Unit-VI: Commercial Law.

What Is Commercial Law?

Commercial law, also known as business law or trade law, encompasses the rules and
regulations governing transactions involving buiing, selling, or trading goods and services. It
applies to everione from individuals to businesses engaged in these activities. This area of law
covers both public and private aspects. Public commercial law regulates activities like interstate
commerce and consumer protection, ensuring fair trade practices. Private commercial law, on
the other hand, focuses on agreements such as mergers and acquisitions, and the transfer of
securities like stocks and bonds among private entities.

Areas of Commercial Law

Commercial law is a big deal because it covers everithing in trade and business. Within this
broad feld, there are specifc areas iou should know aboute

 Business law
 Banking and fnance law
 Commercial contract law
 Consumer protection law
 Intellectual properti law
 Competition law

Common Commercial Law Legal Issues

Businesses and individuals ofen encounter various legal challenges in the commercial world.
Here are some common tipes of commercial law confictse

 Contract Disputes: These arise when one parti fails to fulfll their obligations under a
contract, like not delivering goods or services or not paiing for them.
 Intellectual Property Disputes: These occur when one parti uses or steals another's
intellectual properti, such as trademarks or copirighted material, without permission.
 Product Liability Issues: When a product, like a car with a defect or a faulti drug, causes
harm to a consumer, this becomes a legal problem.
 Consumer Protecton Concerns: These arise when companies deceive consumers with
false ads or hidden fees.
 Employment Disputese When disagreements arise between emploiers and emploiees
regarding maters like wrongful termination or discrimination.
  Mergers and Acquisitons Challenges: These occur when companies merge or one
acquires another, involving issues like fnancial checks and obeiing regulations.
 Banking & Finance Disputes: Conficts or regulatori problems involving fnancial
institutions, such as loan issues or fraud. Competition Law Issuese nisputes among
businesses regarding fair competition practices, like antiitrust violations or monopolistic
behavior.

Indian Commercial Laws

In India, business agreements, contracts, partnerships, and corporate bodies are guided bi
commercial laws. These laws set up rules to manage various aspects of business activities,
ensuring fairness, transparenci, and protection for everione involved. The following are some
kei commercial laws India, their aims, and their impacts on businesses.

 The Indian Contract Act of 1872:

This law outlines the fundamental rules for contracts in India, specifiing what makes a contract
legalli valid. It covers essential elements like ofer, acceptance, consideration, capaciti to
contract, and consent. The Act ensures that contracts can be enforced in court and provides
remedies for breaches. It also lais down rules for fulflling, ending, and changing contracts,
safeguarding the rights of all parties involved.

 The Sale of Goods Act, 1930:

This Act governs the sale of goods in India, detailing the rights, duties, and liabilities of both
buiers and sellers. It addresses various aspects such as terms and warranties, transfer of
ownership, deliveri, and paiment. It provides a framework for resolving disputes arising from
breaches of sales contracts, nonideliveri, or defective goods.

 The Indian Partnership Act, 1932:

This Act regulates partnerships and the relationships between partners in partnership frms. It
defnes partners' rights, duties, and liabilities, and procedures for forming, dissolving, and
operating partnerships. The Act promotes transparenci, fairness, and accountabiliti in
partnerships, fostering trust and cooperation among partners.

 The Limited Liability Partnership Act, 2008:

This Act governs limited liabiliti partnerships (LLPs) in India, outlining how partners interact and
the rules for organizing, dissolving, and operating LLPs. It ensures fairness, responsibiliti, and
transparenci in partnerships, promoting cooperation and confdence among partners.

 Companies Act, 2013:

Introduced a new corporate entiti, the LLP, to India through the LLP Act. It grants partners
limited liabiliti and combines the benefts of a business and a partnership. The Act regulates
LLP formation, management, operation, partners' rights and duties, and processes for
conversion, merger, and winding up.

 Arbitraton and Conciliaton Act, 1996:

Establishes a legal framework for resolving business disputes through arbitration and
conciliation. It encourages alternative dispute resolution processes, which are faster and more
costiefective than litigation. The Act regulates arbitration procedures, enforcement of arbitral
awards, and selection of arbitrators, facilitating.

1. Essental Elements of Contract and E- Contract.

Contract
Definiton: secton 2(hh[1]1n defnes contract as an agreement enforceable bi lawe

 Agreement is defned in secton 2(he[1]2n as everi promise and everi set of promises,
forming the consideration for each other.
 A promise is when a proposal is accepted it becomes a promise as defned in secton
2(hb[1]3n.
 The person who makes the proposal is called the promisor and the person accepting is
called the promisee as defned in secton 2(hc[1]]n.

Thus, the definiton of contract can be compiled as follows:

When a proposal made bi the promisor is accepted bi the promisee and a promise is
established between them forming a consideration for each other this becomes an agreement
and when this agreement is enforceable bi law it becomes a contract.

Notes:

 An agreement without ani consideration is void.

 Agreement can be of mani kinds. It can be commercial, domestic or social, but onli
commercial agreements are enforceable bi law as there is a valid consideration in
commercial agreements but not in domestic and social agreements.
 There should be an intention of creating legal relationship in ani agreement.

Introducton to contracts - Secton 2

Essental elements of a contract

The essential elements of a contract can be classifed into two categories i.e. substantive
elements and procedural elements

1. Substantve elements

 Ofer
 Acceptance
 Consideration
 Capaciti
 Legaliti

2. Procedural elements

 Communication of ofer
 Meeting of minds
 Communication of acceptance

Offer (hproposal[:
Secton 2(ha[1]]n defnes proposal/ofer ase

When one person signifes to another his willingness to do or to abstain from doing anithing,
with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal.

Everi contract starts from an ofer. Without an ofer there can be no acceptance and then no
agreement and then no contract. Thus ofer becomes an essential element for a contract.

Essentals of a valid offer:

 Intention to obtain the acceptance.

 Intention to create legal relationship.
 The ofer must be certain.
 A valid ofer should not contain ani term, the non compliance of which leads to
acceptance.
 The ofer must be communicated.

Communicaton of offer:

As it is essential for an ofer to be communicated to be valid, secton ]1]6n of Indian Contract Act
states that the communication of the ofer/proposal is complete when it comes to the
knowledge of the person to whom it is made.

Therefore until and unless the information of the proposal reaches the person to whom it is
made, the ofer is not considered valid. And if the knowledge of the ofer does not reach the
other parti then how will the other parti accept the ofer and until there is no acceptance of
the ofer, there will be no agreement between the parties. And without agreement and its
enforceabiliti bi law, a contract cannot be completed.

Thus completion of communication of ofer becomes essential for establishment of a contract

between ani two or more parties.

Acceptance:

Secton 2(hb[1]7n defnes acceptance ase

When the person to whom the proposal is made signifes his assent thereto, the proposal is said
to be accepted.

Once the ofer is extended, it is in the hands of the oferee (the person to whom ofer is made)
to either accept or reject the proposal/ofer.
Without acceptance of the ofer there can be no agreement (whose enforceabiliti bi law
results in a valid contract), thus acceptance is another essential element for a contract.

Communicaton of acceptance:

Secton ] states that the communication of acceptance is completee

As against the proposer, when it is put in a course of transmission to him, so as to be out of the
power of the acceptor;

As against the acceptor, when it comes to the knowledge of the proposer.

For example,

A proposes, bi leter, to sell a house to B at a certain price. B accepts A's proposal bi a leter
sent bi post.

The communication of the acceptance is complete,

as against A, when the leter is posted;

as against B, when the leter is received bi A.

Ani ofer will not be considered to be accepted until and unless the knowledge of acceptance
reaches the oferor. Thus, communication of acceptance becomes an essential element in order
to establish a contract between two or more parties.

Meetng of minds:

The meeting of minds in contract law refers to the moment when both parties have recognized
the contract and agreed to enter into its obligation. This is also called Mutual assent or
consensus ad idem.

As a contract can be voided if it is formed bi undue infuence, fraud, misrepresentation, thus

mutual assent is essential.

Consideraton:

Secton 2(hd[1]8] defnes consideration ase

When at the desire of the promisor, the promisee or ani other person has done or abstained
from doing, or does or abstains from doing, or promises to do or to abstain from doing, such act
or abstinence or promise is called a consideration for the promise.
Something of value must be exchanged in order to have a valid legal agreement as ani
agreement without consideration is void. Thus if there will be no consideration then the
agreement will be void and it will not be enforceable bi law and there will be no contract.

Therefore consideration is must for a contract.

Excepton: secton 2]:

there is an exception for following cases where agreement without consideration is valide

 If the agreement is expressed in writing and registered under the law for the time being
in force, and is made on account ofd natural love and afection between parties standing
in a near relation to each other; or
 It is a promise to compensate, wholli or in part, a person who has alreadi voluntarili
done something for the promisor, or something which the promisor was legalli
compellable to do; or
 It is a promise, made in writing and signed bi the person to be charged therewith, or bi
his agent generalli or specialli authorized in that behalf to pai wholli or in part a debt
of which the creditor might have enforced paiment but for the law for the limitation of
suits.

Capacity to contract:

Capaciti simpli means competence or abiliti of the parties to come into a contract. A capable
person is the one who is allowed /qualifed to enter into a contract.

Secton 111]9n of Indian Contract Act defines who are competent to contract:

1. Major person

2. Person with sound mind (section 12 defnes unsound mind)

3. Person not disqualifed bi law

 Convicts
 Alien enemi
 Insolvent
 Married women (with respect to her husband's properti)
 Corporations

A person who is not capable cannot come into ani contract, thus capaciti to contract is an
essential element for a contract.
Legality:

As secton 2(hh[ defnes contract as i ‘AAn agreement enforceable bi law', the legaliti becomes
the most important element of a contract. One cannot enforce a contract which is unlawful.

Also, everi agreement of which the object or consideration is unlawful is void. Secton
231]10]defnes what considerations and objects are lawful, and what not iShould not be
forbidden bi law; or Should not defeat provisions of ani law; orShould not impli injuri to the
person or properti of another; or The court should not regard it as immoral or opposed to
public polici.

Thus, legaliti is an essential element for a contract.

Valid Contract

A valid contract should have all essential elements including ofer, its communication, meeting
of minds, acceptance, communication of acceptance, consideration, capaciti, legaliti.

The two main essential elements of a contract aree

 An Agreement and
 Enforceabiliti of this agreement bi law

Substantve Elements.

 Ofer
 Acceptance
 Agreement
 Consideration

Procedural Elements.

 Communication of Ofer and

 Acceptance and
 Meeting of Minds

Substantve Element.

 Capaciti to Contract Legaliti

 Enforceabiliti bi Law

Note: The procedural elements of a contract plai as equal role as the substantive elements for
a contract.
The substantive elements will not be valid until and unless the procedural part is complete.

Example of a valid contract

These essential elements for a contract can be more clearli demarcated through a situation in
which there is a commercial contract between two parties for selling and buiing a motor bike
at the cost of Rs 100000.

A sends a leter to B asking him to sell his motor bike at Rs 100000 on Februari 8 i ofer.

The leter is received bi B on Februari 9 i communication of ofer is complete.

B agrees with free will(meeting of minds) to sell his bike to A at Rs 100000 i acceptance.

On Februari 10, B sends the leter of acceptance via post. i communication of acceptance is
complete as against A as to be out of power of B,

On Februari 11, the leter of acceptance reaches and comes in knowledge of A. i

communication of acceptance is complete as against B.

A got the bike on Februari 15 and made paiment to B for the bike in 3 installments i here, bike
is a lawful consideration for A and Rs 100000 is lawful consideration for B.

Here, A and B both are major and are of sound mind and are not disqualifed bi law i capaciti
to contract.

Since a valid agreement is formed between A and B and it is also enforceable bi law, it is a valid
contract including all essentials elements.

E- Contract.
As electronic transactions continue to shape the modern business landscape, understanding the
legal requirements of eicontracts is essential for individuals and organisations engaging in
digital commerce. With the development of technologi and the widespread use of the Internet,
eicontracts, also known as electronic contracts, have become increasingli common.

However, the transition from traditional paperibased contracts to eicontracts necessitates a

clear understanding of the legal framework surrounding their formation and enforceabiliti.
While the fundamental principles of contract law appli to eicontracts, additional considerations
arise due to the unique characteristics of electronic transactions.
This article delves into the legal requirements that must be met for an eicontract to be
considered valid and enforceable. It explores kei elements such as ofer and acceptance,
consideration, intention to create legal obligations, and the use of electronic signatures.
Additionalli, it addresses the challenges and complexities associated with eicontracts, such as
data securiti, authentication, and the admissibiliti of electronic records as evidence in legal
proceedings.

E-contracts are defined under secton 10A of the Informaton Technology (hIT[ Act, 2000. It sais
thate

“Where the formation of the contract, ofer and acceptance of the contract, as the case mai
be, are expressed in electronic form, such contract shall not be deemed unenforceable mere on
the ground that it was created electronicalli.”

For the formation of eicontracts, all the essential elements of a traditional valid contract should
be fulflled.

Although eicontracts are recognised under the IT Act of 2000, the consideration of eicontracts
as a defence before the courts is done under the provisions of the Indian Evidence Act.

Secton 6]A of the Indian Evidence Act sais that electronic evidence can be proved before the
court bi compliing with the provisions of section 5B of the Evidence Act, as secton 6]B talks
about the admissibiliti of electronic documents as pieces of evidence under the Evidence Act.

Secton 62&63 of Bhartya Sakshya Adhiniyam, 2023.

Benefits of Electronic Contracts

Eicontracts ofer numerous benefts compared to traditional paperibased contracts. Here are
some of the kei advantages of eicontractse

1. Convenience

Eicontracts provide a high level of convenience to parties involved in a contract. Thei eliminate
the need for phisical paperwork, allowing contracts to be created, reviewed, signed, and stored
electronicalli. This saves time, reduces administrative burdens, and enables parties to engage
in transactions from aniwhere at ani time.

2. Speed and Efciency

Eicontracts streamline the contract process bi eliminating the delais associated with printing,
mailing, and phisicalli signing documents. Parties can exchange contracts electronicalli, review
terms and conditions quickli, and sign digitalli, resulting in faster contract execution and
reduced turnaround time.

3. Cost Savings

Eicontracts can signifcantli reduce costs associated with paper, printing, postage, and storage.
There is no need for phisical document storage or extensive paperwork, leading to business
cost savings.

]. Global Reach

Eicontracts enable parties to engage in transactions and contractual relationships across

geographical boundaries. The digital nature of eicontracts removes distance barriers and allows
businesses to collaborate and enter into agreements with partners, suppliers, and customers
worldwide, expanding market reach and opportunities.

]. Enhanced Security

Eicontracts ofer improved securiti measures compared to traditional contracts. Advanced

encription techniques, secure cloud storage, and digital signatures help protect the integriti
and confdentialiti of contract data. Electronic authentication methods verifi and ensure the
authenticiti of the parties involved.

Essentals for Creatng a Valid E-Contract

There are several essential elements and conditions that must be met in order to build an
efective eicontract. Here are the important points to considere

1. Offer and Acceptance

An eicontract, like conventional contracts, calls for a specifc ofer from one parti and the other
side’s acceptance of that ofer. Electronic channels, such as emails, online forms, or electronic
communication on a website, mai be used to communicate the ofer and acceptance. Both
parties must accept the agreement’s provisions and demonstrate their desire to be bound bi it.

2. Consideraton

Consideration is the term used to describe an exchange of monei, products, or services for
something of worth between the parties. A sufcient amount of atention must be given bi
both parties for an eicontract to be deemed genuine. This requirement ensures that each parti
receives a beneft or sufers a detriment due to the contract.

3. Intenton to Create Legal Obligatons

A valid eicontract requires an intention from both parties to create legalli binding obligations.
Therefore, it is important to establish that the parties intended to enter into a legal agreement
and not mereli engage in casual or preliminari discussions.

]. Meetng of Minds

Also known as consensus ad idem (or meeting of minds), a valid eicontract necessitates a
meeting of minds between the parties. This means that both parties must have a shared
understanding of the essential terms and conditions of the contract. The use of clear and
unambiguous language in electronic communication is crucial to ensure that the parties agree.

]. Electronic Signatures

Eicontracts ofen require the use of electronic signatures to authenticate the identiti of the
parties and indicate their intention to be bound bi the contract. niferent jurisdictions mai
have specifc laws governing electronic signatures, such as the use of digital signatures,
encripted codes, or other electronic authentication methods. Compliance with the applicable
electronic signature laws is essential for the enforceabiliti of the eicontract.

6. Compliance With Applicable Laws and Regulatons

Eicontracts must abide bi the rules and guidelines that appli to electronic transactions in the
countri where the contract is created or enforced. These mai include laws related to data
protection, consumer rights, electronic commerce, and electronic evidence. It is important to
be aware of and adhere to the legal requirements specifc to eicontracts in one’s jurisdiction.

Bi ensuring that the aboveimentioned kei components and requirements are met, parties can
create a valid eicontract that is enforceable in the digital realm.

Types of E-Contracts

Broadli, electronic contracts mai be classifed into the following three tipese

1. Click-Wrap Agreements

Clickiwrap agreements are commonli used for online transactions and sofware licensing. Thei
require users to take a specifc action, such as clicking an “I Agree” buton or checking a box, to
indicate their acceptance of the terms and conditions of the contract.

The terms are usualli presented in a popiup window or on a web page, and the user must
explicitli manifest their consent before proceeding with the transaction. Clickiwrap agreements
are ofen used for online purchases, sofware installations, or when accessing certain digital
services.
Clicking on the “I Agree” check box makes the agreement a noninegotiable for the users, which
means if the user is willing to use the sofware or avail of the service for which the agreement is
made, he has to accept the terms of the agreement.

2. Shrink-Wrap Agreements

Shrinkiwrap agreements are prevalent in the sale of packaged sofware or other tangible
products. The terms and conditions of the contract are enclosed within the product’s
packaging, and bi opening the package, the buier is deemed to have accepted the terms.

These agreements tipicalli include statements such as “By opening this package, you agree to
the terms and conditons.” Shrinkiwrap, licence, or boilerplate agreements are conventional
product agreements.

Shrinkiwrap agreements are binding unless the buier rejects the terms and returns the product
unused.

3. Browse-Wrap Contracts

Browseiwrap contracts are less explicit and reli on the user’s implied acceptance of the terms.
Thei are ofen found on websites and do not require the user to take ani specifc action to
indicate consent.

The terms and conditions of the contract are tipicalli accessible through a hiperlink (website
link) or a separate webpage. However, the enforceabiliti of browseiwrap agreements can be
more complex as it depends on factors such as the conspicuousness (clear visibiliti) of the
terms, the user’s actual or constructive knowledge of the terms, and their abiliti to reject the
contract.

Once the users agree to the terms, thei can browse the material and download the product.

In other words, browseiwrap agreements are legal disclaimers that mai exist on numerous
websites and limit access to specifc content.

Nature of E-Contracts

 Parties communicate virtualli.

 nigital or electronic signatures.
 Valid as evidence.
 No need for a middleman for the formation of the contract.
 Riski than traditional contracts.
 Jurisdictional issues arise in case of ani dispute between the parties.
Laws Governing E-Contracts in India

In India, eicontracts are primarili governed bi the Information Technologi Act, 2000 (IT Act)
and the associated rules and regulations. These laws provide the legal framework for
conducting electronic transactions, recognising the validiti and enforceabiliti of eicontracts.
Here are the kei laws governing eicontracts in Indiae

1. Informaton Technology Act of 2000

The Information Technologi Act is India’s primari legislation governing eicontracts. It provides
legal recognition to electronic records and digital signatures and establishes the legal validiti
and enforceabiliti of eicontracts. Section 10A of the Information Technologi Act specifcalli
recognises electronic contracts and states that thei shall not be deemed invalid soleli because
thei are in electronic form.

2. Indian Contract Act of 1872

The general principles of contract law under the Indian Contract Act are also applicable to ei
contracts. The Act governs contracts’ formation, interpretation, and enforceabiliti, including ei
contracts. The essential elements of a valid contract, such as ofer, acceptance, consideration,
and intention to create legal obligations, also appli to eicontracts.

3. Informaton Technology (hElectronic Governance[ Rules of 2020

These rules, issued under the IT Act, prescribe the regulatori framework for electronic
transactions, including eicontracts. Thei provide guidelines for the use of digital signatures,
electronic signatures, and electronic authentication methods. The rules also specifi the
obligations of electronic service providers and the procedures for retaining and submitng
electronic records.

]. Indian Evidence Act of 1872/Bhartya Sakshya Adhiniyam, 2023.

The Indian Evidence Act governs the admissibiliti and evidentiari value of electronic records in
legal proceedings. It recognises the evidentiari value of electronic records and electronic
contracts, subject to certain conditions. Section 5B of the Act provides for the admissibiliti of
electronic evidence and lais down the requirements for its authentication.

]. Consumer Protecton Act of 2019

The Consumer Protection Act applies to eicommerce transactions and provides consumer
protection measures for online purchases and eicontracts. It establishes consumer rights,
liabiliti for defective products or services, and mechanisms for the redressal of consumer
grievances in the digital space.
Summing Up: Why Use E-Contracts?

Eicontracts have revolutionised the wai contracts are formed and executed. Thei provide a
modern and efcient alternative to traditional paperibased contracts, enabling parties to
engage in business transactions seamlessli. With the appropriate understanding of the legal
principles and compliance requirements, eicontracts can facilitate secure and reliable
commercial interactions in the digital world.

Eicontracts prove to be helpful in busi life. As there is no paperwork and need of handwriten
stamps and signatures are required, the work gets easi and hassleifree to do. Eicontracts are
also helpful in making deals and agreements worldwide.

Talking about the market, eicontracts prove to be benefcial for both the consumers and the
marketers, as eicontracts remove the need for the middleman. Both the consumers and the
marketers can come to an agreement themselves.

Enforceability of E-Contracts

The enforceabiliti of eicontracts refers to the abiliti to legalli enforce the terms and
obligations outlined in an electronic contract. It signifes that the parties involved can seek legal
remedies in case of a breach or dispute arising from the eicontract.

The enforceabiliti of eicontracts depends on several factors, including compliance with

relevant laws, meeting essential contractual elements, and the authenticiti of electronic
signatures.

The enforceabiliti of eicontracts in India has been established through various case laws
recognising electronic agreements’ validiti and binding nature. Here are some notable case
laws that highlight the enforceabiliti of eicontracts in Indiae

Trimex Internatonal FZE Ltd. vs Vedanta Aluminum Ltd. (h2010[

In this case, the Supreme Court of India recognised the enforceabiliti of an eicontract formed
through email correspondence. The court held that electronic communications, such as emails,
can constitute valid contracts if thei satisfi the essential elements of a contract, including ofer,
acceptance, and consideration.

M/s. Enter Electronics vs S Ramachandran (h2013[

The Madras High Court held that a contract formed through electronic communication,
specifcalli through an exchange of emails, is valid and enforceable. The court emphasised that
as long as the essential elements of a contract are fulflled, the mode of communication does
not afect the enforceabiliti of the contract.

