BUSINESS LAW

THE INDIAN CONTRACT ACT ,1872

Contract -

Proposal – 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.
Acceptance – When the person to whom the proposal is made signifies his assent thereto, the proposal is said to
be accepted. A proposal, when accepted, becomes a promise. Person making the proposal is called the “promisor”,
and the person accepting the proposal is called the “promisee”.
Agreement – Every promise and every set of promises, forming the consideration for each other, is an agreement.
In simple words, Agreement = Offer + Acceptance
Void Agreement – An agreement not enforceable by law is said to be void.
Contract – An agreement enforceable by law is called a contract. In simple words, Contract = Agreement +
Enforceability
Voidable Contract – An agreement which is enforceable by law at the option of one or more of the parties
thereto, but not at the option of the other or others.

Is every agreement a contract? - No, every agreement is not a contract. An agreement to become a contract must
give rise to a legal obligation (duty). Every contract is an agreement, but every agreement is not a contract.

Essential elements of a valid contract –

1) Two parties – There should be at least 2 parties for a contract.
2) Offer – There shall be an offer or proposal by one party
3) Acceptance – Offer made should be accepted by the other party
4) Lawful consideration – The agreement shall be supported by lawful consideration
5) Lawful object – The object and consideration of the contract shall be legal
6) Competent (capacity) to contract – The parties to the contract shall be competent to contract For a person to
become competent to contract – 1. Such a person should be major (18+). 2.Such person should be of sound mind.
3.Such person should not be disqualified by law.
7) Free consent – There shall be free consent between the parties to the contract. Consent is said to be free when
the following elements are absent; Coercion, Undue influence, Fraud, Misrepresentation, Mistake.
8) Intention to create legal relationships – The intention of the parties to a contract must be to create a legal
relationship between them. Example: A husband promising his wife to buy her a ‘necklace’ on occasion of her
birthday is not a contract.
9) Possibility of performance – The agreement should be capable of being performed. Example - if A promises
B to bring rainfall through magic. Such an agreement cannot be enforced.
10) Legal formalities – Legal formalities if any are required for particular agreement such as registration, writing,
they must be followed .

Types of Contracts-

Contracts on the basis of creation-

1. Express contract: Express contract is one which is made by words spoken or written. Example : X writes a
letter to Y, I offer to sell my car for Rs. 100000 to you. Y sent a letter to Y, I am ready to buy you a car for Rs.
100000. It is an express contract made in writing.
2. Implied contract: An implied contract is one which is made otherwise than by words spoken or written. It is
inferred from the conduct of a person or the circumstance of the particular case. Example: X, a coolie in uniform
picks up the bag of Y to carry it from railway platform to the without being used by Y to do so and Y allows it. In
this case there is an implied offer by the coolie and an implied acceptance by the passenger. Now, there is an
implied contract between the coolie and the passenger is bound to pay for the services of the coolie.
3. Quasi or constructive contract: It is a contract in which there is no intention on either side to make a
contract, but the law imposes a contract. In such a contract rights and obligations arise not by any agreement
between the practice but by operation of law. Example: Where certain books are delivered to a wrong address the
address is under an obligation to either pay for them or return them.

Contracts on the basis of execution-

1. Executed contract: It is a contract where both the parties to the contract have fulfilled their respective
obligations under the contract. Example: X offers to sell his car to Y for Rs. 1 lakh, Y accepts X offer. X delivers
the car to Y and Y pays Rs. 1 lakh to X. It is an executed contract.
2. Executory contract: It is a contract where both the parties to the contract have still to perform their respective
obligations. Example: X offers to sell his car to y for Rs. 1 lakh. Y accepts X offer. If the car has not yet been
delivered by X and the price has not yet been paid by Y, it is an Executory contract.
3. Partly executed and partly executory contract: It is a contract where one of the parties to the contract has
fulfilled his obligation and the other party has still to perform his obligation. Example: X offers to sell his car to y
for Rs. 1 lakh on a credit of 1 month. Y accepts X offer. X sells the car to Y. Here the contract is executed as to X
and Executory as to Y.

Contracts on the basis of enforceability:

1. Valid contract: A contract which satisfies all the conditions prescribed by law is a valid contract. Example: X
offers to marry Y. Y accepts X offer. This is a valid contract.
2. Void Contract: A contract which is enforceable by law becomes void when it ceases to be enforceable. In
other words, a void contract is a contract which is valid when entered into but which subsequently becomes void
due to impossibility of performance, change of law or some other reason. Example: X offers to marry Y, Y accepts
X offer. Later on Y dies this contract was valid at the time of its formation but became void at the death of Y.
3. Void Agreement: According to Section 2(g), an agreement not enforceable by law is said to be void. Such
agreements are void- ab- initio which means that they are unenforceable right from the time they are made.
Example: In agreement with a minor or a person of unsound mind is void–ab-initio because a minor or a person
of unsound mind is incompetent to contract.
4. Voidable contract: According to section 2(i) of the Indian contract act, 1872, arrangement which is
enforceable by law at the option of one or more of the parties thereon but not at the option of the other or other, is
a voidable contract. In other words, A voidable contract is one which can be set aside or avoided at the option of
the aggrieved party. Until the contract is set aside by the aggrieved party, it remains a valid contract. Example : X
threatens to kill Y, if he does not sell his house for Rs. 1 lakh to X. Y sells his house to X and receives payment.
Here, Y consent has been obtained by coercion and hence this contract is voidable at the option of Y the aggrieved
party. If Y decides to avoid the contract he will have to return Rs. 1 lakh which he had received from X. If Y does
not exercise his option to repudiate the contract within a reasonable time and in the meantime Z purchases that
house from X for 1 lakh in good faith. Y can not repudiate the contract.
A contract is treated as voidable at the option of the party whose consent has been obtained under influence or
fraud or misinterpretation.
5. Illegal Agreement: An illegal agreement is one the object of which is unlawful. Such an agreement cannot be
enforced by law. Thus, illegal agreements are always void–ab-initio (i.e. void from the very beginning). Example:
X agrees to Y Rs. 1 lakh Y kills Z. Y kills and claims Rs. 1 lakh. Y cannot recover from X because the agreement
between X and Y is illegal and also its object is unlawful.
6. Unenforceable contract: It is a contract which is actually valid but cannot be enforced because of some
technical defect (such as not in writing, under stamped). Such contracts can be enforced if the technical defect
involved is removed.

Contracts on the basis of Liability:

1. Unilateral contract: As the name suggests, a unilateral contract is one-sided. Only one person/group or side
has promised to perform. The other part has not really promised to do the act. Example: A lost his gold chain and
he publishes a newspaper advertisement that he will pay a certain sum to the finder of his gold chain. Here A has
promised to do the act. But the other part is uncertain. This is a unilateral contract.
2. Bilateral contract: A bilateral contract is a normal contract where both parties are involved by their respective
promises/offer and acceptance.

Offer – 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.
Types of offer –
1) General Offer - It is an offer to the whole world.
2) Specific Offer - It is an offer made to a particular person or group of persons.
3) Express Offer - It is an offer which is made by words either oral or in writing.
4) Implied Offer - It is an offer which is made by conduct or gesture of the parties.
5) Counter Offer - When a person to whom the offer is made does not accept the offer [as it is] he counters the
condition. This is called a counter offer.
6) Cross Offer - When two offers of the same terms and conditions cross each other at the same time, it is called a
cross offer.
7) Standing Offer - An offer is a standing offer if it is intended to remain open for a specified period.

Essentials of valid offer –

1) Offer may be expressed or implied – An offer may be expressed or may be implied from the conduct of the
parties or circumstances of the case.
2) Offer may be specific or general – A specific offer is one which is made to a particular person. It can be
accepted by the person to whom it has been made, no one else can accept such an offer. A general offer is an offer
made to the public at large.
3) Offer must create Legal Relations – An offer to be valid must create legal relationship between the parties.
Say for example a dinner invitation extended by A to B is not a valid offer. [Harvey Vs Facey]
4) Offer must be Clear, not Vague – The terms of an offer should not be vague (not clear / confusing). For e.g. -
A offers to sell B fruits worth Rs 5000/-. This is not a valid offer since what kinds of fruits or their specific
quantities are not mentioned.
5) Offer must be Communicated to the Offeree – No offeree can accept the proposal without knowledge of the
offer [Lalman Shukla v. Gauri Dutt.]
6) A statement of price is not an offer
7) Offer cannot contain a Negative Condition – The non-compliance of any terms of the offer cannot lead to
automatic acceptance of the offer. Example: A offers to sell his cow to B for 5000/-. If the offer is not rejected by
Monday it will be considered as accepted. This is not a valid offer.
8) A mere statement of intention is not an offer - Thus, a person who attended the advertised place of auction
could not sue for breach of contract if the auction was canceled.
9) Offer must be distinguished from an invitation to offer –

Acceptance- When the person to whom an offer is made signifies his assent thereto the proposal is said to
be accepted, A proposal when accepted becomes a promise.

Essentials of valid Acceptance –

1) Acceptance must be absolute and unqualified – There must be an absolute and unqualified acceptance of all
the terms of the offer. Qualified acceptance would amount to rejection of the offer.
2) Acceptance must be communicated – Acceptance must be communicated by the acceptor.
3) Acceptance must be in a prescribed or reasonable mode – Offer should be accepted in a prescribed mode. If
the offer or prescribes no mode of acceptance, the acceptances must be communicated according in any
reasonable mode such as in writing or oral.
4) Acceptance must be given within a reasonable time and before the offer lapses – Acceptance must be given
within specified time. If no time is specified, then acceptance may be made within reasonable time. Acceptance
should be made before offer lapses (expires).
5) Acceptance cannot precede an offer – Acceptance must be given after receiving the offer. It should not
precede the offer.
6) Acceptance must be given only by the person to whom the offer is made – An offer can be accepted only by
the person or persons to whom it is made. It cannot be accepted by another person without the consent of the
offeror.
7) Rejected offer can be accepted only on renewal – Rejected offer can be accepted only on renewal; offer once
rejected can’t be accepted again unless a fresh offer is made.

Communication Of Offer and Acceptance and Revocation -

1. Communication of offer is complete when it comes to the knowledge of Offeree.
2.
Communication of acceptance is complete

As against offer As against offeree

 When an offeree puts the acceptance in a course of When the acceptance comes to the knowledge of the
transmission and it is beyond his reach to stop it. offeror.
3. Revocation (withdrawal / cancellation) of offer – Revocation of offer is valid before the offeree puts the
acceptance in course of transmission and it is out of his reach to stop it.
4. Revocation of acceptance – Revocation of acceptance is valid before acceptance comes to the knowledge of the
offeror.

Doctrine Of Privity Of Contract- Doctrine of privity of contract means stranger to contract cannot sue.
Exceptions –
In the following cases, stranger to a contract can also sue
1. Beneficiary of a trust – A trust is created for the benefit of a beneficiary. Hence, the beneficiary can enforce
the provisions of the trust even though he is a stranger to the contract. Example – In a contract between
Munnabhai and Circuit, a beneficial right in respect of some property may be created in favor of Chinki and in
that case, Chinki can enforce his claim on the basis of this right.
2. Provision in marriage settlement – A stranger to the contract can sue on the contract where a provision is
made for him in marriage settlement.
3. Provision for maintenance or marriage expenses of female members under a family arrangement – In
case a provision is made for the marriage or maintenance of a female member of the family on the partition of a
Hindu undivided family, the female member can enforce the promise though she may be a stranger to a contract.
Example – If Nikhil gives his Property in equal portions to his 3 sons with a condition that after his death all 3 of
them will give Rs 10,000 each to Neha, the daughter of Nikhil. Now Neha can prosecute if any one of them fails
to obey this.
4. Assignee of a contract – The benefits of a contract may be assigned. The assignee of a contract can enforce the
benefits of a contract though he is not a party to it. Example: Rahul assigns his insurance policy in favor of his
wife. The wife can enforce it although she is not a party to it.
5. Acknowledgement of liability – Where the promisor either by his conduct or acknowledgement or by part
payment or by estoppel creates privity of contract between himself and the stranger, the stranger can sue.
Example: Raju pays Shyam 500 rupees to be given to Baburao, Shyam acknowledges to Baburao that he holds
that amount for him. Baburao can recover the amount from Shyam.
6. Agency contract – Contracts which are entered into by the agent on behalf of the principal can be enforced by
the principal even though he is not a party to the contract.

Contractual Capacity- An essential ingredient of a valid contract is that the contracting parties must be
competent to contract, (Minor, Unsound Mind and People Disqualified by Law are not allowed to contract.)

MINOR
1. Status of Minor’s Agreement- An agreement by a minor is absolutely void and inoperative as against him.
Law acts as the guardian of minors and protects their rights, because their mental faculties are not mature - they
don‘t possess the capacity to judge what is good and what is bad for them. Accordingly, where a minor is charged
with obligations and the other contracting party seeks to enforce those obligations against the minor, the
agreement is deemed as void-ab-initio.
2. Beneficial agreements are valid contracts. As observed earlier, the court protects the rights of minors.
Accordingly, any agreement which is of some benefit to the minor and under which he is required to bear no
obligation, is valid. In other words, a minor can be a beneficiary.
3. No ratification on attaining the age of majority. Ratification means the subsequent adoption and acceptance
of an act or agreement. A minor‘s agreement being a nullity and void, has no existence in the eye of law. It cannot
be ratified by the minor on attaining the age of majority, for, an agreement void cannot be made valid by
subsequent ratification.
4. Minor’s liability for necessaries- The case of necessaries supplied to a minor is governed by the provision of
‘Quasi-Contract’ under the Contract Act which provides that “if a person, incapable of entering into a contract, or
any one whom he is legally bound to support, is supplied by another person with necessaries suited to his
condition in life, the person who has furnished such supplies is entitled to be reimbursed from the
property of such an incapable person.”
Note: “What is a necessary article,” is to be determined with reference to the status and circumstances of the
particular minor. Objects of mere luxury are not necessaries, nor are objects, which though of real use, are
excessively costly. Food and clothing may be taken as simple examples of necessaries. The necessaries would also
include the infant’s lodging expense, medical attendance, cost of defending in civil and criminal proceedings.
5. The rule of estoppel does not apply to a minor- “Where one person has, by his declaration, act or omission,
intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither
he nor his representatives shall be allowed, in any suit or proceeding between himself and such person or his
representative, to deny the truth of that thing.“ In the words of Lord Halsbury: “Estoppel arises when you are
precluded from denying the truth of anything, which you have represented as a fact, although it is not a fact.”
The rule of estoppel does not apply to a minor i.e A minor is not stopped from pleading his infancy in order to
avoid a contract, even if he has entered into an agreement by falsely representing that he was of full age. In other
words, where an infant represents fraudulently or otherwise that he is of full age and thereby induces another to
enter into a contract with him, then in an action founded on the contract, the infant is not stopped from setting up
infancy.
Equitable Doctrine Of Restitution- But if anything is traceable in the hands of the minor, out of the proceeds of
the contract made by fraudulently representing that he was of full age, the court may direct the minor to restore
that thing to another party, for minors can have no privilege to cheat man’. Thus, if a minor obtains a loan by
fraudulent representation and purchases a motorcar out of that, although the loan retraction is invalid, the court
may direct the minor to restore the motorcar to the lender. But once the identity of the property or money has been
lost because it has been spent wastefully, it is no longer possible to invoke the aid of the ‘equitable doctrine of
restitution’.
6. Minor as a partner in partnership- A minor being incompetent to contract cannot be a partner in a
partnership firm, but according to the Indian Partnership Act, he can be admitted to the ‘benefits of partnership’
with the consent of all the partners by an agreement executed through his lawful guardian with the other partners.
7. Minor as an agent: A minor can be an agent. He shall bind the principal by his acts done in the course of such
an agency, but he cannot be held personally liable for negligence or breach of duty. Thus in appointing a minor as
an agent, the principal runs a great risk.
8. Position of minor’s parents: The parents of a minor are not liable for agreements made by a minor, whether
the agreement is for the purchase of necessaries or not. The parents can be held liable only when the child is
contracting as an agent for the parents.
9. Surety/Guarantee for a minor: Where in a contract of guarantee, an adult stands surety for a minor, the adult
is liable under the contract, although the minor is not.

PERSON OF UNSOUND MIND

Sound Mind- “A person is said to be of sound mind for the purpose of making a contract, if, at the time when he
makes it, he is capable of understanding it and of forming a rational judgment as to its effects upon his interests."
The Section further states that:
1. A person, who is usually of unsound mind, but occasionally, of sound mind, may make a contract
when he is of sound mind.” Thus a patient in a lunatic asylum, who is at intervals of sound mind,
may contract during those intervals.
2. “A person who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.” Thus, a sane man, who is delirious from fever, or who is
so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its
effect on his interest, cannot contract whilst such delirium or drunkenness lasts.
Effects Of Agreements Made By Persons Of Unsound Mind: An agreement entered into by a person of unsound
mind is treated on the same footing as that of minor's, and therefore an agreement by a person of unsound mind is
absolutely void and inoperative as against him but he can derive benefit under it. The property of a person of
unsound mind is, however, always liable for necessaries supplied to him or to any one whom he is legally bound
to support.

DISQUALIFIED PERSONS
The third type of incompetent persons are those who are “disqualified from contracting by any law to which they
are subject.” Thus:
1. Alien enemies- An alien (citizen of a foreign country) living in India can enter into contracts with citizens of
India during peacetime only. On the declaration of a war between his country and India, he becomes an alien
enemy and cannot enter into contracts. “Alien friends can contract but an alien enemy can't.” Contracts entered
into before the declaration of the war stand suspended and cannot be performed during the course of war, of
course, they can be revived after the war is over.
2. Foreign sovereigns and ambassadors- One has to be cautious while entering into contracts with foreign
sovereigns and ambassadors, because whereas they can sue others to enforce the contracts entered upon with
them, they cannot be sued without obtaining the prior sanction of the Central Government. Thus they are in a
privileged position and are ordinarily considered incompetent to contract.
3. Convict- A convict is one who is found guilty and is imprisoned. During the period of imprisonment, a convict
is incompetent (a) to enter into contracts, and (b) to sue on contracts made before conviction.
4. Married Women- Married Women are competent to enter into contracts with respect to their separate
properties (Stridhan) provided they are major and are of sound mind. They cannot enter into contracts with respect
to their husbands‘ properties. A married woman can, however, act as an agent of her husband and bind her
husband's property for necessaries supplied to her. If he fails to provide her with these.

Free consent- ‘Two or more persons are said to consent when they agree upon the same thing in the same sense.’
When consent is said to be free? As per section 14 of the Contract Act consent is said to be free when Coercion,
Undue Influence, Fraud, Misrepresentation and Mistake are absent.

