unconditionally
OF GOODS appropriated the goods.
C. Goods sent on approval or on sale or return basis:
Passing the property:
On sale or return basis, the property passes to the
a. Identification of goods: No property in goods is buyer
transferred to the buyer unless and until the goods a. When he signifies his approval for adopting
are ascertained. the transaction
b. Intentions of parties: When there is a contract for b. When he retains the goods beyond the time
the sale of specific or ascertained goods, the fixed by the contract or beyond the
property in them passes to the buyer at the time reasonable time if no time period fixed
when the parties intend it to pass. c. When he does something that signifies that
A. Passing of property in specific or ascertained the buyer has adopted the transaction
goods: Goods must be in a deliverable state.  Sale for cash only or return: The property
1. Specific goods in a deliverable state: The in goods sent on sale for cash only or
property in specific goods which are in return basis transfer to the buyer only
deliverable state passes to the buyer a the when the terms are complied with, i.e.
time of making the contract irrespective of the cash is paid for the goods.
time of payment or the time of delivery. D. Reservation of right of disposal: The property in
2. Specific goods to be out into a deliverable goods lies with the seller even if the goods are
state: The specific goods in which the seller is subsequently appropriated to the contract by
bound to do something to the goods to put it delivering the goods to the buyer/his agent/carrier
into a deliverable state, the property of such in order to transmit to the buyer. And the property
specific goods passes when they are in remains with the seller till the conditions imposed
deliverable state and the buyer is notified. by the seller has been fulfilled.
3. Specific goods in a deliverable state, when  Circumstances under which the right to
the seller has to do anything thereto in order disposal may be reserved:
to ascertain price: The property in specific  Conditional delivery: If the seller
goods, the price of which is yet to be fixed by ships the goods but retains
the seller, passes only when the price is control through the bill of lasing
ascertained by the seller and the buyer is or transport document, they
notified. reserve ownership until payment
B. Unascertained goods: No property in such goods or fulfillment of condition.
are transferred to the buyer unless and until the  Delivery to carrier without
goods are ascertained. transfer of titles: Even if the
1. Sale of unascertained goods by description goods are delivered to a carrier
and appropriation: The essentials are: or bailee, ownership stays with
a. There is a contract of sale of the seller if they keep control of
unascertained or future goods the delivery of the documents.
b. The goods are as per description and  Buyer’s obligation bot fulfilled: If
quality stated in the contract the buyer hasn’t paid or fulfilled
c. The goods are in a deliverable state any agreed condition, the seller
d. The goods must be unconditionally can delay transfer of title.
appropriated to the contract either by
Risk prima facie passes with property: Unless otherwise
delivery to buyer/his agent/carrier
agreed, the goods remain at the seller’s risk until the
e. The appropriation must be made by the
property therein is transferred to the buyer, but when the
seller with buyer’s assent or by the buyer
property transfers to the buyer, the goods are at the
with seller’s assent
buyer’s risk whether delivery has been made or not. The
f. The assent may be express or implied
risk of loss as a rule lies on the owner.
g. The assent may be given before or after
appropriation Transfer of title by non-owner:
 Sale by person not the owner: The seller cannot b. Purchase of goods from a finder of goods
transfer a better title to the buyer for goods than will get a valid title under circumstances
he himself has. “Nemo dat quod non habet” which c. A sale by pawnee can convey a good title
means no one can give what he has not got. to the buyer
 Exceptions:
1. Sale by a mercantile agent: The mercantile Performance of the contract of sale: It implies delivery of
agent can transfer a good title id he was in goods by the seller and acceptance of the delivery and
possession of the goods or documents with payment of price for them by the buyer in accordance of
the consent of the owner; if the sale was the contract.
made by him as a mercantile agent; and if the
 Payment and delivery are concurrent conditions:
buyer had acted in good faith and at the time
Unless otherwise agreed, the seller must be willing
of sale, has no notice of the fact that the seller
and ready to transfer the possession of the goods
has no authority to sell.