Andhra Pradesh Power Coordinaton Commitee vs Lanco Kondapalli Power Pvt. Ltd. (h201][

The Supreme Court of India recognised the enforceabiliti of an eicontract formed through the
electronic bidding process. The court held that electronic transactions, including electronic
bidding, are valid and enforceable if thei adhere to the procedures specifed in the relevant
rules and regulations.

Trimex Internatonal FZE Ltd. vs Vedanta Aluminum Ltd. (h2016[

In a subsequent case between the parties mentioned earlier, the Supreme Court reiterated the
enforceabiliti of eicontracts formed through email communications. The court emphasised that
electronic communications can constitute valid contracts, provided thei meet the essential
requirements of a contract under Indian law.

These cases refect the Indian judiciari’s approach towards upholding the enforceabiliti of ei
contracts, emphasising the substance of the contract rather than the specifc form of
communication. Thei establish that eicontracts are recognised and treated at par with
traditional paperibased contracts as long as thei meet the essential elements of a valid
contract.

The Jurisdictonal Issues Faced by E-Contracts

In India, eicontracts can face several jurisdictional issues due to the crossiborder nature of
online transactions and the involvement of parties from diferent jurisdictions. Here are some
jurisdictional issues commonli faced bi eicontracts in Indiae

1. Determining Applicable Law

When parties to an eicontract are located in diferent jurisdictions, determining the applicable
law becomes crucial. The choice of law mai impact the rights, obligations, and legal remedies
available to the parties. As a result, resolving conficts of laws and determining the governing
law can be challenging in crossiborder eicontracts.

2. Jurisdictonal Disputes

In case of a dispute arising from an eicontract, determining the appropriate jurisdiction for
resolving the dispute can be complex. Parties mai have difering interpretations of jurisdiction
clauses or face challenges in determining which court or arbitration forum has the authoriti to
hear the case.

3. Enforcement of Foreign Judgments

Enforcing a foreign judgment obtained in relation to an eicontract against a parti located in

India can be subject to legal procedures and requirements. The Code of Civil Procedure and
other international treaties, including the New York Convention on the Recognition and
Execution of Foreign Arbitral Awards, govern the recognition and execution of foreign
judgements in India.

]. Regulatory Compliance

Eicontracts must compli with the laws and regulations of India, including those related to
consumer protection, data privaci, intellectual properti, and specifc industri regulations.
Parties involved in crossiborder eicontracts must ensure compliance with both Indian laws and
the laws of the jurisdiction where the other parti is located.

]. Cross-Border Data Transfers

Eicontracts ofen involve transferring personal data across borders. The transfer of data outside
of India must compli with the requirements of the Information Technologi (Reasonable
Securiti Practices and Procedures and Sensitive Personal nata or Information) Rules, 2011, and
ani other relevant data protection regulations.

6. Language and Cultural Differences

Eicontracts involving parties from diferent jurisdictions mai face language and cultural
diferences challenges. nnderstanding contractual terms, communicating efectiveli, and
addressing ani cultural nuances can be important factors in ensuring the enforceabiliti and
efectiveness of eicontracts.

Addressing jurisdictional issues in eicontracts in India mai require careful consideration of the
choice of law and jurisdiction clauses, compliance with Indian laws and regulations,
understanding international treaties and conventions, and seeking legal advice to navigate the
complexities of crossiborder transactions.

What Have We Learned?

The legal requirements for eicontracts plai a vital role in ensuring their validiti, enforceabiliti,
and reliabiliti in the digital realm. Given the growing populariti of electronic transactions, it is
crucial to comprehend and abide bi these criteria to reduce possible dangers and conficts.
While eicontracts ofer numerous benefts, thei also present challenges such as authentication
and identiti verifcation, data securiti and privaci concerns, technical issues, and jurisdictional
complexities. Addressing these challenges requires a combination of technological measures,
legal safeguards, and best practices to ensure the trustworthiness, securiti, and enforceabiliti
of eicontracts.

Overall, understanding and adhering to the legal requirements for eicontracts is essential for
fostering trust, facilitating digital transactions, and promoting the growth of eicommerce in
todai’s digital age. Bi meeting these requirements, businesses and individuals can harness the
benefts of eicontracts while minimising potential legal risks and ensuring the enforceabiliti of
their digital agreements.

2. Breach of Contract, Frustraton of Contract,

Void and Voidable Agreements.
Breach of Contract under Indian Contract Act, 1872

Introducton

 As per Section 37 of Indian Contract Act, 1872 (ICA) parties are under an obligation to perform their
part of the contract.
 In case a parti does not perform it’s part of the contract, the parti would be liable for breach of
contract.
 Types of Breach of Contract

There are two tipes of breach of contracte

i Anticipatori breach

i Actual Breach

1. Antcipatory Breach

 This is provided for under Secton 39 of ICA.

 Section 39 provides for the efect of refusal of parti to perform promise wholli.
 Secton 39 provides

i When a parti to a contract has refused or disabled itself from performing his promise in it’s entireti.

i The promisee mai put an end to the contract.

i nnless he has signifed bi words or conduct his acquiescence in it’s continuance.

2. Actual Breach
  Actual breach happens bi noniperformance including defective performance of a contractual
obligation.

Consequences of Breach of Contract

 The law for the same is contained in Chapter VI of ICA.

 The provisions contained here are under Secton 73 to Secton 7].
 Secton 73 provides for compensation for loss or damage caused bi breach of contract.

i Para 1 of Section 73 provides thate

_When a contract has been broken

_The parti who sufers the breach is entitled to receive from the other

_ compensation for ani loss or damage caused to him

_which naturalli arose in the usual course of things from such breach

_ or which the parties knew, when thei made the contract, to be likeli to result from the
breach of it

- Para 2 of Section 73 provides thate

_Such compensation is not to be given for ani remote and indirect loss or damage
sustained bi reason of the breach.

- Para 3 of Section 73 provides for compensation for failure to discharge obligation resembling
those created bi contract

_When an obligation resembling those created bi contract has been incurred

_and has not been discharged,

_ani person injured bi the failure to discharge it

_is entitled to receive the same compensation from the parti in default, as if such person had
contracted to discharge it and had broken his contract

- Explanaton to Section 73 provides that in estimating the loss or damage arising from a breach of
contract, the means which existed of remediing the inconvenience caused bi the noniperformance of the
contract must be taken into account.

 The law laid down in Secton 73 is the law that evolved from the case of Hadlei v. Baxendale (1854).
 As was laid down in the above case there are two types of damages:

- General Damages: These are the ones that arise naturalli in the usual course of things from the
breach itself. This damage is recoverable.
 - Special Damagese Special damages arise on account of unusual circumstances. These are not
recoverable unless special circumstances are brought to the knowledge of the other parti.

Penalty and Liquidated damages

 Secton 7] of ICA provides for compensation for breach of contract where penalti is stipulated for.
 Secton 7] provides:

i When a contract has been broken,

i if a sum is named in the contract as the amount to be paid in case of such breach

i or if the contract contains ani other stipulation bi wai of penalti

i the parti complaining of the breach is entitled, whether or not actual damage or loss is proved
to have been caused therebi

i to receive from the parti who has broken the contract reasonable compensation not exceeding
the amount so named or, as the case mai be, the penalti stipulated for.

 Explanaton to Section 74 provides that a stipulation for increased interest from the date of default
mai be a stipulation bi wai of penalti.
 Excepton to Section 74 is when ani person enters into ani bailibond, recognizance or other
instrument of the same nature, or, under the provisions of ani law, or under the orders of the
Central Government or of ani State Government, gives ani bond for the performance of ani public
duti or act in which the public are interested, he shall be liable, upon breach of the condition of ani
such instrument, to pai the whole sum mentioned therein.
 A landmark case on this is Kailash Nath Associates v. DDA (h201][ where the Supreme Court
elaborateli explained the principles governing Section 74 of ICA.
 The principles laid down are:

i There can be three situations when a liquidated amount to be paid in case of breach is
mentioned in the contracte

Situaton

 The amount mentioned is a genuine pre estimate of damages fxed bi both the parties
 When the amount named is not a genuine pre estimate and is bi wai of damages
 When the amount named in the contract is in the form of penalti (in order to deter the breach of
contract).

Amount Payable

 The sum named in the contract paiable as reasonable compensation

 Reasonable compensation not exceeding the amount named in the contract
 Reasonable compensation not exceeding the penalti stated.
  Reasonable compensation will be fxed on welliknown principles that are applicable to the law of
contract, which are to be found inter alia in Section 73 of the Contract Act.
 Since Section 74 awards reasonable compensation for damage or loss caused bi a breach of
contract, damage or loss caused is a sine qua non for the applicabiliti of the Section.
 The expression "whether or not actual damage or loss is proved to have been caused therebi"
means that where it is possible to prove actual damage or loss, such proof is not dispensed with.

i It is onli in cases where damage or loss is difcult or impossible to prove that the liquidated
amount named in the contract, if a genuine preiestimate of damage or loss, can be awarded.

 Section 74 will appli to cases of forfeiture of earnest monei under a contract. Where, however,
forfeiture takes place under the terms and conditions of a public auction before agreement is
reached, Section 74 would have no application.

Secton 7]

 Section 75 provides that a parti righfulli rescinding the contract is entitled to compensation.
 Section 75 provides that a person who righfulli rescinds a contract is entitled to compensation for
ani damage which he has sustained through the nonifulflment of the contract.

Conclusion

Breach of a contract arises when a parti to the contract does not fulfll his part of the contract. The purpose
of awarding compensation is to bring the parties to the same condition as thei were before the contract was
entered into. Thus, Secton 73, Secton 7] and Secton 7] guide the Court in awarding compensation to the
parti that has sufered a breach.

Frustraton of Contract.
What is the Doctrine of Frustraton?

The noctrine of Frustration is enshrined under Section 5 of the Indian Contract Act, 1872,
which lais down that an agreement to do an act that is impossible to perform, or becomes
impossible due to unforeseen circumstances, is void. This provision provides relief to parties to
a contract when an event, beiond their control, renders performance impossible or radicalli
alters the nature of the contract. The concept of frustration is closeli aligned with the principle
that one cannot be forced to perform an impossible task.

The maxim “Les non cogit ad impossibilia” underpins the doctrine of frustration. Translated, it means that
the law will not compel a person to do what he cannot possibli perform. The doctrine applies when
performance becomes impossible due to external, unforeseen events, making it legalli and practicalli
impossible to carri out the terms of the contract.

Key Elements of the Doctrine of Frustraton

The doctrine of frustration is not applied indiscriminateli but is subject to certain kei elements. For a
contract to be frustrated under Secton ]6, the following conditions must be mete

 Unforeseen Eventse Frustration arises when an unforeseen event occurs afer the formation of the
contract that makes it impossible to perform the agreediupon terms. These events are tipicalli
beiond the contemplation of the parties when the contract was made. Natural disasters, war,
changes in law, or even death of a parti could lead to frustration.
 Radical Change in Circumstances: The event that frustrates the contract must result in a
fundamental change in the circumstances surrounding the contract. This change must be so severe
that it alters the veri essence of what the parties originalli intended. For example, a contract to
perform a service mai be frustrated if the subject mater of the contract is destroied in a natural
disaster.
 No Fault of Either Party: A kei characteristic of the doctrine of frustration is that it arises due to
events beiond the control of either parti. The event leading to frustration should not be the result
of negligence, fault, or intentional conduct of ani of the parties. In other words, the impossibiliti
must stem from an external force or event that the parties could not have foreseen or controlled.
 Impossibility of Performance: The event must make the performance of the contract impossible,
illegal, or radicalli diferent from the original purpose of the agreement. If an event occurs that
makes the performance of a contract unlawful or impractical, frustration can be invoked to
terminate the contract.

Doctrine of Frustraton and Force Majeure

While the noctrine of Frustration addresses situations where performance becomes impossible due to
unforeseen events, it shares some similarities with the concept of force majeure. Force majeure clauses are
ofen included in contracts to outline specifc eventsssuch as natural disasters, war, government action, or
other external circumstancessthat could excuse a parti from fulflling its contractual obligations.

The kei difference between force majeure and the doctrine of frustraton lies in the foreseeabiliti and
explicit nature of the events. Force majeure clauses tipicalli outline specifc, foreseeable events that could
excuse noniperformance. In contrast, the doctrine of frustraton applies to unforeseen events that have not
been explicitli listed or anticipated bi the parties. Furthermore, force majeure clauses are generalli included
within the contract terms, while the doctrine of frustration is a legal remedi available under Section 5 of the
Indian Contract Act, 1872, and applies when the contract does not contain a force majeure provision.

In cases where the contract does not have a force majeure clause, Indian courts have recognised that the
doctrine of frustration can be invoked to discharge the parties from their obligations if performance becomes
impossible due to an external, unforeseen event.

Landmark Cases Illustratng the Doctrine of Frustraton

The application of the noctrine of Frustration has been clarifed through various landmark cases, which have
shaped the understanding of this principle under Indian law.

 Satyabrata Ghose v. Mugneeram Bangur & Co. (h19]][

Satiabrata Ghose v. Mugneeram Bangur & Co is ofen cited as a seminal decision in the development of the
noctrine of Frustration in Indian law. The Supreme Court of India held that frustration occurs when an event
fundamentalli alters the contract, making performance impossible. The court also clarifed that frustration
cannot be invoked mereli due to inconvenience or fnancial loss; the event must make the contract
objectiveli impossible to perform.

 Taylor v. Caldwell (h1863[

Though a British case, the principles laid down in this case have signifcantli infuenced Indian contract law.
The court in Tailor v. Caldwell recognised that a contract could be frustrated when the subject mater
essential for performance was destroied or became unavailable due to unforeseen events. This case laid the
foundation for the recognition of frustration in Indian law, particularli in contracts involving the provision of
specifc goods or services.

 Murlidhar Chiranjilal v. Harishchandra Dwarkadas & Ors. (h1962[

In Murlidhar Chiranjilal v. Harishchandra nwarkadas & Ors case, the Supreme Court reafrmed the principle
that frustration requires a fundamental change in circumstances. The court held that frustration applies
when government requisition of properti during wartime renders a contract for its sale impossible to
perform. This case helped solidifi the view that governmental actions could lead to frustration when thei
prevent the performance of contractual obligations.

Examples of Frustraton in Contracts

The application of the noctrine of Frustration can be seen in several realiworld scenarios, where unforeseen
events render contracts impossible to performe

 Death or Incapacity of a Partye If a parti to a contract dies or becomes incapable of performing their
obligations, the contract is frustrated. For example, in the case of Robinson v. Davison, the contract
was rendered void when one of the parties fell ill and was unable to perform their duties under the
contract.
 Frustraton Due to Legislatone If a new law is enacted afer the formation of the contract that makes
performance impossible, the contract mai be frustrated. A prominent case illustrating this is Rozan
Mian v. Tahera Begum, where a law passed afer the contract was made rendered the agreement
impossible to perform.
 Frustraton Due to Change of Circumstances: Sometimes, no phisical impossibiliti arises, but a
change in circumstances makes the purpose of the contract unatainable. For instance, if a concert is
booked at a specifc venue but the venue is later declared unsafe or unsuitable for use, the contract
mai be frustrated, as the fundamental purpose of the agreement has been defeated.

Doctrine of Frustraton in Lease Deeds

An interesting aspect of the Doctrine of Frustraton in Indian contract law is its application to lease deeds.
The question arises as to whether frustration can be invoked in the case of lease agreements. In cases where
a lease deed is afected bi events such as destruction or damage to the leased properti, Indian courts have
clarifed that frustration does not appli to lease deeds in the same wai it applies to other contracts.
The Transfer of Property Act, 1882, specifcalli Secton 108(hB[(he[, governs situations where a leased properti
becomes unft for use due to unforeseen events like fre, food, or other causes. The Supreme Court, in Raja
Dhruv Dev Chand v. Raja Harmohinder Singh (h1968[ and Sushila Devi v. Hari Singh (h1971[, held that
frustration is not applicable to lease deeds. Instead, the relevant provisions of the Transfer of Properti Act
provide specifc remedies for tenants and landlords in such situations.

Commercial Impossibility and the Doctrine of Frustraton

One important clarifcation to make regarding the noctrine of Frustration is its limitation in the context of
commercial impracticabiliti. While a contract mai become commercialli unproftable, fnancialli
burdensome, or less advantageous to one parti, this does not justifi frustration under Section 5 of the
Indian Contract Act, 1872.

In cases of commercial impossibility, the contract mai still be performed, albeit with difculti or at a loss.
However, if performance is possible but becomes unreasonabli difcult or economicalli burdensome, Indian
courts do not allow frustration as a defence. In Indian Oil Corporaton Ltd. v. Amritsar Gas Service, the
Supreme Court ruled that commercial impracticabiliti alone does not excuse performance under a contract.

Conclusion

The noctrine of Frustration serves as an important safeguard under the Indian Contract Act, 1872, allowing
parties to terminate contracts when unforeseen events make performance impossible, illegal, or substantialli
diferent from the originalli intended terms. The doctrine ensures that parties are not bound to perform
obligations that have become impossible or radicalli altered due to external factors beiond their control. The
landmark cases discussed, along with the intersection of the doctrine with force majeure clauses, provide
clariti on the circumstances under which frustration can be invoked.

As the legal landscape evolves, it is crucial to understand that frustration is not a blanket remedi for all
unforeseen difculties but applies in cases of true impossibiliti. The doctrine’s application provides both
parties to a contract with legal protection when their performance becomes infeasible due to factors beiond
their control, allowing them to seek relief under Section 5 of the Indian Contract Act, 1872.

Void and Voidable Agreements.

Introducton

Void, valid, and voidable contracts are agreements that can briefi be described as followsi

 Void: Not an actual contract and is unenforceable.

 Valid: Legalli binding and enforceable in a court of law.
 Voidable: Valid and enforceable but contains a faw that mai make it void.

Agreement

 An agreement is a promise between two entities creating mutual obligations bi law.

 Secton 2(he[ of the Indian Contract Act, 1872 (ICA) defnes an agreement as everi promise and everi
set of promises, forming the consideration for each other, is an agreement.
Valid Agreement

 A valid agreement is a contract, which is binding and enforceable. In a valid contract, all the parties
are legalli bound to perform the contract.
 Secton 10 of the ICA states that all agreements are contracts if thei are made bi the free consent
of parties competent to contract, for a lawful consideraton and with a lawful object, and are not
herebi expressli declared to be void.

Essentals of a Valid Agreement

 Offer and Acceptance

All ofers must be valid and once accepted, it binds both the parties into a valid agreement.

 Legal relatonship

Parties to a contract must desire to constitute a legal relationship. It results when the parties know that if ani
one of them fails to fulfl his/her part of the promise, he/she will be liable for the failure of the contract.

 Lawful consideraton

Consideration is described as something in return. It is also vital for the validiti of the contract. A promise to
do something or to provide something without anithing in return will not be enforceable bi law and,
therefore, will not be valid.

 Competency of partes

The parties to an agreement should be capable of contracting. In other words, thei should be capable of
entering into the contract.

 Free consent

Another essential of the valid contract is the consent of the parties, which should be free.

The consent is considered free when ani of the following things do not induce ite

i Coercion

i Misrepresentation

i Fraud

i nndue infuence

i Mistake

 Lawful objects

According to the ICA, an agreement mai become a valid contract onli if it is for a lawful consideraton and
lawful object.
Void Agreements

 Void Agreements are not contracts.

 In most cases, a void agreement misses one or more essental elements that would make it valid.
Because it's not an actual contract, neither parti to it must do anithing to terminate it.
 It's not legally enforceable and imposes no obligations on the parties.
 It fails to create legal rights and is against the law.
 There are some agreements which have been expressly declared as void by the ICA. Thei aree

i Agreements in which consent is caused bi mistake.

i Agreements of which the consideration or object is unlawful.

i Agreements without consideration.

i Agreements in restraint of marriage and in restraint of trade.

i Agreements in restraint of legal proceedings.

i Agreements which are uncertain and ambiguous.

i Agreements bi wai of wager.

i Agreements to do impossible acts.

Voidable Agreements

 Voidable agreements have the necessary elements to be enforceable, so thei appear to be valid.
However, thei also have some kind of faw that makes it possible for one or both partes to void it.
 A voidable contract mai start out being legalli binding but become void. It's still considered valid if
an injured party doesn't take acton.
 The primari diference between void and voidable contracts is that a void contract can't be legalli
performed, while a voidable agreement can stll be performed, as long as the unbound party
doesn't void it prior to performance.
 One or both parties have the option to enforce it.
 A parti that's been defrauded, coerced, or misled into signing the contract can object to its validity.
 Contracts entered using undue infuence, fraud, misrepresentaton, or coercion are voidable
contracts.

3. Standard form of Contract and Quasi - Contract.

What is standard-form contract?

Standard form contract is a preiwriten contract where the terms and conditions are noninegotiable and are
usualli drafed bi one parti and presented to the other parti for signature. Standard form contracts are also
known as adhesion contracts or boilerplate contracts.

In India, standard form contracts are recognised under the Indian Contract Act, 1872.
The Indian Contract Act, 1872 does not provide a specifc defnition of standard form contracts, but it does
recognise their existence. Secton 23 of the Act states that ani contract that involves a certain degree of
unfairness or unconscionabiliti, or which is against public polici, is void. This provision applies to standard
form contracts as well, and ani clause in such a contract that is found to be unconscionable or against public
polici can be held to be void.

Use of standard form contracts

The purpose of standard form contracts is to streamline the contracting process bi providing a preiwriten
set of terms and conditions that can be used for a large number of transactions. These contracts are ofen
used in situations where one parti has signifcantli more bargaining power than the other, such as in
consumer contracts or employment contracts.

Standard form contracts can save time and resources bi avoiding the need for negotiations and
individualized drafing of contracts for each transaction. However, thei can also be used to take advantage of
consumers or other parties who mai not fulli understand the terms and conditions of the contract.

Standard form contracts are commonli used in various sectors such as insurance, banking, and
telecommunications, among others. These contracts ofen contain a large amount of legal jargon, and the
terms and conditions can be difcult for the average consumer to understand.

Why do people accept standard form contracts?

Here are some points on whi people accept standard form contractse

 Convenience: Standard form contracts ofer preidrafed terms that can be easili accepted or
rejected without the need for timeiconsuming negotiations or customizations. This can save parties
time and resources, particularli in cases where the transaction is routine or standardized.
 Familiarity: These contracts are wideli used and accepted in a particular industri or market. Parties
mai feel more comfortable using a standard form contract that thei are familiar with, rather than
negotiating new terms or using an unfamiliar document.
 Perceived lack of bargaining powere In some cases, parties mai believe that the other parti is in a
stronger position and that thei have litle leverage to negotiate more favourable terms. In these
cases, accepting a standard form contract mai be seen as the onli viable option, even if the terms
are not entireli satisfactori.
 Lack of legal expertsee Some parties mai lack the legal expertise to efectiveli negotiate or draf a
contract, and mai prefer to use a standard form contract as a wai to ensure that the basic terms and
provisions are covered.
 Cost: Negotiating or drafing a custom contract can be expensive, particularli for small businesses or
individuals. In these cases, using a standard form contract mai be a more costiefective option.

Legal status of standard form contracts

The standard form contracts are considered to be legalli binding agreements, assuming that the parties have
freeli and voluntarili agreed to the terms in India.