1. Coercion- Committing or threatening to commit any act forbidden (prohibited) by Indian Penal Code against
another person; or unlawful detaining or threatening to detain the property of another person with a view to obtain
consent of another person. Who can exercise coercion – Coercion may come from a person party to the contract or
even third person not connected with the contract directly.
Important points –
● Prosecution – A mere (only) threat to prosecute a man or file suit against him does not constitute a coercion.
● High prices and high interest Rates – Charging high interest rate, high price etc. is not a coercion as the same
is not prohibited under the Indian Penal code.
● A threat to commit suicide – Consent to an agreement may at times be obtained by threatening to commit
suicide. Threat to commit suicide also amounts to coercion.
What will be the effect if the consent is caused by coercion
● Agreement is voidable at the option of the aggrieved party.
● Aggrieved party has the option to cancel (rescind) the contract.
● If the aggrieved party decides to rescind the contract, he must return (restore) all the benefits received by such
person.
2. Undue Influence- A contract is said to be induced (caused) by “undue influence” where the relations subsisting
(existing) between the parties are such that one of the parties is in a position to dominate the will of the other and
uses that position to obtain an unfair advantage over the other.
When a person is deemed to be in a dominating position?
● Where he holds a real or apparent authority over the other (e.g. master and servant)
● where he stands in a fiduciary (trust) relation to the other (e.g. Doctor and patient)
● Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by
reason of age, illness, or mental or bodily distress (pain)
The burden of proving that the contract was not induced by undue influence shall lie upon the person in a position
to dominate the will of the other There is presumption of undue influence in the following relationships –
Parent and child, Guardian and ward, Doctor and patient, Solicitor and client, Trustee and beneficiary, Religious
advisor and disciple, Fiancé and fiancée.
However, there is no presumption of undue influence in case of relationship of —
landlord and tenant, debtor and creditor, husband and wife.
What will be the effect if the consent is caused by Undue influence
● Agreement is voidable at the option of the aggrieved party.
● Aggrieved party has the option to cancel (rescind) the contract.
● If the aggrieved party decides to rescind the contract, he must return (restore) all the benefits received by such
person.
3. Fraud- “Fraud” means and includes any of the following acts committed by a party to a contract, or with his
connivance, or by his agent, with intent to deceive another party or his agent, or to induce him to enter into the
contract:
The suggestion, as a fact, of that which is not true by one who does not believe it to be true; The active
concealment (to hide) of a fact by one having knowledge or belief of the fact; A promise made without any
intention of performing it; Any other act fitted to deceive; Any such act which the law specially declares to be
fraudulent.
Deceive – intentionally cause (someone) to believe something that is not true Connivance – willingness for being
secretly involved in an immoral or illegal act.
Is silence fraud? Whether silence is fraud or not depends upon various factors. Normally speaking, silence does
not amount to fraud. However, silence will be considered as fraud in the following situations –
● When there is a duty to speak
● Where silence is equivalent to speech.
● Where there is change in circumstances
What will be the effect if the consent is caused by Fraud
● Agreement is voidable at the option of the aggrieved party.
● Aggrieved party has the option to cancel (rescind) the contract.
● If the aggrieved party decides not to cancel the contract then he may continue the contract and claim damages
from the other party.
● If the aggrieved party decides to rescind the contract, he must return (restore) all the benefits received by such
person.
4. Misrepresentation- A representation when wrongly made either innocently or unintentionally is a
misrepresentation. When it is made innocently or unintentionally it is misrepresentation and when made
intentionally or willfully it is fraud. Misrepresentation means making any statement as true but actually that
statement is false.
What will be the effect if the consent is caused by Misrepresentation
● Agreement is voidable at the option of the aggrieved party.
● Aggrieved party has the option to cancel (rescind) the contract.
● If the aggrieved party decides to rescind the contract, he must return (restore) all the benefits received by such
person.
5. Mistake of Fact & Law-
Mistake of law of the country– When a party enters into a contract, without the knowledge of law in the country,
the contract is valid and not void. A contract is not voidable because it was caused by a mistake as to any law in
force in India. The reason here is that “Ignorantia juris non excusat” (Ignorance of law is not an excuse at all).
However, if a party is induced (influenced) to enter into a contract by the mistake of law then such a contract may
be avoided. The principle in this case is ignorance of law is not an excuse.
Mistake of law of foreign country– Such a mistake is treated as a mistake of fact and agreement in such a case is
void. Ignorance of foreign law may be excused.
Mistake of Fact-
Bilateral mistake- Where both the parties to an agreement are under a mistake as to a matter of fact essential to the
agreement, the agreement is void. Mistake must be mutual i.e. both the parties should misunderstand each other
Types of mistakes falling under bilateral mistake are as follows –
● Mistake as to existence of subject matter: If both the parties are at mutual mistake as to existence of the
subject matter the agreement is void.
● Mistake as to identity of subject matter: It usually happens when both the parties have different subject matter
of contract in their mind. The contract is void due to mistake of identify of subject matter.
● Mistake as to the quality of the subject matter: If the subject matter is something essentially different from
what the parties thought to be, the agreement is void.
● Mistake as to quantity of subject matter: Bilateral mistake as to quantity of subject matter would render the
contract void.
● Mistake as to title of subject matter: The agreement is void due to bilateral mistake as to title of the subject
matter.
● Mistake as to price of the subject matter: Mutual mistake as to price of the subject matter would render the
agreement void.
● Mistake as to possibility of performance of Contract - Impossibility may be:
● Physical impossibility: A contract is void if it is identified to be non-feasible (not possible) due to physical
factors, like time, distance, height, etc.
● Legal impossibility: A contract is void if it provides that something shall be done which as a matter of law
cannot be done.
Unilateral Mistake as to fact
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 defense in avoiding a contract unless the mistakes brought about by
another party’s fraud or misrepresentation.

Consideration (quid pro quo)- When at the desire of the promisor, the promisee or any other person had done or
abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such
act or abstinence or promise is called a consideration for the promise. Consideration means something in return. It
may be an act or abstinence or promise.
As per Section 25 of the Indian Contract Act, 1872 “An agreement made without consideration is void”

Types Of Consideration

Past Consideration Present consideration (Executed Future Consideration

consideration) (Executory consideration)–

In case of past consideration, the Present consideration is one in When consideration is to move at a
promisor had received the which one of the parties to the future date then it is called as
consideration before the date of contract has performed his part of future consideration.
promise. the promise, which Constitutes the
consideration for the promise by
the other side it is known as present
consideration.

Essentials of valid consideration –

1. Consideration must move at the desire of the promisor – Consideration must move at the desire of the
promisor. Whatever is done must have been done at the desire of the promisor and not voluntarily or not at the
desire of a third party. Example: If Munna rushes to Circuit’s help whose house is on fire, there is no
consideration but a voluntary act. But if Munna goes to Circuit’s help at Circuit’s request, there is good
consideration as Circuit did not wish to do the act gratuitously (without consideration). Uday Bhai agrees to sell
his horse to Majnu Bhai for ` 50,000. Here consideration for Uday Bhai for selling horse to Majnu Bhai is
consideration of ` 50,000 from Majnu Bhai and consideration for Majnu Bhai paying ` 50,000 to Uday Bhai, is
Uday Bhai selling his horse. Here considerations had come at the desire of the Promisor. Uday Bhai is a promisor
for Majnu Bhai and similarly Majnu Bhai is a promisor for Uday Bhai.
2. Consideration may move from the promisee or any other person- Consideration may be furnished even by a
stranger under Indian Law.
3. Consideration must be something of value – Consideration must have some value in the eyes of law, and it
should be real.
4. It may be an act, abstinence or a return promise – Promise to not to smoke is a negative act (abstinence),
Promise to not to refer the matter to court (abstinence). Promise to perform at the wedding anniversary or birthday
party (promise to do).
5. It may be past, present or future which the promisor is already not bound to do – According to Indian Law
Consideration may be past, present or future. But under English Law Consideration may be present or future. Past
consideration is no consideration according to English Law
6. It must not be unlawful – The consideration or object of an agreement is lawful, unless — It is forbidden
(prohibited) by law; or is of such a nature that, if permitted, it would defeat the provisions of any law;
or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as
immoral, or opposed to public policy.

No Consideration – No Contract- The general rule is ex-nudo pacto non oritur actio i.e. an agreement made
without consideration is void. Example – If Salman promises to pay Aishwarya ` 1000 without any obligation
from Aishwarya then it will be void contract as there is no consideration from Aishwarya towards Salman.
Exceptions - Under following cases, a contract will be valid even without consideration
1. Promises made on account of natural love and affection – An agreement made without consideration is valid
– It is expressed in writing. It is registered under the law. It is made on account of natural love and affection. It is
between parties standing in near relation to each other.
2. Promise to compensate for voluntary services – Voluntary service means service done without any request. It
will be valid if the following conditions are satisfied – The service should have been done voluntarily. The service
should have been done for the promisor. The promisor must have been in existence at the time when the service
was done. The intention of the promisor must have been to compensate the promisee. The service rendered must
also be legal. Example: Jethalal finds Babita’s purse and gives it to her. Babita promises to give Jethalal 50 rupees.
This is a valid contract.
3. Promise to pay time-barred debt – A promise by a debtor to pay a time-barred debt is also a valid contract.
But the promise must be in writing. It must be signed by the promisor or his authorized agent. The promise may
be to pay the whole or part of the debt. Example: Ram owes Laxman 1,000 rupees but the debt is barred by the
Limitation Act. Ram signs a written promise to pay 500 rupees on account of the debt. The promise will be valid
and binding without any fresh consideration.
4. Creation of Agency – No consideration is necessary to create an agency. Thus, when a person is appointed as
an agent, his appointment is valid even if there is no consideration.
5. Completed Gifts – Gifts once made cannot be recovered on the ground of absence of consideration. Absence
of consideration will not affect the validity of any gift already made. Example: Virat gave a watch as a gift to
Anushka on his birthday. Later on, Virat cannot demand the watch back on the ground that there was no
consideration.
6. Contract of guarantee – Contract of guarantee needs no consideration.
7. Remission – Remission means lesser performance of the contract than what is actually to be performed.

Legality of Object- Section 23 of the Indian Contract Act, 1872 provides that the consideration or object of an
agreement is unlawful if it is – forbidden by law; or it is of such nature that if permitted it would defeat the
provisions of law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court
regards it as immoral or opposed to public policy. In each of these cases the consideration or object of an
agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

Void and Illegal Contracts– Consequence of Illegal Agreements

an illegal agreement is entirely void; no action can be brought by a party to the contract to an illegal agreement.
The maxim is “Ex turpi cause non-oritur action” - from an evil cause, no action arises; money paid or property
transferred under an illegal agreement cannot be recovered. The maxim is in parti delicto potierest condition
defendeties- In cases of equal guilt, more powerful is the condition of the defendant; where an agreement consists
of two parts, one part legal and other illegal, and the legal parts is separable from the illegal one, then the Court
will enforce the legal one. If the legal and the illegal parts cannot be separated the whole agreement is illegal; and
any agreement which is collateral (connected) to an illegal agreement is also tainted with illegality and is treated
as being illegal, even though it would have been lawful by itself.

● Agreements Void as being opposed to Public Policy –The following agreements are void as being against
public policy but they are not illegal –
● Agreement in restraint (restrict) of parental rights- An agreement by which a party deprives himself of the
custody of his child is void.
● Agreement in restraint of marriage- An agreement not to marry at all or not to marry any particular person
or class of persons is void as it is in restraint of marriage.
● Marriage brokerage or brokerage Agreements- An agreement to procure marriage for reward is void.
Where a purohit (priest) was promised Rs.200 in consideration of procuring a wife for the defendant, the
promise was held void as opposed to public policy, and the purohit could not recover the promised sum.
● Agreements in restraint of personal freedom are void- Where a man agreed with his money lender not to
change his residence, or his employment or to part with any of his property or to incur any obligation on
credit without the consent of the money lender, it was held that the agreement was void.
● Agreement in restraint of trade- An agreement in restraint of trade is one which seeks to restrict a person
from freely exercising his trade or profession.

Void Agreements-

1. Agreement by a minor (section 11) or a person of unsound mind (section 12).

2. Agreement of which the consideration or object is unlawful – Section 23
3. Agreement made under a bilateral mistake of fact material to the agreement – Section 20
4. Agreement of which the consideration or object is unlawful in part and the illegal part cannot be separated from
the legal part – Section 24
5. Agreement in restraint of marriage – Section 26 Agreement is restraint of marriage is void. Exceptions: a)
Minors; b) Restraint for particular reasonable period is valid
6. Agreement in restraint of trade is void. Exceptions – An agreement through which an outgoing partner will not
carry on the business of the firm for a reasonable time will be valid, though it is in restraint of trade
Where a person sells his business along with the goodwill to another person, agrees not to carry on the same line
of business in certain reasonable local limits, such an agreement is valid. An agreement of service through which
an employee commits not to compete with his employer is not in restraint of trade. Trade Combinations are valid
as long as they are not creating a monopoly.
7. Agreement in restraint of legal proceedings – Section 28 An agreement which restricts or waives one’s right to
sue or limits the time of justice is void. Exceptions: A contract by which the parties agree that any dispute
between them shall be referred to arbitration and will not be taken to the court is a valid contract.
8. Agreements void for uncertainty – Section 29 Agreements, the meaning of which is not certain, or capable of
being made certain are void
9. Agreement by way of wager – Section 30 Payment of money or money’s worth upon ascertainment of future
uncertain event is known as wagering.

Quasi Contracts-
It is an implied contract. It is imposed by law and does not arise by agreement. The duty of a party and not the
promise of any party is the basis of such contract. It is based on the principle of “prevention of unjust enrichment
of one person at the cost of another” It is imposed by law and does not arise by agreement. No essential of a valid
contract is required. The right is available against specific persons and not the whole world.
Types-
1. Claims for necessaries supplied to a person incompetent to contract- Where necessaries are supplied to a
person who is incompetent to contract, the supplier is entitled to recover the price from the property of the
incompetent person.
Example: Gopal supplies Madhav, a minor, with necessaries suitable to his condition in life. Gopal is entitled to
be reimbursed from Madhav’s property.
2. Payment by an interested person- The person making the payment must have some interest in paying the
amount. The person making the A person who is interested in the payment of money of which another is bound
(liable) by law to pay, and who therefore, pays it, is entitled to be reimbursed by the other. Conditions: Payment
must not be bound by law to pay the amount; The other person from whom the money is sought to be recovered
must be legally bound to pay the money.
3. Benefits of a Non-Gratuitous Act- When a person lawfully does anything for another person or delivers
anything to him, not intending to do so gratuitously, such person who enjoys the benefit must reimburse the
former or must restore to him the thing so delivered. Conditions: The person must lawfully do something for
another person or deliver something to him; The person doing some act or delivering something must not intend
to act gratuitously; The other person must voluntarily accept the acts or goods and he must have enjoyed their
benefits.
4. Responsibility of Finder of Goods- A person who finds goods belonging to another and takes them into his
custody is liable as a bailee. The finder of goods must try to find out the real owner of the goods and deliver the
goods to him on demand.
5. Money paid by mistake or by coercion- A person to whom money has been paid or anything delivered by
mistake or under coercion, must repay or return it.
Example: Ram and Shyam jointly owe 1,000 rupees to Malinga. Ram alone pays the amount to Malinga, and
Shyam, not knowing this fact, later on also pays 1,000 to Malinga.
Malinga is bound to repay the amount to B.

Discharge Of Contract- Discharge of contract means termination of the contractual relationship between the
parties. A contract is said to be discharged when it ceases to operate, i.e., when the rights and obligations created
by it come to an end.

Modes of Discharge of Contract-

Discharge By Agreement
1. Novation - Section 62- Substitution of a new contract in place of the existing contract is known as “Novation
of Contract”. It discharges the original contract. The new contract may be between the same parties or between
different parties. Novation can take place only with the consent of all the parties. Example: Raju owes money to
Shyam under a contract. It is agreed between Raju, Shyam and Baburao that Shyam should accept Baburao as his
debtor, instead of Raju. The old debt of Raju and Shyam is at an end and a new debt from Baburao to Shyam has
been contracted. There is novation involving change of parties.
2. Alteration - Section 62- Alteration means change in one or more of the terms of the contract. In case of
novation there may be a change of the parties, while in the case of alteration, the parties remain the same.
But there is a change in the terms of the contract. Alteration can take place only with the consent of all the parties
3. Rescission- Section 62- It means the cancellation of the contract.
4. Remission- Section 63- It means the acceptance of lesser fulfillment of the terms of the promise
5. Waiver- Section 63- Waiver means giving up or foregoing certain rights. When a party agrees to give up its
rights, the contract is discharged. Example: A promises to paint a picture of B. B afterwards forbids him to do so.
A is no longer bound to perform the promise.

Discharge By Performance
When the parties to a contract fulfill the obligations arising under the contract within the time and manner
prescribed, then the contract is discharged by performance. Example: Peter agrees to sell his cycle to John for an
amount of Rs 10,000 to be paid by John on the delivery of the cycle. As soon as it is delivered, John pays the
promised amount. Since both the parties to the contract fulfill their obligation arising under the contract, then it is
discharged by performance.

Discharge of a Contract By Lapse Of Time

The Limitation Act, 1963 prescribes a specified period for performance of contract. If the promisor fails to
perform and the promisee fails to take action within this specified period, then the promisee cannot seek remedy
through law. It discharges the contract due to the lapse of time. Example: Peter takes a loan from John and agrees
to pay installments every month for the next five years. However, he does not pay even a single installment. John
calls him a few times but then gets busy and takes no action. Three years later, he approaches the court to help
him recover his money. However, the court rejects his suit since he has crossed the time-limit of three years to
recover his debts.

Discharge By Operation of Law

A contract may be discharged by operation of law in the following cases –
Death – If a contract involves personal skill then the contract is discharged. If a contract does not involve
personal skill then the rights and liabilities of the deceased person will pass on to his legal representatives.
Insolvency – The insolvency of the promisor discharges the contract
Unauthorized material alteration – Material alteration in the terms of the contract without the consent of the
other party discharges the contract.
Merger – When inferior rights of a person under a contract merge with superior rights under a new contract, the
contract with inferior rights will come to an end. Examples: Where a part-time lecturer is made full-time lecturer,
merger discharges the contract of part-time lecturer ship.

Discharge By Breach Of Contract

Breach means failure of a party to perform his obligations under a contract. Breach brings an end
to the obligations created by a contract.

Discharge By Impossibility Of Performance

Impossibility of performance results in the discharge of the contract. An agreement which is impossible is void,
because law does not compel to do impossible things. Example: A and B wanted to marry each other. Before the
time is fixed for marriage, A goes mad. The contract becomes void.