to the buyer and the buyer must be willing and
2. Sale by one of the joint owners: The property
ready to pay the price in exchange of possession.
in the goods sold is transferred in good faith if
 Rules regarding delivery of goods:
the goods are sold by the permission of the
i. Delivery: It means voluntary transfer of
co-owners.
the possession from the seller to the
3. Sale by a person in possession under voidable
buyer or their authorized agent.
contract: If someone gets goods under a
ii. Effect of part delivery: Part delivery of
voidable contract and sells them before it’s
goods is treated as delivery of the whole
rescinded, the buyer gets a good title if they
only if made in progress of the whole
buy in good faith.
delivery. But if it’s made to separate it
4. Sale by one who has already sold the goods
from the rest, it doesn’t count as delivery
but continues in possession thereof: If a
of the whole.
seller, after selling goods, continues to possess
iii. Buyer to apply for delivery: The seller of
them and sells or delivers them again to a new
the goods is not bound to deliver them
buyer who acts in good faith and without
until the buyer applies for delivery, apart
knowing about the earlier sale, then the new
from any express contract.
buyer gets a good title.
iv. Place of delivery: Unless otherwise
5. Sale by buyer obtaining possession before
agreed, the goods must be delivered at
the property in the goods has vested in him:
the place where they are at the time of
If a buyer, who has lawfully obtained
sale, or at the place where they are
possession of goods but does not yet own
manufactured or produced, if the sale is
them, sells or delivers them to someone who
of future goods.
buys in good faith and without notice of the
v. Time of delivery: The seller is bound to
seller’s rights, the new buyer gets a good title.
deliver the goods within a reasonable
(*) Under hire purchase agreement, buyer
time if no time is fixed.
cannot sell the goods unless he has paid the
vi. Goods in possession of a third party
last instalment. Section 30(2) doesn’t apply to
(case of constructive delivery): If the
hire purchase agreements.
goods are with a third party, there is no
6. Effect of estoppel: If the true owner, by words
delivery until that third party
or conduct, leads a buyer to believe that a
acknowledges to the buyer that they are
non-owner has the authority to sell the goods,
now holding goods on buyer’s behalf.
the owner is estopped (legally stopped) from
vii. Time for tender (performing the
denying that authority later, and the buyer
delivery) of delivery: If the seller is to
gets a valid title.
tender delivery, it must be done at a
7. Sale by an unpaid seller: Where an unpaid
reasonable hour, and what counts as
seller who had exercised his right of lien or
reasonable depends on the circumstances
stoppage in transit resells the goods, the
of each case.
buyer acquires a good title to the goods as
viii. Expenses for delivery: In the absence of a
against the original buyer.
contract to the contrary, the expense of
8. Sale under the provisions of other acts:
putting the goods into a deliverable state
a. Sale by an official receiver or liquidator of
must be borne by the seller.
the company will give the purchaser a
valid title
 ix. Delivery of wrong quantity: If a seller  Exercise of right of lien: Right of lien can
delivers a quantity less or more than what be exercised only when the seller the
was contracted, the buyer may reject or goods with him. The right can be
accept that goods (fully or partly), but if exercised in the following cases:
the difference is slight and reasonable, i. Where the goods have been sold
the buyer may not reject. Delivery of without any stipulation of credit
mixed goods (correct and incorrect) lets ii. Where goods have been sold on
the buyer reject all or accept only the credit but the term of credit has
correct ones, if severable. expired
x. Instalment deliveries: Unless otherwise iii. Where the buyer becomes
agreed, the buyer is not bound to accept insolvent
delivery in instalmets.  Part delivery: The seller may exercise the
xi. Delivery to carrier: The delivery to carrier right of lien on the remainder.