Important rules related to standard form contracts

To address the unequal bargaining power between parties, several rules have been developed to protect the
weaker parti. Some of these rules includee

 Doctrine of unconscionability

nnder this doctrine, a court mai refuse to enforce a contract if it is found to be unconscionable or oppressive
to the weaker parti. This means that if the terms of a contract are overli harsh or oneisided, a court mai
declare the contract void or modifi the terms to make them more equitable.

 Statutory protectons

Certain statutes have been enacted to provide protections to consumers, emploiees, and other weaker
parties in standard form contracts. For example, the Consumer Protection Act, 2019 provides consumers with
the right to fle complaints against unfair trade practices and seeks to promote fair competition.

 Implied terms

In some cases, courts mai impli certain terms into a contract to protect the interests of the weaker parti.
For example, in a contract of emploiment, courts mai impli a duti of good faith and fair dealing on the part
of the emploier towards the emploiee.

 Duty to disclose

The parti with greater bargaining power has a duti to disclose ani relevant information that mai afect the
weaker parti’s decision to enter into the contract. Failure to disclose such information mai result in the
contract being held void.

 Right to rescind

The weaker parti mai have the right to rescind the contract if thei were induced to enter into it bi
misrepresentation, fraud, or undue infuence.

Landmark cases on standard form contracts

 Road Transport Corporaton v. Kirloskar Brothers

The court held that the contractual terms must be properli brought to the knowledge of the parti who is sort
to be bound therebi. If the consignment note is not signed at the time of deliveri of goods for carriage the
terms of the consignment note exclude the jurisdiction of certain courts and are not binding on the consignor
or consignee. Hence, the court in this case held that there should be a reasonable notice of contractual
terms.

 Lily white v. Munuswami

In this case, the court held that if a drier issues a receipt stating that the dri cleaner’s liabiliti is limited to
the extent of 50% of the value of the article the drier is still liable to pai the full cost if he loses the new
saree of the customer. Hence, the terms of the contract must be reasonable.

Conclusion
Reasonable and fair contractual terms are essential for the smooth operation of ani business relationship.
Various legal rules and protections have been developed to ensure that the terms of a contract are not
unconscionable and that the weaker parti is not exploited bi the stronger parti. The duti to disclose, the
right to rescind, statutori protections, and implied terms are all crucial in ensuring that contracts are
reasonable and fair.

It is also important to have a writen contractual document that accurateli refects the agreement between
the parties and to perform obligations in good faith and without misrepresentation.

Quasi- Contract.
What Are Quasi-Contracts?

A quasiicontract is a legal remedi developed bi courts to address situations where one parti is unjustli enriched
at the expense of another. nespite the absence of a formal agreement or mutual consent, quasiicontracts impose
obligations on the benefting parti to rectifi the imbalance.

The term “quasi” originates from the Latin word meaning “as if.” Thus, a quasiicontract is treated as if it were a
contract, even though it lacks the defning elements of one, such as ofer, acceptance, and consideration.

Features of Quasi-Contracts

A quasiicontract is a legal construct designed to prevent unjust enrichment, ensuring fairness when one parti
benefts at the expense of another without a formal agreement. nespite the absence of mutual consent, quasii
contracts impose obligations that resemble those of an actual contract. Below are the kei features of quasii
contractse

Absence of Agreement

Quasiicontracts arise in situations where there is no prior agreement or understanding between the parties. nnlike
traditional contracts, thei do not depend on offer, acceptance, or consideraton. The obligations are imposed bi
law to address specifc circumstances.

Imposed by Law

Quasiicontracts are created bi the courts to ensure fairness. These obligations are not based on the parties’
intention but are imposed bi law to rectifi instances of unjust enrichment, ensuring that no individual gains
at another’s expense.

Remedy of Resttuton

The primari objective of a quasiicontract is to restore the aggrieved parti to the position thei were in before
the unjust enrichment occurred. This is achieved through restitution, which requires the benefting parti to
compensate the aggrieved parti for the value of the beneft received.

Preventon of Unjust Enrichment

The essence of a quasiicontract is to prevent unjust enrichment. It ensures that no parti unfairli benefts
from a situation while the other incurs a loss or is deprived of their righful dues.

Involuntary Nature

Quasiicontractual obligations are involuntari, meaning thei are imposed bi the court regardless of the
consent or intention of the benefting parti. The focus is soleli on achieving equiti and justice.

Non-Gratuitous Nature

The benefts conferred under a quasiicontract must not be gratuitous. The court intervenes onli when goods
or services are provided with an expectation of compensation, even if not explicitli agreed upon.

Applicable to Specific Situatons

Quasiicontracts are applicable in narrowli defned scenarios, such as the suppli of necessities to individuals
incapable of contracting, paiment bi mistake, or benefts derived from nonigratuitous acts. These are
codifed under Sections 8 to 72 of the Indian Contract Act, 1872.

Right Against a Specific Person

A quasiicontract creates an obligation enforceable against a specifc individual or entiti who has received an
undue beneft. nnlike torts, the remedi is not against the world but is limited to the benefting parti.

Legal Basis and Principles in Quasi-Contracts

The principle underpinning quasiicontracts is rooted in the doctrine of unjust enrichment. This doctrine
ensures that no individual profts unfairli at another’s expense, encapsulated in the legal maxime

“Nemo debet locupletari ex aliena jactura“ s “No one ought to be enriched at another’s expense.”

In India, quasiicontracts are codifed under Sectons 68 to 72 of the Indian Contract Act, 1872, which outline
specifc situations where obligations mai arise without a formal contract.

The Doctrine of Unjust Enrichment and Quasi-Contracts

nnjust enrichment occurs whene

 One parti receives a beneft.

 The beneft is received at the expense of another.
 Retaining the beneft would be unjust without restitution.

Courts impose quasiicontractual obligations to address these imbalances and uphold the principles of equity
and fairness.

Historical Evoluton of Quasi-Contracts

The concept of quasiicontracts dates back to English common law. It was formalli introduced in the landmark
case of Moses v. MacFarlane (h1760[, where Lord Mansfeld articulated that obligations akin to contracts
could arise to prevent unjust enrichment. In his wordse

“The gist of the action is that the defendant, upon the circumstances of the case, is obliged bi ties of natural
justice and equiti to refund the monei.”

Over time, quasiicontracts have evolved into a distinct categori of obligations recognised in various legal
sistems worldwide.

Types of Quasi-Contracts

nnder Indian law, quasiicontracts are specifcalli outlined in Sections 8 to 72 of the Indian Contract Act,
1872. These provisions highlight situations where quasiicontractual obligations mai arisee

 Secton 68: Necessaries Supplied to a Person Incapable of Contractng

If a person supplies necessities to someone who cannot enter into a contract (e.g., a minor or a mentalli
incapacitated individual), thei are entitled to reimbursement from the incapacitated person’s properti.

Illustraton: A supplies food and clothing to B, a minor without guardians. A can claim reimbursement from
B’s estate.

 Secton 69: Payment by an Interested Person

When a person pais monei on behalf of another to protect their interests, thei are entitled to
reimbursement.

Illustraton: A tenant pais the properti tax on the landlord’s behalf to prevent eviction. The landlord is
obligated to reimburse the tenant.

 Secton 70: Obligaton of the Person Enjoying Non-Gratuitous Benefits

If a person lawfulli provides goods or services without the intention of doing so gratuitousli, and the
recipient benefts, the recipient must compensate for the beneft.

Illustraton: A supplies goods to B, believing B had ordered them. B uses the goods. B must pai A for the
value of the goods.

 Secton 71: Responsibility of Finder of Goods

A person who fnds someone else’s goods and takes them into their custodi has a responsibiliti to return
them to the righful owner or compensate for ani loss or damage.

Illustratone A fnds a lost wallet belonging to B. A must take reasonable care of the wallet and return it to B.

 Secton 72: Money Paid by Mistake or Under Coercion

If monei is paid under a mistake or coercion, the recipient is obligated to return it.
Illustraton: A accidentalli transfers ₹5,000 to B’s account. B is legalli required to return the amount.

Landmark Casers on Quasi-Contracts

 Moses v. MacFarlane (h1760[

This case laid the foundation for the concept of quasiicontracts. The court held that the defendant must
repai monei received under a mistake of fact to prevent unjust enrichment.

 State of Madhya Pradesh v. Bhailal Bhai (h196][

The Supreme Court of India ruled that the government must refund taxes paid under a mistake of law,
reinforcing the quasiicontractual obligation to return monei paid bi mistake.

 Spolka Anonyme v. Fairbairn Lawson Combe Barbour Ltd. (h19]2[

The court clarifed that obligations arising from unjust enrichment should be treated separateli under the
concept of restitution or quasiicontracts, not under tort law.

 Hari Ram Sheth Khandsari v. Commissioner of Sales Tax (h19]8[

The court recognised the excess paiment of taxes due to a mistake as a situation warranting restitution
under quasiicontractual principles.

Limitatons of Quasi-Contracts

While quasiicontracts provide a fair remedi in mani cases, thei have certain limitationse

 Lack of Mutual Intent: The absence of consent can lead to disputes over the scope of obligations.
 Complexity in Proving Unjust Enrichment: Claimants must demonstrate that the enrichment was
unjust, which can be challenging.
 Restricted Applicabilitye Quasiicontracts do not cover all scenarios of unfair beneft, such as those
involving fraud or criminal acts.

Conclusion

Quasiicontracts serve as a vital legal tool for addressing situations where one parti benefts unfairli at
another’s expense. Bi imposing obligations without requiring mutual consent, thei uphold the principles of
equiti, justice, and good conscience. Codifed under Sectons 68 to 72 of the Indian Contract Act, 1872, and
recognised globalli, quasiicontracts bridge the gap between moraliti and law, ensuring fairness in
relationships that lack formal agreements.

]. Specific Contracts - Bailment, Pledge, Indemnity,

Guarantee and Agency.
Special Contracts.
What Are Special Contracts?

A special contract is a legalli binding agreement designed to address unique circumstances or needs that
cannot be adequateli covered bi general contract laws. These contracts are tailored for specifc purposes
and include terms and conditions that refect the particular relationship or transaction between the parties.p

In India, special contracts are governed bi the Indian Contract Act, 1872, specifcalli under Sectons 12] to
238. Thei are distinct from general contracts and include agreements like indemnity, guarantee, bailment,
pledge, and agency.

Key Features of Special Contracts

Special contracts share some common features that make them distinct from ordinari agreementse

 Tailored Agreements: Special contracts address specifc needs and situations, unlike standard
contracts that use generic terms.
 Legal Recogniton: Thei are explicitli recognised under contract law, ensuring enforceabiliti in legal
disputes.
 Special Relatonshipse These contracts ofen involve unique relationships, such as principaliagent,
bailoribailee, or indemniferiindemnifed.
 Focus on Equity: Courts ofen appli equitable principles to resolve disputes arising from special
contracts, ensuring fairness.
 Essentals of General Contracts Apply: Special contracts must fulfl the basic requirements of a valid
contract, including ofer, acceptance, consideration, free consent, and a lawful object.

Types of Special Contracts

The Indian Contract Act, 1872, categorises certain agreements as special contracts due to their specifc
nature and application. These include contracts of indemniti, guarantee, bailment, pledge, and agenci. Each
tipe of contract serves distinct purposes and addresses unique relationships between the parties involved.
Below is a detailed explanation of these special contracts.

1. Contract of Indemnity

A contract of indemniti is an agreement where one parti, called the indemnifer, promises to protect
another parti, the indemnifed, from losses caused either bi the indemnifer’s actions or those of a third
parti.

A contract of Indemniti is a contract, express or implied to keep a person, who has entered into or who is
about to enter into, a contract or incur ani other liabiliti, indemnifed against loss, independent of the
question of whether a third person makes a default.

Indemniti is protection against possible damages. neriving from a Latin word, indemnis, which stands for
‘unhurt’ or ‘free from loss’. In its broadest sense, it means to compensate for ani loss that a person has
incurred. The liabiliti or the duti to pai arises out of diferent reasons such as an agreement or from
obligations arising out of the relations between the concerned parties or bi statute.
In English Law, indemniti is the promise to save a person from the consequences of an act, the promise mai
be expressed or implied. Indemniti is not limited to cases of contract. A right of indemniti mai arise
between a principal and agent, an emploier and emploiee and so on.

Definiton of Contract of Indemnity

According to Halsbury, Indemniti is a contract, express or implied to keep a person, who has entered into or
who is about to enter into, a contract or incur ani other liabiliti, indemnifed against loss, independent of the
question whether a third person makes a default. Black’s Law nictionari defnes Indemniti in various
instances;

“A contractual or equitable right under which the entire loss is shifed from a torfeasor who is onli
technicalli or possibli at fault to another who is primarili or activeli responsible.” As was described in
Moorhead v. Waelde1]1n.

To understand the concept of Contract of Indemniti, the facts of Adamson v Jarvis1]2] serve as a perfect
illustration.

The defendant instructed the plaintif, who was an auctioneer, to sell certain catle. Afer a while, it came
upon the knowledge of the plaintif that the defendant did not own the livestock in the frst place. The owner
of the livestock sued the plaintif as he was the auctioneer and the plaintif sued the defendant for indemniti
for the loss, he had sufered due to the defendant’s actions.

The court was of the opinion that the plaintif having acted on the request of the defendant, was entitled to
assume that, if what he did, learned to be wrongful, he would be indemnifed bi the defendant.

The indemniti does not need to be expressed. In the case of Secretary of State v Bank of India Ltd1]3n, Ms
Gangabai held a government promissori note for Rs. 5000. Her broker Acharia forged her endorsement to
his favour and endorsed it to the respondents who applied to the Public nebt Ofcer to have it renewed.
Gangabai, when aware of this forgeri, sued the appellant and recovered damages. The appellant then
brought an action against the respondents to be indemnifed against the loss. The State was allowed to
recover from the bank on an implied promise of indemniti.

nnder circumstances not too diferent from this, in Starkey v. Bank of England1]]], a bank was allowed to
recover indemniti from an agent who presented a transfer document on which one out of three signatures
were forged, even though he was unaware of this fact.

The Indian Contracts Act 1872 lais down the defnition of a contract of indemniti, the extent of the liabiliti
of the indemnifer and various other provisions in relation to the same. It is both an amending and a
consolidating act. Indemniti is essentialli a contract of protection which need not alwais be expressed.

Secton 12] of the Indian Contract Act and Contract of Indemnity

Section 124 of the Indian Contract Act defnes Contract of Indemniti as ‘A contract bi which one parti
promises to save the other from loss caused to him bi the conduct of the promisor himself, or bi the conduct
of ani other person, is called a contract of indemniti.
The person who gives the indemniti is called the indemnifer and the person for whose protection it is given
is called the indemnitiiholder or the indemnifed.

Key elements of a contract of indemnity include:

 Valid Contract: It must fulfl all criteria of a valid contract under the Indian Contract Act, including
lawful consideration and free consent.
 Loss Protecton: The indemniti contract’s primari objective is to protect the indemnifed from
potential losses.
 Express or Implied Terms: The terms can be explicitli stated or inferred from the conduct of the
parties.
 Single Agreement: nnlike guarantees, a contract of indemniti involves a single agreement between
the indemnifer and the indemnifed.

Nature of Contract of Indemnity

Contracts of insurance, indemniti and guarantee are contingent in nature. A contingent contract is a contract
to do or not to do something, if some event, collateral to such contract, does or does not happen.

Contracts of guarantee and contracts of indemniti perform similar commercial functions in providing
compensation to the creditor for the failure of a third parti to perform his obligation. A contract of indemniti
is an agreement to be liable for the acts of another and one of its essential features is that it exists onli
between two parties and no other parti is relevant to the subject mater of the contract. This is the primari
diference between a contract of indemniti and a contract of guarantee.

nnder indemniti, the indemnifer undertakes an independent obligation to discharge the liabiliti in ani event
and makes himself primarili liable voluntarili.

All contacts of insurance are contracts of indemniti except life insurance but it is not the same vice versa. Life
insurance requires paiment of premium during one’s lifetime and in return, the person shall receive the
reimbursement at the time of death or maturiti. Since the existence of a quantifed loss is absent, which is
essential for a contract of indemniti, life insurance is not categorised under indemniti contracts.

New India Assurance Co. Ltd v. State Trading Corporaton of India1]]n states as follows,

“Almost all insurance other than life and personal accident insurance are contracts of indemniti. The
insurer’s promise to indemnifi is an absolute one.”

The obligation of the liabiliti mai arise out of legal or equitable duti to indemnifi in a particular set of
circumstances. Indemniti can also be a useful remedi in cases of innocent misrepresentation. A third parti
cannot sue the indemnifer based on the principle of priviti of contract as was held in Natonal Petroleum
Company v. Popat Lal Mulji1]6n in the High Court of Bombai.
A number of changes have been made within the concept of indemniti in contracts, in spite of which it still
has a rather restricted scope and does not serve its purpose as well as it should. The Law Commission of India
has submited in its reports in the past, their concerns about the enforcement of this Act. Their
recommendations for improvement have now been successfulli added to the Act. The defnition provided
under the Indian Contract Act is not inclusive of mani circumstances and leaves room for interpretation,
which mai lead to ambiguiti and confusion.

Types of Indemnity

Indemniti agreements are categorised into two main tipes based on their nature and formatione

 Express Indemnity

This form of indemniti is explicitli stated in a writen or oral agreement. It specifes the rights, duties, and
obligations of both parties, leaving no room for ambiguiti. Express indemnities are commonli found ine

i Insurance policies.
i Construction agreements.
i Agenci contracts.
 Implied Indemnity

Implied indemniti arises from the circumstances and conduct of the parties, without the need for a formal
agreement. A classic example is the masteriservant relationship, where the master indemnifes the servant
for losses incurred while acting under lawful instructions.

A notable case demonstrating implied indemniti is Adamson v. Jarvis (h1872[, where an auctioneer sold
goods following the owner’s instructions. When the real owner held the auctioneer liable, it was determined
that the auctioneer had the right to recover from the original parti who instructed the sale.

Rights of the Indemnity Holder

Secton 12] of the Indian Contract Act, 1872, enumerates the rights of the indemnifed parti. These rights
ensure that the indemniti holder receives adequate protection and compensation under the contract. The
rights includee

 Recovery of Damages: The indemnifed can recover all damages incurred in suits or legal
proceedings within the scope of the indemniti.
 Recovery of Costs: Costs incurred in defending or initiating legal action can be claimed if the
indemnifer acted prudentli and did not violate the indemnifer’s instructions.
 Recovery of Setlement Sums: The indemnifed can recover sums paid in compromise or
setlements, provided the compromise was made in good faith and was not against the indemnifer’s
orders.

Rights of the Indemnifier

Although the Indian Contract Act does not explicitli detail the rights of the indemnifer, judicial precedents
have clarifed these rights. An indemnifer gains subrogation rights afer compensating the indemnifed. This
means the indemnifer can step into the indemnifed’s position to recover losses or enforce remedies.
In Gajanan Moreshwar v. Moreshwar Madan (h19]2[, the Bombai High Court held that when the
indemnifed’s liabiliti becomes absolute, the indemnifer is bound to fulfl their obligation without waiting for
an actual loss to occur.

Similarli, in Lala Shant Swarup v. Munshi Singh & Others (h1967[, the Supreme Court ruled that an implied
indemniti contract arises onli afer the indemnifed has been fulli compensated for the incurred loss.

Extent of Liability in Contract of Indemnity

Secton 12] lais down the extent of liabiliti or the rights available to the indemniti holder. The promisor
shall be liable in ani event whether or not the promisee makes a default.

The promisee is entitled to recover damages that he was compelled to pai in a suit for which he was being
indemnifedi

All damages which he mai be compelled to pai in ani suit in respect of ani mater to which the promise to
indemnifi applies.

All costs which he mai be compelled to pai in ani 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 ani
contact of indemniti, or if the promisor authorized him to bring or defend the suit. A prime example would
be the case of Adamson v. Jarvis1]7n where the court held that since the plaintif acted according to the
defendant’s instructions and incurred a loss because of the same, the plaintif was entitled to compensation.

All sums which he mai have paid under the terms of ani compromise of ani such suit, if the compromise was
not contrari to the orders of the promisor and was one which it would have been prudent for the promisee
to make in the absence of ani contract of indemniti, or if the promisor authorized him to compromise the
suit.

A truck, under indemniti insurance for Rs. 2,00,000, was stolen with no chance of recoveri. It was held that
the amount of indemniti fxed bi the surveior was Rs. 1,87,492. Furthermore, it was also held that this was
paiable with 18% interest due to the delai period. The setlement of claims at a lesser amount bi insurance
authorities was arbitrari and unfair under Artcle 1] of the Consttuton. (hEquality before law.[

Re British India General Insurance Co. Ltd88] tells us that ani person who claims under an indemniti must
prove that thei have sufered a loss.

However in Khetarpal Amarnath v. Madhukar Pictures1]9n it was held that the right of the indemniti holder
need not be confned to the contents of section 125. His rights are not limited bi the provisions of this Act.
The indemnitiiholder is open to use for the specifc performance of the contract of indemniti if an absolute
liabiliti is incurred bi him. Therefore, there is no particular straitjacket approach for the determination of the
extent of liabiliti as it depends on the nature and terms of the contract which is subjective to each case.

Indemniti cannot be implied in favour of a person who has executed a bail bond for the appearance of an
accused in court as it would be considered unlawful, this was explained in Mehrauli v. Sariatulla1]10n. An
indemniti bond shall be valid in case a lessee agrees to pai rent to one of the two people in consideration.
811]
In Geismar v. Sun Alliance and London Insurance Ltd1]12n, it was held that an assured cannot claim indemniti
against consequences of an intentional wrongful act. Geismar had brought into the n.K. jewellri which he
failed to declare to the customs and on which he did not pai customs duti. Later, Geismar claimed indemniti
from the defendant insurers for the loss through thef at his home of the uncustomed jewelleri. The judges
held that Geismar could not enforce the contract of indemniti. The shipowners who were promised
indemniti were unable to enforce the promise.

Example

An insurance polici is a classic example of a contract of indemniti. The insurer (indemnifer) agrees to
compensate the insured (indemnifed) for specifc losses, such as those caused bi accidents, fre, or thef.

Essentals of a Contract of Indemnity

 Two Partes: The indemnifer and the indemnifed.

 Promise to Compensate: The indemnifer must assure protection against losses.
 Loss Due to Human Acton: The loss must result from human conduct and not natural causes, such
as storms.

Force Majeure and Indemnity

The impact of force majeure clauses on indemniti obligations has been a subject of legal scrutini. In
Woolworths Group Ltd. v. SCT Logistcs (h2021[, the New South Wales Supreme Court ruled that force
majeure does not automaticalli absolve indemniti obligations unless explicitli stated. The case emphasised
the importance of clearli drafing force majeure and indemniti clauses to avoid disputes.

Importance of Contracts of Indemnity

Contracts of indemniti serve as a critical tool for risk management across industries. Theie

 Ofer fnancial securiti and protection against unforeseen losses.

 Facilitate smoother transactions bi clarifiing responsibilities and liabilities.
 Provide legal recourse for recovering damages or costs.