Breach of Contract- When a promise or agreement is broken by any of the parties, we call it a breach of contract.
So when either of the parties does not keep their end of the agreement or does not fulfill their obligation as per the
terms of the contract, it is a breach of contract. Breach of contract can be actual breach or anticipatory breach.
Types
1. Anticipatory Breach Of Contract- As the name suggests, an anticipatory breach is a breach of contract before
the time of performance. So, if a promisor denies to perform his promise and signifies his unwillingness before
the time for performance, then it is an anticipatory breach of contract. Examples – Peter enters into a contract with
John on May 30, 2018. In the contract, Peter agrees to sell his house to John provided he receives a token amount
of Rs 5,00,000 from John on or before June 30, 2018. However, on June 15, 2018, John informs Peter that he will
not be able to provide the token amount on the said date, thereby expressing rejection of the contract. Peter enters
into a contract with John on June 01, 2018. As per the contract, Peter agrees to sell his guitar to John on June 10,
2018, for an amount of Rs 5,000. However, he sold this guitar to Oliver on June 07, 2018. Hence, it is an
anticipatory breach of contract due to Peter’s conduct. When a promisor refuses to perform his promise leading to
an anticipatory breach of contract, the promisee is excused from performance or from further performance of his
obligations. Also, he can either: Treat the contract as canceled and file a suit against the other party for damages
arising from the breach. This suit can be filed immediately without waiting until the date of performance specified
in the contract.
OR
Choose not to cancel the contract but treat it as an operative and wait until the time of performance has passed
before holding the other party responsible for the damages caused due to non- performance.
2. Actual Breach Of Contract- While an anticipatory breach is before the time of performance, an actual breach
of contract is on the scheduled time of performance of the contract. An actual breach of contract can be committed
either:
At the time when the Performance of the Contract is Due- Peter enters into a contract with John promising to
deliver 50 bags of cotton to him on June 30, 2018. However, on the scheduled day, he fails to deliver the same.
This is an actual breach of contract. Also, this breach is at the time the performance of the contract is due.
During the Performance of the Contract- An actual breach of contract can also occur when one party fails to
perform his obligation, during the performance of the contract. This refusal can be expressed in words or by
action.

Remedies For Breach Of Contract-

1. Rescission of Contract- When one of the parties to a contract does not fulfil his obligations, then the other
party can rescind the contract and refuse the performance of his obligations. As per section 65 of the Indian
Contract Act, the party that rescinds the contract must restore any benefits he got under the said agreement. And
section 75 states that the party that rescinds the contract is entitled to receive damages and/or compensation for
such a recession.
2. Sue for Damages- Section 73 clearly states that the party who has suffered, since the other party has broken
promises, can claim compensation for loss or damages caused to them in the normal course of business.
Such damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary course of business.
There are two types of damages according to the Act, Liquidated damages - Sometimes the parties to a contract
will agree to the amount payable in case of a breach. This is known as liquidated damages. Unliquidated Damages
- Here the amount payable due to the breach of contract is assessed by the courts or any appropriate authorities.
3. Sue for Specific Performance- This means the party in breach will actually have to carry out his duties
according to the contract. In certain cases, the courts may insist that the party carry out the agreement.
So if any of the parties fails to perform the contract, the court may order them to do so. This is a decree of specific
performance and is granted instead of damages. For example, A decided to buy a parcel of land from B. B then
refuses to sell. The courts can order B to perform his duties under the contract and sell the land to A.
4. Injunction- An injunction is basically like a decree for specific performance but for a negative contract. An
injunction is a court order restraining a person from doing a particular act.
So, a court may grant an injunction to stop a party of a contract from doing something he promised not to do. In a
prohibitory injunction, the court stops the commission of an act and in a mandatory isnjunction, it will stop the
continuance of an act that is unlawful.
5. Quantum Meruit- Quantum meruit literally translates to “as much is earned”. At times when one party of the
contract is prevented from finishing his performance of the contract by the other party, he can claim quantum
meruit. So he must be paid a reasonable remuneration for the part of the contract he has already performed. This
could be the remuneration of the services he has provided or the value of the work he has already done.

SPECIAL CONTRACTS-
Contract Of Indemnity- Contract of indemnity meaning is a special kind of contract. The term ‘indemnity’
literally means “security or protection against a loss” or compensation. According to Section 124 of the Indian
Contract Act, 1872 “A contract by which one party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity.”
Example: P contracts to indemnify Q against the consequences of any proceedings which R may take against Q in
respect of a certain sum of money.
Objective Of Contract Of Indemnity- The objective of entering into a contract of indemnity is to protect the
promisee against unanticipated losses.
Parties To The Contract Of Indemnity- A contract of indemnity has two parties.
The promisor or indemnifier
The promisee or the indemnified or indemnity-holder
The promisor or indemnifier: He is the person who promises to bear the loss.
The promisee or the indemnified or indemnity-holder: He is the person whose loss is covered or who is
compensated.
In the above-stated example,
P is the indemnifier or promisor as he promises to bear the loss of Q.
Q is the promisee or the indemnified or indemnity-holder as his loss is covered by P.

Essentials Of Contract Of Indemnity

1. Parties To A Contract: There must be two parties, namely, promisor or indemnifier and the promisee or
indemnified or indemnity-holder.
2. Protection Of Loss: A contract of indemnity is entered into for the purpose of protecting the promisee from
the loss. The loss may be caused due to the conduct of the promisor or any other person.
3. Express Or Implied: The contract of indemnity may be expressed (i.e. made by words spoken or written) or
implied (i.e. inferred from the conduct of the parties or circumstances of the particular case).
4. Essentials Of A Valid Contract: A contract of indemnity is a special kind of contract. The principles of the
general law of contract contained in Section 1 to 75 of the Indian Contract Act, 1872 are applicable to them.
Therefore, it must possess all the essentials of a valid contract.
5. Number Of Contracts: In a contract of Indemnity, there is only one contract that is between the Indemnifier
and the Indemnified.

1. Rights Of Promisee/ The Indemnified/ Indemnity Holder

2. As per Section 125 of the Indian Contract Act, 1872 the following rights are available to the promisee/ the
indemnified/ indemnity- holder against the promisor/ indemnifier, provided he has acted within the scope of
his authority.
3. Right To Recover Damages Paid In A Suit [Section 125(1)]: An indemnity-holder has the right to recover
from the indemnifier all damages which he may be compelled to pay in any suit in respect of any matter to
which the contract of indemnity applies.
4. Right To Recover Costs Incurred In Defending A Suit [Section 125(2)]: An indemnity-holder has the right
to recover from the indemnifier all costs which he may be compelled to pay in any such suit if, in bringing or
defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for
him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the
suit.
5. Right To Recover Sums Paid Under Compromise [Section 125(3)]: An indemnity-holder also has the right
to recover from the indemnifier all sums which he may have paid under the terms of any compromise of any
such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have
 been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor
authorized him to compromise the suit.
6. Right To Sue For Specific Performance- The indemnity holder is entitled to sue for specific performance if
he has incurred absolute liability and the contract covers such liability.

Contract Of Guarantee- Contract of Guarantee means a contract to perform the promises made or discharge the
liabilities of the third person in case of his failure to discharge such liabilities. As per section 126 of Indian
Contract Act, 1872, a contract of guarantee has three parties: –
Surety: A surety is a person giving a guarantee in a contract of guarantee. A person who takes responsibility to
pay a sum of money, performs any duty for another person in case that person fails to perform such work.
Principal Debtor: A principal debtor is a person for whom the guarantee is given in a contract of guarantee.
Creditor: The person to whom the guarantee is given is known as the creditor.
For example, Mr. X advances a loan of 25000 to Mr. Y and Mr. Z promises that in case Mr. Y fails to repay the
loan, then he will repay the same. In this case of a contract of guarantee, Mr. X is a Creditor, Mr. Y is a principal
debtor and Mr. Z is a Surety.

Essential
Essentials of valid contract
● Consideration for guarantee
● Competency of the parties
● Existence of a recoverable debt
● No misrepresentation or concealment of facts
● Conditional liability of surety
● Concurrence of all the three parties
● Mode of creation of contract

Nature And Extent Of Surety‘s Liability

● Secondary
● Contingent or dependent
● Arises immediately on the default of the principal debtor
● Coextensive
● Entitled to limit his liability
● Continuing guarantee
● Where the original contract between the principal debtor and creditor become void or voidable

Contract Of Bailment And Pledge- The word “Bailment” has been derived from the French word “ballier”
which means “to deliver”. Bailment etymologically means ‘handing over’ or ‘change of possession’. As per
Section 148 of the Act, bailment is the delivery of goods by one person to another for some purpose, upon a
contract, that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according
to the directions of the person delivering them. The person delivering the goods is called the “bailor”. The person
to whom they are delivered is called the “bailee”.
Example: Where ‘X’ delivers his car for repair to ‘Y’, ‘X’ is the bailor and ‘Y’ is the bailee.
Example: X delivers a piece of cloth to Y, a tailor, to be stitched into a suit. It is contract for bailment.

Essentials- The essential elements of a contract of bailment are—

Contract- Bailment is based upon a contract. The contract may be express or implied. No consideration is
necessary to create a valid contract of bailment.
Delivery of goods- It involves the delivery of goods from one person to another for some purposes. Bailment is
only for moveable goods and never for immovable goods or money. The delivery of the possession of goods is of
the following kinds:
Actual Delivery- When goods are physically handed over to the Bailee by the bailor. Eg: delivery of a car for
repair to workshop
Constructive Delivery- Where delivery is made by doing anything that has the effect of putting goods in the
possession of the Bailee or of any person authorized to hold them on his behalf. Eg: Delivery of the key of a car to
a workshop dealer for repair of the car.
Purpose- The goods are delivered for some purpose. The purpose may be expressed or implied.
Possession- In bailment, possession of goods changes. Change of possession can happen by physical delivery or
by any action which has the effect of placing the goods in the possession of Bailee. The change of possession does
not lead to change of ownership. In bailment, the bailor continues to be the owner of goods as there is no change
of ownership. Where a person is in custody without possession he does not become a Bailee. For example,
servants of a master who are in custody of goods of the master do not become bailees. Similarly, depositing
ornaments in a bank locker is not bailment, because ornaments are kept in a locker whose keys are still with the
owner and not with the bank. The ornaments are in possession of the owner though kept in a locker at the bank.
Bailee is obliged to return the goods physically to the bailor. The goods should be returned in the same form as
given or may be altered as per bailor’s direction. It should be noted that exchange of goods should not be allowed.
The Bailee cannot deliver some other goods, not even those of higher value. Deposit of money in a bank is not
bailment since the money returned by the bank would not be identical currency notes.
“Pledge”, “pawnor” and “pawnee” defined [Section 172]: The bailment of goods as security for payment of a
debt or performance of a promise is called “pledge”. The bailor is in this case called the “pawnor”. The bailee is
called the “pawnee”. Pledge is a variety or species of bailment. It is bailment of goods as security for payment of
debt or performance of a promise. The person who pledges [or bails] is known as pledgor or also as pawnor, the
bailee is known as pledgee or also as pawnee. In pledge, there is no change in ownership of the property. Under
exceptional circumstances, the pledgee has a right to sell the property pledged. Section 172 to 182 of the Indian
Contract Act, 1872 deals specifically with the bailment of pledge. Example: A lends money to B against the
security of jewellery deposited by B with him i.e. A. This bailment of jewellery is a pledge as security for lending
the money. B is a pawnor and A is a pawnee.
Essentials Of Pledge: Since Pledge is a special kind of bailment, therefore all the essentials of bailment are also
the essentials of the pledge. Apart from that, the other essentials of the pledge are:
There shall be a bailment for security against payment or performance of the promise,
The subject matter of pledge is goods,
Goods pledged for shall be in existence,
There shall be the delivery of goods from pledger to pledgee

Difference between bailment and pledge

Contract Of Agency- According to Section 182 of the Contract Act an 'Agent' is a person employed to do any act
for another or to represent another in dealings with third persons. The person for whom such act is done, or who is
so represented, is called the 'principal'. Thus, It is clear from the definition, that an agent is a connecting link
between his principal and third parties.
Principles of Agency- Contracts of agency are based on two important principles, namely:(i) Whatever a person
can do personally shall also be allowed to be done through an agent except in case of contracts involving personal
services such as painting, marriage, singing, etc. (ii)He who does not act through a duly authorized agent does it
by himself, i.e., the act of the agent are considered the acts of the principal (Sec. 226)

Essential features of contract of agency

● Agreement between agency and principal
● Competency of principal
● Competency not required for an agent
● Contractual relationship
● Creation of legal relations
● Consideration not required
● Intention of the person to act
Creation Of Agency- Agency may be created under the following ways:
By Express Agreement (Section 186) - According to section 186 of the Indian Contract Act, 1872, the contract
of agency may be express or implied. Express in the sense, it may be oral or in writing. It is a practice in many
cases, to appoint agents by using the power of attorney on a stamped paper.
By Implied Agreement (Section 187): Section 187 defines express and implied authority as follows-
An authority is said to be expressed when it is given by words spoken or written. An authority is said to be
implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary
course of dealing, may be accounted for in the circumstances of the case.”
An Implied Agency may be created from the conduct, situation or relationship of the parties. It may be
inferred from the circumstances of the case. Implied agency includes:
Agency by Estoppel - It is based on the ‘Doctrine of Estoppel’. If the principal by his conduct or statement
leads another person to believe that a person is his agent, he cannot deny him as his agent later. Eg- ‘A’ says
‘B’ in the presence of ‘C’ that he is the agent of ‘C’. If ‘C’ does not deny the statement, he cannot deny ‘A’ as
his agent later.
Agency by Holding Out- It is a branch of the Agency by Estoppel. If one person knowingly admits another
to act on his behalf and allows him to do so, later he cannot deny the act of that person. If he does not want to
do so he should express his objection to that act immediately.
Example: ‘A’ allowed his wife ‘B’ to manage his property and to mortgage it. A is bound by her acts.
Agency by necessity- Agency of necessity is created in case of emergencies. In these cases, the persons who
perform their services as agents do not seek prior permission or appointment from the principals. The
principals are also in certain difficult situations and they could not give their assent or refusal, but accept the
services rendered by such persons. Therefore, law confers authority on a person to act as an agent for another,
without the consent of that person (principal). Such an agency is called ‘Agency by Necessity’.
Cases where agency by necessity may arise:
When an agent exceeds his authority in an emergency (Sec. 189)
Relationship between husband and wife-
Living together
Living separately
Carrier of goods acting as Bailee does anything to protect or preserve the goods
By ratification - As per Section 196 of the Indian Contract Act, agency by ratification is said to arise when a
person, on whose behalf the acts are done without his knowledge or authority, expressly or impliedly accept such
acts.
Essentials of Ratification (Sec.196-200)
● Full knowledge
● Whole transaction
● No damage to 3rd parties
● Act on behalf of other person
● Existence of Principal
● Within reasonable time
● Lawful acts
● Acts within Principal’s power
● Communication
By Operation of law- Agency by operation of law arises where the law treats one person as an agent of another.
 Important Case Laws

1. BALFOUR VS BALFOUR

Balfour vs Balfour Case summary (1919) is a snippet to understand the theory of legal relationships easily.
Balfour vs Balfour case gave birth to the theory of legal relationship, which is essential to forming a contract.
The creation of legal relations is important, without which a contract cannot be formed.
FACTS
● Mr. Balfour and his wife went to England for vacation. During their vacation, his wife became ill and
needed medical attention for the same.
● They made an agreement that Mrs. Balfour would remain in England and that Mr. Balfour would go back to
Ceylon and would pay £30 to her every month until he returned.
● The particular agreement was made when their relationship was fine. Later, their relationship got sour and
her husband stopped sending her money.
● Mrs. Balfour sought to enforce this agreement. Later, they both got separated and were divorced.
● The wife sued Mr. Balfour that he had promised to pay her money but failed to do so.
● The additional judge of King’s Bench held that Mr. Balfour was under responsibility to support and pay his
wife, and there is a firm agreement between the two for which Mr. Balfour appealed.
ISSUES
Was there an intention by Mr. Balfour to be legally bonded?
Is the contract between the wife and husband valid?
CONTENTIONS
Plaintiff’s contention
The appellant argued it was a domestic agreement and not a legal agreement. Mr. Balfour never intended to
make a legal relationship and a legal agreement between the two.
Defendant’s contention
The defendant argued that the wife is deemed to get £30 as the husband entered a domestic contract by offering
his wife to pay £30, to which his wife agreed and stayed back in England.
JUDGEMENT
The judges present to hear this case were Justice Atkins, Justice Warrington, and Justice Duke. Lord Justice
Atkins held that contract law is not for personal relationships and family. There was no intention to create a
legal relationship, thus there can be no legally binding contract. Atkins added if courts were to allow wives
when the contract is broken between the two, then courts would be engaged with frivolous cases. The rest two
justices agreed with Lord Justice Atkins.
The appeal made by Mr. Balfour succeeded and the court ruled that there was no legal relationship or any legal
contract between the wife and husband. If the parties intend to create a legal relationship can be decided by
examining the circumstances under which the contract was made and executed. Therefore, Mr. Balfour was not
legally bound to pay money to Mrs. Balfour.
CONCLUSION
Studying and understanding the Balfour vs Balfour case cleared that social agreements made between members
of the family or other personal relationships will not be enforced in a court of law. It also emphasized the
importance of creating legal relationships for a contract to be enforced. The Balfour law gave a new perspective
on contract validation.

2. HARVEY VS FACEY CASE 1893

Harvey vs Facey case is one of the important case law in contract law as it defines the difference between an
invitation to offer and offer and it also throws a light explaining completion of the offer as it plays a very
important role in the agreement formation.
RELEVANT ACT AND SECTION:
 ● Section 2(a), Indian Contract Act, 1872–“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.”
● Section 2(b), Indian Contract Act, 1872–“When the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise”
● Once the acceptance is communicated, it can’t be revoked or withdrawn.
● An invitation to treat (offer)–It’s a concept of Contract Law which refers to an invitation for a party to make
an offer to enter into contractual negotiation.
FACTS
● Appellants, Mr. Harvey, who was running a partnership company in Jamaica, wanted to purchase a property
owned by Mr. Facey, who was also negotiating with the Mayor and Council of the Kingdom of Kingston
City for the same property.
● On October 6th, 1893 appellant sent a telegram regarding the purchase of property to Mr. Facey who was
traveling on the train on that day as he did not want the property was sold to Kingston City.
● Telegram said “Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid.” Replying to
the question Mr. Facey said “Lowest price for Bumper Hall Pen£900.” Furthermore, Mr. Harvey Replied
“We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your
title deed in order that we may get early possession.”
● Mr. Facey refuses to sell the property resulting in Mr. Harvey sued him, claiming that the contract existed
between him and stated that the telegram was an offer and that he had accepted it.
● The Petition was dismissed on the first trial by Justice Curran on the ground that “The agreement as alleged
by the Appellant did not denote a concluded contract” but won the claim in the appellate court which
quashed the trial court judgment declaring that the binding agreement had been proved. Upon taking leave
from the appellate court, he appeals to the Queen of Council (i.e. The Privy Council).
ISSUES
Was there an explicit offer from Mr. Facey to Mr. Harvey for the sale of the said property for the consideration
of £900 and is it capable of acceptance?
Was there a valid contract or not?
JUDGEMENT
The Privy Council held that no agreement has ever existed between the parties. The first conversation is only a
request for information, not an offer that could be accepted. Therefore, the telegram sent by Mr. Facey was not
credible. It was concluded that the telegram sent by Mr. Facey is only a piece of information. At no point in
time, Mr. Facey made an offer that could be accepted.
CONCLUSION
A valid contract requires a proposal and an acceptance to it and to make contract binding acceptance of the
proposal must be notified to the proposer because a legally enforceable agreement requires sureness to hold.
This case clearly explains the differentiation between invitation to offer and offer and it also throws a light on
the nature of the offer as it plays a very important role.