for transmission to the buyer is prima  Termination of lien: Unpaid seller loses
facie deemed to be delivery to the buyer. his right to lien:
xii. Deterioration during transit: If goods i. When he delivers the goods to a
deteriorate due to inherent nature during carrier or bailee to transmit to
transit, the seller is liable for any loss or the buyer without reserving right
damage unless it was due to fault or of disposal
negligence of the buyer or external ii. Where the buyer or his agent
factors beyond the seller’s control. lawfully obtain the possession
xiii. Buyer’s right to examine the goods: the iii. Where seller has waived the
buyer has right to examine the goods right of lien
before accepting them, to ensure they iv. By estoppel, i.e. where the seller
match the contract. This right allows the so conducts himself that he leads
buyer to check the quality, quantity and third parties to believe that the
condition of the goods before deciding to lien does not exist.
accept or reject them.  Exception: Even if the seller has taken a
 Rules related to acceptance of delivery of goods: price for the goods under a court case, he
Acceptance is deemed to take place when the can still exercise his right to lien on those
buyer intimates to the seller that he had accepted goods.
the goods; pr does any act to the goods which is 2. Right of stoppage in transit: The right of stopping
inconsistent with the ownership of the seller; or the goods while they are in transit.
retains the goods after the lapse of a reasonable  Conditions:
time i. Seller must be unpaid
 Buyer not bound to return rejected goods: The ii. Seller must have parted with the
buyer only needs to intimate the seller that he has possession of the goods
rejected the goods but he is not bound to return iii. Goods are in transit
the goods to the seller. iv. Buyer has become insolvent
 Liability of buyer for neglecting or refusing v. Right is subject to provisions of
delivery of goods: If the buyer neglects or refuses the act
to accept the delivery of goods after the seller has  Duration of transit: the goods are
made them available, the buyer becomes libel to deemed to be in transit from the time of
pay for any loss damage caused by their refusal or delivery to a carrier for transmitting to the
neglect, in addition to any other damages. buyer, until the buyer or his agent takes
delivery from such carrier.
UNIT-4: UNPAID SELLER  When does transit come to an end:
i. When the buyer of bailee obtains
Unpaid seller: When the buyer fails to pay the price, the
delivery
seller becomes unpaid seller.
ii. Buyer obtains delivery before
Rights of an unpaid seller against the goods: arrival at destination:
interception by buyer
1. Seller’s lien: The right to retain the possession of iii. When the carrier acknowledges
the goods and refusal to deliver them to the buyer to the buyer that he holds the
until the price due in respect of them is paid. goods on buyer’s behalf unless
 the seller has reserved the right ii. Where he gives notice to the
of disposal buyer of his intention to re-sell
iv. If carrier wrongfully refuses to the goods: The seller may resell
deliver the goods the goods after giving a notice to
v. Where goods are delivered to the buyer if the buyer fails to pay
the buyer’s carrier the price.
vi. Where the part delivery has iii. Where an unpaid seller who has
been made to the buyer exercised his right of lien or
vii. Where the goods are delivered stoppage in transit resells the
to a ship chartered by the buyer goods: Even if the original buyer
 How stoppage in transit is effected: is not notified of the resale, the
i. Termination of transit: Transit new buyer acquires good title.
ends when the goods reach to iv. A re-sale by the seller where a
the buyer or their agent. right of re-sale is expressly
ii. Buyer’s acknowledgement: reserved in a contract of sale: In
Transit is deemed to have ended case where the right of resale is
if the buyer acknowledges the expressly mentioned in the
goods as being in their contract, no notice to the buyer
possession. is necessary for reselling the
iii. Effect of resale: If the seller goods if he fails to pay the price.
resells the goods during in v. Where the property in goods
transit, the right to stoppage in has not passes to the buyer: The
transit is lost. unpaid seller has in addition to
 Exception of sub-sale or pledge by buyer: his remedies a right of
Buyer cannot sell the goods to sub-buyer withholding the delivery. This
where seller has not given his assent. right is similar to lien and is
Here, seller can exercise his right to called “quasi-lien”. It is used in
stoppage in transit if buyer has become case of agreement to sell.
insolvent.