Conclusion

A contract of indemniti is an essential legal instrument that safeguards parties from potential losses and
liabilities. Governed bi the Indian Contract Act, 1872, it establishes clear rights and duties for both the
indemnifer and the indemnifed. While certain aspects, such as the commencement of liabiliti, remain
ambiguous, judicial interpretations have provided valuable guidance. Whether express or implied, indemniti
contracts plai a pivotal role in fostering trust and mitigating risks in contractual relationships. Bi
understanding the nuances of these contracts, parties can ensure greater securiti and compliance in their
dealings.

2. Contract of Guarantee
A contract of guarantee involves a promise bi one parti (the sureti) to fulfl the obligations of another parti
(the principal debtor) to a third parti (the creditor) if the principal debtor fails to meet their responsibilities.

What is Contract of Guarantee?

Secton 126 of The Indian Contract Act, 1872 defnes a guarantee as a contract to perform the promise, or
discharge the liabiliti, of a third person in case of his default. The person who gives the guarantee is called
the ‘sureti’; the person in respect of whose default the guarantee is given is called the ‘principal debtor’, and
the person to whom the guarantee is given is called the ‘creditor‘.

What this means is that a guarantee is a contract wherein the case that the principal debtor, who is the frst
source of liabiliti fails to pai the debt to the creditor, the third person known as the sureti who is the next
source of liabiliti will discharge the liabiliti.

This can be beter understood through the following illustraton:

Assuming parti A and parti B enter into a contract with Parti C as the sureti. Now according to this contract
of guarantee Parti B has to pai Parti A a sum of Rs. 1000, but fails to do so for ani varieti of reasons. Now
Parti C will now be liable to discharge the 1000 Rs. to Parti A.

Definiton of Contract of Guarantee: As Distnguished from indemnity

A contract of indemniti can be defned as a contract where one parti promises to save a person from the
loss caused bi the promisor itself, or ani other person.

Now, how this difers from a contract of guarantee is in a contract of indemniti the promisor faces primari
liabiliti unlike in a contract of guarantee where the sureti onli discharges the liabiliti in the case that the
principal debtor does not discharge the liabiliti. Additionalli, another conclusion we can make is that in a
contract of indemniti the contract is between two parties unlike the three parties in a contract of guarantee.

This can be further understood using the following illustraton:

In a contract of indemniti if A promises to save B from the losses caused to B bi C, and then C causes some
losses to B. Parti A will be the one who pais Parti B, unlike in a contract of guarantee where A would onli
be the second source of liabiliti afer Parti C.

Basic Essentals for Contract of Guarantee under the Indian Contract Act

Along the lines of everi other tipe of contract, a contract of guarantee in the Indian Contract Act also has
certain basic essentials of a Contract of Guarantee that make it valid. Those essentials can be classifed into
the followinge

1. Agreement by all Partes

All three parties who are the creditor, principal debtor and sureti must agree to the terms of the contract.

2.Liability
In all contracts of guarantee, the creditor can onli ask the sureti to discharge the liabiliti afer the principal
debtor has not discharged his promise i.e. the liabiliti.

3. Existence of debt

No contract of guarantee can exist without a debt for consideration which is accepted bi the law.
Additionalli, if the debt is barred bi a time limit or has become void, the sureti will not be liable.

]. Consideraton

This means that ani beneft received bi the principal debtor can be considered as a suitable consideration.

]. Two forms of a guarantee contract

Contracts of guarantee can be of two forms, either verbal or writen

6. Essentals of a Valid Contract

This means that just like ani other contract, a contract of guarantees requires certain common essentials of a
contract such as acceptance, intention to contract, acceptance, abiliti to contract, the legaliti of the
contract, creation of a legal relationship, lawful object if ani, legal consideration, free and fair consent,
performance standards, legal formalities etc.

7. All facts must be brought to light

The creditor must inform the sureti of all the facts that afect his liabiliti. Concealment of ani facts will
invalidate the contract. This is highlighted in secton 1]3 of the Indian Contracts Act, 1872

8.No misrepresentaton of facts

The guarantee should not be obtained through misrepresenting facts to the sureti. Though not all facts need
to be mentioned to him, ani facts that afect the sureti’s extent in the liabiliti must be brought to his notice
accurateli. This can be seen in Secton 1]2 of The Indian Contracts Act.

Contnuing Guarantee under Indian Contract Act

As per the Secton 129 of the Indian Contracts Act,1872 a continuing guarantee can be defned as “A
guarantee which extends to a series of transactions.”

This contract will continue to exist for all transactions until revoked for future transactions bi the sureti upon
informing the creditor.

This can be beter understood using the following illustraton:

 Parti A agrees to be a sureti for a contract between B ’the creditor’ and C ’the principle liabiliti’ for
a particular transaction or a particular distinct series of transactions as per the contract. If C fails to
pai B for ani one of those contracts, A is liable to pai for it. Once these transactions are over then A
can either inform B and leave the contract for future transactions or choose to remain as the sureti
between transactions for B and C.
  A, in consideration that B will hire C in amassing the rentsof B zamindari, guarantee B to be
accountable, to the qualiti of Rs. 5,000, for due series and fee via C of these rents. This is a
preserving with assure.

Contracts of indemniti can be further understood bi comparing it to the other tipes of contracts of
guarantee, specifc contracts of guarantee.

nnlike specifc contracts of guarantee which can onli last for one transaction or event, guarantees of
continuiti last for the specifed amount of transactions as mentioned in the contract.

Revocaton of Contnuing Gurantee

A continuing guarantee mai be revoked bi the sureti, as to future transactions in ani of the following pointse
–

 By notce (hsecton 130[:i a sureti mai at ani time revoke continuing guarantee as to future
transactions bi giving notice to the creditor.
 By death (hsecton 131[:_ the death of the sureti operates as a revocation of a continuing guarantee,
so far as regards future transactions are concerned. Afer death, the estate of the sureti is liable for
discharge of all obligations created prior to his death.
 By charge in variance terms by principal debtor to the surety (hsecton 133[:_ a continuing guarantee
mai also be revoke bi the same modes bi which a sureti is discharged. Ani variance made without
the sureti’s consent, in the terms of the contract between the principal debtor and the creditor,
discharged the sureti as to transactions subsequent to the variances. Ani variance made without
the sureti consent in the terms of the consent between the principal debtor and the creditor,
discharged the sureti as to transactions subsequent to the variance.

Nature of surety’s liability in Guarantee Contract

Along the lines of the defnition given in secton 128 of The Indian contracts act the liabiliti of the sureti’s is
defned as coextensive with that of the principal debtor unless provided otherwise bi the contract.

What this means is that unless the contract specifcalli mentions that the sureti will have onli a certain
liabiliti or a defned liabiliti, the sureti will have to pai the same amount that the principal debtor would
need to pai to the creditor.

For example, the contract could mention that the sureti needs to pai for ani interest due, or further charges
apart from the original amount, then the sureti is liable to pai for that as well.

But, if not mentioned he will onli have to pai the corresponding amount the principal debtor would have
had to pai.

This principle can be seen laid down in the case of Maharaja of Benares v. Har Narain Singh8i],1 where the
plaintifs ‘the creditor in this case’ had asked for interest on the liabilities owed bi the principal debtor to the
defendants’ the sureti’. In the contract of guarantee, there was no mention of ani interest on the rent for
the principle liabiliti nor the sureti, therebi the court declared that the liabiliti of the sureti is coextensive
to the principal debtor and since there was no specifc mention of interest for the sureti in the contract, it
was not paiable.

Apart from the nature of co extensiveness, we can see as mentioned earlier that the nature of the sureti’s
liabiliti is onli secondari in nature unlike the primari nature of the principal debtor’s liabiliti.

Duraton and Terminaton of Such Liability in Guarantee Contract

The duration of a sureti liabiliti depends on the duration specifed in the contract. If it is a specifc contract
then it onli lasts until that transaction has been completed and in the case of a continuing contract it will last
for the series of transactions mentioned in the contract or until the sureti informs the creditor that he wishes
to leave the contract for future transaction.

The termination of these contracts as mentioned earlier will onli terminate once the specifed transactions
under the contracts have been completed or as mentioned earlier in respect to continuing contracts, when
the sureti informs the creditor and leaves for future contracts.

Other than the standard termination of the contract through the completion of the transaction specifed in
the contract, the liabiliti of the sureti can also be discharged earlier bi various methods which will be
described in detail in one of the upcoming paragraphs of ‘ discharge of sureti liabilities’.

Rights of Surety, Positon of Surety In The Eye of The Law under Contract of Guarantee in Indian Contract
Act

In the case that the sureti has to discharge the liabilities of the principal debtor and has now paid the
creditor, he/she is lef with certain rights he can avail which are as followse

a[ Rights Against the Principal Debtor

i[ The right of subrogaton:

Once the sureti has discharged the liabiliti of the principal debtor to the creditor on nonipaiment bi the
principal debtor, the sureti can now be treated as the new creditor. What this means is in a similar fashion to
the original creditor the sureti can claim the amount he paid to the creditor along with the corresponding
interests, costs, etc, if ani.

ii[ The right of Indemnity:

Along with the duti of the sureti to discharge the liabilities of the principal debtor incase of nonipaiment, he
in turn receives the right to be indemnifed bi that amount from the principal debtor. Therefore he is entitled
to receive the sum he paid to the creditor back from the principal debtor.

iii[ The right to security:

This right enables the sureti to avail everi remedi the creditor has against the principal debtor, including
enforcing securiti.

b[ Rights against the creditor

i[ Right to securites given by the principal debtor

As per Secton ]1 of the Indian Contracts Act, A sureti is entitled to the beneft of everi securiti which the
creditor has against the principal debtor at the time when the contract of suretiship is entered into, whether
the sureti knows of the existence of such securiti or not; and if the creditor loses, or without the consent of
the sureti, parts with such securiti, the sureti is discharged to the extent of the value of the securiti.

This means that if the creditor loses whatever securiti the principal debtor mai have given him, whether or
not the sureti knew of its existence, his liabiliti is discharged to the value of the securiti lost.

ii[ Right to set off:

This means that the sureti has the right to set of, or in other terms, ani amount which the principal debtor
had previousli paid to the creditor, will be subtracted to get the new liabiliti of the sureti.

The rights of the creditor in respect to co sureties will be shortli explained in the paragraph of co sureti and
manner of sharing liabilities and rights. It too is one of the rights given to the sureti.

Positon of the surety in the eyes of the law

In regards to the position of the sureti in the eies of the law, a sureti is considered to be more favoured in
the eies of the law as opposed to the principal debtor. His debt is limited bi the law.

The reason for this is the signifcant roles that sureti’s plai in enabling transactions even though thei gain
nothing out of it. This simpathetic nature of the court towards sureties could be frst seen in the case of
State vs Churchill1]iin.

Various Judicial Interpretatons to Protect The Surety in Contract of Guarantee in Contract Act

i[ Favourable positon of the Surety:

As mentioned earlier the sureti, in the eies of the law is treated as a favoured debtor.

This can also be seen in the case of Law vs. East India compani8iii] where the court had held that where
anithing is done bi the creditor which has the efect of injuring the sureti, the court is veri glad to lai hold
of it in favour of the sureti as it must be noted that there is no moral obligation, beiond the legal obligation
of the sureti.

ii[ Liability of the surety:

In accordance with secton 128 of The Act the liabiliti of the sureti is coextensive with that of the principal
debtor unless specifcalli mentioned in the contract.

iii) Conditioning precedents in respect to sureti’s liabilitie

Secton 1]] of the act states that “where a person gives a guarantee upon a contract that the creditor shall
not act upon it until another person has joined in it as a coisureti, the guarantee is not valid if the other
person does not join.
This section partialli recognizes that the sureti has the right to set certain conditions, and onli if those
conditions are met he will join as a sureti. This can be seen in the case of The National provincial bank of
England vs Brackenburi 8iv]where the defendant onli agreed to become the sureti if three other co sureties
joined alongside him. Two co sureties joined but the third one did not. The court held since that there was no
new agreement to do awai with the third coisureti and since the original agreement had a condition for
three co sureties, the defendant is not liable.

But in the case that the contract did not have ani precedent conditions, the coisureti cannot later claim for
such conditions at a later stage. This can be seen in the case of SBI vs Indexport Registered.1]vn

iv[ Discharge of surety due to variance in the contract:

As per Secton 133 of the act the suretis’ liabiliti is discharged if the creditor changes ani terms or the
nature of the contract without the sureti’s consent. This principle was even held as earli as the case of
Pratap Singh vs Keshavlal 1]vinwhere it was held that the sureti cannot be held bound bi something he did
not agree to.

v[ Right of subrogaton:

This right refers to the right of the sureti to become the creditor to the principal liabiliti once he has paid the
amount due to the original creditor, due to nonpaiment of the principal liabiliti. This is backed bi secton
1]0 of the Act.

vii[ Right to Security:

Secton 1]1 of the act recognizes that the sureti has the right to take everi remedi against the principal
debtor that the creditor would be able to including enforcement of securiti.

Co-surety and Manner of Sharing Liabilites and Rights under Contract of Guarantee in Contract Law

In accordance with secton 126 of the Indian Contracts Act, the principal debtor’s liabiliti mai be guaranteed
bi more than one sureti, in this case, the sureti’s are known as cosureti’s

Looking at sectons 138, 1]6 and 1]7 of the Act we can come to the following conclusions regarding the
sharing of liabilities and rights of the co suretiese

i[ Secton 138 of the act states that the discharge of one sureti bi the creditor does not discharge the
remaining sureti’s from their liabiliti.

ii) nnless specifcalli mentioned all the sureties involved in a contract either jointli, or severalli or under the
same contract or diferent ones with or without each other’s knowledge must pai the liabiliti equalli. For
example, A and B are sureties to C for a contract with E. E doesn’t pai the amount due of 10,000 Rs. Now A
and B will have to pai C 5000 Rs. each amounting to a total of 10000 Rs.

iii) Liabilities who are bound bi diferent sums have to discharge the liabiliti to the creditor on nonipaiment
of the principal debtor equalli up to their individual maximum amounts as per the terms of the contract.
For example, as per the contract, A is liable to discharge liabilities up to 10,000 Rs. And B up to 5000 Rs. To C
the creditor. Assuming n the debtor has to pai C a sum of 10000 Rs., A and B will have to respectiveli pai
5000 Rs. But if the sum is ani higher than this B will not have to pai it as per the terms of his sureti since he
has alreadi discharged 5000 Rs.

The extent of surety’s liability under Contract of Guarantee in Indian Contract Act

As mentioned earlier unless specifcalli mentioned in the contract the liabiliti of the sureti is considered to
be coextensive as that of the principal debtor.

Therefore the sureti is liable to pai for the immediate amount along with interests, costs etc if thei are
included in the amount due bi the principal debtor. This was laid down in Zaki Husain v. Deputy
Commissioner of Gonda.1]viin

Such interests, costs, etc in this case would also need to be mentioned in the contract for the principal debtor
to need to pai for them in the frst place.

On the other hand, if no mention of such interests is mentioned in the contract either for the principal debtor
or specifcalli for the sureti no amount for the interests, costs, etc must be paid.

This principle of co extensiveness is not absolute and upon entering the contract the sureti can limit his
liabiliti.

Secton 128 of the act enables the sureti to limit his liabiliti to a certain amount while entering into the
contract.

For example, A a sureti can limit his liabiliti as a sureti in a contract between B the creditor and C the
liabiliti to a certain amount. eg. 10,000 Rs.

Discharge of Surety’s Liability under Contract of Guarantee

The liabiliti of a sureti can be discharged before the end of the contract or stipulated dates due to various
reasons which are as followse

i[ Discharge by revocaton:

As per secton 130 of the act, the sureti can inform the creditor that he wants to leave the sureti, but he can
onli do this in the cases of revocation for future transactions and not an ongoing transaction. This applies
onli to continuing contracts.

ii[ Discharge by the death of the surety:

As per secton 131 of the act, the death of the sureti leads to his discharge on liabilities of future contract in
the case of a continuing contract, but in regards to a specifc contract or existing contract, the legal heirs of
the sureti will be liable to pai for it.

iii[ Discharge by variance:

As per Secton 133 of the act, if the creditor changes ani terms of the contract or the nature of the contract
without the consent of the sureti, the sureti will be discharged from his liabiliti. This is due to the fact that
the sureti can onli be liable to the extent of what he has consented to.

However, this onli applies to changes in the contract that have ani relevance or efect on the sureti’s role in
the contract. This was made clear in the case of M.S Anirudhan v Thomco’s Bank Ltd.

iv[ Discharge by the release of the principal debtor:

According to secton 13] of the act, the sureti is discharged bi ani contract between the creditor and the
principal debtor, bi which the principal debtor is released, or bi ani act or omission of the creditor, the legal
consequence of which is the discharge of the principal debtor.

An exception to this is regarding insolvenci laws or liquidation of a compani where even if the principal
debtor is discharged due to lack of assets the sureti must still pai the creditor.

v[ Promise not to sue:

Secton 13] of the act states that a contract between the creator and the principal debtor, bi which the
creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges
the sureti unless “the sureti assents to such contract. But an exception to this under secton 137 states that
mere forbearance of not suing the principal debtor doesn’t amount to the discharge of the sureti’s liabiliti.

vi[ Discharge when surety’s remedy is hampered:

As per Secton 139 of the Act ani act done bi the creditor that hampers with ani of the rights of the sureti.
Afer the sureti has discharged his liabiliti the creditor should also do nothing to interfere with his rights in
regards to the principal debtor.

Example

If a borrower takes a loan from a bank and a third person guarantees repaiment, the guarantor (sureti) is
liable to pai if the borrower defaults.

Essentals of a Contract of Guarantee

 Three Partes: The principal debtor, sureti, and creditor.

 Promise to Fulfill Obligatons: The sureti agrees to meet the debtor’s commitments in case of
default.
 Consideraton for the Suretye The creditor must provide something of value that benefts the
principal debtor.

Rights of the Surety

 Against the Principal Debtor: Recover amounts paid on the debtor’s behalf.
 Against the Creditor: nemand enforcement of terms against the debtor.
 Against Co-Suretes: Share liabiliti equalli with other sureties.
Types of Guarantees

 Specific Guarantee: Applicable to a single transaction or debt.

 Contnuing Guaranteee Extends to a series of transactions over time.

3. Contract of Bailment
A contract of bailment arises when one parti (the bailor) delivers goods to another parti (the bailee) for a
specifc purpose, under the agreement that the goods will be returned afer the purpose is fulflled or
disposed of according to the bailor’s instructions.

Contract of bailment, according to Secton 1]8 of Indian Contract act,1872, is the deliveri of goods bi one
person to another for some purpose, upon a contract that thei shall, when the purpose is complete, be
returned or otherwise disposed of according to the directions of the person delivering them.

 Contract: –according to secton 2(hh[ of the Indian Contract Act, 1872 a contract is an agreement
creating and defning an obligation between two or more persons bi one or more to acts or
forbearance on the part of others. Bailment arises out of a setlement. The contract can be
expressed or implied. Sometimes, bailment arises with no explicit setlement between the parties.
E.g. A unearths the goods of B. This is a bailment with no contract bi using A and B but imposed with
the aid of the law.
 Delivery of productseibailment is established simplest whilst there is a transport of goods bi means
bi means of one character to another. The transport of products means the transfer of proper
possession and management of the goods however not the possession. Mere custodi of goods
without a right of possession will now not create a bailment. For instance, A went to B’s eating place
for a reason eating there. Where A entered the eating lace, a waiter of the eating place took his coat
without being requested and hung it on a hook at the back of A. When A rose to leave the
restaurant, he observed that the coat was lacking. This held that B becomes bailee of the coat
because the waiter had assumed ownership on his behalf.
 Goods: – bailment mai be constituted most efective of products. Goods approach the products as
described in the Sales of Goods Act, 1930. According to this defnition, each tipe of movable asset is
apart from actionable claims and moneiiin items.
 Purpose: – in bailment, the shipping of goods needs to be done for a few reasons. The purpose has
to be unique and brief. The reason f transport can be safe custodi, transportation, repair, and
introduction of sofware bi means of alternate inside the shape.

Case: Forbes Forbes Campbell and Co. Ltd. Vs. The Board of Trustees of the Port of Bombay and Metal Fabs
India Pvt. Ltd.1]1n

The court observed that the contract of bailment has arisen. Therefore, the bailee is entitled to the necessari
expenses that have been incurred for the purpose of bailment. nnder Section 158 of the Indian Contract Act,
1872, the bailor is liable to pai back the bailee, necessari expenses, incurred for the purpose of the contract
of bailment. Moreover, the bailor is held liable to pai the bailee, in case of a defect in his title.
Return of goods or disposal of goodse – the return of products is a fundamental circumstance of the bailment.
The bailee is beneath an obligation to go back to the products while the purpose is carried out. The goods
should be back both to the bailor himself or disposed of in step with the directions of the bailor.

Identficaton Of Contract of Bailment in Day To Day Life

 Handing over the keys: – we frequentli pass on the keis of numerous gadgets to specifc people. For
instance, while we skip on our house keis or the keis of a locker at our residence to ani neighbour, t
induces the setlement of bailment among the events, making one the bailor and the other the
bailee. Even the act of turning in the keis of a bicicle or a motorcicle can set of the connection of
bailment.
 Parking lots: – parking masses mai be both paid and unpaid. If the parking plenti is unpaid, then it
will be a gratuitous bailment for the bailor. In that case, the owner will become the bailor and the
proprietor of the parking zone turns into the Bailee. However, if the car parking zone provider is
paid, then it turns into at the same time benefcial bailment for the events. The bailor gives atention
to economic phrases which make the bailee liable to shield the item of bailment.
 Repair or service: – bailment for restore oferings can amplifi a plethora of goods from cars to
machines. All the products that are difcult to regular wear and tear are challengedd to bailment on
behalf of the bailor for repairing.
 Lending items for use: – a contract of bailment which is benefcial onli to the Bailee is also of the
nature of gratuitous bailment. In this case, the bailment is benefcial to the Bailee. E.g. when a friend
lends another friend a bike to be used for some time or a girl lends another girl her jewelleri to be
worn for some time.
 Keeping of footwear: – in temples and gurudwara, there are frequentli hookediup rooms for
maintaining the footwear earlier than getng into the premises. Most of such rooms provide services
free of value. Such services are meant for permitng the safekeeping of the footwear of the human
beings who have come to go to the temple. This is a case in which the bailment is useful soleli to the
bailor because the Bailee does now not get hold of whatever in return of the goods bailed or for
preserving the secure custodi of the goods.
 Warehouse facilites: – warehousing facilities are included for agricultural products for usage in the
ofseason. The farmers keep their food grains within the warehouses. These saved mealsigrains can
be used later at the time when grains cannot be grown. The warehousing faciliti is benefcial soleli
for the bailor because the bailor gets more beneft from the sistem of warehousing than everi
person else.
 Example

Leaving iour clothes at a dri cleaner for cleaning is an example of bailment.

Essentals of a Contract of Bailment

 Delivery of Goodse The goods must be handed over to the bailee.

 Specific Purpose: neliveri is for a defned purpose.
 Return of Goodse The goods must be returned or dealt with as per the bailor’s instructions.