3. CARLILL VS. CARBOLIC SMOKE BALL CASE

Carlill vs. The Carbolic Smoke Ball case dealt with the question of whether an advertising company gimmick
can be considered as an express contractual promise to pay. Here since a unilateral contract was made,
acceptance can be made without formal communication.
FACTS
The defendant company that is Carbolic Smoke Ball Co. was a London based company. On November 13th,
1891 they placed an advertisement in several newspapers stating that their product “The Carbolic Smoke Ball”,
if used three times daily for two weeks then that person would not be affected by colds and influenza. The
company additionally offered to pay 100£ as reward if anyone caught influenza using their product. They also
guaranteed this reward by showing a bank statement saying they had already deposited 1000£ in the bank to
show their sincerity. Lili Carlill, the plaintiff had bought this smoke ball and used it as directed by the company.
Few weeks later, she caught the flu.
LEGAL ISSUES
Whether there was any binding effect of the contract between the parties?
Whether the contract in question required a formal notification of acceptance?
Whether Mrs. Carlill was required to communicate her acceptance of the offer to the Carbolic Smoke Ball
Company?
Whether Mrs. Carlill provided any consideration in exchange for the reward of £100 offered by the company?
CONTENTIONS
Defendant’s contentions –
The defendant company argued that the offer that they made didn’t have a binding impact in order to form a
valid contract.
Secondly, they contended that there was no means of checking how the customer used the product or what
procedure the customer used.
Thirdly, there was no contract since there was no intention to accept and there was no formal communication.
Thus the advertisement was just a marketing strategy and there was no intention to form any contract.
Plaintiff’s contentions –
Firstly, the plaintiff argued that the promise was not vague and also the construction of the offer was clear
which said if the product isn’t effective then the company would reward a certain amount for the same.
Secondly, by depositing a large amount in the Alliance bank account, proved the intention to form an agreement
from one side.
Thirdly, the plaintiffs proved that consideration existed in the form of money paid to buy the smoke ball.
Thus, the advertisement was not merely an empty boast. It characterized all the essentials required to form a
contract, more precisely a unilateral contract. Thus the company has to fulfill its part.
JUDGEMENT
● The judges sitting to hear this case were Justice Lindley, Justice Bowen and Justice A.L Smith. All the 3
judges unanimously rejected the arguments made by the defendants. The reasons given by the judges were:
● To the entire world, the advertisement was a unilateral offer.
● The acceptance of the offer satisfies the conditions required for using the smoke ball.
● The purchasing or using the smoke ball can be considered as a good consideration.
● The company’s deposit of £1000 in the Alliance bank showed the intention to be legally bound.
The court unanimously dismissed the appeal made by defendants and Mrs. Carlill received the compensation of
£100. The judges stated that the advertisement shall be treated as an express promise and according to this
promise; anyone who contracts the flu despite the preventive ability of the smoke ball as claimed by the
company will be paid £100 provided that the ball is utilized as per the directions.
CONCLUSION
The particular judgment made in Carlill v. Carbolic Smoke ball Co. made a huge impact on English contract
law. This is the most cited case in the common law of contract mostly if the case is concerned with unilateral
contracts. After this judgment the companies and agencies are more careful about what they advertise to the
world at large. It lays foundation to contract law as all the essential elements are mentioned such as offer and
acceptance, intention to form legal relationships etc.

4. CHINNAYA VS RAMAYYA

This is a leading case for consideration and the concept of privity of contract. As per section 2(d) of the Indian
Contract Act, 1872, consideration means something in return. It is one of the essential elements of a valid
Contract and without any consideration between the parties, there cannot be a valid contract between them.
Privity of Contract is the concept that says that no party other than the parties to the contract can sue for the
contract. So, no outsider or third party can extract any benefit out of the contract, except the parties to it.
However, there is one exception to this rule- if the third-party acts as an Agent, then it may be able to sue for
non-compliance to the contract. We would study all these objects at a later stage in this case.
FACTS
● An old lady, A, before her death, granted a certain piece of property to her daughter R (the defendant). The
property was transferred by a deed of gift. But the transfer was made subject to a direction given by A. A
directed that R should pay an annuity to A’s sister (the plaintiff).
● Thus, the terms of the deed stated that in return for such transfer, R will be paying an annuity amount of Rs.
653 to A’s sister, C.
● On the same day, an agreement was entered into between R and C whereby R agreed to pay C the sum as
directed by her mother, A. The agreement was executed in writing by R in favour of C.
● However, after A died, the sum so stipulated was not paid by R (the defendant). She declined to fulfill her
promise saying that no consideration had moved from her mother’s sister. C (the plaintiff) thus sued R to
recover the amount.
● R contended that she was not under an obligation to pay money to C since no consideration was moved
from C to her. Moreover, she argued that the plaintiff had no right to compel her (the defendant) to pay the
amount.
● On the other hand, as regards the transfer of property was concerned, C contended that the consideration for
getting the property was a promise to pay the amount annually to the plaintiff.
ISSUE
Whether the plaintiff can bring a lawsuit against the defendant?
Is the defendant bound to fulfill the promise in a contract (with the plaintiff) where the consideration for such
promise has been furnished by the defendant’s mother (sister of the plaintiff)?
RELEVANT PROVISIONS
● If Section 2(d) of the Indian Contract Act, 1872 is analyzed, it says that there are certain features that are
essential for consideration to become valid and to be acceptable legally. One such feature is that
consideration may move from the promisee himself or from any other person. In other words, the act which
is to constitute consideration may be done either by the promisee himself or by any other person.
● “Any other person” is a person other than the promisee and is technically referred to as a stranger to
consideration. When consideration moves from “any other person”, this is sometimes also called the
doctrine of constructive consideration.
● It signifies that as long as there is a consideration for a promise, it is immaterial as to who has furnished it.
A promise will become enforceable if there is some consideration for it. The consideration can even
legitimately move from a third party and it is an accepted principle of law in India.
JUDGEMENT
● By citing the words “the promisee or any other person” in Section 2(d) of the Indian Contract Act, 1872,
the Madras High Court held that consideration need not necessarily move from the promisee only. It may
move from any other person. Hence, C was entitled to maintain the suit and to recover the amount.
● The consideration furnished by C’s sister (the defendant’s mother) was enough to enforce the contract
between C and R. It constituted sufficient consideration for the plaintiff to sue the defendant on her
promise.
● Although consideration was not moved from C, she was a party to the contract and hence, was allowed to
sue R.
● In other words, the defendant was obligated to pay the amount promised in the contract as the consideration
for the same was given to her by the plaintiff’s sister, i.e., the defendant’s mother.
● Thus, the agreement of annuity between C and R was enforceable even though the consideration had moved
from a third party (R’s mother).
CONCLUSION
The case of Chinnaya vs Ramayya emphasized the rule of consideration under the contract law. According to it,
it doesn't matter who furnishes the consideration. The consideration shall be valid whether it is moved by the
promisee himself or any other person.
5. LALMAN SHUKLA VS GAURI DUTT

The case examines the element of acceptance in a contract and that if there is no acceptance, the contract will
not be valid. The case is related to the validity of a contract. The concept of validity of a contract is discussed in
Section 8 of the Indian Contract Act 1872.
FACTS
● The defendant’s (Gauri Dutt) nephew went missing and absconded from his wife.
● On hearing this, Gauri Dutt sent out a few of his servants in order to search for him.
● The plaintiff (Lalman Shukla) was one of the servants who went out to search for the absconded nephew.
● The servants were given the money for travelling as well as other expenses. Lalman Shukla travelled to
Haridwar from Kanpur to search for the nephew.
● While the plaintiff was away, the defendant made an announcement that whomsoever successfully found
the missing nephew and brought him back home safely will be awarded a sum of Rs.501 as prize money.
● However, since this announcement was made when the plaintiff was away, he was not aware of this offer.
● On finding the nephew and bringing him back home, the defendant gave the plaintiff two sovereigns and an
amount of Rs.2 on his return. The plaintiff was satisfied and did not demand anything more.
● Roughly about six months later, the defendant fired the plaintiff and dismissed him from his service. In
response to this act, the plaintiff asked for the reward money i.e., the Rs.501 which he thought belonged to
him as he brought back home the missing nephew. Hence, Lalman Shukla filed a case against Gauri Dutt to
claim the money.
ISSUES
The following issues are raised in Lalman Shukla Vs Gauri Dutt case-
Whether Lalman Shukla was entitled to receive the reward money?
Whether there was the element of acceptance between the defendant and the plaintiff?
Whether the situation is considered to be a contract and if there existed a contractual relation between the two?
Whether the decision given by the lower court is valid?
JUDGEMENT
● In the Lalman Shukla Vs Gauri Dutt case, Hon’ble Justice Banerji dismissed the appeal and gave the
verdict that Gauri Dutt was not liable.
● The judge, after analyzing the facts of this case, said that in order for a contract to exist and for a
contractual relationship to be present, there must be two important elements. The elements are Offer and
Acceptance.
● In the case of Lalman Shukla vs Gauri Dutt, both offer and acceptance were not present. When the offer
was made, the plaintiff was neither present nor did he know about the announcement.
● Henceforth, according to the Indian Contract Act 1872, the plaintiff was not entitled to get the reward
money for bringing the absconded nephew back home. The Allahabad high court agreed to the decision of
the lower court and did not overrule the judgement.

6. MOHORI BIBEE VS. DHARMODAS GHOSE

The landmark case of Mohori Bibee vs. Dharmodas Ghose addresses the validity of an agreement with a minor.
In this famous case, the Court declared that any contract made by a minor or any minor’s agreement is void,
and this view has been strictly followed for years. The case was decided in 1903 when the Privy Council ruled
that a minor’s contract is void-ab-initio, which means that it is void from the beginning.
FACTS
● Dharmodas Ghose was the respondent in this case. He was a minor (i.e. has not completed the 18 years of
age) and he was the sole owner of his immovable property. The mother of Dharmodas Ghose was
authorized as his legal custodian by Calcutta High court.
● When he went for the mortgage of his own immovable property which was done in the favor of appellant
i.e. Brahmo Dutta, he was a minor and secured this mortgage deed for Rs. 20,000 at 12% interest rate as per
 year.
● Brahmo Dutta who was a money lender at that time and he secured a loan or amount of Rs. 20,000, and the
management of his business was in the control of Kedar Nath and Kedar Nath acted as the attorney of
Brahmo Dutta.
● Dharmodas Ghose’s mother sent a notification to Brahmo Dutta informing him about the minority of
Dharmodas Ghose on the date on which such mortgage deed was commenced, but the proportion or the
sum of loan that was actually provided was less then Rs. 20,000.
● On 10th September 1895 Dharmodas Ghose along with his mother brought an legal action against Brahmo
Dutta by saying that the mortgage that was executed by Dharmodas was commenced when he was a minor
or infant and so such mortgage was void and disproportionate or improper and as a result of which such
contract should be revoked.
ISSUES
Whether the deed was void under section 2, 10 and 11 of the Indian Contract Act, 1872 or not?
Whether the defendant was liable to return the amount of loan which he had received by him under such deed
or mortgage or not?
Whether the mortgage commenced by the defendant was voidable or not?
JUDGEMENT
● According to the verdict of the Trial court, such mortgage deed or contract that was commenced between
the plaintiff and the defendant was void as it was accomplished by the person who was an infant at the time
of execution of mortgage.
● When Brahmo Dutta was not satisfied with the verdict of the Trial Court he filed an appeal in the Calcutta
High court.
● According to the decision of the Calcutta High court, they agreed with the verdict that was given by the
Trial court and dismissed the appeal of Brahmo Dutta.
● Then he later went to the Privy Council for the appeal and later the Privy Council also dismissed the appeal
of Brahmo Dutta and held that there cannot be any sought of contract between a minor and a major person.
● The final decision that was passed by the council were-
● Any sought of contract with a minor or infant is void/void ab- initio (void from beginning).
● Since the minor was incompetent to make such a mortgage hence the contact such made or commenced
shall also be void and not valid in the eyes of law.
● The minor i.e. Dharmodas Gosh cannot be forced to give back the amount of money that was advanced to
him, because he was not bound by the promise that was executed in a contract.
CONCLUSION
● In Mohori Bibee v/s Dharmodas Ghose, at the end it can be concluded that any agreement or deed in which
a minor is party to it or is included in such agreement shall be declared null and void because such
agreement is not agreement in the eyes of law.
● In cases minors parents or custodians shall not be liable for the dealing done by the minor without their
consent, and hence they will be not liable to return the amount back taken by the minor out of the moral
obligation.
THE SALE OF GOODS ACT, 1930

It is one of the special types of contract. Initially, it was part of the Indian Contract Act, 1872. Later it was deleted
and a separate Sale of Goods Act was passed in 1930. It came into force on 1st July, 1930. It extends to the whole
of India.

Contract Of Sale Of Goods

As per Section 4(i) of the Sale of Goods Act, 1930, Contract of sale of Goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to the buyer for a price.
Essential Elements:
● There must be at least two parties. (Bilateral Contracts)
● The subject matter of the contract must be goods.
● A price in money should be paid or promised.
● A transfer of property in goods from seller to the buyer must take place.
● It must be absolute or conditional.
● All other essentials of a valid contract must be present.

Goods - Meaning
As per Sec 2(7), it means every kind of movable property other than actionable claims and money; and includes
stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale.
● Money means current money and it includes rare and old coins.
● Actionable claim means what a person cannot make a present use of or enjoy, but can recover it by means of a
suit or an action. Thus, a debt due to a man from another is an actionable claim and cannot be sold as goods,
although it can be assigned. Under the provisions of the Transfer of Property Act, 1882, goodwill,trade marks,
copyrights, patents are all goods, so is a ship. As regards water, gas,electricity, it is doubtful whether they are
goods.

Types Of Goods
1. Existing Goods: It means such goods which are in existence at the time of the contract of sale i.e. owned or
possessed by the seller.
2. Specific or Ascertained Goods: It means goods identified and agreed upon at the time the contract of sale
has been made.
3. Generic / Unascertained Goods: It means the goods which are not specifically identified but are indicated by
description.
4. Future Goods: It means goods to be manufactured or produced or acquired by the seller after making the
contract of sale.
5. Contingent Goods: It means the goods the acquisition of which by the seller depends upon a contingency
which may or may not happen.

Differences Between Sale And An Agreement To Sell

No. Sale Agreement

 1. It is an executed contract. It is an executory contract.

2. Property in goods are transferred from Transfer of property in goods takes place at
seller to buyer when the contract is made. some future date.

3. Seller cannot resell the goods as the Seller can further resell the goods as the
property is with the buyer. property in good remains with him.

4. Risks passes to the buyer, as he becomes Risks is with the seller as he remains the
the owner. owner.

5. Breach on part of buyer, seller can sue Breach on part of buyer, seller can sue for
for the price and damages both. damages only and not for the price.

6. Sale is contract plus conveyance. It is a pure and simple agreement.

7. In this, if goods are destroyed then loss In this, if goods are destroyed by accident,
will be of Buyer. loss will fall on the seller.

Whenever we buy any goods like electronic gadgets etc, we are concerned about the warranty periods.
We ask the seller about the warranty to make sure that even if the product is found to be faulty after purchase we
can easily get the product replaced or repaired.
The terms “Condition” and “Warranty” are set out in the contract of sale in order to determine remedies the parties
can claim in case of the breach by either of the parties.

Conditions & Warranties

● The Sale of Goods Act 1930 provides the definition for a Condition as – “A condition is a stipulation essential
to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as
repudiated” and for a Warranty as – “A warranty is a stipulation collateral to the main purpose of the 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”.
Certain provisions need to be fulfilled as demanded in the contract of sale or any other contract.
The condition is a fundamental precondition on the basis of which the whole contract is based upon, on the other
hand, warranty is the written guarantee wherein the seller commits to repair or replace the product in case of any
fault in the product.
Section 11 to 17 of the Sale of Goods Act enlightens the provisions relating to Conditions and Warranties.
● A Condition forms the core of the contract i.e. considered as an essential to the main purpose of the contract.
● Therefore, the repercussion would be repudiation of the contract or claim for damages or both depending
upon the breach and case.
● Breach of a Condition makes a contract voidable on the part of the non-defaulting party to the contract.
● However, a Warranty is treated as a collateral to the main purpose of a contract and therefore, the
repercussions of breach of warranty by one of the parties would be only a claim for damages by the
non-defaulting party.
● A breach of Warranty by one of the parties does not make the contract voidable and does not give any right to
the non-defaulting party to repudiate the contract.
● When there is a breach of warranty by the seller, this breach does not provide the buyer with the right to
breach the contract, he may only sue the seller for breach of Warranty in diminution or extinction of the price.
Whether a particular stipulation in the contract is a Condition or a Warranty, depends on the case to case.

Conditions
A condition is a stipulation (stipulation means to demand something):-
1. Which is essential to the main purpose of the contract
2. The breach of condition gives the aggrieved party a right to terminate the contract, reject the goods and recover
the price Non fulfillment of condition upsets the contract.
Example: A (buyer) told B (car dealer) that he wants to buy a car for the purpose of touring. B suggested a Maruti
Car to A for the same purpose. After buying the car A realized that the car is not suitable for the purpose. Now,
here A has the right to return the car to B and receive the refund for the same.
Explanation for above mentioned example: In this example there was a condition that the car should be suitable
for touring purposes. And later on the buyer realized that this condition was not fulfilled/ breached. Hence, the
buyer has the right to terminate the contract and can recover the amount paid by him to the car dealer.

Types of Conditions
a) Express Conditions - These are conditions which are expressly incorporated/ mentioned by the parties in the
contract. It can be oral or written.
b) Implied Conditions - These are such conditions which are automatically incorporated/ applicable by the law/
conduct/ behavior in the contract.

Various implied conditions are mentioned below:

1. Condition as to title/ ownership- Seller has the right to sell the goods when seller has the title/ownership of
the goods. If the seller is selling the goods which are stolen then that means the seller has no right/title/ownership
of the goods. Hence, the buyer can cancel the contract, return the goods and can recover the price of the goods.
2. Condition as to sale by description- The implied condition is that if the seller is selling the goods by giving/
stating the description to the buyer then the goods must correspond with the description.
3. Condition as to sale by sample- The implied condition is that if the seller is selling the goods by giving a
sample to the buyer first then the buyer must be supplied with goods corresponding with the sample as well for all
the orders placed later on.
4. Condition as to sale by sample as well as by description
5. Condition as to quality/ fitness- As a normal rule buyer is responsible to examine the goods and see whether
it’s suitable for him or not. But when the buyer specifically informs the seller about the purpose and relies on the
skills and judgement of the seller, in this case the seller is responsible to provide quality product to the buyer. If
the seller cheats with the buyer then there will be a breach of implied condition as to quality/fitness.
6. Condition as to merchantability (means there should be no defects in the goods supplied).
7. Condition as to wholesomeness (goods supplied should not be adulterated or goods should be suitable for
consumption).

Types of Warranties
a) Express Warranties- Warranty which is expressly incorporated/ mentioned by the parties in the contract. It
can be oral or written.
b) Implied Warranties- These are such warranties which are automatically incorporated/ applicable by the
law/conduct/ behavior in the contract.
An implied warranty is a lot like an assumption. For example, when you buy a new car from a car dealer, the
implied warranty is that the car works. When you order a burger at a restaurant, it comes with the implied
warranty that it is edible.