 Exceptions where unpaid seller’s right of Rights of an unpaid seller against the buyer:
lien and stoppage in transit are defected:
1. Suit for price: If the buyer fails to pay the price of
i. Buyer becomes insolvent and the
the goods as agreed, the seller may sue for the
goods are sold to a third party
price. This can happen even if the possession of
who purchases them in good
the goods is not with the seller, provided the
faith.
property has passed to the buyer.
ii. The goods have already been
2. Suit for damages for non-acceptance: If the buyer
delivered to a carrier or
wrongfully refuses to accept the goods, the seller
consignee without notice of the
may sue for damages.
seller’s claim
3. Repudiation of contract before due date: If the
iii. The seller has waived the right by
buyer repudiates the contract before due date, the
giving the goods to the buyer or
seller may treat it as rescinded and sue for
their agent or by accepting
damages for breach.
payment
4. Suit for interest: The buyer or seller may recover
 Effect of stoppage: The contract is not
interest or special damages under general law or
rescinded if the seller exercised his right
usage of trade. The court may also award interest
of stoppage in transit and the buyer can
on the price from the date of tender, delivery or
still ask for delivery on payment of price.
when the price was payable, depending on the
3. Right of re-sale: The seller can re-sale the goods if
circumstances.
the buyer fails to pay the price and may claim
damages for any loss incurred due to resale. Remedies of buyer against the seller:
 Conditions:
i. Where the goods are of a 1. Damages for non-delivery: If the seller wrongfully
perishable nature: the buyer refuses or fails to deliver the goods, the buyer may
need not be informed about the sue for damages, and the amount is based on the
intention of resale.
 loss directly and naturally caused by the seller’s customs or excise) on the goods, the sale price shall be
failure to deliver. adjusted accordingly, and the buyer or seller must pay or
2. Suit for specific performance: If the goods are refund the difference.
specific and ascertained, and the seller refuses to
deliver, the buyer may request the court for a Difference between right of lien and right of stoppage in
decree of specific performance, compelling the transit:
seller to deliver the goods, subject to court’s
i. The essence of right of lien is to retain possession
discretion.
whereas the right of stoppage in transit I right to
3. Suit for breach of warranty: For a breach of
regain possession.
warranty, buyer cannot reject the goods but may
ii. Right of lien can be exercised even when the buyer
claim damages; or reduce or set off the price
is not insolvent but it is not the case with right of
against the damages suffered.
stoppage in transit
4. Repudiation of contract before due date: If either
iii. Right of stoppage in transit begins when the right
party repudiates the contract before the due date,
of lien ends
the other party may treat the contract as still valid
iv. Right of lien comes to and end as soon as the
and wait for the due date or treat it as rescinded
goods go out of the possession of the seller but
immediately and claim damages.
the right of stopping in transit comes to an end as
5. Suit for interest: The buyer or seller may recover
soon as the goods are delivered to the buyer.
interest or special damages under general law or
usage of trade. The court may also award interest
on the price from the date of tender, delivery or
when the price was payable, depending on the
circumstances.

Auction sale: Public sale where different intending buyers

try to outbid each other and goods are ultimately sold to
the highest bidder.

 Legal rules of auction sale:

a. Where goods are sold in lots: Where the
goods are put up for sale in lots, each lot is
prima facie deemed to be subject of a
separate contract of sale.
b. Completion of the contract of sale: Any
bidder may retract from his bid until the
auctioneer announces the completion of sale
by the fall of the hammer.
c. Right to bid may be reserved: Any bidding by
the seller is unlawful and renders the sale
fraudulent until unless the right to bid is
reserved where the seller or their agent can
bid.
d. Where the sale is not notified by the seller:
The sale is considered fraudulent by the
buyers if the seller’s right to bid is not notified
in advance.
e. Reserved price: The sale may be notified to be
subject to a reserve or upset price.
f. Pretended biding: If the seller uses pretended
bidding to raise the price, the sale is voidable
at the option of the buyer.

Inclusion of increased or decreased taxes in contract of

sale: Unless otherwise agreed, if after making the contract,
there is any increase or decrease in tax, duty, or charge (like