Rights and Dutes of the Bailor

Rights:

 Terminate the Contracte If the bailee violates the terms of bailment.

 Claim Profits: Recover ani profts made bi the bailee from the goods.

Dutes:

 Disclosure: Inform the bailee about known defects in the goods.

 Reimbursement: Compensate the bailee for expenses incurred while preserving the goods.

Rights and Dutes of the Bailee

Rights:

 Retain Goods: nntil dues or expenses are setled.

 Recover Extraordinary Expenses: Incurred during the preservation of the goods.

Dutes:

 Reasonable Caree Protect the goods as per agreed terms.

 Return Goods: neliver them in the agreed condition once the purpose is fulflled.

Finder Of Goods As A Bailee

According to Secton 71 Indian Contract act,1872, a person who unearths goods belonging to everi other
and takes them into his custodi, is challenged to the equal responsibiliti as a Bailee. The fnder of products is
given unique privileges below the regulation. He is entitled to retain the goods as towards the entire
international except the genuine proprietor thereof. He is, therefore like a custodian of goods found bi
means of him for and on behalf of the authentic proprietor. As and while the owner is located, he is to return
the goods to him. He has to take all reasonable steps to discover the genuine owner.

Rights of the finder of goods

 Right to retain goods: – the fnder of the goods mai return the goods to the owner but onli when
the original owner is found and the rewards is given. The fnder of the goods mai retain the goods
against the whole world till the owner is found. However, the fnder of the goods has no right to sue
the owner for compensation for trouble and expenses voluntarili incurred bi him to preserve the
goods and fnd out the owner.
 Right to claim reward: – the fnder of the goods can claim the specifc reward which the owner has
ofered for the return of the goods as a man of ordinari prudence will seek for reward. He mai sue
for such prudence or reward and mai retain the goods until he receives it.
 Right to sell of goods:- when a thing found is commonli the subject of sale and;i

a) when the owner cannot be found.

b) when the owner refuses on demand to pai the lawful charges to the fnder of goods.

The finder of goods can sell the things in following circumstances

  If the thing is of perishing nature,
 If the lawful charges of the fnder amounts to 2/3rd of its value.
 Right of lien: – according to section 1 8 of Indian Contract Act, 1872 a fnder has a right to retain
possession of the goods until he receives reasonable compensation for expenses, incurred in
connection with preservation of goods and fnding out of the owner.

Liability Towards The True Owner

 To take care of the goods found: –the fnder of goods is bound to take as much care of the goods as
a man of ordinari prudence would under similar circumstances the of his own goods of the same
bulk, qualiti and value as the goods found.
 Not to use: –the fnder of the goods must not make use of the goods for ani purpose. nse bi him
will be deemed to be unauthorised use of goods.
 Not to mix goods: – he must not mix the goods found bi him with his own goods.
 To trace the owner and return the goodse – he must take all necessari measures to trace the owner
of the goods found and return the same to him.
 Compensaton in case of default: – if bi default of the fnder of the goods, the goods are not
returned to the owner, he is responsible for compensation of ani loss or destruction of the goods to
the owner.

Right To Dispose Off Goods

A contract of bailment can be terminated or we can sai that the goods can be disposed of onli in the
following circumstancesei

 Expiry of specified periode In case the contract of bailment is made for a specifc period of time. As
soon as that period expires, the contract gets terminated.
 Specific purpose: The goods are generalli bailed to the bailee for a specifc purpose. On the
accomplishment of such purpose, the contract will automaticalli get terminated.
 Terminaton of Gratuitous Bailment: In a contract of gratuitous bailment, the bailor has got right to
demand return of goods even before the accomplishment of purpose or expiri of specifc period of
time. On the return of goods, the contract comes to an end.
 Inconsistent use of goods: In case the bailee makes unauthorised or inconsistent use of goods
bailed, the bailor mai demand return of the goods and can seek termination of the contract.
 Death of the bailor or baileee A contract of bailment would come to an end in the event of death of
bailor or bailee.

]. Contract of Pledge
A contract of pledge is a tipe of bailment where goods are delivered bi the pawnor (pledgor) to the pawnee
(pledgee) as securiti for the repaiment of a debt or fulflment of a promise.

Contract of Pledge is bailment of goods as securiti for paiment of a debt or performance of a promise.
In India, Law of Contracts (formation and enforcement) is governed bi the Indian Contract Act 1872. It lais
down all the essentials for the formation of a valid contract along with the tipes of contracts. It defnes some
special contracts, Pledge is one of them.

Secton 172 defnes pledge as “The bailment of goods as securiti for paiment of a debt or performance of a
promise is called pledge.”

The parties to this contract are called ‘pawnor’ and ‘pawnee’.

Rights and Dutes of Pawnor and Pawnee in Contract of Pledge

Right of Pawnee to sell as compared to that of ordinary Bailee

Secton 176 of the Indian Contract Act provides for an important right as followse

S. 17 Pawnee’s right where Pawnor makes default_

If the pawnor makes default in paiment of the debt, or performance, at a stipulated time, of the promise, in
respect of which the goods were pledged, the pawnee mai bring a suit against the pawnor upon the debt or
promise, and retain the goods pledged as a collateral securiti; or he mai sell the thing pledged, on giving the
pawnor reasonable notice for sale.

If the proceeds of such sale are less than the amount due in respect of debt, then the pawnor is liable to pai
the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pai over the
surplus to the pawnor.

It means, in case where pawnor makes a default in paiment of the debt or performance of the promise,
pawnee has two options under the said section. Firstli, he can sue the pawnor upon debt and retain the
pledged goods as collateral securiti. Secondli, he mai sell the goods afer formulating a reasonable notice to
pawnor to recover the debt.

This distinctive right of sale is available to pawnee onli, unlike bailee. This right does not exist in bailment.

Other rights of Pawnee

Right of Lien- Secton 173 entitles the pawnee with a right to retain goods until he is paid –85]

 Monei due under the pledge

 Interest to be paid on debt
 Necessari expenses for preservation of goods.
 Right of retainer for subsequent advances- Secton 17] provides for a presumption that if there are
ani subsequent advances made bi pawnee to pawnor, it will be included in the original debt onli.
Therefore, the pawnee has the right to retain the goods until subsequent advances are paid.8 ]
 Right to extra ordinary expensesi The pawnee holds the right to recover ani extraordinari expenses
incurred bi him in the preservation of pledged goods from the pawnor under Secton 17] of Indian
Contract Act.87]

Dutes of Pawnee1]8n
Pawnee has to fulfl the below mentioned dutiese

 nuti to take reasonable care of the goods pledged.

 nuti to return the goods upon paiment of debt or performance of promise.
 nuti to not mix his own goods with the pledged goods.
 nuti not to act in aniwai which is inconsistent with the contract of pledge.
 nuti to not make unauthorized use of goods.
 nuti to return accretion of goods if ani.

Rights of Pawnor

The pawnor is entitled with the following rightse

Defaultng pawnor’s right to redeem.

Secton 177 provides pawnor with his most valuable right. It states “If a time is stipulated for the paiment of
the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in
paiment of the debt or performance of the promise at the stipulated time, he mai redeem the goods
pledged at ani subsequent time before the actual sale of them; but he must, in that case, pai, in addition,
ani expenses which have arisen from his default.”

Supreme court has pointed out “The special interest of the pledgee comes to an end as soon as the debt for
which the goods were pledged is discharged. It is open to the pledger to redeem the pledge bi full paiment
of the amount for which the pledge had been made at ani time is there is no fxed period for redemption, or
at ani time afer the fxed date and the right continues until the thing pledged get lawfulli sold.”

The right to redeem clearli continues up to the time on the expiri of which the pawnee has notifed that the
goods would be sold. But it does not extinguish onli with the expiri of time, but continues until the actual
sale of goods is made. Pawnor mai redeem the goods at ani subsequent time before the actual sale of them.

Legal heir’s right to redeem

If a pawnor dies, his/her legal heir can redeem the goods on his behalf.

In Kamili Sarjini v Indian Bank, certain gold ornaments were pledged with the bank as securiti for gold loan.
The pawnor died. He lef behind a will allowing his widow to redeem on his behalf. The bank demanded
probate. It was held that the bank had no right to do so. Neither probate nor succession certifcate was
necessari.89]

Dutes of Pawnor

Pawnor has the following duties

 The pawnor is liable to pai the debt or perform the specifed promise.
 To compensate the pawnee for ani expenses incurred bi him for preserving the goods pledged.
 To disclose the defaults that mai put the pawnee under extraordinari risks.
 The pawnor must compensate the pawnee, if loss is caused to him due to defect in pawnor’s title of
goods.
Commercial Utlity of Contract of Pledge

Pledge by mercantle agent1]10n

Pledge bi mercantile agent is defned under Secton 178 of Indian Contract Act. Pledge bi a mercantile agent
acting in ordinari course of business is valid. It reads, “Where a mercantile agent is, with the consent of the
owner, in possession of goods or the document of title to goods, ani pledge made bi him, when acting in the
ordinari course of business of a mercantile agent, shall be as valid as if he were expressli authorized bi the
owner of the goods to make the same; provided that the pawnee acts in good faith and has not at the time of
the pledge notice that the pawnor has not authoriti to pledge.”

Consent of owner is assumed to be present if the mercantile agent pledges the goods.

In the Secton 178, the terms mercantile agent and documents of title shall bear the same meaning as thei
do in Indian Sale of Goods Act, 1930 (h3 of 1930[.

A mercantile agent is one who can sell, consign or raise monei out of the goods bi keeping them as securiti
on behalf of owner.

]. Contract of Agency
A contract of agenci creates a relationship where one parti (the agent) acts on behalf of another parti (the
principal) in dealings with third parties.

Introducton

When one parti delegates some authoriti to another parti wherebi the later performs his actions in a more
or less independent fashion, on behalf of the frst parti, the relationship between them is called an agenci.
Contract of agenci under Indian Contract Act can be express or implied.

Chapter X of the Indian Contract Act, 1872 deals with the laws relating to Agenci. It is important to know the
law relating to agenci because nearli all business transactions worldwide are carried out through agenci. All
corporations, big or small, carri their work out through agenci. Therefore, laws relating to the agenci are an
important area of Business Law. Relationships relating to principal and agent involve three main partiese The
Principal, the Agent, and a Third Parti.

Partes to an Agency

Agent:

As per Indian Contract Act, 1872 the term ‘Agent’ is defned in Secton 182e as a person emploied to do ani
act for another or to represent another in dealing with third persons.

An “agent” is a person emploied to do ani act for another, or to represent another in dealing with third
persons. The person for whom such act is done, or who is so represented, is called the “principal”. The
contract between Principal and Agent is called ‘Contract of Agenci’.

Principal:
Secton 182: The person for whom such act is done or who is so represented is called the “principal”.
Therefore, the person who has delegated his authoriti will be the principal.

Illustraton: A lives in Chandigarh, but owns a shop in nelhi. She appoints a person B to take care of the
dealings of the shop. In this case, A has delegated her authoriti to B and she becomes a Principal while B
becomes an agent.

Who can be appointed as an Agent?

Secton 183 of Indian Contract Act, 1872e

Ani person who has atained the age of majoriti and has a sound mind can be appointed as an agent. In
other words, ani person capable of contractng can legalli be appointed as an agent. Minors and persons of
unsound mind cannot be appointed as agents.

The person who has atained the age of majoriti (18 iears) and has a sound mind can become an agent. A
sound mind and a mature age is a necessiti because an agent has to be answerable to the Principal. (hSecton:
18][

How is Contract of Agency under Indian Contract Act created?

An agenci can be created bie

 Direct appointment– The standard form of creating an agenci is bi direct appointment. When a
person in writing or speech (express) appoints another person as his agent, an agenci is created
between the two.
 Implicaton– When an agent is not directli appointed but his appointment can be inferred from the
circumstances, an agenci bi implication is created.
 Necessity– One person can act on behalf of another to save the person from ani loss or damage,
without expressli being appointed as an agent. This creates an agenci out of necessiti.
 Estoppel– An agenci can also be created bi estoppel. In a situation where one person behaves in
such a manner in front of a third person, as to make someone believe he is an authorized agent on
behalf of someone, an agenci bi estoppel is created.
 Ratficaton– When an act of a person, who acted as another person’s agent (on his behalf) without
his knowledge is later ratifed bi that person, this creates an agenci bi ratifcation between the two.

Types of Agents:

 Special Agenti Agent appointed to do a singular specifc act.

 General Agent- Agent appointed to do all acts relating to a specifc job.
 Sub-AgentiAn agent appointed bi an agent.
 Co-Agent- Agents together appointed to do an act jointli.
 Factor- An agent who is remunerated bi a commission (one who looks like the apparent owner of
the things concerned)
 Brokeri An agent whose job is to create a contractual relationship between two parties.
 Auctoneer- An agent who acts a seller for the Principal in an auction.
 Commission Agenti An appointed to bui and sell goods (make the best purchase) for his Principal
nel Crederei An agent who acts as a salesperson, broker and guarantor for the Principal. He guarantees the
credit extended to the buier.

In Syed Abdul Khader v Rami Reddy 1]2n: The Supreme Court held that “the expression agenci is used to
connote the relation which exists where one person has an authoriti or capaciti to create legal relations
between a person occupiing the position of principal and a third parti”.

Authority of an Agent as per Contract of Agency under Indian Contract Act

express

Implied.

Express authority

According to Secton 187, the authoriti is said to be express when it is given bi words spoken or writen.

Implied authority

According to Secton 187, authoriti is said to be implied when it is to be inferred from the facts and
circumstances of the case. In carriing out the work of the Principal, the agent can take ani legal action. That
is, the agent can do ani lawful thing necessari to carri out the work of the Principal.

It is of four main types:

 Incidental authority- doing something that is incidental to the due performance of express authoriti
 Usual authorityi doing that which is usualli done bi persons occupiing the same position
 Customary authority– doing something according to the preiestablished customs of a place where
the agent acts
 Circumstantal authority– doing something according to the circumstances of the case

In Chairman L.I.C v. Rajiv Kumar Bhaskar 1]3n

As per the salari saving scheme of L.I.C, the emploier was supposed to deduct the premium from the
emploiee’s salari and deposit it with L.I.C. npon the death of the emploiee, it was found bi his heirs that
the emploier has defaulted in doing so, causing the polici to lapse. A clause in the acceptance leter was
referred to, in which the emploier had said that he would act as the agent of the emploiee and not as that of
L.I.C. It was held that the emploier was acting as the agent of the compani, therebi making the compani
(L.I.C) responsible as a Principal due to the fault of the Agent (the emploier).

Agency between Husband and Wife

Generalli, there exists no agenci between a husband and wife, except in cases where it has expressli or
impliedli been sanctioned that either of them would do certain acts or transactions as the agent of the other
i.e. a relationship of agenci can come into existence between the two through contract, appointment, or
ratifcation. A husband is responsible for necessaries to his wife when thei are living apart due to the
husband’s fault. This results in an agenci of necessiti where the wife can use her husband’s credit for what is
necessari for her to live. But in cases where thei are separated because of the wife’s own whims or faults for
no just reason, the husband is not liable for the wife’s necessaries.

Distncton between Agent and Servant

 An agent is emploied to bring the principal into the legal relationship with the third person or to
represent him in dealing with third persons. Whereas, a servant does not ordinarili create the legal
relationship between his emploier and third persons.
 An agent is bound to follow all the lawful instructions of the principal but he is not subject to the
direct control and supervision of the principal.

A servant acts under the direct control and supervision of his emploier and is bound to follow all reasonable
orders given to him in the course of his emploiment.

 An agent mai work for several principles at the same time.

 A servant usualli serves onli one master.
 A principal is liable for the wrongs of his agent done within the scope of his Authoriti.
 A master is liable for the wrongs of the servant if thei are commited in the course of his
emploiment.

Essental Elements of Contract of Agency under Indian Contract Act

1. Principal: To constitute Agenci there must be Principal, who appoints another person as agent to
represent or work on his behalf.

2. Principal must be competente According to Secton 183 principal must be competent to contract. Section
183 sais that ani person who is of the age of majoriti according to the law to which he is subject, and who is
of sound mind, mai emploi an agent.

3. There must be an Agente In a Contract of agenci under Indian Contract Act, Agent is a person one who is
appointed bi Principal to work on his behalf. According to Secton 18] ani person mai become an agent, but
no person who is not of the age of majoriti and sound mind can become an agent.

]. Consideraton not Necessary: Secton 18] of the Indian Contract Act 1872 sais that, no consideration is
necessari to create an agenci. It is exception to the general rule – a contract without consideration is void.
But as per this exception, it can be said that a contract without consideration is valid.

Various Methods of Creaton of Contract of Agency under Indian Contract Act

Agency by Express Agreement:

This is the most obvious and simple method bi which the agenci can be created. The express word implies
directli and frmli. Thus, there is a clear categorical statement of intention bi both the parties, Principal as
well as the Agent, to enter into the relationship.

This leads to the express authoriti being vested in the agent. The authoriti of the agent can be express and
implied. The implied authoriti would be discussed later. The express authoriti is given bi words spoken or
writen. Hence, there come two tipes in which this express agenci can be createdi Oral or nocumentari.
Agency by operaton of law:

At times contract of agenci comes into operation bi virtue of law.

For examplee According to partnership act, everi partner is agent of the frm as well as other parties. It is
implied agenci. On account of such implied agenci onli a partner can bind over frm as well as other
partners, to his activities. In the same wai according to companies act promoters are regarded as agents to
the compani

Agency by Ratficaton:

A principal mai subsequentli ratifi an act done bi a person who acted on his behalf without his permission
or knowledge. If the act is ratifed, a relationship of the agenci will come into existence and it will be as if he
had previousli authorized the person to act his agent. Ratifcation mai be express (bi speech or writing) or
implied (bi act or conduct).

Illustraton: Z bought apples on behalf of X, without his permission or knowledge. X later sold those apples to
another person. This act of X impliedli ratifes the purchase made bi Z.

Ratifcation is not allowed in the following casese

 When the person’s knowledge of the facts of the case is defective. That is, he onli half knows things
that he is ratifiing to.
 An act done on behalf of another person which would have the efect of injuring or harming the
person or violating ani of his rights if the act was done with his authoriti.

Agency by implied authority:

This tipe of agenci comes into force bi virtue of relationship between parties or bi conduct of parties.

For example: A and B are brothers, A has got setled in foreign countri without ani request from A, B has
handed over A`s agricultural land on these basis to a farmer and B is collecting and remitng the amount of
rent to A. Here automaticalli A becomes principal and B becomes his agent. Agenci bi implied authoriti is of
three tipes as shown below.

 Agenci bi Necessiti
 Agenci bi Estoppel
 Agenci bi Holding out.

(hI[By Necessity:

At times it mai become necessari to a person to act as agent to the other in emergenci situation where the
properti or interest of another is in danger. The conditions which enable a person to act as an agent of
another in necessiti are as followse

 There should be a real necessiti for acting on behalf of the principal.

 It should be impossible to communicate with the principle within the time available.
  The alleged agent should act bonafde in the interest of the principal.

For examplee A has handed over 200 bags of buter for transportation, to a road transport compani. Actualli,
it is bailment contract assume that in the transit all vehicles have got stopped where it takes one week for
further movement. So, the transport compani authorities have sold awai the buter in those nearbi villages.
Here agenci bi necessiti can be seen.

(hii[By Estoppel:

Where a person, bi his conduct or words spoken or writen, willfulli leads another to believe that a certain
person is acting as his agent, he is estopped later on from deniing the truth of the fact that such a person is
dealing as his agent.

Example: In presence of X, Y sais to Z that he (Y) is X`s agent though it is not so actualli. X has not restricted
Y from making such statement. It is agenci bi estoppel.

(hiii[By Holding out:

The principal is bound bi the act of agent if on an earlier occasion he has made others believe that other
person doing some act on his behalf is doing with his authoriti.

Example: A is B`s servant and A has made B accustomed to bring goods on credit from C. On one occasion A
has given amount to B to bring goods from C on cash. Z bought goods on credit as usualli and runs awai with
the monei. This is agenci bi holding out and therefore A is liable to pai amount to C.

Case Lawe Kuchwar Lime & Stone Co. vs. Dehri Rohtas Light Railway Co. Ltd. & Anr. 1]]n

Delegaton of Authority by Agent

An agent mai sometimes delegate the duti that has been delegated to him bi the Principal to somebodi
else. Ordinarili, an agent cannot delegate the duti he is supposed to perform himself to another person
(delegatus non potest delegare), except in particular circumstances where he must, out of necessiti, do so.
Secton 191 of the Indian Contract Act, 1872 defnes a subiagent to be a person emploied bi and acting
under the control of the original agent in the business of the agenci.

Delegatus non potest delegare:

An agent cannot in ordinari circumstances delegate the duti that was delegated to him. The principle is
based upon the idea that when a Principal appoints an agent, he does so bi placing his confdence and trusts
in the agent and might not have similar trust in the work of another person.

Rights of an Agents

An agent has the following 5 rightse

 Right of retainer– An agent has the right to retain ani remuneration or expenses incurred bi him
while conducting the Principal’s business.
  Right to remuneraton– An agent, when he has wholli carried out the business of the agenci has the
right to be remunerated of ani expenses sufered bi him while conducting the business.
 Right of Lien on Principal’s property- The agent has the right to hold (keep with himself) ani
movable or immovable properti of the Principal until his due remuneration is paid to him bi the
Principal.
 Right to be Indemnified– The agent has the right to be indemnifed against all the lawful acts done
bi him during the course of conducting the Principal’s business.
 Right to Compensaton– the Agent has the right to be compensated for ani injuri or loss sufered bi
him due to the lack of skill and competenci of the Principal.

Conclusion

Contracts establishing a relationship of the agenci are veri common in business law. These can be express or
implied. contract of agenci under Indian Contract Act is created when a person delegates his authoriti to
another person, that is, appoints them to do some specifc job or a number of them in specifed areas of
work. Establishment of a PrincipaliAgent relationship confers rights and duties upon both the parties. There
are various examples of such a relationshipe Insurance agenci, advertising agenci, travel agenci, factors,
brokers, nel credere agents, etc.

Special Contracts and Contngent Contracts

Special contracts are sometimes confused with contingent contracts. While both involve specifc conditions,
thei are distincte

 Special Contracts: Governed bi specifc sections of the Indian Contract Act (124–238).
 Contngent Contractse nefned under Section 31, where the contract depends on the occurrence of a
future uncertain event.

Conclusion

Special contracts plai a vital role in addressing unique and specifc needs that general contracts cannot fulfl.
Bi providing a tailored approach to agreements, thei ensure clariti, fairness, and enforceabiliti in various
legal and business contexts. Whether it’s an insurance polici, a loan guarantee, or leaving goods for
safekeeping, understanding the nuances of special contracts can help individuals and businesses safeguard
their interests and meet their obligations efectiveli.

Difference between Contract of Bailment and Contract of Pledge

To understand these terms completeli, one needs to understand the contract of bailment and parties to it
defned under Secton 1]8. Section 148 defnes the contract of bailment as “a “bailment” is the deliveri of
goods bi one person to another for some purpose, upon a contract that thei shall, when the purpose is
accomplished, be returned or otherwise disposed of according to the directions of the person delivering
them.” Here, the person delivering the goods is known as ‘bailor’ and to whom it is delivered is called ‘bailee’.
It is also stated that if a person is alreadi in possession of someone’s goods contracts to hold them as bailee
and the owner becomes bailor even if the goods were not delivered through the wai of bailment.