Various implied warranties are mentioned below:

1. Implied warranty of quiet (undisturbed) possession of goods- Once the goods are sold to the buyer then
there should be no disturbance by the seller or any third party to the buyer.
2. Implied warranty to disclose the dangerous nature of the goods- In case of selling the goods of dangerous
nature to the buyer, there is an implied warranty that the seller should disclose all the relevant information to the
buyer. If the seller fails to do the same, then the seller will be liable to pay for the damages to the buyer. Example
of dangerous goods: Disinfectant, chemicals etc.
3. Implied warranty as to quality/ fitness- An implied warranty as to the quality or the fitness for a particular
purpose should be made known to the buyer in advance. Example: any damage to goods which can happen should
be made known to the buyer in advance, otherwise it will be considered breach of warranty.
4. Implied warranty as to be free from liability/ loan charges- Any goods which are being sold by the seller to
the buyer should be free from loan/ liability. Example: A took a loan from the bank for Rs. 1,00,000 by pledging
the bike with the bank. There was a loan going on and A sold the bike to C, here in this case there is an implied
warranty that A can’t sell the bike to C as the bike is not free from liability/ loan. So, C has the right to recover the
damages from A.

Basis Of Condition Warranty

Comparison

Meaning It is a stipulation which forms the very It is an additional stipulation

basis of the contract. complementary to the main purpose of the
contract.

Provision Section 12(2) of the Sale of Goods Act, Section 12(3) of the Sale of Goods Act,
1930 defines Condition. 1930 defines Condition.

Purpose Condition is basic for the formulation of It is a written guarantee for assuring the
the contract. party.

Result of Breach of The whole contract may be treated as Only damages can be claimed in case of a
Contract repudiated. breach.

Remedies Available Repudiation, as well as damages, can be Only damages can be claimed.
to the Aggrieved claimed.
Party

Doctrine Of “Caveat Emptor”

(Buyer Is Responsible For What He Do)
Here, Caveat means beware and emptor means buyer. So, Caveat Emptor means beware buyer.
This concept says that let the buyer beware (alert to risks or dangers). Which means the buyer is responsible for
wrong selection made by him during buying something. Seller is not responsible or bound to disclose any defect
in the goods i.e buyer is liable for his/ her acts.
Essentials of Doctrine of Caveat Emptor:
1. It is the duty of the buyer to thoroughly examine the goods
2. Buyer can’t blame anyone if goods turn out to be defective or do not serve his purpose
3. Seller is under no obligation to reveal defects
4. There is no implied undertaking by the seller that he shall supply the goods which will suit the buyer’s purpose
Exceptions to Doctrine of Caveat Emptor: (seller is responsible not the buyer)
Exceptions means the buyer is not responsible for the actions taken. Only the seller will be responsible in below
mentioned cases:
1. Buyer relies on the sellers judgement regarding the quality- Where buyer has made known the particular
purpose to the seller and relies on him for the purchase. So, in this case if any issue arises regarding the purpose
then the seller will be held responsible for the same.
2. Sale as sample
3. Sale as per the description
4. Sale by both sample as well as description
5. Sale by fraud or misrepresentation
6. Goods must be free from adulteration Otherwise seller will be responsible in case adulterated goods are
supplied to the buyer
7. Goods must be of merchantable quality (there should be no defects or goods should be fit for the purpose they
are bought for) Example: Cold drinks or chocolates- If seal of the cold drink selling in the market is opened or
wrapper of the chocolate is damaged. Then these goods will not be called as goods of merchantable quality.

Unpaid Seller
Who is an unpaid seller?
He is the seller to whom:- 1. Whole of the price is not paid, 2. Conditional payment
Bill of exchange/ promissory note/ cheque has been received by the seller but it dishonors. Till the time bill of
exchange/ promissory note/ cheque is with the seller so, till that time he is only called as seller but when any of
the mentioned instruments dishonors then after this seller is called unpaid seller.

Rights Of Unpaid Seller Against Goods

1.Right of possession/ lien- If the buyer fails to pay the price within the decided time, then unpaid seller has the
right to keep the goods in his possession and he can refuse to deliver the goods until the due payment is paid.
When right of possession can be exercised:-
● When goods are sold on cash basis, but payment is unpaid
● When goods have been sold on credit basis and the term of credit has expired
● When the buyer becomes insolvent even within the decided period for payment
● So, as long as the goods are in the possession of an unpaid seller, he can exercise this right. If goods are lost/
given up then right of possession/ lien is also lost/ given up
Termination of Right of Possession
● By delivery of goods to the buyer/ his agent
● By delivery of goods to the carrier/ courier company
● By waiver
This means that it’s specifically mentioned in the contract that the seller can’t retain the possession of the goods
even if the price has not been paid.
When the buyer has obtained the possession of goods lawfully.

2.Right of stoppage of goods in transit- If a buyer fails to pay the price within the decided time, then unpaid
seller has the right to stop the goods in transit.
Conditions for stoppage of goods:-
● When the seller is unpaid either wholly or partially.
● When the buyer becomes insolvent.
● Goods must be in the course of transit- This means that goods must not be in the possession of the seller and
have not reached the buyer’s possession as well.
Termination of Transit
● By delivery to the buyer/ his agent.
● Interception by the buyer (Interception means the act of catching/ receiving) When buyer or his agent obtains
the delivery of the goods before their arrival at the appointed destination hence, the transit comes to an end.
● Acknowledgement to the buyer by the carrier/ courier company that they are holding the goods on buyer’s
behalf, then also transit comes to an end.
● Part delivery of goods If part of the goods are delivered to the buyer then the transit comes to an end for the
remainder of the goods as well.

3.Right of resale- The unpaid seller has the right to resell the goods.
Conditions for resale:
● When goods are of perishable nature- Then unpaid sellers can resell them immediately without the notice to
the buyer. But in case of non-perishable items unpaid seller needs to send notice to the buyer for reselling
them
● Where unpaid seller gives the notice to buyer and buyer still don’t pay for it
● Where the right of resale is reserved/ mentioned in the contract
If contract clearly specifies that reselling can’t be done or vice versa
● Buyer becomes insolvent
● Buyer fails to pay the price of the goods

Rights Of Unpaid Seller Against Buyer

1.Suit for price

2.Suit for interest and special damages- Here, a suit can be filed for interest and special damages. Where,
interest will be paid on the amount of the deal between seller and buyer on the choice/ discretion of the court.
3.Suit for damages for non-acceptance- Suit can be filed against the buyer if the buyer wrongfully refuses to
accept the goods.
4.Suit for breach of contract.
THE INDIAN PARTNERSHIP ACT, 1932

Scope & Objective of the Act- Indian Partnership Act, 1932 is applicable to the whole of India.
The Act was applicable from 1st October 1932 except for section 69 (effect of non registration) which was
applicable from 1st October 1933.
The Act is based on the English Partnership Act, 1890.
The aim of the formation of the partnership should be to earn profits and share them among partners. The sharing
of profit and losses can either be according to the ratio of the capital contributed by each partner or be equally
among all the partners unless otherwise specified.
Definition- Section 4 of the Indian Partnership Act defines a partnership as “Partnership is the relation between
persons who have agreed to share the profits of a business carried on by all or any one of them acting for all”.
Persons who have entered into partnership with one another are called individually “partners” and collectively “a
firm”, and the name under which their business is carried on is called the “firm name”.

Characteristics of a Partnership

1. Number of members- Since partnership is the result of a contract, at least two people are necessary to
constitute a partnership. The Indian Partnership Act, 1932 does not mention anything about the maximum no. of
partners in a partnership firm However, according to Companies Act 2013, the maximum number of partners must
not exceed 100 in case of a partnership. If the number of members in a partnership exceeds 100 then it is termed
as an illegal association as per Section 464 of the Companies Act, 2013. Earlier As per Section 11 of the
Companies Act, the maximum number of partners for banking purposes is 10 and for other purposes is 20. Only,
the persons competent to contract can enter into a contract of partnership. Persons may be natural or artificial. A
Company may, being an artificial legal person, enter into a contract of partnership, if authorized by its
Memorandum of Association to do so. There could even be a partnership between 2 companies.
2. Agreement- The partnership is an agreement in which two or more people have decided to carry out business
and share the profit and losses equally. To create a legal relationship it is necessary to form a partnership
agreement.
The partnership agreement becomes the foundation or the basis on which it is based. It can be either written or
oral. The written agreement is known as a partnership deed. Partnership deed mainly consists of the following
details:
• Name and address of its firm and business
• Name and address of its partner
• Capital contributed by each partner
• Profit and loss sharing ratio
• Rate of interest on capital, loan, drawings etc
• Rights, duties and obligation of partners
• Settlement of accounts on the dissolution of the firm
• Salaries, commission payable to partners
• Rules to be followed in case of admission, retirement and death of a partner
• Mode of settlement on disputes among partners.
• Any other affecting the rights of the partners
Partnership does not arise from status, operation of law or inheritance. Thus, at the time of death of the father,
who was a partner in the partnership firm, the son can claim share in the partnership property but cannot become a
partner unless he enters into a contract for the same with other persons concerned. Similarly, the members of a
HUF carrying on a family business cannot be called partners for their relation arises not from any contract but
from status. Thus, a “contract” is the very foundation of partnership.
3. Business- The third essential element of a partnership is that the parties must have agreed to carry on a
business. The term “business” is used in its widest sense and includes every trade, occupation or profession.
Therefore, if the purpose is to carry on some charitable work, it will not be a partnership.
Similarly, if a number of persons agree to share the income of a certain property or to divide the goods purchased
in bulk amongst them, there is no partnership and such persons cannot be called partners because in neither case
they are carrying on a business.
Thus, where A and B jointly purchased a tea shop and incurred additional expenses for purchasing pottery and
utensils for the job, contributing the money in equal proportions and then leased out the shop on rent which was
shared equally by them , it was held that they are only co-owners and not partners as they never carried on any
business.
4. Mutual Agency- In the definition of partnership provides that the business must be carried on by all the
partners or any (one or more) of them acting for them all, i.e. there must be a mutual agency.
Thus, every partner is both an agent and principal for himself and other partners, i.e. he can bind by his acts the
other persons and can be bound by the acts of other partners. The importance of the element of mutual agency lies
in the fact that it enables every partner to carry on the business on behalf of others.
5. Sharing Of Profit- This essential element provides that the agreement to carry on business must be with the
object of sharing profits amongst all the partners. Thus, there would be no partnership where the business is
carried on with a philanthropic motive and not for making a profit or where only one of the persons is entitled to
the whole of the profits of the business. The partners may, however, agree to share the profits in any ratio they
like. Sharing of losses not Necessary- To constitute a partnership, it is not essential that the partners should agree
to share the losses . It is open to one or more partners to agree to bear all the losses of the business. Moreover, the
manner in which the profits/losses are to be shared should be expressly stated in the partnership deed. In the
absence of this being mentioned in the partnership deed, the provisions of the Partnership Act, 1932 would apply
which state that the profits/losses should be distributed equally among all partners.

Test for Determining Partnership – ‘Concept of Mutual Agency’

The true test of a partnership is a way for us to determine whether a group or association of persons is a
partnership firm or not.
It also helps us recognize the partners of the firm and separate them from the third parties.
The idea behind such a true test is to examine the relevant facts and determine the real relations between parties
and conclude about the presence of a partnership.
Let us take a look at the three important aspects of a true test of a partnership, namely agreement, profit sharing
and mutual agency.
1. Agreement/Contract between Parties- For there to be a partnership between two or more persons there has to
be an agreement of partnership between them. The partnership cannot arise family status or any operation of law.
There has to be a specific agreement between the partners.
So if family members of a HUF are running a business together this is not a partnership. Because there is no
agreement of partnership between them.
The members of HUF are born into the HUF, so they cannot be partners.
2. Profit Sharing- Sharing of profits is an aspect of the true test of a partnership. However, profit sharing is only a
prima facie evidence of a partnership. The Act does not consider profit sharing as a conclusive evidence of a
partnership. This is because there are cases of profit sharing that are still contradictory to a partnership. Let us see
some such cases-
• Sharing of profits/ gross receipts from a property that two or more persons own together or have a joint interest
in is not a partnership
• A share of profits given to an agent or servant does not make him a partner
• If a share of the profit is given to a widow or child of a deceased partner does not
make them partners
• Part of the profits shared with the previous owner as a part of goodwill or as a form of consideration will not
make him a partner.
Now ascertaining this motive becomes difficult if there is no express agreement between the concerned parties. In
such a case we will consider the cumulative effect of all relevant facts. This will help us to determine the true
relationship between the parties.

3. Mutual Agency- This is the truest test of a partnership, it is the cardinal principle of a partnership. So if a
partner is both the principal as well as an agent of the firm we can say that mutual agency exists. This means that
the actions of any partner/s will bind all the other partners as well. So whenever there is a confusion about the
existence of a partnership between people we check for the presence of a mutual agency. If such an agency exists
between the parties who run a business together and share profits it will be deemed that a partnership exists.

Partnership Deed

Now a partnership is when two persons form an association to carry out a business with the motive to earn profits.
They share the profits from such a business. Such an association will be voluntarily entered into by the partners
based on an agreement between them.
Such an agreement between partners can be written or can even be oral. However, it is strongly advised for legal
and practical purposes that such an agreement or contract be in the written form. And this written agreement
between partners to form a partnership firm is what we call a Partnership Deed.
Contents of Partnership Deed This partnership deed will contain all the conditions and the legalities of the
partnership deed. It will provide a guiding basis for all future activities. And in case of a dispute or legal
proceedings, it can also be used as evidence. A general partnership deed will contain the following information,
The agreed name of the Partnership Firm. Please note that such a name cannot have the words “company” or
“private company” in it.
• The nature of the business will also be mentioned in the deed.
• Date of commencement of such business.
• The place of business, i.e addresses of main office or branch offices if any, where communication can be sent.
• The duration of a partnership if it is a partnership for a specific purpose or time. If it is a partnership at will then
no such duration will be mentioned.
• Contribution to the capital of all the partners.
• Profit sharing ratio. However, if no ratio is given it is assumed that the profit is shared by all the partners equally.
• Salary of all active partners.
• Interest on contribution and the interest on drawings (must be according to the provisions of the Indian
Partnership Act 1932).
• Terms and conditions of the retirement or expulsion of a partner, and the terms to continue the partnership after
such an incident.
• The day-to-day functioning of the firm and the distribution of the managerial duties among the partners.
• Preparation of the firm’s accounts and the provisions for internal and statutory audit.
• Procedure for voluntary or forced dissolution of the firm.
• Guidelines for solving any disputes and arbitration process to be followed.

Types of Partnership

1. Partnership at Will- Partnership at Will can be defined as when there is no clause mentioned about the
expiration of a partnership firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that have
to be fulfilled by a firm to become a Partnership at Will are:
● The partnership agreement should have no fixed expiration date.
● No particular determination of the partnership should be mentioned.
Therefore, if the duration and determination are mentioned in the agreement, then it is not a partnership at will.
Also, initially, if the firm had a fixed expiration date, but the operation of the firm continues beyond the
mentioned date that it will be considered as a partnership at will.
2. Partnership for a Fixed Term- Now during the creation of a partnership, the partners may agree on the
duration of this arrangement. This would mean the partnership was created for a fixed duration of time.
Hence such a partnership will not be a partnership at will, it will be a partnership for a fixed term. After the
expiration of such a duration, the partnership shall also end.
However, there may be cases when the partners continue their business even after the expiration of the duration.
They continue to share profits and there is an element of mutual agency. Then in such a case, the partnership will
now be a partnership at will.
3. Particular Partnership- A partnership can be formed for carrying on continuous business, or it can be formed
for one particular venture or undertaking. If the partnership is formed only to carry out one business venture or to
complete one undertaking such a partnership is known as a particular partnership. After the completion of the said
venture or activity, the partnership will be dissolved.
However, the partners can come to an agreement to continue the said partnership. But in the absence of this, the
partnership ends when the task is complete.
4. General Partnership- A general partnership comprises two or more owners to run a business. In this
partnership, each partner represents the firm with equal rights. All partners can participate in management
activities, decision making, and have the right to control the business. Similarly, profits, debts, and liabilities are
equally shared and divided equally. In other words, the general partnership definition can be stated as those
partnerships where rights and responsibilities are shared equally in terms of management and decision making.
Each partner should take full responsibility for the debts and liability incurred by the other partner. If one partner
is sued, all the other partners are considered accountable. The creditor or court will hold the partner’s personal
assets. Therefore, most of the partners do not opt for this partnership.
5. Limited Partnership- This partnership includes both the general and limited partners. The general partner has
unlimited liability, manages the business and the other limited partners. Limited partners have limited control over
the business (limited to his investment). They are not associated with the everyday operations of the firm. In most
of the cases, the limited partners only invest and take a profit share. They do not have any interest in participating
in management or decision making. This non-involvement means they do not have the right to compensate the
partnership losses from their income tax return.
6. Limited Liability Partnership- In Limited Liability Partnership (LLP), all the partners have limited liability.
Each partner is guarded against other partners' legal and financial mistakes. A limited liability partnership is
almost similar to a Limited Liability Company (LLC) but different from a limited partnership or a general
partnership.

Legal Position of Minor Partner – Rights & Liabilities

● According to Section 3 of the Indian Majority Act, a person who has not attained the age of majority i.e. 18
years, is known as minor.
● As we have seen in the Indian Contract Act, 1872, minors cannot be a party to an agreement. An agreement
involving a minor is void-ab-initio. However, the Indian Partnership Act has its own sets of legal rules
regarding minors.

Minor admitted to benefits of partnership-

● A partnership firm cannot be formed with a minor as the only other member. The relation of partnership arises
from a contract. In Shriram sardarmal didwani v. Gourishankar, it was held that a minor is incompetent to
contract and, therefore, a contract of partnership cannot be entered into with a minor.
● In CIT v. Dwarkadas & Co, the Supreme Court held that a minor cannot become a full-fledged partner in an
existing firm. The only concession that section 30 gives is that a minor may be admitted to the benefits of an
existing firm. The Hon’ble judge then continued to observe:
● “Section 30 of the Indian Partnership Act, clearly lays down that a minor cannot become a partner, though,
with the consent of the adult partners, he may be admitted to the benefits of partnership. Any document which
goes beyond this section cannot be regarded as valid for the purpose of registration.”
● In S.C. Mandal v. Krishnadhan it was held that under S. 4 of the Partnership Act, a firm means a group of
people who have entered into a contract of partnership among themselves and reading it with S. 11 of the
Contract Act, it can be interpreted that a minor cannot be a part of the contracted partnership. A minor can
only be admitted to the benefits of a partnership, and that partnership has to exist independently. Also, there
cannot be a contract between two minors. In short, there should be a partnership between two major partners
before a minor can be admitted to its benefits.