The contract of bailment has certain essentals. These are:1]1n

  There must be an agreement between parties.
 The deliveri of goods must have taken place voluntarili and in accordance of the contract.
 In the bailment, the ownership of goods must remain with the bailor, and not transferred to bailee
or anione else. If the ownership is transferred, then it does not remain the contract of bailment.

Coming back to the contract of pledge, the bailor in case of pledge is known as ‘pawnor’ (the person who
delivers the goods as a securiti for repaiment of loan or performance of a promise) and the bailee is known
as ‘pawnee’ (to whom the goods are delivered).82]

Illustraton- ‘A’ borrows amount of Rs. 1 Lakh from ‘B’ and keeps his gold ring as securiti for paiment of the
debt. Here, the bailment of gold ring is pledge and, ‘A’ is the pawnor and ‘B’ is the pawnee.

Chief Controlling Revenue vs Sudarsanam Picture1]3n

In this case, – A flmiproducer borrowed Rs 1 crore from a fnancier distributor and agreed to deliver the fnal
prints of the flm when readi. This Madras High Court This agreement was not a pledge and onli an
agreement because there was no actual transfer of possession of goods as securiti.

Pledge is ofen confused with bailment. But there is a thin line of distinction between them.84] In a bailment,
goods are handed over for a specifc period of time, But, in a pledge, the goods or properti is handed over as
a sureti for repaiment of debt. Another point of diference between the two is that there mai or mai not be
the presence of consideration in the contract of bailment but the consideration is present for sure in the
contract of pledge.

Also, in the contract of bailment, the bailee can use the goods for a specifed purpose, but, in the
arrangement of pledge, the pawnee has no right to use the goods. In bailment the goods are delivered for
purpose of safe keeping or return, but in pledge, goods are delivered as a securiti against a loan.

Every pledge is a bailment, but every bailment is not a pledge.

]. Sale of Goods Act, 1930.

The Sale of Goods Act, 1930 is a crucial piece of legislation in India that governs the sale and
purchase of goods. It provides a legal framework for contracts of sale, outlining the rights,
duties, and remedies of buiers and sellers. This Act was enacted to regulate transactions
related to the sale of goods, ensuring fair practices and protecting the interests of both parties.

Key aspects of the Act include:

 Definiton of a Contract of Sale:

A contract of sale is defned as a contract where the seller transfers or agrees to transfer the
properti in goods to the buier for a price.

 Rights and Dutes:

The Act outlines the rights and duties of both the buier and the seller, including the duti to
deliver goods, accept goods, and pai the price.

 Remedies for Breach of Contract:

It provides remedies for breach of contract, such as the right to sue for damages or specifc
performance.

 Implied Terms:

The Act also incorporates implied terms, such as the implied warranti of title and the implied
condition of merchantable qualiti, which are presumed to be part of everi contract of sale
unless expressli excluded.

 Delivery of Goods:

The Act defnes deliveri as the voluntari transfer of possession of goods from one person to
another, outlining various forms of deliveri, such as actual, constructive, or simbolic.

 Transfer of Property and Risk:

It specifes when the properti in goods passes from the seller to the buier, which is crucial for
determining when the risk of loss or damage to the goods shifs from the seller to the buier.

 Unpaid Seller's Rights:

The Act protects the unpaid seller bi granting them the right to retain possession of the goods
(lien) or to stop the deliveri of the goods in transit (stoppage in transit).

 Sale by Joint Owners:

Section 28 of the Act addresses the situation where goods are sold bi one of the joint owners,
outlining the conditions under which such a sale is valid.

 Right to Examine Goods:

The buier has the right to examine the goods to ensure thei conform to the description in the
contract.

 Perishable Goods:

The Act deals with situations where goods perish or become damaged before the risk passes to
the buier, stating that the agreement is avoided in such cases.
In essence, the Sale of Goods Act, 1930 provides a comprehensive legal framework for the
sale and purchase of goods in India, ensuring that transactons are conducted fairly and
legally, and that the rights of both buyers and sellers are protected.

6. Partnership and Limited Liability Partnership.

A Limited Liabiliti Partnership (LLP) is a distinct entiti governed bi the Limited Liabiliti Partnership Act,
2008, not the Indian Partnership Act, 1932. While both are forms of business where partners share
profts, an LLP provides limited liabiliti, meaning partners are generalli not liable for the debts and
liabilities of the LLP beiond their agreed contribution.

Here's a more detailed breakdown:

Partnership (hunder the Indian Partnership Act, 1932[:

 Relatonshipe A partnership is a relationship between persons who have agreed to share in the
profts of a business carried on bi all or ani of them acting for all.
 Liability: Partners in a traditional partnership have unlimited liabiliti, meaning thei are
personalli responsible for the debts and obligations of the frm.
 Registraton: Registration of a partnership frm is voluntari.

Limited Liability Partnership (hLLP[ (hunder the Limited Liability Partnership Act, 2008[:

 Legal Entty:

An LLP is a separate legal entiti from its partners, meaning it can enter into contracts, own properti,
and be sued in its own name.

 Liability:

Partners in an LLP have limited liabiliti, meaning their personal assets are generalli protected from the
debts and liabilities of the LLP, except to the extent of their agreed contributions.

 Registraton:

Registration is mandatori for LLPs to operate legalli, as per ClearTax.

 Agreement:

LLPs are governed bi an LLP agreement, which outlines the rights, duties, and powers of the partners.

Key Differences:

 Liability:
The most signifcant diference is the limited liabiliti provided to partners in an LLP, whereas partners in
a traditional partnership have unlimited liabiliti.

 Legal Entty:

An LLP is a separate legal entiti, while a partnership is not, as explained on nnacademi.

 Governance:

LLPs are governed bi the Limited Liabiliti Partnership Act, 2008, while traditional partnerships are
governed bi the Indian Partnership Act, 1932.

 Registraton:

Registration is mandatori for LLPs, while it's voluntari for traditional partnerships.

What is LLP?

LLP stands for Limited Liability Partnership. It is an alternative corporate business form that provides
the benefts of limited liabiliti of a compani along with the fexibiliti of a partnership.

An LLP is a legal entiti and is liable to the full extent of its assets but the liabiliti of a partner is limited to
their contribution in the LLP.

In LLP, one partner will not be liable for the wrongdoing of another partner. The partner will be held
responsible onli for his own actions.

LLP is called a hibrid between compani and partnership as it incorporates properties of both the
organisation structures.

What is Partnership?

A partnership is one of the oldest forms of business structures and is veri popular in India. It is relativeli
easi to set up with a minimum set of rules and regulations.

A partnership is considered to be an agreement between two or more individuals to pool their

respective capital and resources, combine them for contributing to the business. It mai be run bi all or
ani one of them on behalf of others.

The partners also agree to share the profts and losses as per rules of Partnership Deed.

7. Negotable Instruments Act, 1871.

What is a Negotable Instrument?

Before delving into the Act, it's essential to clarifi what a Negotiable Instrument means. A
Negotiable Instrument, in simple terms, refers to a document that guarantees paiment of a
specifc amount from one parti to another. The primary characteristcs of these instruments
aree

 Transferability: The instrument can be transferred from one person to another.

 Right to Payment: The person holding the instrument has the right to claim the
paiment.
 Unconditonal Payment: The paiment guaranteed is to be made without ani
conditions.

Some common examples of negotiable instruments include cheques, promissori notes, and
bills of exchange.

About the Negotable Instruments Act, 1881

The Negotiable Instruments Act, 1881, is an Indian legislation introduced during the British rule,
with the objective of governing the usage of negotiable instruments. It outlines the various
rules and procedures pertaining to negotiable instruments, their transfer, and the parties
involved. This Act is segmented into 17 chapters and encompasses 1]2 sectons, each
dedicated to specifc aspects related to negotiable instruments.

Recent Update on Negotable Instruments Act

The Negotiable Instruments Act, 1881, has been periodicalli revised to beter suit the evolving
fnancial environment. The most recent update came into efect in September 2018, with the
introduction of the Negotable Instruments (hAmendment[ Act, 2018. The amendment primarili
focuses on addressing issues and delais pertaining to cheque dishonor cases.

Meaning of Negotable Instruments

A Negotiable Instrument is a document that can be easili passed from one person to another
through trade customs. It can be transferred bi giving it to someone or bi putng iour
signature on it. When the document is transferred to someone who honestli paid for it, thei
become the righful owner.

The law does not exactli defne what a Negotiable Instrument is, but it specifcalli mentions a
few tipes, like promissori notes, cheques, and bills of exchange. These documents are writen
promises to pai monei, and thei can be either given to a specifc person or to anione who
holds them.

Promissory Note

A promissori note is a writen promise to pai monei. The person who owes the monei signs
this note, and the person who will receive the monei is called the paiee or creditor.
Bill of Exchange

A bill of exchange is a document that has a clear order from the person who owes the monei,
telling someone else to pai a certain amount to a specifc person or the owner of the
document.

Cheque

A cheque is a tipe of bill of exchange that is used to make paiments through a bank. It is
writen specifcalli to be paid immediateli, and it can be in paper or electronic form.

The Negotiable Instruments Act has a specifc purpose. It aims to create fair rules for the use of
negotiable instruments across the countri. The Act organizes the sistem and provides a clear
authoriti to resolve ani issues related to negotiable instruments.

The Act defnes everithing related to negotiable instruments to make it easier to understand. It
also includes penalties for those who don't fulfll their obligations or break the rules. This Act
protects the rights of parties involved and ensures that transactions happen smoothli.

If there are ani disputes, the Act provides guidelines for resolving them legalli. It removes ani
obstacles that mai arise between the parties and encourages them to follow the established
provisions for resolving their issues.

Objectves of the Negotable Instruments Act, 1881

The primari objectives of the Negotiable Instruments Act, 1881 includee

 Legal Frameworke To provide a legal framework for regulating the operation and
transactions of negotiable instruments.
 Protecton of Rightse To protect the rights and interests of the parties involved in the
transaction.
 Ensuring Certainty: To provide certainti and predictabiliti in dealing with negotiable
instruments.
 Facilitatng Trade and Commercee To facilitate smooth trade and commerce bi
providing a reliable mechanism of paiment and credit.

Essentals for an Instrument to be Considered as Negotable

To classifi as a negotiable instrument, a document must fulfll certain criteriae

 Writen and Signed: The instrument must be in writing and signed bi the maker.
  Unconditonal Promise or Ordere It must contain an unconditional promise or order to
pai a certain sum of monei.
 Payable on Demand or at a Fixed Future Time: The sum must be paiable either on
demand or at a predetermined future date.
 Payable to a Certain Person: The instrument must be paiable to a certain person or to
the order of a specifed person.

Features of the Negotable Instruments Act, 1881

The Negotiable Instruments Act, 1881, stands on certain unique featurese

 Transferabilitye It emphasizes the free transferabiliti of the instrument from one parti
to another.
 Rights of the Holdere The Act provides rights and protections to the holder of the
instrument.
 Legal Redress: It provides a legal mechanism to seek redressal in case of dishonor of the
instrument.
 Presumptons: The Act assumes certain presumptions regarding negotiable instruments.

Characteristcs of Negotable Instruments Act, 1881

While we've explored the features of the Act, it is equalli important to understand its inherent
characteristicse

 Universality: The Act is applicable universalli, covering all negotiable instruments in the
countri.
 Detailede The Act provides a comprehensive and detailed account of everi negotiable
instrument, ensuring a clear understanding.
 Flexibilitye The Act has been periodicalli updated to cater to the changing dinamics of
fnance and commerce.
 Presumpton of Validity: The Act presumes everi negotiable instrument to be valid until
its invaliditi is proved.
 Clarity: The Act maintains clear and succinct provisions, avoiding ambiguiti in its
interpretation

8. Company Law - Incorporaton of a Company,

Prospectus, Shares and Debuntures.
Registraton and Incorporaton of a Company
A compani comes into existence once it has been correctli incorporated under the provisions of the Companies
Act 2013 or ani earlier Companies Act that mai appli. This initial step of incorporation is crucial for ani compani
before it can engage in business transactions. nuring the incorporation process, several fundamental decisions
need to be made, including whether the compani will be classifed as a private or public compani, defning the
compani's objectives, determining the initial capital investment, and addressing various other important maters.

Understanding Registraton and Incorporaton of a Company

Registration involves the formal recognition of a business entiti bi the relevant government authorities. It
provides the business with a unique identiti and legal standing. The term "incorporation," on the other hand,
specifcalli refers to the creation of a corporation, which is a distinct legal entiti separate from its owners.

What are the documents required for the registraton of the company?

A. Documents for Identty Verificaton

 Permanent Account Number (PAN)

Choose one from the following as identiti proofe

 Aadhaar Card
 Passport
 nriving License
 Voter Identiti Card

B. Documents for Address Verificaton

 Telephone Bill or Mobile Bill

 Electriciti Bill or Water Bill
 A copi of the Bank Passbook with the most recent transaction entri or a Bank Statement (not exceeding 2
months old)

C. Passport-sized Photographs (h3 copies each[

Notee It is essential that all the aforementioned documents are selfiatested bi the relevant stakeholders.
Additionalli, it is recommended that the most upitoidate documents to be submited and that the telephone bill is
current, while the electriciti bill should not be older than 2 months.

What are the Steps in Incorporaton of a Company?

Choose a Business Structure:

The frst step in this journei is selecting the appropriate business structure. Common choices include sole
proprietorships, Limited Liabiliti Partnership (LLPs), Private Limited Compani, One Person Compani (OPC), and
Public Limited Compani. Each structure has its own set of advantages and disadvantages, so careful consideration
is paramount.

Select Business Name:

The selection of a business name is pivotal. It must be unique and not infringe on existing trademarks. Once a
suitable name is chosen, it needs to be registered with the relevant authorities.

Obtain Director Identficaton Number (hDIN[:

The nirector Identifcation Number (nIN) stands as a pivotal document requisite for submission to the authorities.
It serves as a unique identifer for individuals aspiring to assume the role of a compani's director. Acquisition of a
nIN is mandatori for those seeking directorship within a compani's framework.

Digital Signature Certficate (hDSC[:

As the process of registering a compani is conducted online, it is imperative that the compani's stakeholders
possess digital signatures to afx to the numerous forms required for submission through the MCA portal.

Registraton on the MCA (hMinistry of Corporate Affairs[ Portal:

To initiate the compani registration process, it is imperative to submit the SPICe+ form along with the requisite
documents through the MCA portal. To facilitate this process seamlessli, the compani's director must frst register
on the MCA portal and subsequentli gain access to a range of electronic services, including form submission and
access to public documents.

Certficate of Incorporaton:

Last but certainli not least, once the documents are submited, the Registrar of Companies examines the
application. If it is successful, the Registrar issues a Certifcate of Incorporation of the Compani.

Online Process for Incorporatng a Company on MCA Portal

Follow the below steps to appli for compani incorporatione

Login to MCA for Company Incorporaton

To appli for a compani incorporation using the SPICe+ form, a promoter or proposed director must frst create an
account on the MCA website. Afer successful registration, thei can log in and proceed with the application
process.

Creatng an MCA Account:

 Visit the MCA Websitee Go to the MCA portal.

 Sign npe Click on the "Sign In/Sign np" option and select "Register."
 Choose nser Categori and Rolee Select "Business nser" and the appropriate role (e.g., Promoter,
nirector).
 Enter netailse Provide PAN number, personal information, contact details, and login credentials.
 Verifi Accounte Enter the OTP sent to iour mobile number.

Filing SPICe+ Form:

 Access SPICe+e Afer login, navigate to "MCA Services" > "Compani Services" > "SPICe+."
 Start New Applicatione Select "New Application."
 Fill Part Ae
 i Reserve the compani name.

i Choose compani tipe, class, categori, and subicategori.

i Enter the main division of industrial activiti.

i Submit for autoicheck and confrmation.

i Notee You can reserve multiple names (up to two) initialli and fll Part B later.

 Fill Part B (if applicable)e

i Enter details like business nature, authorized and paidiup capital, registered ofce, email,
director details, shares, PAN, TAN, and professional information.

i Notee Part B is a consolidated form for compani incorporation, nIN, PAN, TAN, and other
registrations.

 Fill AGILEiPRO Form (optional)e nse this form for ESIC, GSTIN, EPFO, bank account, professional tax, and
shop and establishment registrations.
 npload nocumentse Atach required documents.
 PreiScrutini and Submissione Conduct a preiscrutini check and submit the form.
 nigital Signature and Paimente nownload the submited form, afx a digital signature, and upload it. Pai
the incorporation fee.
 Processing and Certifcatee

i The ROC will review the application

i npon approval, iou will receive the Certifcate of Incorporation.

Commencement of Business

Everi compani incorporated with a share capital is obligated to fulfll specifc conditions before commencing
business or exercising borrowing powerse

 The director must submit a declaration in Form INCi20A to the Registrar of Companies (ROC) within 180
dais of the compani's incorporation. This declaration, verifed bi a practicing Chartered Accountant (CA),
Compani Secretari (CS), or Cost and Management Accountant (CMA), confrms that everi subscriber to
the Memorandum of Association (MOA) has paid the agreediupon value of shares at the time of fling.
 Within 30 dais of incorporation, the compani must fle for verifcation of its registered ofce bi
submitng Form INCi22 to the ROC.

The process of incorporating a compani is facilitated through the SPICe+ form, which can be submited online via
the MCA website. Once submited, the ROC will review the form and accompaniing documents, subsequentli
issuing the Certifcate of Registration upon successful examination.

What is a Prospectus?
A prospectus is a legal document that contains important information about a compani and its securities, which
are being ofered to the public for subscription or purchase. It serves as a kei source of information for potential
investors to make informed investment decisions.

A prospectus provides detailed information about the compani’s fnancials, business operations, management,
risks, and other relevant information that investors need to know before investing in the compani’s securities.

In the context of compani law, a prospectus is regulated bi the Companies Act, which sets out the requirements
and guidelines for preparing and issuing prospectuses. The Companies Act lais down the mandatori disclosures
that must be made in a prospectus to ensure transparenci and investor protection. A prospectus must be
registered with the regulatori authoriti before it can be used for ofering securities to the public.

Prospectuses are commonli used bi companies when thei intend to raise funds through public oferings, such as
inital public offerings (hIPOs[, follow-on public offerings (hFPOs[, and rights issues. It is a crucial document that
helps potential investors assess the risks and rewards associated with investing in a compani’s securities.

Types of Prospectus in Company Law

Prospectuses can come in various forms, such as a full prospectus, red herring prospectus, shelf prospectus,
abridged prospectus, or deemed prospectus, depending on the tipe of ofering and regulatori requirements. Each
tipe of prospectus has its own specifc features, usage, and regulatori provisions that companies must adhere to
while preparing and fling them.

Red Herring Prospectus (hRHP[

The Red Herring Prospectus (RHP) is a preliminari prospectus or ofer document used bi companies to make an
initial public ofering (IPO) or a followion public ofer (FPO) of securities. The RHP contains all the relevant
information about the compani’s shares or debentures, except for the fnal ofer price. It is fled with the ROC and
circulated to potential investors for their consideration. The relevant provisions for RHP under the Companies Act
2013 includee

 Secton 26e This section outlines the requirements for the contents of a prospectus, including the
information to be included in the RHP.
 Secton 32: This section specifes the procedure for fling the prospectus with the ROC, including the
requirement to fle the RHP before the opening of the subscription list.
 Secton 31: This section mandates the inclusion of a statement in the RHP that the ofer is being made
through a prospectus and that investors should read the prospectus before making an investment
decision.

Shelf Prospectus

A Shelf Prospectus is a prospectus that is fled bi a compani for multiple issues of securities within a period of one
iear from the date of its approval bi the ROC. It allows the compani to make multiple public ofers of its securities
during the validiti period of the Shelf Prospectus without fling a fresh prospectus for each ofer. The relevant
provisions for Shelf Prospectus under the Companies Act 2013 includee

 Secton 31Ae This section outlines the requirements for fling a Shelf Prospectus, including the conditions
for its validiti, the period of validiti, and the amendments to be made to the prospectus during its validiti
period.
  Rule 10 of the Companies (hProspectus and Allotment of Securites[ Rules, 201]: This rule provides
further details on the contents of a Shelf Prospectus, including the information to be included in the
prospectus and the procedures for fling and updating the Shelf Prospectus.

Abridged Prospectus

An Abridged Prospectus is a shorter version of the prospectus that contains onli the salient features of the full
prospectus. It is intended to provide a concise summari of the kei information about the compani’s securities and
the ofer to potential investors. The relevant provisions for Abridged Prospectus under the Companies Act 2013
includee

 Rule 3 of the Companies (hProspectus and Allotment of Securites[ Rules, 201]: This rule outlines the
requirements for the contents of an Abridged Prospectus, including the information to be included in the
prospectus and the procedures for fling and circulation of the Abridged Prospectus.

Deemed Prospectus

A neemed Prospectus refers to ani document that fulfls the characteristics of a prospectus and invites
subscription or ofer for securities of a compani. It includes documents like advertisements, pamphlets, circulars,
or ani other communication that ofers securities to the public for subscription or purchase.

Such documents are deemed to be prospectuses and are subject to the same regulatori requirements as a regular
prospectus. The relevant provisions for neemed Prospectus under the Companies Act 2013 includee

 Secton 2(h70[ and Secton 2(h71[e These sections defne the term “prospectus” and “deemed prospectus”
respectiveli, and outline the broad scope of documents that mai be considered as a deemed prospectus.
 Secton 26 and Secton 32e These sections, as mentioned earlier, also appli to deemed prospectuses,
requiring them to compli with the same requirements for contents and fling as regular prospectuses.

Conclusion

As per the Companies Act 2013 in India, companies have to follow specifc guidelines and requirements
when preparing and fling prospectuses for public ofers of securities. The diferent tipes of prospectus,
including red herring prospectus, shelf prospectus, abridged prospectus, and deemed prospectus, each
have their own distinct features, usage, and regulatori provisions.

It is crucial for companies to understand the requirements and compli with the relevant provisions
while preparing and fling prospectuses to ensure compliance with the law and provide accurate
information to potential investors.

What are shares?

A share mai be described as a fraction of interest in a compani. A holder of shares is termed a
shareholder, who, through these shares, acquires numerous rights. The shareholder shall have voting
rights over some or all decisions made bi the corporation and will also have the right to claim part of the
proft realized bi the compani bi wai of dividends. These shares, therefore, present a fractional
interest in compani assets and are a big part of the capital composition of ani frm.
A share in a compani under compani law is one of the legal ownership forms where the rights and
liabilities lie with the shareholders. Rights, however, vari with the kind of share one holds and are
regulated bi the compani laws prevailing in that jurisdiction.

Kinds of Shares in Company Law

There are two broad categories of compani sharese equiti shares and preference shares. Both have
diferent characteristics and rights, fulflling otherwise quite diferent purposes for the compani and the
shareholders.