Rights of Minor
● A minor admitted to the benefits of a partnership has all the rights of a full partner.
● Such minor is entitled to his agreed shares of the property and of the profits of the firm.
● Such minors have the right to access and take copies of the book of accounts of the firm. It follows that he has
no right of access to those other books of the firm which do not contain matters of account.[Section 30(2)]
● Such minor is not personally liable to the third parties for the debts of the firm, but his liability is limited only
up to his shares in the partnership assets and profits.
● For example, if the partnership assets fall short in distinguishing the debts of the firm the separate personal
property of the minor cannot be applied for the payment of the debts.
● Such minor cannot bring any suit against the partners for an account or payment of his share of the property or
profits of the firm unless he first serves his connection with the firm.[Section 30(4)]
● Such minor is not entitled to take part in the conducting of the business as he has no representative capacity to
bind the firm.
● Where the minor becomes a partner by his own choice or by failure to give within the specified time i.e. six
months after attaining the age of majority, he becomes personally liable to the third parties for all the debts of
the firm retrospectively from the date of his admission to the benefits of partnership.
Rights Of The Minor If He Elects Not To Become A Partner
● His rights and liabilities shall continue to be those of a minor up to the date of giving public notice;
● His share shall not be liable for any acts of the firm done after the date of the notice;
● He shall be entitled to sue the partners for his share of the property and profits.
● If after attaining the age of majority but before choosing to become a partner the minor represents and
knowingly permits himself to be represented as a partner in the firm, he will be personally liable to anyone
who on the faith of such representation granted credit to the firm on the ground of ‘holding out’.

Liabilities Of Minor

Liability during minority [Section 30(3)]-

● Sub-section 3 of section 30 says that “such minor’s share is liable for the acts of the firm, but the minor is not
personally liable for any such act.”
● In Addepally Nageswara Rao and Bros v. CIT, the Andhra Pradesh High Court held that:
● “In case he contributes capital or is entitled to get benefit in the profits of the firm, it is to that extent that the
liability can be fastened on the minor. But in no case, the person of the minor or his other property which he
has not brought into the assets of the partnership can be held liable. That is the purport and scope of Section
30(3) of the Indian Partnership Act.”

Liability after attaining the age of majority-

● Sub-section (5) to (9) of section 30 of the Indian Partnership Act deal with consequences of a minor partner
attaining majority as follows
● He is given six month’s time to decide whether he should leave the firm or continue in it by becoming a
full-fledged partner. This is called the minor’s choice, namely the right to opt out of the firm or stay in it.
[Section 30(5)].
● Where the minor claims that he had no knowledge of his admission and, therefore, he should be allowed six
months from the date of knowledge, the burden of proof lies on minor that he had no knowledge.[Section
30(6)]

When minor becomes a partner-

● He will be treated as a normal partner, but he also becomes personally liable for all the acts of the firm done
since he was first admitted to the benefits of partnership.[Section 30(7)(a)]
● His share in the property and profits of the firm shall remain the same as it was during his minority.[Section
30(7)(b)].

Where the minor elect not to become a partner-

● His right and liability will continue to be the same up to the time on which he gives public notice.[Section
30(8)(a)]
● From the date of public notice, the liability of his share ceases for any future acts of the firm.[Section
30(8)(b)]
● He becomes entitled to sue the partners of the firm to recover his share of property and profits.[Section
30(8)(c)]
● Where in spite of notice, the minor does an act which amounts to a representation that he is a partner in the
firm, Section 28 i.e. holding out of this act immediately come into existence and liability would arise towards
any person who gave credit to the firm putting his faith upon the representation.[Section 30(9)]

Conclusion- From the above discussion, we can say that a partnership firm cannot be formed with a minor as the
only other member. The relationship of partnership arises from a contract. According to section 11, a minor is not
competent to contract. In Dwarkadas Khetan case Hon’ble Supreme Court held that a minor cannot even become
a full-time partner in the existing firm. In CIT v. Shah Mohandas Sadhuram, it was held that a minor may be
admitted to the benefits of an existing firm.

Mode Of Difference Joint Hindu Family Business Partnership

Law It is formed by Joint Hindu family It comes under Indian Partnership Act, 1932
Business Hindu law.

Agreement It gives right to everyone including The establishment of a Partnership firm is

the newborn. done with the mutual oral and written contract
between the members.

Liability Except for Karta, the liability of The liability of every partner is unlimited.
every member is limited.

No. Of Members No limit. At least two persons should be there, and for
maximum, there is no limit as per Indian
Partnership Act. But according to the
Companies Act it can have a maximum of 50
members.
Loan Receiving Only Karta has the right to take the Any partner can take loan in this.
loan.

Effect of Insolvency or No Effect. Partnership gets dissolved.

Death

Role of a Woman No woman can be an active member. Any woman can be a partner.

Role of a Minor A minor becomes the part of A minor cannot be a partner. However, he can
business since his birth. be a part of profit sharing.

Profit Sharing Profits are divided equally among all The profit is divided according to the
the members. partner’s share.

Agent Related Only Karta can name a successor Here, the partner is both an agent as well as
through his work. No other member the owner.
can do this, therefore there is no role
of an agent.

Registration No need to Register. Registration is voluntary.

Right to Operate Only Karta has the right to operate. Every partner has the right to operate.

Interest in Business It depends on the birth and death of Here, in absence of agreement, every partner
the member. has equal interest in the business.

Mode Of Difference Partnership Company

Act Partnership comes under Partnership Act It is enacted under Company Act 2013.
1932.

Separate Legal There is no difference. The existence of a company is separate

Existence from its members.

Number of Members In partnership, the minimum number of Other than OPC, A private company can
members should be 2 and maximum have a minimum of two members and
should be 50, but can increase to 100 maximum 500 members, while a public
with the permission of the central company can have minimum 7 members
government. and no limit of maximum numbers is
there.

Liability Unlimited Liability. Their Liability is limited to their

investment.

Registration Registration is not mandatory but if the Registration of a company is mandatory.

 number of members exceeds the given
limit then registration becomes
compulsory.

MOA or AOA The partnership can be binded upon These two are important documents to
either by written or oral agreements. bind the company.

Transfer of Shares With the consent of other partners, a The shareholders can freely transfer their
partner can transfer his/her shares. shares.

Management With the consent of all the partners, few It is managed by a BOD elected by
people can manage it. shareholders.

Rights & Liabilities Of Partners- The following are the rights of a partner in a partnership firm.
Section 12(a): Right to take part in the conduct of the Business
Section 12(c): Right to be consulted
Section 12(d): Right of access to books
Section 13(a): Right to remuneration
Section 13(b): Right to share profits
Section 13(c): Interest on capital
Section 13(d): Interest on advances
Section 13(e): Right to be indemnified
Section 31: Right to stop the admission of a new partner
Section 32(1): Right to retire
Section 33: Right not to be expelled
Section 36(1): Right of outgoing partner to carry on a competing business
Section 37: Right of outgoing partner to share subsequent profits
Section 40: Right to dissolve the firm

Duties Of A Partner In A Partnership Firm-

Section 9: General duties of a partner
Section 10: To indemnify for fraud
Section 13(f): To indemnify for willful neglect
Section 12(b) & Section 13(a): To attend duties diligently without remuneration
Section 13(b): To share losses
Section 16(a): To account for any profit
Section 16(b): To account and pay for profits of competing for business

Rights And Liabilities Of A Newly Introduced Partner-A partner can be admitted into a partnership firm only
with the consent of the partners. The share in the profits of the firm to which the incoming partner shall be
entitled to, along with his rights and duties shall be fixed by way of mutual agreement at the time of his
admission.
Rights Of An Incoming Partner-
 ● Thus an incoming partner on his admission shall be entitled to the share in profits and property of the firm as
fixed by way of mutual agreement at the time of his admission.
● Further he shall be entitled to all such rights of a partner as conferred by the Indian Partnership Act, 1932,
unless the same have been restricted by a contract to the contrary with the existing partners.
Liabilities Of An Incoming Partner-
● Generally an incoming partner is not liable for the acts of the firm, done prior to his admission.
● However in the following instances the incoming partner shall be liable for the acts of the firm done before
his admission :- (a) If the incoming partner assumes liability for the past debt by novation that is by tripartite
agreement between the creditor; the existing partners \& the incoming partner. (b) a minor who had been
admitted to the benefits of partnership shall be liable for all the acts of the firm done since he was admitted to
the benefits, if he decides to become a partner on attaining majority.
● An incoming partner shall be liable for all the acts of the firm, done after his admission.

The Retirement Of A Partner (Section 32)-

A partner retires when he ceases to be a member of the firm without ending the subsisting relations between the
other members of the firm or between the firm and other parties. If a partner withdraws from a firm by dissolving
it, then it is a dissolution and not retirement of a partner. The retirement of a partner from a firm does not dissolve
it.
In a partnership, a partner may retire:
With the consent of all the partners,
In accordance with an express agreement by the partners, or
The partnership is at will, by giving notice in writing to all the other partners of his intention to retire.
Liabilities Of An Outgoing Partner-
● A retired partner continues to be liable to the third party for acts of the firm till such time that he or other
members of the firm give a public notice of his retirement. However, if the third party deals with the firm
without knowing that he was a partner in the firm, then he will not be liable to the third party.
● The retired partner, however, continues to be liable for acts of the firm done before such retirement of a
partner. This liability holds good unless there is an agreement between him, the concerned third party, and
partners of the reconstituted firm. Such an agreement can also be implied by the course of dealings between
the third party and the reconstituted firm post announcement of the retirement of a partner.
● If the partnership is at will, then it can relieve a partner without giving a public notice. To do so, the
partnership needs to give a written notice to all the partners of his intention to retire.

Expulsion Of A Partner (Section 33)-

A partnership firm can expel a partner provided:
● The power of expulsion exists in the contract between the partners
● Majority of the partners exercise the power
● The power is used in good faith
If these conditions are not met, then the expulsion is not bona fide in the interest of the business. The test of good
faith includes three aspects:
● The expulsion should be in the interest of the partnership.
● Before expelling a partner the firm serves a notice to him.
● The partner being expelled is given an opportunity to state his version of events leading up to the expulsion.
If these aspects are not met, then the expulsion is not considered to be made in good faith and is null and void. It
is important to note that the expulsion of partners does not necessarily result in the dissolution of the firm.

Insolvency Of A Partner (Section 34)-

When a partner of a firm is adjudicated as insolvent –
● He ceases to be a partner of the firm from the date of the adjudication
● Whether or not the firm subsequently dissolves
● His estate, which vests in the official assignee, ceases to be liable for any act of the firm from the said date
● The firm ceases to be liable for any act of such a partner.

Liability of Estate of a Deceased Partner (Section 35)-

● Usually, the death of a partner results in the dissolution of the partnership. However, if the partner’s contract
to not dissolve the partnership post the death of any partner, then the surviving partner continue the business
of the firm after absolving the deceased partner’s estate from any liability of the future obligations of the firm.
● Further, it is not necessary for the firm to give a public notice or inform the persons dealing with the firm
about the death of the partner.
● An exception is a partnership consisting of only two partners. In such cases, the death of a partner results in
the dissolution of the partnership.

Registration Of Partnership

● Partnership firms in India are administered by the Indian Partnership Act, 1932. While it is not necessary to
enter one’s partnership firm as there are no fines for non-registration, it is appropriate since the certain rights
are denied to an unregistered firm.
● Partnership registration means the registration of the partnership firm by its partners with the Registrar of
Firms. The partners should register their firm with the Registrar of Firms of the state where the firm is
located.
● Since partnership firm registration is not compulsory, the partners can apply for registration of the partnership
firm either at the formation of the firm or subsequently at any time during its operation.
● For partnership registration, the two or more people must come together as partners, agree on a firm name and
enter into a partnership deed.

Fundamentals Problems Faced By Not Registering a Firm- The following can be understood as the principle
disadvantages faced by a partner if he/she does not register the firm under Indian Partnership Act, 1932:
● A partner is not entitled to file a suit in any court of law against the other partners or the firm for the execution
of any right emerging from any undertaking or right bestowed by the Partnership Act.
● A right evolving from an undertaking cannot be implemented in any Court of law by or in support of one’s
firm against any other firm.
● Moreover, the firm or any of its associates cannot assert a set off (i.e. fundamental negotiation of debts
possessed by the argufied parties to one another) or other actions in a disagreement with a third party.

Apart from all these effects of registration and non-registration of partnership firms, there are also certain
exceptions that exist. Here are those five exceptions –
● Suit for dissolution of firms and accounts according to Section 69(3)(a) under the Indian Partnership Act.
● Suit to release the property of an insolvent partner in the firm, as per the Insolvency Act of 1920.
● Any suit in which the claim value does not exceed Rs.100.
● Suit for the enforcement of non-contractual and statutory rights Suit by any such firm which operates its
business out of India or in any place where the Act does not imply.
● The negative effects of the non-registration of a partnership are thus much more than that of positive ones.
Even though registration of a partnership firm is not compulsory as per the law, it is extremely important in
order to operate in a secure and legitimate manner.

Advantages of Registration- The registration of a firm is done not only towards the benefit of the firm but also
for those who deal with it. The following benefits are obtained from the registration of a firm:
● Benefits to the Firm- The firm gets an unmitigated right towards the third parties in civil suits for getting its
rights discharged. In the non-existence of registration, the firm is not entitled to sue outside partners in courts.
● Benefits to Creditors- A creditor can employ any partner for recuperating his money due from the firm. All
partners whose names are set in the registration are personally accountable to the unknowns. So, creditors can
restore their money from any partner of the firm.
● Benefits to Partners- The partners can seek the help of a court of law against each other in case of
disagreement among partners. The partners can sue external parties also for restoring their amounts, etc.
● Benefits to Incoming Partners- A new partner can contest for his rights in the firm if the firm is registered.
If the firm is not registered then he will have to rely upon the trustworthiness of other partners.
● Benefits of Outward-bound Partners- The registration of a firm acts as an advantage to the outward-bound
partners in numerous ways. The outward-bound partners may be divided into two categories: (i) On the
demise of a partner, (ii) On the superannuation of a partner.
On the demise of a partner his heirs are not accountable for the obligations acquired by the firm after the date of
his demise. In case of a superannuation partner, he remains to be accountable up to the time he does not give
public notice. The public notice is not recorded with the Registrar and he terminates his liabilities from the date of
this notice. So, it is vital to get a firm registered for getting this benefit.

Before the dissolution of the partnership, let us understand the difference between the ‘dissolution of the
partnership’ and the ‘dissolution of the partnership firm’. Dissolution of partnership means the end of the
partnership business and dissolution of partnership firm means the end of partnership business along with the
firm.
The dissolution of a partnership firm means termination of every contractual relationship between the partners and
that all the operations which are being performed in a company are suspended and all the assets and liabilities are
settled and disposed of.
There can be different reasons for the dissolution of a partnership as when a new partner is added or when a
partner is dead or leaves the partnership, etc and the remaining partners can continue their business. And when
there is a change in the partners so the prior partnership comes to an end and the new partnership takes place with
the liability and assets of the old one.
The partnership may be dissolved due to the following reasons:
● Due to the death of the partner.
● Due to the admission of a new partner.
● Due to the retirement of a partner.
● Due to the bankruptcy of a partner.
● Due to the expiry of the partnership period, if the partnership is for a particular period.
Modes of Dissolution
There are some modes by which a partnership can be dissolved and those are:
1. By An Act Of Partners: when a partner agrees to dissolve a partnership at a particular time. Partners can come
into an agreement regarding a particular time period, maybe five years. In which partners can end the agreement
at the end of the five years. Sometimes partners can dissolve it in the middle of the time period under specific
conditions.
2. By Operation Of Law: a partnership is the consequence of an agreement which is governed by law. Therefore
if any unlawful activity is performed it will be dissolved. You can make a valid partnership for illegal work.
3. By The Court’s Decree: a partnership can be dissolved by the court and the court will only allow under these
conditions:
If the partner is incapable to work;
If the partner is mentally unstable;
If the partner misbehaves which creates a bad impact on the partnership;
If there is a breach of the agreement by a partner.
4. Statement Of Dissolution: dissolution can be done by filing the statement to the state’s secretary. The form
must contain the information regarding the partnership name, date and reason of dissolution.

Rights After Dissolution- After the dissolution of the partnership, partners have certain rights regarding the
same:
● Right To An Equitable Lien: on the dissolution of the firm, every partner is entitled to certain rights like the
right to have the property of the firm used in payments of debts and liabilities and rights to have surplus
distributed among all the partners.
● Right To Return Of Premium: at the time of the partnership, partners pay an amount in the form of premium
when the partnership dissolves. Partners get that premium according to the agreement.
● Rights Where Partnership Contract Is Revoked For Fraud Or For Other Reasons: if a partner agrees to
join a firm by fraud or by misrepresentation by the other partners, or if he finds so he has the right to put an
end to the partnership agreement.
● Right To Restrain The Use Of The Firm’s Name Or Property: after the dissolution of the partnership, the
partner has a right to stop other partners from using the same name of the firm.
● The Right To Earn Personal Profit By Using The Firm’s Name: if on the dissolution, the partner has a
right to use the name of the firm as he buys goodwill of the firm and can earn profit from it.

Liabilities After Dissolution- Liabilities are:

● The partners continue to be liable to the third party until the public notice of the dissolution is given, it will
not be applied to the partner who is dead or the partner who is insolvent or to the sleeping partner or to the
retired partner.
● After the dissolution of the partnership, the partner is liable to pay his debt and to wind up the affairs
regarding the partnership.
● After the dissolution, partners are liable to share the profit which they have decided in agreement or
accordingly.
THE LIMITED LIABILITY PARTNERSHIP (LLP)ACT,2008

Scope & Objective of the Act

● A Limited Liability Partnership (LLP) company is a business structure where the members have limited
liabilities. This means any designated partner will not be held accountable for the misconduct or negligence of
other members.
● The Rajya Sabha introduced the Limited Liability Partnership on 30th July 2021. The Lok Sabha passed this
amendment on 9th August 2021. It is a revised version of the LLP Act 2008 and provides regulations of LLP
companies. The LLP Act turns certain offenses into civil defaults and changes the form of punishment for
such violations. It also looks after the formation of special courts and appoints various settling officers.

Objectives of Limited Liability Partnership Act

1. Change in Name of Limited Liability Partnership Company- This Act gives power to the Central
Government to recommend changing an LLP name if it is undesirable or similar to any existing LLP. It generally
allotted three months from the date of issue to do the same. The government holds power to rename an LLP if it
fails to comply with the government's order. The registrar then replaces the old name with a new allotted name.
2. Increased Punishment in Case of Fraud- If any LLP or its member has an intention to defraud its creditors or
any fraudulent purposes, all individuals who are knowingly a part to it is punishable with a fine in addition to two
years of imprisonment. This Act amended the imprisonment period from two years to five years.
3. Small LLP Concept- In the Limited Liability Partnership (Amendment) Act, 2021, the concept of Small
Limited Liability Partnership was introduced. Small LLP refers to any LLP with a capital contribution of not more
than ₹ 25 lakhs or such higher amount and also does not exceed ₹ 5 crore. In addition, the turnover of this LLP in
the previous financial year must not be more than ₹ 40 lakhs and or such higher amount and also does not exceed
₹ 50 crore. To act as a Small LLP, that LLP must meet other requirements prescribed from time to time.
4. Prescribing Auditing and Accounting Standards- The Central Government can prescribe Standards of
Accounting and Standards of Auditing with the help of National Financial Reporting Authority (NFRA), as
recommended by Institute of Chartered Accountants of India.
5. Compounding Offenses- Under Section 39 of Limited Liability Partnership Act 2021, the Regional Director or
any other officer whose rank is not below the Regional Director can compound an offense. If this law compounds
an offense that an LLP or its members commit, it cannot compound any similar offense for three years.
6. Special Courts- Under Section 67A, the Central Government can form special courts for speedy trials of the
offenses under the Act. These courts will include a Session Judge or an Additional Sessions Judge. These will also
comprise a Metropolitan Magistrate or a Judicial Magistrate of First Class.
7. Additional Fee Reduction- If one needs to file any return or document with the registrar, they can do so within
300 days of the payment due date. In such cases, the authorities will charge an additional fee of ₹ 100 per day.
8. Appointing Adjudicating Officers- The Central Government holds power to appoint an adjudicating officer
for awarding the penalties. The Regional Director will look upon any appeal against the adjudicating officer.
9. Decriminalization of Several Offenses- Scenarios such as changes in LLP partners, change of the registered
office, filing of statement of account and solvency, reconstruction of an LLP are decriminalized.
These revised regulations in the LLP Act 2008 got a nod from the Hon’ble Prime Minister, Narendra Modi. The
objectives and features of the new Act benefited small companies, especially start-ups.

Essential Characteristics Of LLP

1. A Body Corporate: It is a legal entity separate from its partners.
2. Perpetual Succession: Unlike a partnership firm, a limited liability partnership can continue its existence even
after the retirement, insanity, insolvency or even death of one or more partners. Further, it can enter into contracts
and hold property in its name.
3. Separate Legal Entity: It is a separate legal entity. Further, it is completely liable for its assets. Also, the
liability of the partners is limited to their contribution in the LLP. Hence, the creditors of the limited liability
partnership are not the creditors of individual partners.
4. Mutual Agency: Another difference between an LLP and a partnership firm is that independent or
unauthorized actions of one partner do not make the other partners liable. All partners are agents of the LLP and
the actions of one partner do not bind the others.
5. Artificial Legal Person: For all legal purposes, an LLP is an artificial legal person. It is created by a legal
process and has all the rights of an individual. It is invisible, intangible and immortal but not fictitious since it
exists.
6. Limited Liability: According to Section 26 of the Act, every partner is an agent of the LLP for the purpose of
the business of the entity. However, he is not an agent of other partners. Further, the liability of each partner is
limited to his agreed contribution in the Limited Liability Partnership
7. Minimum And Maximum Number Of Partners: Every Limited Liability Partnership must have at least two
partners and at least two individuals as designated partners. At any time, at least one designated partner should be
resident in India. There is no maximum limit on the number of maximum partners in the entity.
8. Business For Profit Only: A Limited Liability Partnership cannot be formed for charitable or non-profit
purposes. It is essential that the entity is formed to carry on a lawful business with a view to earning a profit.

Concept & Structure Of LLP

● LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the
flexibility of a partnership.
● The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts
and holding property in its own name.
● The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited
to their agreed contribution in the LLP.
● Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus
individual partners are shielded from joint liability created by another partner’s wrongful business decisions
or misconduct.
● Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or
between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its
other obligations as a separate entity.
● Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is
called a hybrid between a company and a partnership.
● LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.

Advantages Of LLP Form

LLP form is a form of business model which:
(i) is organized and operates on the basis of an agreement.
(ii) provides flexibility without imposing detailed legal and procedural requirements
(iii) enables professional/technical expertise and initiative to combine with financial risk taking capacity in an
innovative and efficient manner

LLP (Limited Liability Partnership) Partnership Firm

A Limited Liability Partnership (LLP) is a type of A Partnership Firm is described as a group of people
business entity that combines the characteristics of a who have joined together to make money from a
body corporate and a partnership. business that is run by all of the partners or by one
partner on behalf of all of the partners.

In the case of an LLP, however, the partners are the In a partnership, the partners operate as the firm’s and
agents of the partners. the partners’ agents.

Limited Liability Partnership (LLP) has the ability to A Partnership Firm cannot sign a contract in its own
sue and be sued in its own name. name.

Limited Liability Partnership Act, 2008, is the law Partnership Firm needs to follow the rules and
applicable to the LLP. regulation set by Indian Partnership Act, 1932.

The number of partners in an LLP must be at least 2, A Partnership Firm can have a minimum of 2
with no higher limit. participants and a maximum of 20.

LLP is considered as a legal separate entity. A Partnership Firm is not considered as a separate
legal entity.
Designated Partners:
● Every limited liability partnership shall have at least two designated partners to do all acts under the law who
are individuals and at least one of them shall be a resident in India (120 days) .
● 'Designated Partner’ means a partner who is designated as such in the incorporation documents or who
becomes a designated partner by and in accordance with the LLP Agreement.
● In case of a limited liability partnership in which all the partners are bodies corporate or in which one or more
partners are individuals and bodies corporate, at least two individuals who are partners of such limited
liability partnership or nominees of such bodies corporate shall act as designated partners.

Qualifications For Designated Partners

To be appointed as a designated partner in an LLP, the following criterion must be met –
● Designated partners can only be individuals (a person). A limited liability partnership does not allow other
businesses, partnerships, corporations, or organizations to sign up as partners
● The applicant for partnership must possess a unique identification number
● Resident of India for at least 120 days
● There must be two chosen partners in every LLP
● The range of partners in a limited liability partnership is not capped at a certain number
● An Indian national who lives in India must be at least one of the authorized partners
● Letters of permission are also required from the other Designated Partners.
● The applicant must be at least 18 years old.

Who Is Not Eligible To Be A Designated Partner?

An individual cannot be appointed as a designated partner if –
● They have been declared bankrupt during the last five years
● They have missed payments to creditors within the previous five years without reaching an agreement
● They have served a term of more than six months
● They have previously been in fraud
● They are under the age of 18 years.

Designated Partner Identification Number (DPIN):

● Every Designated Partner is required to obtain a DPIN from the Central Government. DPIN is an eight digit
numeric number allotted by the Central Government in order to identify a particular partner and can be
obtained by making an online application in Form 7 to Central Government and submitting the physical
application along with necessary identity and Address proof of the person applying with prescribed fees.
● However, if an individual already holds a DIN (Director Identification Number), the same number could be
allotted as your DPIN also. For that the users while submitting Form 7 needs to fill their existing DIN No. in
the application.
● It is not necessary to apply for a Designated Partner Identification Number every time you are appointed
partner in a LLP, once this number is allotted it would be used in all the LLP’s in which you will be appointed
as partner.

Appointment of Designated Partner

● A designated partner can be appointed to an existing LLP with the consent of all existing partners of LLP as
per the provisions of section 25 of LLP Act, 2008.
● Liabilities of proposed designated partner Rights and liabilities of proposed designated partner will be decided
to vide the LLP agreement entered by the existing partners of the LLP.
● Existing partners After getting the consent of existing partners for admission of a proposed designated partner
in a duly convened meeting a supplementary LLP Agreement needs to be drafted and filed with the Registrar
of Companies.
● Consent of proposed designated partner is also required to be obtained from him/her in the prescribed form.
● After the appointment, it is required by the LLP to intimate concerned Registrar of companies about the
change in E-Form LLP-4 after getting it certified by practicing CA/CS/CMA within 30 days of appointment.
● Supplementary LLP Agreement is also required to be filed with the concerned Registrar of Companies in
E-Form LLP-3, within 30 days of the appointment of designated partner.

Liabilities of Designated Partner

Unlike a partner, a designated partner is expected to keep up with various compliances laid out by the Limited
Liability Partnership Act, 2008, such as the filing of annual returns and other documents. But, the duties and
liabilities of a Designated Partner do not stop with that and are more exhaustive:
● A Designated Partner is required to sign the Statements of Accounts and Solvency and all the e-forms with
respect to the LLP
● A Designated Partner is accountable to file the annual returns of the LLP with the Registrar within 60 days
from the end date of the financial year, failing on which a fine would be imposed
● If there should be any changes in the LLP, like the names of the partners or their addresses, the same should
be notified to the Registrar by the Designated Partner
● A Designated Partner is duly required to file the returns of documents or statements
● If the need arises to conduct an inquiry or inspection, a Designated Partner is required to assist the process
by providing the necessary documents for examination to the inspector
● A Designated Partner is required to offset the inspector for the expenses incurred during the investigation
● A Designated Partner liability in private company for all the acts, wrongful or otherwise, and other matters
that are required to have complied with the Limited Liability Act, 2008
● A Designated Partner is liable for the penalties levied on the LLP, when the stipulated provisions are not
duly fulfilled.

Process of Formulation of LLP:

Acquire DPIN and obtain DSC
Register DPIN and DSC with LLP
Check Name Availability
After NAme Approval Draft LLP Agreement
File Required Forms With LLP Agreement To ROC
File Other Documents To ROC Electronically
Scrutiny by the ROC For Formation Of LLP
If Satisfied ROC Issue Certificate Of Registration.
After Getting Certificate Of Registration LLP Starts Functioning.
Registration & Incorporation
Step 1: Obtain Digital Signature Certificate (DSC)
Before initiating the process of registration, you must apply for the digital signature of the designated partners of
the proposed LLP. This is because all the documents for LLP are filed online and are required to be digitally
signed. So, the designated partner must obtain their digital signature certificates from government recognized
certifying agencies.
Step 2: Apply for Director Identification Number (DIN)
You have to apply for the DIN of all the designated partners or those intending to be designated partner of the
proposed LLP. The application for allotment of DIN has to be made in Form DIR-3
You have to attach the scanned copy of documents (usually Aadhaar and PAN) to the form. The form shall be
signed by a Company Secretary in full- time employment of the company or by the Managing
Director/Director/CEO/CFO of the existing company in which the applicant shall be appointed as a director.
Step 3: Name Approval
LLP-RUN (Limited Liability Partnership-Reserve Unique Name) is filed for the reservation of the name of the
proposed LLP which shall be processed by the Central Registration Centre under Non-STP. But before quoting
the name in the form, it is recommended that you use the free name search facility on MCA portal.
The system will provide the list of closely resembling names of existing companies/LLPs based on the search
criteria filled up. This will help you in choosing names not similar to already existing names. The registrar will
approve the name only if the name is not undesirable in the opinion of the Central Government and does not
resemble any existing partnership firm or an LLP or a body corporate or a trademark.
The form RUN-LLP has to be accompanied by fees as per Annexure ‘A’ which may be either approved/rejected
by the registrar. A re-submission of the form shall be allowed to be made within 15 days for rectifying the defects.
There is a provision to provide for 2 proposed names of the LLP.
Step 4: Incorporation of LLP
The form used for incorporation is FiLLiP(Form for incorporation of Limited Liability Partnership) which shall
be filed with the Registrar who has jurisdiction over the state in which the registered office of the LLP is situated.
The form will be an integrated form.
Fees as per Annexure ‘A’ shall be paid.
This form also provides for applying for allotment of DPIN, if an individual who is to be appointed as a
designated partner does not have a DPIN or DIN.
The application for allotment shall be allowed to be made by two individuals only.
The application for reservation may be made through FiLLiP too.
If the name that is applied for is approved, then this approved and reserved name shall be filled as the proposed
name of the LLP.
Step 5: File Limited Liability Partnership (LLP) Agreement
LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its
partners.
LLP agreement must be filed in form 3 online on MCA Portal.
Form 3 for the LLP agreement has to be filed within 30 days of the date of incorporation.
The LLP Agreement has to be printed on Stamp Paper. The value of Stamp Paper is different for every state.

Documents Required for LLP Registration

A. Documents of Partners
PAN Card/ ID Proof of Partners – All the partners are required to provide their PAN at the time of registering
LLP. PAN card acts as a primary ID proof.
Address Proof of Partners – Partner can submit any one document out of Voter’s ID, Passport, Driver’s license or
Aadhar Card. Name and other details as per address proof and PAN card should be exactly the same. If the
spelling of one's own name or father’s name or date of birth is different in address proof and PAN card, it should
be corrected before submitting to RoC.
Residence Proof of Partners – Latest bank statement, telephone bill, mobile bill, electricity bill or gas bill should
be submitted as residence proof. Such a bill or statement shouldn’t be more than 2-3 months old and must contain
the name of the partner as mentioned in the PAN card.
Photograph – Partners should also provide their passport size photograph, preferably on white background.
Passport (in case of Foreign Nationals/ NRIs) – For becoming a partner in Indian LLP, foreign nationals and NRIs
have to submit their passport compulsorily. Passport has to be notarized or apostilled by the relevant authorities in
the country of such foreign nationals and NRI, else the Indian Embassy situated in that country can also sign the
documents.
Foreign nationals or NRIs have to submit proof of address also which will be a driving license, bank statement,
residence card or any government-issued identity proof containing the address.
If the documents are in other than the English language, a notarized or apostilled translation copy will also be
attached.

B. Documents of LLP
Proof of Registered Office Address: Proof of registered office has to be submitted during registration or within
30 days of its incorporation.
If the registered office is taken on rent, a rent agreement and a no-objection certificate from the landlord has to be
submitted. No objection certificate will be the consent of the landlord to allow the LLP to use the place as a
‘registered office’.
Besides, any one document out of utility bills like gas, electricity, or telephone bill must be submitted. The bill
should contain the complete address of the premise and owner’s name and the document shouldn’t be older than 2
months.
Digital Signature Certificate: One of the designated partners needs to opt for a digital signature certificate also
since all documents and applications will be digitally signed by the authorized signatory

Dissolution of LLP
● Dissolution basically means formally ending or dismissing a partnership or official body.
● It is the process of dissolving or being dissolved, which means the process of disintegration.
● But in the legal context, dissolution has multiple meanings.
● Dissolution of LLP is the stage of liquidation through which it is brought to an end.
● The assets & property of the concerned entity are redistributed.

Types of LLP Dissolution

The winding up of an LLP may be done in the following ways:
- Declaring LLP as Defunct
- Winding up as a going concern.
It includes;

A. Voluntary Winding up
Under this, the partners may between themselves decide to stop and wind up the operations and close a Limited
Liability Partnership.
A resolution approved by 3/4th of the total number of partners has to be passed. A copy of Resolution has to be
filed with the Registrar in Form 1 within 30 days of passing the Resolution and a copy of such authorisation has to
be given to the person appointed for taking care of the wind up.

B. Compulsory Winding up or winding up by the Tribunal

Compulsory winding up is a process by which the tribunal orders the winding up and dissolution of LLP for the
reasons mentioned below:
◦ if an LLP decides that LLP be wound up by the Tribunal;
◦ if, for a period of more than six months, the number of partners of the LLP is reduced below two;
◦ if an LLP is unable to pay its debts;
◦ if an LLP has acted against the interests of the sovereignty and integrity of India, the security of the State or
public order;
◦ if an LLP has made a default in filing with the Registrar the Statement of Account and Solvency or annual
return for any five consecutive financial years;
◦ if a Tribunal is of the opinion that it is just and equitable that the LLP be wound up.

C. Winding up with Creditors

● Majority of partners need to make an announcement in Form-2 stating that they have no sum unpaid or they
will pay their debts within an assured time period as fixed by the partners but not exceeding more than a year
from the date of passing of the resolution for the sake of winding up.
● Publication of Resolution: Within 14 days of passing of Resolution for winding up and receiving the consent
from the creditors, LLP should get an advertisement published regarding the resolution of winding up in a
newspaper circulating in the territory where the principal place or registered office of LLP is located.

Process
The dissolution process can be divided into 3 parts:-
A. Resolutions and affidavits
The first step for the voluntary dissolution is to pass a resolution of partners and creditors. After that, all of the
partners shall sign an affidavit, bond along with other necessary documents and file form for striking off an LLP
with MCA.
B. Appointment of Liquidator and Liquidation report (not applicable for defunct LLP)
A Liquidator must be appointed by the LLP within 30 days of passing the resolution in consultation with the
creditors if any. The liquidator will carry out all the necessary functions & duties and thereby generate a
liquidation report, affecting dissolution, containing the exact manner in which winding up would be carried out.
This report will be sent to the registrar along with the resolution of acceptance of the liquidation & valuation
report.
C. Dissolution by Tribunal
Along with the reports mentioned above, an application will be moved to the tribunal for dissolution. If the
tribunal is satisfied with the process followed for winding up, it will pass the necessary order whereby LLP shall
stand dissolved. The liquidator then will file such an order with the registrar.
Lastly, if the registrar thinks fit, the registrar would publish the notice of such winding up/strike off of an LLP in
its Official Gazette stating dissolution of the LLP. If it did not receive any objection in 30 days then the registrar
will dissolve or strike off an LLP.
Conclusion
The dissolution of LLP is a two-way process requiring ample documents filing & process fulfillment.

VOLUNTARY WINDING UP

Where an LLP is wound up by the partners, without any interference of the Court/tribunal.
It is done when a special resolution is passed to wind up LLP with approval of at least three-fourth (3/4th) of
the total number of partners.
The Designated partners need to make a declaration that the LLP does not have any debt or that the LLP will
pay the debts totally within not more than 1 year from the process of winding up of an LLP.
LLP partners need to declare that the LLP is not winding up because of any frauds. This statement of the
declaration must be prepared along with the statement of the assets and the liabilities until the most recent
practicable date right before making the declaration for winding up of the LLPs.
From the date of commencement of voluntary winding up, the LLP ceases to carry on its business

WINDING UP BY THE TRIBUNAL

A limited liability partnership may be wound up by the Tribunal,--

if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal;
if, for a period of more than six months, the number of partners of the limited liability partnership is reduced
below two;
if the limited liability partnership is unable to pay its debts;
if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the
security of the State or public order;
if the limited liability partnership has made a default in filing with the Registrar the Statement of Account and
Solvency or annual return for any five consecutive financial years; or
if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be wound up.

WINDING UP ON PETITION BY CENTRAL GOVERNMENT

If any such limited liability partnership is liable to be wound up under this Act or any other law for the time
being in force, and it appears to the Central Government from any such report that it is expedient to do so by
reason of:
an intent to defraud its creditors, partners or any other person, or
in a manner oppressive or unfairly prejudicial to some or any of its partners, or
that the limited liability partnership was formed for any fraudulent or unlawful purpose; or
that the affairs of the limited liability partnership are not being conducted in accordance with the provisions of
this Act;
The Central Government may, unless the limited liability partnership is already being wound up by the
Tribunal, cause to be presented to the Tribunal by any person authorized by the Central Government in this
behalf, a petition for the winding up of the limited liability partnership on the ground that it is just and equitable
that it should be wound up.

LIMITED LIABILITY PARTNERSHIP

DESIGNATED PARTNERS

APPOINTMENT:

DESIGNATED PARTNERS ARE ALWAYS SUPPOSE TO BE INDIVIDUALS.

Every limited liability partnership shall have at least two designated partners who are individuals and at least
one of them shall be a resident in India. (Resident of India: person who has stayed in India for a period of not
less than 120 days during the immediately preceding one year.)
In case of a limited liability partnership in which all the partners are bodies corporate or in which one or more
partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability
partnership or nominees of such bodies corporate shall act as designated partners.