1. Equity Shares

Common shares are the most basic form of ownership in a compani, which are referred to as

equiti shares. Equiti shareholders are entitled to vote and participate in veri important decisions taken
bi the compani, including the election of the board of directors and ani signifcant corporate change.

Key Characteristcs of Equity Shares

 Equiti shareholders receive dividends, which is a portion of the proft made bi the compani
distributed at its discretion.
 Thei carri voting rights in maters of corporate governance.
 Equiti shares have high risk and high return because the return is strictli a function of the
proftabiliti of the compani.

2. Preference Shares

Preference shares ofer shareholders a fxed rate of dividend; hence, the preference share is more
appealing to the investor looking for stable returns. The preference shareholders are usualli not entitled
to vote, but thei have prioriti claims over compani assets and earnings as compared to equiti
shareholders.

Key Characteristcs of Preference Shares:

 nividend distribution over equiti shareholders.

 Limited or no voting rights.
 Thei usualli carri convertible and redeemable features

3. Other Kinds of Shares

nnder the two categories, there can exist further subtipes, as per the specifc terms decided bi the
companie

 Redeemable shares: These are shares that can be repurchased bi the compani later.
 Convertble shares: Thei are preference shares that are convertible into equiti shares if certain
conditions are met.
  Bonus shares: Bonus shares are extra shares issued to existing shareholders without ani extra
cost.

Share Allotment

Share allotment is the process through which shares are allocated to applicants who want to invest in
the compani. This is a wellistructured process that has three stagese application, allotment, and
issuance of shares. It is regulated bi compani law to avoid malpractice and

ensure fair treatment of investors.

Steps involved in the Allotment Process:

 Applicaton: Prospective shareholders appli for shares in the course of a public ofering or
private placement.
 Allotment Decision: The board of directors decides on the allotment based on the available
shares and the compani's capital requirements.
 Issuance of Sharese npon fnalization of the allotment, the compani issues share certifcates to
the shareholders, confrming ownership.

Transfer of Shares

Shareholders are generalli allowed to transfer their shares unless restricted bi the compani policies or
shareholders' agreements. Public companies have their shares traded on stock exchanges and,
therefore, are easi to transfer. Private companies restrict the transfer process and usualli require
approval from the board.

Key Issues in Transfer Process

 Agreement between Transferor and Transferee: The existing shareholder is the transferor who
agrees to transfer some shares to the buier, the transferee.
 Transfer of Form: The transfer of form, commonli known as Form SHi4, is presented to the
compani
 Board Approval: In the case of a private compani, the transfer would require board approval.
 Share Certficate Issuance: On the approval of the transfer, the new share certifcate will be
issued bi the compani in the name of the transferee.

Rights and Liabilites of Shareholders

Owning shares has to do with rights and corresponding responsibilities. Rights of equiti shareholders
vari according to the tipe of shares owned but tend to includee

 Votng Rights: Shareholders on equiti can vote on propositions such as the election of directors
and signifcant decisions undertaken bi the compani.
 Dividend Rights: Shareholders are granted dividends if declared bi the compani.
 Right to inspect recordse Shareholders have the right to inspect such records of the compani.
  Right to Suee The shareholders have the right to sue the compani's directors if thei feel that
directors are not performing their responsibilities.

The shareholders also have various obligations. Thei cannot act in their own interest that mai hamper
the proftabiliti of the compani.

Issue of Shares

Issuance of shares is a means of raising capital. There are companies that issue share to raise funds,
which atracts investors and increases its business volume. The Process of issuance includese

 Inital Public Offering/IPOe This is the frst or main issue of the share to the public
 Follow-on Public Offerings/ FPO: Issue of more shares afer an IPO.
 Rights Issue: It is a situation where the compani issues share among existing shareholders at
the Oferings/rate below its market price
 Private Placement: When shares are ofered and sold to a particular class of people and not
issued to the public.

Forfeiture and Reissue Of Shares

In some situations, a compani can forfeit shares if shareholders do not pai for the amount arising on
shares. Afer the notice of forfeiture, the frm can reissue its forfeited shares to ani other investors.

Key Informaton Regarding Forfeiture and Reissue

 Notce: A compani must give notice frst before forfeiture

 Forfeiture Procedure: Shares are susceptible to forfeiture if the shareholder does not respond
to the notice.
 Re-issuance: The compani can reiissue the shares to other investors at an issue price less than
its original issue price.

Buyback of Share

There are some situations when a compani repurchases shares from the open market or existing
shareholders. This process is called buiback. The primari purpose behind the process is to give back the
surplus cash to shareholders or boost the value of the shares remaining in the compani's hands.

Important Characteristcs of Buyback:

 It reduces the outstanding shares and causes an increase in the price of remaining shares.
 It is ofen a taxiefcient wai of rewarding the shareholders compared to dividends.
 It requires compliance with the legal guidelines and approval bi the shareholders.

Importance of Shares in Company Law

Shares form the backbone of ani compani in terms of structure and performance. Thei can be
described as a means through which capital is raised, distribution of ownership, and profts can be
shared among people involved. Thei are also of paramount importance for a proper distribution of
power between the management and shareholders to prevent exploitation in ani wai.

Aspects of shares fall under company law to ensure the following:

 Fair issuance and transfer

 Protection of the rights of shareholders
 Easi capital formation for companies

Conclusion

Shares are part of the major corporate structure that bridges the interests of investors and companies.
The histori of compani law in India refects the economic development of the nation. nnder compani
law, allotment, transfer, and the other aspects that come along with shares are all cautiousli regulated
to provide for fair and transparent dealings. The same is important to companies as well as to
shareholders for safeguarding their investments and contributing to the growth of the compani. A
share, with a clear legal framework in place, remains dinamic and vibrant within corporate fnance,
providing an open pathwai wherebi ani individual can participate and beneft in the growth of
businesses.

Debentures under Companies Act, 2013

A debenture is a kind of document acknowledging the monei borrowed containing the terms and
conditions of the loan, paiment of interest, redemption of the loan, the securiti ofered (if ani) bi the
compani. The present article briefs the nebentures under Companies Act, 2013 and its features and
tipes.

Debentures under Companies Act, 2013

As per Secton 2(h30[ of Companies Act, 2013 “debenture” includes debenture stock, bonds, or ani other
instrument of a compani evidencing a debt, whether constituting a charge on the assets of the compani
or not;

(a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 193]; and

(b) such other instrument, as mai be prescribed bi the Central Government in consultation with the
Reserve Bank of India, issued bi a compani, shall not be treated as debenture;] From the above
defnition, we conclude that debentures are a tipe of bond or loan which a compani takes against
securiti or in ani other form From the above defnition, we conclude that nebentures under the
Companies Act, 2013 are a tipe of bond or loan which a compani takes against securiti or in ani other
form A person holding debenture or debentures is called a debenture holder. A debenture holder is the
creditor of the compani. A debenture is a document issued under the seal of the compani. It is an
acknowledgment of the loan received bi the compani equal to the nominal value of the debenture. It
bears the date of redemption and rate and mode of paiment of interest.
Issue of Debentures

A nebenture is a unit of the loan amount. When a compani intends to raise the loan amount from the public
it issues debentures. Issuing debentures means the issue of a certifcate bi the compani under its seal which
is an acknowledgment of debt taken bi the compani. The procedure of issue of debentures bi a compani is
similar to that of the issue of shares. A Prospectus is issued, applications are invited, and leters of allotment
are issued. On rejection of applications, application monei is refunded. In the case of partial allotment,
excess application monei mai be adjusted towards subsequent calls. For more details on the Issue of
nebentures bi a Compani, click here

Features of debentures

A debenture is a debt tool used bi a compani that supports longiterm loans. Here, the fund is a borrowed
capital, which makes the holder of debenture a creditor of the business. The debentures are redeemable and
unredeemable, freeli transferable with a fxed interest rate. It is unsecured and sustained onli bi the issuer’s
credibiliti.

 A debenture is a loan document that acknowledges a debt

 The debentures are the part of the borrowed fund capital
 It is in the form of a certifcate issued under the seal of the compani called a debenture deed
 The interest is paiable irrespective of the proft level, which means that even when the compani is
at loss, it has to pai the interest
 nebentures can be secured against the assets of the compani or maibe unsecured.
 nebentures are generalli freeli transferable bi the debenture holder.
 nebenture holder does not have the right to vote in the compani’s general meetings of
shareholders, but thei mai have separate meetings to vote.
 The debenture holders are eligible to get a fxed rate of interest.
 In the event of liquefiing the compani, the debenture holder get preference in terms of repaiing the
borrowed amount

Different Types of Debentures

nnlike shareholders, the debenture holders who are the creditor of the compani do not hold ani voting
rights. The debentures are of the following tipese

Types of Debentures based on Security

 Secured Debentures

Secured debentures are the kind of debentures where a charge is being established on the properties or
assets of the enterprise for ani paiment. The charge might be either foating or fxed. The fxed charge is
established against those assets which come under the enterprise’s possession for the purpose to use in
activities not meant for sale whereas foating charge comprises all assets excluding those accredited to the
secured creditors. A fxed charge is established on a particular asset whereas a foating charge is on the
general assets of the enterprise.

 Unsecured Debentures
This tipe of debentures does not have a particular charge on the assets of the enterprise. However, a foating
charge mai be established on these debentures bi default. nsualli, these tipes of debentures are not
circulated.

Types of Debentures based on Tenure

 Redeemable Debentures

These debentures are those debentures that are due on the cessation of the time frame either in a lumpisum
or in installments during the lifetime of the enterprise. nebentures can be reclaimed either at a premium or
at part.

 Irredeemable Debentures

These debentures are also called Perpetual nebentures as the compani doesn’t give ani atempt for the
repaiment of monei acquired or borrowed bi circulating such debentures. These debentures are repaiable
on the closing up of an enterprise or the expiri (cessation) of a long period.

Types of Debentures based Convertbility

 Convertble Debentures

nebentures that are changeable to equiti shares or in ani other securiti either at the choice of the
enterprise or the debenture holders are called convertible debentures. These debentures are either entireli
convertible or partli changeable.

 Non-Convertble Debentures

The debentures which can’t be changed into shares or in other securities are called NoniConvertible
nebentures. Most debentures circulated bi enterprises fall in this class.

Types of Debentures based Coupon Rate

 Specific Coupon Rate Debentures

Specifc Coupon Rate nebentures nebentures are circulated with a mentioned rate of interest, and it is
known as the coupon rate.

 Zero-Coupon Rate Debentures

These debentures don’t normalli carri a particular rate of interest. To restore the investors, such tipes of
debentures are circulated at a considerable discount and the diference between the nominal value and the
circulated price is treated as the amount of interest associated with the duration of the debentures.

Types of Debentures based Registraton

 Registered Debentures
These debentures are such debentures within which all details comprising addresses, names, and particulars
of holding of the debenture holders are fled in a register kept bi the enterprise. Such debentures can be
moved onli bi performing a normal transfer deed.

 Bearer Debentures

These debentures are debentures that can be transferred bi wai of deliveri and the compani does not keep
ani record of the debenture holders Interest on debentures is paid to a person who produces the interest
coupon atached to such debentures.

Nature of Debentures

 Debentures for cash

As defned above, debentures are usualli issued for raising funds for the compani. Thei are mainli issued for
cash. The nebentures can be issued either at par, at discount, or at a premium

 Debentures as collateral security

Collateral securiti is additional securiti along with the primari securiti when a compani obtains a loan or
overdrafs faciliti from a bank or ani other fnancial institution. nebentures issued as such a collateral
liabiliti are a contingent liabiliti for the compani, Onli when the compani defaults on such a loan plus
interest will this liabiliti arise.

 Debentures issued as consideraton other than cash

This is another tipe of issue of debentures. Sometimes a compani requires some assets or tipes of
machineri, plants, equipment that are huge in cost. The compani need not have monei at that particular
time for the paiment So, instead of making paiment in cash, the Compani issues debentures to the vendor
against such purchase with the terms of paiment of the consideration other than cash

9. Company Law - Directors and Meetngs.

What is a Director?

A director is an individual appointed to oversee a compani's operations and afairs. He or she is essential in guiding and
supervising the compani's activities. Everi registered compani must have at least one director.

nirectors are decisionimakers who help shape the compani's direction and are appointed or elected to safeguard its best
interests and ensure its success. Thei have a legal obligation to act in a wai that benefts the compani and its shareholders,
which involves considering the needs of everione involved, including emploiees, customers, suppliers, and the communiti.

To become an efective director, one must have the right skills, knowledge, and experience related to the compani's industri
and operations. Thei must make careful and informed decisions, considering the compani's unique circumstances and
challenges.

nltimateli, directors are responsible for promoting good governance, transparenci, and ethical behaviour within the compani.
Thei plai a vital role in shaping the compani's future and ensuring it thrives in a wai that benefts everione involved.
Types of Directors In Company Law

1. Executve Directors

 Executive directors are activeli involved in the compani's daiitoidai management. Thei hold kei responsibilities and
have the power and potential to make important decisions.
 Thei are responsible for implementing strategic plans, managing operations, and overseeing the compani's
performance. These directors are ofen appointed from within the compani or have specifc industri expertise.
 Thei work closeli with the management team to execute the compani's vision and drive growth. Executive directors
have the authoriti to act on behalf of the compani in various transactions, negotiations, and operational maters.
 Thei are responsible for leading the compani towards its objectives while fulflling their fduciari duti to act in the
best interest of the compani and its stakeholders.

2. Non-Executve Directors

 nnlike executive directors, noniexecutive directors do not engage in the compani's daili operations. Instead, thei
provide independent oversight and bring diverse perspectives to the boardroom.
 Noniexecutive directors are appointed based on their expertise, industri knowledge, and abiliti to provide objective
guidance.
 Thei ensure that decisions are made in the best interest of the compani and its stakeholders bi ofering an external
viewpoint and challenging the management when necessari.
 These directors plai a vital role in enhancing corporate governance, monitoring risk management, and evaluating the
compani's performance.
 Bi activeli participating in board meetings and commitees, thei contribute their valuable insights and contribute to
the decisionimaking process.

3. Independent Directors

 Independent directors are noniexecutive directors who have no material relationship with the compani.
 Independent directors are appointed to ensure unbiased decisionimaking, especialli in maters that mai pose
conficts of interest. Thei are a check and balance for the executive directors and management team.
 Thei bring objectiviti, impartialiti, and expertise to the boardroom, helping to maintain transparenci and protect
shareholders' interests.
 Their role includes evaluating and approving major transactions, assessing the performance of the executive
directors, and providing an independent opinion on corporate governance maters.

Appointment and Removal of Directors

The process of appointing and removing directors involves several steps and legal considerations. Here's a glimpse of the kei
aspectse

Director Appointment Process - Secton 162

 The appointment process begins with the nomination and selection of potential directors. Companies ofen establish
a nomination commitee to identifi suitable candidates based on their skills, experience, and qualifcations.
 Shareholders are tipicalli allowed to propose and endorse candidates at general meetings. The appointment of
directors in compani law requires shareholder approval through a resolution passed at a general meeting.
 This ensures that the shareholders can appoint individuals who will govern the compani.
 The director appointment process aims to select individuals with the necessari expertise, integriti, and commitment
to fulfl their fduciari duties. It must also compli with the requirements outlined in the compani's articles of
association and relevant legal provisions.

Director Resignaton and Retrement - Secton 168

  nirectors have the right to resign from their positions voluntarili.
 Resignation leters are tipicalli submited to the board or the compani secretari, indicating the efective resignation
date.
 Additionalli, the articles of association can clarifi the tipes of directors in compani law and relevant provisions that
mai outline the mandatori retirement age or term limits for directors.
 Retirement can be enforced when a director reaches a certain age, completes a specifc term, or meets other
contractual obligations.
 These processes ensure smooth transitions, facilitate succession planning, and enable the compani to maintain a
balanced and dinamic board composition.
 Companies should have clear procedures for handling director resignations and retirements to ensure compliance
with legal requirements and governance standards.

Director Removal - Secton 169

 Shareholders can remove directors bi passing special resolutions at general meetings.

 This authoriti is granted to shareholders to protect their interests and hold directors accountable for their actions.
 A director mai be removed if shareholders have lost confdence in their abiliti to fulfl their discharge of the duties of
director in compani law or if misconduct or breach of fduciari duties are alleged.
 However, the removal process must follow legal provisions and compani laws, and the director in question should be
allowed to present their case.
 In certain cases, the court can also intervene if there are serious allegations or the removal process is deemed unfair
or prejudicial.
 The legal provisions surrounding director removal aim to balance shareholders' interests with the need for fair and
transparent decisionimaking.

Qualificatons of Directors In Company Law

As required bi compani law, the qualifcations and criteria of a director would difer from jurisdiction to jurisdiction, including,
in particular, the laws that regulate corporations therein. Here are some of the kei qualifcations for a directore

 Agee The majoriti of states and jurisdictions insist that one must be of the age of 18 iears for eligibiliti to act as a
director, with some localities difering in the age requirement.
 Capacitie A director must have the legal capaciti to act as a director. This normalli means that a director mai not be
disqualifed bi the law for reasons of bankruptci, mental incapabiliti, etc.
 Qualifcatione A director must not be disqualifed from the duties of a director bi compani law or ani other relevant
legislation. The said disqualifcations mai come from criminal convictions, being declared insolvent, and failure to
compli with due compliance with legal requirements, amongst others.
 Membershipe In some companies, especialli private or smaller companies, the qualifcation of a director will extend
to being a shareholder or a member of the compani, which is not universalli required.
 Special Requirement of Listed Companiese Listed companies must adhere to some special requirements with a certain
compulsion for the independence percentage of directors. Those are general requisites and mai difer; depending on
the compani's tipe, more requirements or exceptions mai be requested bi the jurisdiction. It is, therefore, alwais
advised to look at the applicable compani law of incorporation or, beter still, seek advice from corporate legal
practitioners for specifc details.

Directors' Dutes and Responsibilites

nirectors have several duties in compani law to the compani and its stakeholders. Let's explore the core responsibilities thei
carri.

Fiduciary Duty - Secton 166(h2[

  Fiduciari duti is a fundamental obligation of directors in compani law. It requires directors to act in good faith and
the compani's best interest.
 The power of directors in compani law is to make decisions with the utmost loialti, honesti, and integriti. Thei
should avoid conficts of interest and not misuse their position for personal gain.
 This duti ensures that directors prioritize the compani's and its stakeholders' welfare above personal interests.
 It protects shareholders and other stakeholders, instilling trust and confdence in the board's decisionimaking
processes.
 nirectors who breach their fduciari duti mai be subject to legal action and personal liabiliti.

Duty of Care and Skill - Secton 166(h3[

 nirectors are expected to exercise reasonable care, skill, and diligence in their responsibilities.
 Thei should appli their expertise, knowledge, and experience to make informed decisions and act in the compani's
best interest.
 nirectors should stai informed about the compani's afairs, keep upitoidate with industri trends, and seek
professional advice when necessari.
 The duti of care and skill requires directors to take the time to understand complex issues, criticalli analize
information and ask relevant questions during board discussions.
 While directors are not expected to be experts in everi aspect of the business, thei are expected to contribute their
expertise and activeli participate in board deliberations.
 The duti of care and skill is essential for prudent and welliinformed governance.

Duty to Promote Success of the Company - Secton 172

 nirectors have a responsibiliti to promote the longiterm success of the compani.

 This duti goes beiond shortiterm proftabiliti and requires directors to consider the broader implications of their
decisions on stakeholders, the environment, and societi.
 nirectors should take a strategic approach to ensuring the compani's sustainabiliti and growth. Thei should activeli
engage in strategic planning, risk management, and performance monitoring to achieve the compani's objectives.
 To fulfl this duti, it is essential to balance the interests of various stakeholders, such as shareholders, emploiees,
customers, suppliers, and the communiti.
 The duti to promote success is embedded in the corporate governance framework and encourages directors to make
decisions that align with the compani's purpose and values.

Directors' Liabilites and Protectons

While directors carri signifcant responsibilities, thei are also exposed to potential liabilities. Here's a glimpse of the legal
provisions and protections in placee

Breach of Dutes - Secton 166 (h7[

 nirectors who breach their duties mai face consequences such as legal actions and personal liabiliti.
 Shareholders or other afected parties can seek remedies for damages caused bi a director's misconduct, negligence,
or breach of fduciari duties.
 Legal provisions and case law regarding director liabiliti vari across jurisdictions, but thei generalli aim to hold
directors accountable for their actions and provide remedies to those afected.
 nirectors should be aware of their duties, act diligentli, and seek professional advice when facing complex situations
to mitigate the risk of breaching their duties.
 Breach of duties can lead to reputational damage, personal fnancial loss, and legal repercussions, highlighting the
importance of fulflling their obligations.

Indemnificaton and Insurance - Secton ]63

  Companies mai indemnifi directors, protecting them from personal liabiliti arising from their duties.
 Indemnifcation provisions can be included in the compani's articles of association, bilaws, or separate
indemnifcation agreements. These provisions ensure directors can carri out their duties without undue personal risk.
 In addition to indemnifcation, companies ofen secure nirectors and Ofcers (n&O) insurance. n&O insurance
provides fnancial protection to directors in case of legal claims against them. It covers legal costs, setlements, and
judgments resulting from claims related to the directors' actions.
 These measures encourage competent individuals to serve as directors and provide them with some level of fnancial
securiti.

Role of the Board of Directors

The board of directors plais a crucial role in a compani's governance. Let's explore some kei aspectse

 Board Composition and Structure

 The board's size and diversiti infuence its efectiveness. A balanced mix of skills, experience, and backgrounds
promotes robust decisionimaking.
 The board composition should refect the compani's needs and consider industri knowledge, gender diversiti, and
independence.
 Additionalli, the roles of the Chairman and CEO should be clearli defned to avoid conficts of interest and ensure a
separation of powers.
 The board's composition and structure directli impact its abiliti to fulfl its responsibilities and provide efective
oversight.

Board Meetngs and Decision-Making

 Board meetings provide a plaform for directors to discuss and make important decisions.
 Regularli scheduled meetings should take place to address strategic maters, fnancial performance, risk
management, and other pertinent issues.
 The frequenci and conduct of board meetings should compli with legal requirements and best practices.
 nuring board meetings, directors engage in constructive discussions, share their perspectives, and collectiveli make
decisions that beneft the compani.
 Proper voting procedures and decisionimaking protocols should be established to ensure fair and transparent
outcomes.
 The minutes of the board meetings should be accurateli recorded to maintain a record of the board's deliberations
and decisions.

Commitees and Delegaton

 Boards ofen establish commitees to address specifc areas, such as audits, compensation, and nominations to
enhance efcienci and efectiveness.
 Commitees consist of selected directors who possess relevant expertise in the respective areas. The establishment of
commitees allows for more focused atention and inidepth analisis of kei issues.
 The board delegates certain responsibilities to these commitees while retaining overall decisionimaking authoriti.
Commitees meet regularli, review pertinent maters, and make recommendations to the board.
 nelegation to commitees ensures that the board can manage complex issues efectiveli while optimizing the
expertise of its members.