ROTATION OF DESIGNATED PARTNERS:

If the incorporation document specifies who are to be designated partners, such persons shall be designated
partners on incorporation; or states that each of the partners from time to time of limited liability partnership is
to be designated partner, every such partner shall be a designated partner.
Every limited liability partnership shall file with the registrar the particulars of every individual who has given
his consent to act as designated partner in such form and manner as may be prescribed within thirty days of his
appointment. Every designated partner of a limited liability partnership shall obtain a Designated Partner
Identification Number (DPIN) from the Central Government before his appointment.

LIABILITIES OF DESIGNATED PARTNERS

Designated Partner responsible for the doing of all acts, matters and things as are required to be done by the
limited liability partnership in respect of compliance of the provisions of the LLP Act including filing of any
document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in
the limited liability partnership agreement; and He’s liable to all penalties imposed on the limited liability
partnership for any contravention of those provisions.

ELIGIBILITY:
Should not have at any time preceding 5 year adjudged (legally declared) insolvent.
Should not have suspended or has at any time preceding 5 year suspended payment of creditors.
Should not have been convicted by court for any offence involving moral turpitude and sentenced to
imprisonment for not less than six months.
THE CONSUMER PROTECTION ACT, 2019 (CPA)

Product Liability under the CPA, 2019

● ‘Product Liability’ has been defined for the first time under the Consumer Protection Act, 2019 (“2019 Act”).
As per the 2019 Act, product liability means the responsibility of a product manufacturer or product seller, or
product service provider, to compensate for any harm caused to a consumer by a defective product
manufactured or sold or by deficiency in services in relation to the product.
● Claim for compensation under a product liability action would be available for ‘harm’ caused by a ‘defective’
product manufactured by a product manufacturer or serviced by a product service provider or sold by a
product seller.
● ‘Harm’, in relation to a product liability inter alia includes —
(i) damage to any property other than the product itself;
(ii) personal injury, illness or death;
(iii) mental agony or emotional distress, etc.

The 2019 Act distinguishes between the roles of a product manufacturer, product seller and service provider and
accordingly envisages individual criteria for attracting product liability actions against each of them. The same
has been discussed below:

I. Liability of a Product Manufacturer

The 2019 Act, under Section 2(36), contains a wide definition of ‘product manufacturer’, to include every party
connected with the sale process within the scope of the definition.
Under the 2019 Act, a ‘product manufacturer’ has been defined to mean a person who:
(a) makes any product or parts thereof; or
(b) assembles parts thereof made by others; or
(c) puts or causes to be put his own mark on any product made by any other person; or
(d) makes a product and sells, distributes, leases, installs, prepares, packages, labels, markets, repairs, maintains
such product or is otherwise involved in placing such product for commercial purpose; or
(e) designs, produces, fabricates, constructs or re-manufactures any product before its sale; or
(f) being a product seller of a product, is also a manufacturer of such product.

Section 84 of the Act enumerates the situations where a product manufacturer shall be liable in a claim for
compensation under a product liability action for a harm caused by a defective product manufactured by the
product manufacturer. The situations are as under:
(a)The product contains a manufacturing defect;
(b) The product is defective in design;
(c) The product does not conform to the manufacturing specifications;
(d) A claim for compensation against a product manufacturer would also lie when the product does not conform to
an express warranty. It is pertinent to note that under the 2019 Act, if the product does not conform to an express
warranty, a product liability action would lie against the product manufacturer regardless of the product
manufacturer not being negligent or fraudulent in making the express warranty of the product;
(e) Similarly, a product liability action will lie against the manufacturer if the manufactured product fails to
contain adequate instructions on correct usage to prevent any harm or any warning regarding improper or
incorrect usage.
II. Liability of a Product Service Provider
A product service provider under the 2019 Act is defined to mean a person who provides a service in respect of
any product. The definition of a product service provider has been specifically added to the 2019 Act so as to
cover services such as maintenance or repair where the service and the product are inherently related, and the
service has a direct bearing upon the performance of the product.
Section 85 of the Act enumerates the instances under which a product service provider shall be liable in a product
liability action for a harm caused by a defective product serviced by the product service provider. The instances
are as under:
(a) If the service provided by it was faulty, imperfect, deficient or inadequate in quality, nature or manner of
performance. The same must be judged based on the requirement by or under any law for the time being in force,
or pursuant to any contract.
(b) A product service provider shall also be liable if there was an act of omission or commission or negligence or
conscious withholding of any information, which caused the harm.
(c) Liability will also be fastened on the product service provider if it does not issue adequate instructions or
warnings to prevent any harm.
(d) Similarly, a product service provider shall be liable in a product liability action if the service did not conform
to express warranty or the terms and conditions of the contract.

III. Liability of a Product Seller

A product seller under the 2019 Act is defined to mean any person who, in the course of business, imports, sells,
distributes, leases, installs, prepares, packages, labels, markets, repairs, maintains, or otherwise is involved in
placing such product for commercial purpose and includes
(a) a manufacturer who is also a product seller; or
(b) a service provider. The section specifically excludes certain people from the definition of a product seller who
are as under.
A seller of an immovable property shall not be a product seller unless such a person is engaged in the sale of
constructed houses or in the construction of homes of flats.
Similarly, a provider of professional services, where the skill or service is the essence of the transaction and the
sale or use of the product is only incidental to it, shall not be included in the definition of a product seller.
Lastly, a person will not fall within the definition of a product seller is he/ she
(a) acts only in a financial capacity with respect to the sale of the product or
(b) is not a manufacturer, wholesaler, distributor, retailer, direct seller or an electronic service provider or
(c) leases a product without having a reasonable opportunity to inspect and discover defects in the product, under
a lease agreement in which the selection, possession, maintenance, and operation of the product are controlled by
a person other than the lessor.

Section 86 of the Act lists the instances under which a product seller (who is not a product manufacturer) shall be
liable in a product liability action for a harm caused by a defective product sold by the product seller. They are:
(a) if the product seller had exercised substantial control over the designing, testing, manufacturing, packaging or
labeling of a product that caused harm.
(b) if the product seller alters or modifies the product and such alteration or modification becomes the substantial
factor in causing the harm.
(c) if the product seller has made an express warranty of a product, independent of any express warranty made by
a manufacturer and such product failed to conform to the express warranty made by the product seller which
caused the harm.
(d) if a product has been sold by the product seller and the identity of the product manufacturer of such product is
not known, or if known, the service of notice or process or warrant cannot be effected on the product
manufacturer or the product manufacturer is not subject to the law, which is in force in India or the order, if any,
passed or to be passed cannot be enforced against the product manufacturer.
(e) if the product seller fails to exercise reasonable care in assembling, inspecting or maintaining such product or
if it does not pass on the warnings or instructions of the product manufacturer regarding the dangers involved or
proper usage of the product while selling such product and such failure was the proximate cause of the harm.

Exceptions To Product Liability Action.

A perusal of the definition of ‘product liability’ reveals that in order to establish a claim of product liability, the
complainant must establish ‘harm’ caused by a ‘defective’ product. Therefore, the product not being ‘defective’
and the absence of any ‘harm’ caused to the consumer by use of the product are certainly valid defenses to a
product liability action. In addition to the above, Section 87 of the Act envisages the below mentioned defenses to
a product liability action:
(a) In case of a claim against a product seller, it would be a valid defense that at the time of the alleged harm, the
product was misused, altered, or modified.
(b) In case of a claim against a product manufacturer for failure to provide adequate warnings or instructions, the
following would be valid defenses:
(i) the product was purchased by an employer for use at the workplace and the product manufacturer had
provided warnings or instructions to such employer;
(ii) the product was sold as a component or material to be used in another product and necessary warnings or
instructions were given by the product manufacturer to the purchaser of such component or material, but the
harm was caused to the complainant by use of the end product in which such component or material was
used;
(iii) the product was one which was legally meant to be used or dispensed only by or under the supervision of
an expert or a class of experts and the product manufacturer had employed reasonable means to give the
warnings or instructions for usage of such product to such expert or class of experts; or
(iv) the complainant, while using such a product, was under the influence of alcohol or any prescription drug
which had not been prescribed by a medical practitioner.
(c) Also, a product manufacturer shall not be liable for failure to instruct or warn about a danger, which is obvious
or commonly known to the user or consumer of such product or which, such user or consumer, ought to have
known, taking into account the characteristics of such product.
Any product liability claim requires swift action, starting with internal investigation, expert analysis, followed by
appropriate preventive steps, requiring adequate disclosures and recalls if needed.

Penalties That May Be Imposed

If the consumer forum arrives at the finding that the product is defective or any of the allegations of the
complainant with respect to service, unfair trade practice or claim for product liability is proved, the consumer
forum may inter alia direct one or more of the following: removal of defect, replacement of the product, return of
the price paid by consumer along with interest, compensation to consumer, including punitive damages for
negligence, discontinuation of unfair trade practices, withdrawal of hazardous or unsafe goods, direction to cease
to manufacture hazardous goods or cease to offer for sale hazardous services, compensation for product liability
action, cease and desist from issuing misleading advertisement or direction to issue corrective advertisement.
Since The 2019 Act aims to provide enhanced protection to consumers, it accordingly provides for more stringent
punishments compared to the Erstwhile Act.

The 2019 Act has also defined ‘unfair contracts’, which means a contract between a manufacturer or trader or
service provider on one hand, and a consumer on the other, having such terms which cause significant changes in
the rights of such consumer; including
(a) requiring excess security deposits from consumers;
(b) imposing disproportionate penalty upon the consumer for breach of contract;
(c) refusing to accept early repayment of debt;
(d) entitling unilateral termination;
(e) permitting assignment of contract to the detriment of customer without his/ her consent;
(f) imposing on the consumer any unreasonable charge, obligation or condition, which puts such consumer at a
disadvantage. Both the State Commission and National Commission have the power to declare such contracts null
and void.
● The 2019 Act has also established a Central Consumer Protection Authority (“CCPA”). The CCPA is a
regulatory authority under the Act with powers of investigation, inquiry and injunctive actions. The primary
objective of the CCPA is to regulate matters pertaining to violation of rights of consumers, unfair trade
practices and false or misleading advertisements that are prejudicial to the interests of public and consumers.
● CCPA has the power to direct recall of goods or withdrawal of services that are dangerous, hazardous or
unsafe. The CCPA can also direct reimbursement of the prices of goods or services so recalled to the
purchasers. Additionally, the CCPA has also been empowered to direct discontinuation of practices that are
unfair and prejudicial to consumers’ interest.
● Further, the 2019 Act also heavily addresses the issue of misleading advertisements. Both the Consumer fora
and CCPA have the power to issue directions and penalties against false or misleading advertisements. Any
manufacturer or service provider who causes a false or misleading advertisement to be made, which is
prejudicial to the consumers’ inter­ests is punishable with imprisonment extending up to two years and with a
fine extending up to ten lakh rupees and in case of subsequent offense with imprisonment extending upto five
years and with fine extending upto fifty lakh rupees.
● The CCPA has also been empowered to direct the concerned party — be it a trader, manufacturer, endorser,
advertiser or publisher — to discontinue a misleading advertisement or modify the same. Additionally, the
CCPA has been empowered to impose a penalty on the manufacturer, or the endorser to the tune of ten lakh
rupees, which may extend to fifty lakh rupees in cases of subsequent contravention.
● Similarly, a publisher or a person who is party to such publication may also be penalized for an amount upto
rupees ten lakhs. In addition to the above penalties, the 2019 Act also empowers the CCPA to prohibit the
endorser of a false or misleading advertisement from making endorsement of any product or service for a
period which may extend to one year and in case of subsequent contravention to three years.
● However, the Act also provides safe harbor for endorsers and publishers in certain cases. An endorser is
exempted from penalty under Section 21 of the 2019 Act if he/ she exercised due diligence to verify the
veracity of the claims made in the advertisement regarding the product or service being endorsed.
● Similarly, a person will not be liable if he/ she published or arranged for the publication of the false or
misleading advertisement in the ordinary course of business. However, this defense would not be available if
 the person had previous knowledge of an order passed by CCPA, regarding withdrawal or modification of the
advertisement.
● In order to ensure compliance with the order of the CCPA, Section 88 of the 2019 Act criminalizes failure to
comply with the directions of CCPA and makes it punishable with imprisonment for a period up to 6 months
or with fine which may extend to twenty lakh rupees or with both.
● Furthermore, the 2019 Act also provides for punishment, including imprisonment or fine or both, for
manufacturing for sale or storing, selling or distributing or importing products containing adulterant or
spurious goods.

Who is a consumer?
A person who buys any goods or services for a consideration, which has been paid or promised or partly paid and
partly promised, or under any system of deferred payment also includes the user with approval of such goods or
beneficiary of services.

What Is an Unfair Trade Practice?

Unfair trade practices refer to the use of various deceptive, fraudulent, or unethical methods to obtain business.
Unfair business practices include misrepresentation, false advertising or representation of a good or service, tied
selling, false free prize or gift offers, deceptive pricing, and noncompliance with manufacturing standards. Such
acts are considered unlawful by statute through the Consumer Protection Law, which opens up recourse for
consumers by way of compensatory or punitive damages. An unfair trade practice is sometimes referred to as
“deceptive trade practices” or “unfair business practices.”

What is meant by ‘deficiency’ under the Act?

"Deficiency" means 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 has been undertaken to be performed by a person in pursuance of a
contract or otherwise in relation to any service and includes— i. any act of negligence or omission or commission
by such person which causes loss or injury to the consumer; and ii. deliberate withholding of relevant information
by such person to the consumer

Consumer Dispute Redressal Mechanism-

The consumer grievances are redressed by the three-tier machinery:
1. District Commission- District commission has a jurisdiction to entertain complaints where value of goods or
services paid as consideration does not exceed one crore rupees. If any of the parties are not satisfied by the order,
the District Commission can appeal against such order to the State Commission on the grounds of facts or law
within a period of forty five days.
2. State Commission- State Commission has a jurisdiction to entertain complaints where value of goods and
services paid as consideration exceeds one crore but does not exceed ten crore rupees. If any of the parties are not
satisfied by the order, the State Commission can appeal against such an order to the National Commission within
a period of thirty days of such order.
3. National Commission: National Commission has a jurisdiction to entertain complaints where value of goods
or services paid as consideration exceeds ten crores of rupees. If any of the parties are not satisfied by the order of
National Commission can appeal against such order to the Supreme Court of India within a period of thirty days
of such order.
THE COMPETITION ACT,2002–

Scope & Objective Of The Act

Competition is the act of the sellers individually seeking to acquire the patronage of buyers in order to achieve
profits or market share. The Competition Act, 2002 was enacted by the Parliament of India and replaced The
Monopolies and Restrictive Trade Practices Act, 1969. It is in effect to govern Indian competition law. After the
enactment of the Competition Act, 2002, (“Act”) it has been amended twice, the Competition (Amendment) Act,
2007 and the Competition (Amendment) Act, 2009.
Two of the main features of the Competition Act, 2002 is
● The framework it provides for the establishment of the Competition Commission, and
● The tools it provides to prevent anti-competitive practices and to promote positive competition in the Indian
market.

Objectives Of The Competition Act

● The Act seeks to provide the legal framework and tools to ensure competition policies are met, to prevent
anti-competition practices and provide for the penalisation of such acts. The Act protects free and fair
competition which protects the freedom of trade.
● The Act seeks to prevent monopolies and also to prevent unnecessary intervention by the government. The
main objectives of the Competition Act, 2002 are:
● To provide the framework for the establishment of the Competition Commission.
● To prevent monopolies and to promote competition in the market.
● To protect the freedom of trade for the participating individuals and entities in the market.
● To protect the interest of the consumer.

‘Anti– Competitive Agreements’

● In simple words, Anti-Competitive agreements are agreements that are made by two or more companies
competing in the same market to fix prices or reduce stocks etc, so as to manipulate the market favourably for
them. This has the effect of the companies reducing the competition in the market which adversely affects the
end consumer.
● The Competition Act, 2002 defines anti-competitive agreements as such in section 3 where it states, “No
enterprise or association of enterprises or individuals or association of individuals may enter into an
agreement regarding production, supply, distribution, storage, acquisition or control of goods or provision of
services which may adversely affect the competition in the Indian market”.

Such agreements are termed as AAEC agreement, which means the Appreciable Adverse Effect on Competition
agreements. The Act expressly states that such an agreement shall be void. An AAEC agreement is classified as
any agreements that result in:
● Directly affects purchase or sale prices.
● Indirectly affects purchase or sale prices.
● Limits production.
● Limits supply.
● Limits technical development.
● Limits service provision in the market.
● Leads to the rigging of bids.
● Leads to collusive bidding.

‘Prohibition Of Abuse Of Dominant Position’

The abuse of the dominant position is prohibited by Section 4 of the Competition Act. Abuse of dominant position
is defined under the second part of the same Section. According to the act dominant position means any enterprise
that enjoys the position and power in the Indian market which enables it to:
● Operate independently of competitive forces in the relevant market.
● Affect its competition, consumer or the relevant market in its favor.
● For example, predatory pricing is a practice that is seen to be an abuse of the dominant position. In simple
words when a dominant enterprise engages in AAEC acts, it is considered an abuse of the dominant position.
● The difference between the definition of anti-competitive agreements and abuse of dominant position is that
in anti-competitive agreements there have to be two or more parties and it can be between any enterprise or
firm and doesn’t require there to be a dominant firm involved. In abuse of dominant position, it can be done
by a single party but the party has to be in a dominant position in the relevant market.

Regulation Of Combinations
The term combination has a broad definition under the Act, it includes:
● any acquisition of shares,
● voting rights,
● control of assets, and
● party to merger or amalgamation of enterprises.
Any person/enterprise shall not enter into a combination that is likely to have an adverse effect on the competition
and such a combination will be void. If any person/enterprise proposes to enter into a combination he shall
intimate the Competition Commission of India within 30 days of:
● Approval of the proposal relating to mergers and amalgamation by the Board of Directors of the enterprises
involved in the process.
● Execution of any agreement pertaining to acquiring control.

Competition Commission
● The Competition Commission of India was established under the Competition Act, 2002. It is a statutory body
that has the power to govern and enforce the Competition Act including penalties. It was established when the
need for a healthy competitive environment became necessary following liberalization under the Vajpayee
government.
● The Commission is composed of a chairman and a minimum of 2 board members and a maximum of 6 board
members. These members are required to have a minimum of 15 years of experience in their respective fields.
● Its objectives, duties and powers are enumerated in the Competition Act, 2002. Its main duty and object is to
ensure that the Indian markets maintain a healthy and fair competitive environment and is granted the power
to ensure such an environment and penalize any acts adversely affecting its duties.

Remedies- Remedies against AAEC agreements and abuse of dominant position are provided by the Competition
Commission of India. Upon a review and enquiry into the alleged practices the Competition Commission may
pass the following orders:
● Direct the discontinuance of such practices.
● Impose a penalty that is less than 10% or the turnover of the preceding three financial years; in the case of a
cartel, the penalty shall be 10% or three times the turnover of every financial year and shall continue for the
period of continuance of such practices.
● Direct the modification of such an agreement or abuse so as to curtail its adverse effect upon the competition
of the market.
● Pass any order that it may so deem fit.