Remuneraton Of Directors In Company Law

nirectors' remuneration and disclosure plai a vital role in transparenci and accountabiliti. Here's what iou need to knowe

Director Compensaton
  nirectors are compensated for their time, expertise, and responsibilities.
 nirector compensation can take various forms, such as fxed salaries, performanceibased bonuses, equitiibased
incentives, and other benefts.
 netermining director remuneration should be fair, transparent, and aligned with the compani's overall remuneration
policies.
 Remuneration packages should refect the director's contribution, responsibilities, market standards, and the
compani's fnancial performance.
 Companies should disclose director remuneration details in their annual reports and fnancial statements to ensure
transparenci and provide shareholders with relevant information

Disclosure Requirements

 Companies are required to disclose director compensation in their fnancial statements.

 This disclosure allows shareholders and other stakeholders to understand the remuneration structure and evaluate
whether it aligns with the compani's performance.
 Additional disclosure requirements mai exist depending on the jurisdiction and applicable regulations.
 Companies should communicate director remuneration policies and practices in their corporate governance reports
or separate remuneration reports and fnancial statements.
 Open communication and engagement with shareholders promote trust and accountabiliti and facilitate an
understanding of how director remuneration is determined.

Role Of Director In Company Law & Corporate Governance:

nirectors contribute signifcantli to the overall governance framework of a compani. Let's explore their role in more detaile

Relatonship with Shareholders

 nirectors represent shareholders' interests and should foster strong relationships with them.
 Shareholders are essential stakeholders in a compani, and directors must consider their views and concerns.
 Regular communication, transparenci, and engagement are crucial for building trust and respecting shareholder
rights.
 Annual General Meetings (AGMs) allow shareholders to participate in kei decisionimaking processes and raise
questions or concerns.
 Proxi voting mechanisms allow shareholders who cannot atend the meetings to exercise their voting rights.
 nirectors should be atentive to shareholder feedback and activeli seek wais to align the compani's objectives with
shareholder expectations.

Board Evaluaton and Performance

 Regular evaluations of the board and individual directors' performance are essential. Evaluations provide an
opportuniti to assess the board's efectiveness, identifi improvement areas, and enhance governance practices.
 The evaluation process mai involve selfiassessment, peer reviews, or external assessments. It should consider factors
such as director participation, decisionimaking, strategic vision, board dinamics, and adherence to corporate
governance principles.
 Evaluations also contribute to ongoing professional development, ensuring that directors remain upitoidate with
evolving governance practices and relevant regulations.
 Continuous improvement in board performance ultimateli enhances the compani's overall governance framework.

Conclusion

nirectors in compani law have a critical role in ensuring good governance, protecting stakeholders' interests, and promoting
the compani's longiterm success.
nnderstanding the tipes of directors in compani law, their various responsibilities, legal obligations, and the governance
framework thei operate is vital for efective corporate leadership.

Bi upholding their duties, directors contribute to building sustainable and prosperous businesses.

Remember, the information provided in this article is meant to serve as a general guide.

For specifc legal advice and provisions in iour jurisdiction, it is advisable to consult with legal professionals who specialize in
compani law.

What are Company Meetngs and Why Are They Needed?

Compani meetings are formal gatherings of individuals who are involved in the compani’s operations, including shareholders,
directors, creditors and other stakeholders. These meetings are conducted to discuss and decide on various aspects of the
compani’s management, fnances, strategi and legal obligations. The primari purpose of these meetings is to ensure that the
compani operates transparentli, complies with statutori requirements and makes informed decisions that align with its goals
and objectives.

Meetings in a corporate context are essental for several reasons:

 Decision-Making: Meetings provide a plaform for collective decisionimaking, where the opinions and votes of
shareholders or directors can shape the future of the compani.
 Transparency: Regular meetings ensure that the compani’s operations are transparent and that all stakeholders are
informed about the compani’s fnancial status, strategic plans and ani issues that need to be addressed.
 Compliance: Mani tipes of compani meetings are required bi law, such as Annual General Meetings (AGMs),
ensuring that the compani adheres to legal and regulatori standards.
 Accountability: Meetings hold directors and management accountable to shareholders and other stakeholders bi
providing a forum for them to report on their activities and performance.
 Confict Resolutone Meetings ofer a structured environment where conficts among stakeholders can be discussed
and resolved through dialogue and voting.

Given the critical roles that meetings plai, it is essential that thei are conducted in a valid and legal manner, following specifc
requisites.

Requisites of a Valid Company Meetng

For a compani meeting to be considered valid and legalli binding, it must meet certain requisites. These requisites ensure that
the meeting is conducted in a manner that respects the rights of all participants and adheres to the compani’s legal obligations.

1. Proper Authority

The meeting must be convened bi an individual or bodi with the proper authoriti to do so, such as the board of directors, a
commitee or a group of shareholders with the requisite power under the compani’s articles of association. If a meeting is
called without the appropriate authoriti, ani decisions made during the meeting mai be invalidated.

2. Proper Notce

Proper notice of the meeting must be given to all eligible participants. This notice should include the date, time, place and
agenda of the meeting. The notice period must compli with the requirements set forth in the Companies Act, 2013, specifcalli
under Sections 101 and 102. Failure to provide adequate notice can lead to the meeting’s decisions being challenged or
invalidated.

3. Quorum
A quorum is the minimum number of members or shareholders required to be present for the meeting to proceed. The quorum
ensures that the meeting represents a sufcient portion of the compani’s stakeholders. The specifc number required for a
quorum will depend on the compani’s articles of association and the tipe of meeting being held.

]. Presiding Ofcer

A valid meeting must be presided over bi a proper chairman or presiding ofcer. The chairman is responsible for conducting the
meeting in an orderli manner, ensuring that the agenda is followed and that all participants have the opportuniti to speak. The
chairman’s role is important in maintaining the legaliti and decorum of the meeting.

]. Valid Transacton of Business

The business conducted during the meeting must be within the scope of the agenda provided in the notice. Ani decisions made
outside of this agenda mai be considered invalid. It is also essential that the business is transacted in a manner that complies
with the compani’s articles of association and relevant laws.

6. Preparaton of Minutes

Accurate minutes of the meeting must be prepared, documenting the discussions, decisions and resolutions passed during the
meeting. These minutes serve as an ofcial record and mai be used as evidence in legal proceedings or for future reference.
The minutes must be signed bi the chairman or another authorised individual.

Types of Company Meetngs

niferent tipes of compani meetings serve various purposes and are tailored to the specifc needs of the compani at diferent
stages of its operations. Below, we explore the primari tipes of compani meetingse

1. Statutory Meetng

A statutori meeting is the frst meeting of shareholders, held bi public companies within a specifed period afer incorporation.
This meeting is essential for discussing the compani’s formation, fnancial position and the goals of the business. It provides an
opportuniti for shareholders to understand the compani’s structure and future plans.

Features of Statutory Meetng:

 Held onli once during the compani’s lifetime.

 Provides shareholders with the statutori report detailing share capital, assets and liabilities.
 Ensures transparenci during the earli stages of the compani’s operations.

Importance: The statutori meeting is critical for laiing the foundation of transparenci and shareholder involvement in the
compani’s operations.

2. Annual General Meetng (hAGM[

The AGM is a mandatori meeting held bi both public and private companies at the end of each fnancial iear. It serves as a
plaform for presenting the compani’s fnancial performance, electing directors, declaring dividends and addressing
shareholder concerns.

Features of AGM:

 Mandatori annual event.

 niscusses fnancial statements, director appointments and auditor reports.
 Provides shareholders with voting rights on kei issues.
Importance: The AGM is a cornerstone of corporate governance, ensuring that shareholders are informed and involved in the
compani’s kei decisions.

3. Extraordinary General Meetng (hEGM[

An EGM is convened to address urgent or exceptional issues that cannot wait until the next AGM. These meetings are usualli
called for specifc purposes such as mergers, acquisitions or changes to the compani’s rules.

Features of EGM:

 Held to discuss urgent issues outside the AGM schedule.

 Requires specifc notice and agenda tailored to the issue at hand.
 necisions made are binding on the compani.

Importancee EGMs allow companies to respond quickli to signifcant events, ensuring that important decisions are made in a
timeli manner.

]. Class Meetngs

Class meetings are held for shareholders who hold a particular class of shares, such as preference shares. These meetings
address issues that specifcalli afect that class, such as changes in dividend rights or voting powers.

Features of Class Meetngs:

 Exclusive to a particular class of shareholders.

 Focuses on issues like rights alterations or classispecifc decisions.
 Resolutions passed are onli binding on the class concerned.

Importancee Class meetngs ensure that the interests of diferent shareholder classes are protected and that ani changes to
their rights are made with their approval.

]. Board of Directors Meetng

The board of directors meets regularli to discuss and decide on the compani’s strategic direction, fnancial performance and
kei management issues. These meetings are central to the compani’s governance and operational efcienci.

Features of Board Meetngs:

 Regularli scheduled, ofen monthli or quarterli.

 Covers strategic planning, fnancial oversight and policiimaking.
 necisions made bi the board guide the compani’s operations.

Importancee Board meetings are essential for maintaining efective oversight of the compani’s management and ensuring that
the compani remains on track to achieve its objectives.

6. Commitee Meetngs

Commitee meetings involve smaller groups within the board, such as the audit commitee, compensation commitee or risk
management commitee. These meetings focus on specifc areas of the compani’s operations and provide detailed oversight.

Features of Commitee Meetngs:

 Specialised focus on areas like fnance, compensation or risk.

 Involves experts and directors with specifc knowledge.
 Reports and recommendations are submited to the full board for approval.
Importance: Commitee meetings allow for inidepth analisis and oversight of critical areas, ensuring that the compani’s
operations are managed efcientli and efectiveli.

7. Debenture Holders Meetng

nebenture holder meetings are convened to discuss issues related to debentures, such as repaiment schedules, restructuring
or defaults. These meetings are important for maintaining the trust and confdence of the compani’s creditors.

Features of Debenture Holders Meetngs:

 Focuses on maters related to debentures and debt instruments.

 Provides a forum for negotiating terms and resolving disputes.
 necisions impact the compani’s fnancial structure and obligations.

Importance: These meetings ensure that the interests of debenture holders are considered and that ani issues related to the
compani’s debt obligations are addressed transparentli.

8. Creditors Meetng

Creditors meetings are tipicalli held during insolvenci or liquidation proceedings to discuss the repaiment of debts, asset
distribution and other fnancial maters. These meetings are vital for ensuring that creditors receive fair treatment during the
liquidation process.

Features of Creditors Meetngs:

 Held in the context of insolvenci or liquidation.

 Focuses on debt repaiment, asset allocation and solvenci.
 Creditors vote on proposals related to the compani’s fnancial restructuring.

Importance: Creditors meetings plai an important role in the fair and orderli resolution of a compani’s fnancial obligations
during insolvenci.

9. Creditors and Contributors Meetng

These meetings are convened during the voluntari dissolution of a compani, involving both creditors and contributors
(shareholders). The discussions focus on the division of assets, repaiment of debts and distribution of ani surplus funds.

Features of Creditors and Contributors Meetngs:

 Involves both creditors and shareholders in the dissolution process.

 niscusses asset division, debt repaiment and surplus allocation.
 Ensures transparenci and fairness in the liquidation process.

Importance: These meetings ensure that all stakeholders are involved in the dissolution process and that their interests are
protected.

Conclusion

Compani meetings are integral to the efective governance and management of corporate entities. Thei provide a formal
structure for decisionimaking, transparenci and accountabiliti, ensuring that the compani operates within the legal framework
and in the best interests of its stakeholders.

From statutori meetings that lai the foundation of a compani’s operations to creditor meetings that address fnancial distress,
each tipe of meeting plais a specifc role in the lifecicle of a compani. nnderstanding the diferent kinds of compani meetings
and their requisites is important for anione involved in corporate governance, as these meetings are the backbone of legal and
efcient compani management.

10. Corporate Social Responsibility.

What is Corporate Social Responsibility?

Everi individual living in societi has certain commitments towards it. This is especialli signifcant in instances of organizations,
which are viewed as artifcial people’s according to law. Ani business association should target operating in manners that help
it to satisfi the expectations of societi. A Firm is allowed bi societi to complete its fnancial exercises and procure benefts,
however, it ought to likewise refrain from exercises that are undesirable from the general public’s viewpoint

Corporate Social Responsibility (hCSR[ can be said to mean the accomplishment of commercial achievement in a manner that
honors morals and regards individuals, communities, and the climate. It additionalli includes tending to several lawful, moral,
and business expectations that societi has from corporates, whose decisions should aim to adjust the requirements of each one
of those groups which have ani interest in the existence of the bodi corporate.

CSR is named as “Triple-Botom-Line-Approach“, which is intended to assist the organization with advancing its commercial
interests alongside the obligations it holds towards the general public.

Companies (hCorporate Social Responsibility Policy[ Rules, 201] defines Corporate Social Responsibility under secton 2(hd[
as1]1n –

“Corporate Social Responsibility (hCSR[ means the activities undertaken bi a Compani in pursuance of its statutori obligation
laid down in secton 13] of the Act in accordance with the provisions contained in these rules, but shall not include the
following, namelie –

(i) activities undertaken in pursuance of normal course of business of the companie

Provided that ani compani engaged in research and development activiti of new vaccine, drugs and medical devices in their
normal course of business mai undertake research and development activiti of new vaccine, drugs and medical devices related
to COVID-19 for fnancial iears 2020i21, 2021i22, 2022i23 subject to the conditions that –

(a) such research and development activities shall be carried out in collaboration with ani of the institutes or organisations
mentioned in item (hix[ of Schedule VII to the Act;

(b) details of such activiti shall be disclosed separateli in the Annual report on CSR included in the Board’s Report;

(ii) ani activiti undertaken bi the compani outside India except for training of Indian sports personnel representing ani State
or nnion territori at national level or India at international level;

(iii) contribution of ani amount directli or indirectli to ani political parti under secton 182 of the Act;

(iv) activities beneftng emploiees of the compani as defned in clause (hk[ of secton 2 of the Code on Wages, 2019 (h29 of
2019[;

(v) activities supported bi the companies on sponsorship basis for deriving marketing benefts for its products or services;

(vi) activities carried out for fulflment of ani other statutori obligations under ani law in force in India;”

The World Business Council for Sustainable Development defned Corporate Social Responsibiliti as, “Corporate Social
Responsibiliti is the continuing commitment bi business to behave ethicalli and contribute to economic development while
improving the qualiti of life of the workforce and their families as well as of the local communiti and societi at large.”82]
Laws dealing with Corporate Social Responsibility

India’s new Companies Act 2013 (Companies Act) has presented certain guidelines for Corporate Social Responsibiliti (CSR).
The notion behind CSR lais in the theori of compromise. Organizations take assets as raw materials, HR, and so forth from the
general public. Bi fulflling the task of CSR exercises, the organizations are giving something back to the general public.

Secton 13]of the Companies Act 92013[ defnesCorporate Social Responsibiliti as83]–

“(1) Everi compani having a net worth of rupees fve hundred crores or more, or turnover of rupees one thousand crores or
more or a net proft of rupees fve crores or more during ani fnancial iear shall constitute a Corporate Social Responsibiliti
Commitee of the A board consisting of three or more directors, out of which at least one director shall be an independent
director.

(2) The Board’s report under sub-secton (h3[ of secton 13] shall disclose the composition of the Corporate Social Responsibiliti
Commitee.

(3) The Corporate Social Responsibiliti Commitee shall, s

(a) formulate and recommend to the Board, a Corporate Social Responsibiliti Polici which shall indicate the activities to be
undertaken bi the compani as specifed in Schedule VII;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c) monitor the Corporate Social Responsibiliti Polici of the compani from time to time.

(4) The Board of everi compani referred to in subisection (1) shall, s

(a) afer taking into account the recommendations made bi the Corporate Social Responsibiliti Commitee, approve the
Corporate Social Responsibiliti Polici for the compani and disclose contents of such Polici in its report and also place it on the
compani’s website, if ani, in such manner as mai be prescribed; and

(b) ensure that the activities as are included in Corporate Social Responsibiliti Polici of the compani are undertaken bi the
compani.

(5) The Board of everi compani referred to in subisection (1), shall ensure that the compani spends, in everi fnancial iear, at
least two per cent. of the average net profts of the compani made during the three immediateli preceding fnancial iears, in
pursuance of its Corporate Social Responsibiliti Policie

Provided that the compani shall give preference to the local area and areas around it where it operates, for spending the
amount earmarked for Corporate Social Responsibiliti activitiese

Provided further that if the compani fails to spend such amount, the Board shall, in its report made under clause (o) of sub-
secton (h3[ of secton 13], specifi the reasons for not spending the amount.

Explanaton. sFor the purposes of this section ‘average net proft’ shall be calculated in accordance with the provisions of
secton 198.”

Secton 13] of the Companies Act 2013 gives a threshold limit to the appropriateness of the CSR to a Companie

(a) total assets of the organization to be Rs 500 crore or more; or

(b) turnover of the organization to be Rs 1000 crore or more; or

(c) the net beneft of the organization to be Rs 5 crore or more.

Further according to the CSR Rules, the arrangements of CSR are relevant to Indian organizations, also addition pertinent to
branch and extend workplaces of a foreign organization in India.

The actvites (hin areas or subject, specified in Schedule VII[ that can be done by the organizaton to accomplish its CSR
commitments include: Schedule VII of Companies Act 2013

 Eradicating hunger, poverti, and malnutrition, advancing medical care including preventive medical services and
sanitation including a commitment to the ‘Swachh Bharat Kosh’ set up bi the Central Government for the
advancement of sterilization and making easi access to safe drinking water
 Advancing education, including special curriculum and emploiment improving vocation abilities especialli among
kids, ladies, older, and the disabled.
 Encouraging sex equaliti, women empowerment, setng up homes and lodgings for women and orphans; setng up
old age homes, daicares, and such diferent facilities for senior residents and measures for lessening disparities faced
bi SEBCs
 Guaranteeing ecological sustainabiliti, environmental equilibrium, conservation of wideli varied vegetation,
protection of resources, and keeping up nature of the soil, air, and water including a commitment to the ‘Clean Ganga
fund’ set up bi the Central Government for restoration of waterwai Ganga;
 Measures to assist militari veterans, war widows, and their wards;
 To promote Rural and National sports
 Funding to the Prime Minister’s National Relief Fund or some other fund set up bi the Central Government
 Projects for the development of rural areas
 nevelopment of Slum vicinities

Advantages of Corporate Social Responsibility

 If the creative capaciti of a business sufers social issues, resistance can be changed into assets and the useful limit of
assets can be expanded ordinarili.
 A stable societi would deliver a stable work environment wherein the business mai acquire longiterm proft. A
compani that is delicate to public needs would in its capabiliti like to have a stable communiti to continue its
business. To accomplish this it would carri out friendli projects for social welfare.
 Productiviti and Qualitie Improved working conditions, diminished ecological efects, or rising worker contribution in
decisions would result in – expanded efcienci and blemished rate in an organization.
 It would also lead to improvement in the fnancial performance
 An organization considered socialli mindful can proft both from its improved standing with the general population as
well as in the business communiti bi expanding the organization’s capaciti to pull in investors.
 The development of socialli investing ideas implies organizations with solid CSR execution have expanded admitance
to capital that mai not in other cases have been accessible.

Corporate Social Responsibility commitee

Consttuton of CSR Commitee

The CSR Commitee of the Board usualli comprises at least three directors, amongst which, one will be an independent
director.

Secton ] of the Companies (Corporate Social Responsibiliti Polici) Rules, 2014 states that A Foreign organizaton must
comprise of a CSR Commitee with a minimum of two people where one should be a resident, approved to acknowledge notices
/archives served on the foreign organization and the other as named bi the foreign organization. And in the case of a Private
Company, which just has two directors on its board will have the said two directors in the CSR commitee.

Functons of CSR Commitee

The CSR Commitee drafs the conclusive CSR strategi, the ultimate goal for all the enterprise’s activities on corporate
obligations, focus sector, standards, and qualities. Proposals for the CSR strategi are presented to the corporation’s Board of
directors. The Board speculates everi one of the projects before supporting the polici report. The CSR strategi is unveiled in
the iearli report which is published on the organization’s site.

The CSR Commitee is likewise dependent on defning CSR projects or programs that are approved to be undertaken in areas or
subjects specifed in Schedule VII of the Act; It is a comprehensive plan and includes all the costs to be incurred along with the
name of the stakeholders. It lists out how the activiti would be conducted along with its impact on the compani.

Examples

 Pfizer

Pfzer utilizes the term corporate citizenship to coin their CSR drives and sees it as a central piece of their organization and
‘simpli how thei work”. Across the globe, thei conduct organization drives that bring issues such as noniinfectious diseases to
light and also provide medical care to needi women and children. One illustration of this is the decrease in the cost of their
Prevnar 13 vaccine (for pneumonia, ear and blood diseases) for those who cannot aford it and in circumstances like displaced
people and emergenci circumstances.

 Netflix and Spotfy

From a social point of view, organizations, for example, Neflix and Spotifi ofer incentives to help their workers and families.
Neflix provides 52 weeks of paid parental leave, which can be taken whenever, whether it is the intermediate iear of the kid’s
life or some other time that suits their requirements as compared to other tech organizations, which usualli has 18 weeks.

Judgments related to Corporate Social Responsibility

In Technicolor India (hP.[ Ltd. v. Registrar of Companies1]]n the Compani met the net proft models, under section 135 of the
Companies Act, 2013, and had a CSR commitee as well. Yet, during the fnancial iear 2017i18, the compani spent less than the
limit referenced in Secton 13] (h][ of the Act, for which an explanation was appropriateli given bi the organization in its
nirector’s Report. However, it was tracked down that the sum spent on the CSR and related detail is inaccurateli mentioned in
the nirector’s report, subsequentli to which the organization sent an application to NCLT Bangalore. The court permited the
organization to reconsider its report, ofering freedom to the organization to fle for compounding under secton ]]1 of the Act.

Alok Pharmaceutcals and Industrial Company Private Limited1]]n, Rapid Estates Private Limited1]6n, Avinash Developers
Private Limited1]7] where a Compounding Application was fled before the Registrar of Companies and the NCLT. According to
the ROC, the application was fled because the Compani abused the guidelines of Secton 13] (h3[ (ho[ of the Companies Act,
2013 read with Rule 8 of Companies (Corporate Social Responsibiliti Polici) Rules, 2014 wherein the Compani neglects to give
justifcation for the nonispending of the CSR sum for the Financial Years 2011i12 to 2013i14 in nirector’s Report.

Conclusion

Societi’s expectations for the developmental growth of the countri bi companies are increasing dai bi dai. In this wai, it has
goten essential for organizations to exercise social duties to boost their appearance in the general public. CSR does not onli
create a brand building of the compani on the outside, but it also makes an inside reputation among its representatives. some
of their drives without a doubt make shared worth; a few, however, expected to do as such, make more incentive for societi
than for the frm; and some are planned to make value fundamentalli

for societi. Reveling into practices that help societi build adds to the goodwill of an organization. CSR can’t be extra – it should
run as the foundation of each business’s morals, and its treatment of workers and clients. Thus, CSR is turning into an emerging
and progressiveli competitive feld. Being a respectable compani is progressiveli signifcant for business success and the
source lies in adhering with public expectations and needs, and in conveiing contributions and accomplishments generalli and
efectiveli.