Business Law

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Business Law
Prepared by: Ms.Shruti

Indian Contract Act, 1872
• An act meant to ensure that rights agreed
between parties in a contract are legally
enforced.

FORMATION-What is a contract
• It must have an offer and acceptance
• It must have the 3 C’s.
• It must not be prohibited by law.
(note : a social agreement is not a contract
because it does not have any legal intention
between the parties.)

What is an Offer
1.It must be precise ; capable of being
understood and communicated.
2.It must not contain a clause that does away
with acceptance
3.Special terms must be brought to the notice of
the offeree
4.It need not be in writing though in
immoveable property contracts it must be in
writing.

Offer … continued
5.Distinguish between an offer and an invitation
to an offer.
6.Under certain circumstances an advertisement
can become an offer.
7. An offer can be revoked before it is accepted
though in some countries it is not so.
8. In a digital contract the offer has been
communicated once it has entered the
computer of the offeree

ACCEPTANCE
1. An acceptance must be in response to an
offer.
2. It must be in the mode prescribed
3. It must be made by the person to whom the
offer has been made.
4. It must be unqualified and unconditional.

Acceptance ..contd.
5. Acceptance must be made within the tme
provided or reasonable time.
6. Acceptance can be revoked before it reaches
the offeree.
7. In the case of cyber contracts acceptance has
reached when it enters the system of the
offeree.

3 C’s of a Contract
1. CAPACITY
2. CONSIDERATION
3. CONSENT

CAPACITY
• A minor and an unsound person and an
insolvent person cannot enter into contracts .
It is void ab – initio.
• Reason : The contract creates legally binding
obligations on the parties and hence only
those who have the capability (capacity) to do
so should be allowed otherwise
they(minor/unsound/insolvent) may harm
themselves.

MORE ON MINORS
1.Agreement with minor is void – ab – initio.
2. Even if a minor declares himself to be a major
he can plead that he is a minor
3. An agreement with a minor cannot be ratified
on his becoming a major.
4. Guardians of a minor are not liable on
contracts with a minor

Minor….
5. A minor if provided with necessaries of life
then it can be reimburse from the minor’s
estate.
6. A minor can be a beneficiary.
7. A minor can become a partner though he
would not be liable.

C - Consideration
1.Consideration is the price of a contract.
2. A contract without consideration is void.
3. Consideration must be decided by the parties
themselves. Consideration can be fulfilled by
third parties.
4. Consideration must have some legal value in
the eyes of law.
5. Strangers to a contract have no claims.

C- Consent
1. Consent must be free and genuine.
2. A consent is not free and genuine when it is
induced by =
- coercion
- undue influence
- fraud
- misrepresentation
- mistake

Essentials of a valid Contract
Essentials of Valid Contract:
1. Offers and Acceptance
2. Legal Relationship
3. Lawful Consideration
4. Capacity of Parties
5. Free Consent

Cont..
6. Lawful Objects
7. Writting and Registration
8. Certainity
9. Possibility of Performance
10. Not Expressly Declared Void

discharge of contract in business law
• There are times when the law allows for
substantial-performance to
discharge a contract.
• But not every contract ends in two satisfied
parties going their separate ways.
• A breach of contract happens when one party
fails to adhere to the terms of
the contract without a legal reason to do so

Discharge of a contract

The following are different modes of
discharge or termination of contract.
• Discharge by Performance.
• Discharge by Breach of Contract.
• Discharge by Impossibility.
• Discharge by Operation of Law.
• Discharge by Lapse of Time.
• Discharge by Mutual understanding or by
Agreement.

Discharge of contract by Performance
• As said by Salmond, contract creates
obligations to parties. If both parties perform
their contractual obligations promptly, the
contract is said to be discharged by
performance. It is the ideal method that
number of contracts gets terminated in this
way.

Discharge of contract by Breach
• Failure in performance of contractual
obligation is called breach of contract.
Discharge of contract takes place by breach of
contract also. Breach of contract is of two
types. Namely;
• Actual breach and
• Anticipatory breach.

Cont..
In case where contract is breached by party
on the date of performance, it is called actual
breach. If breach of Contract takes place
before data of performance, it is called
anticipatory breach.

Discharge of contract by Impossibility
• The element of impossibility terminate
contractual relations. impossibility is of two
types. Namely;
• Pre Contractual impossibility and
• Post Contractual impossibility.

Cont..
• If impossibility has already come into force
before the contract itself, it is called Pre-
Contractual impossibility. Here discharge of
Contract takes place soon after formation of
Contract. The impossibility which comes into
force after the contract is called Post-
Contractual Impossibility. Here contractual
relations will exists only up to occurrence of
impossibility.

Discharge of contract by lapse of time
• Limitation act has specified duration to
perform different contracts. The duration thus
specified is called limitation period. Soon after
expiry of limitation period, the contract gets
discharged.

Discharge of contract by Operation of
law
• By Death: Whenever one of the parties comes
across death, contractual relations will come
to an end.
• By Insolvency: When one of the parties to the
contract becomes insolvent, he forgoes
capacity to contract and those contracts which
were made by that person will get discharge.
• By lunacy: When one of the parties gets
attached by lunacy discharge of contract takes
place.

Right and liability going into the
hands of same party:
Contract creates right to one party and
liability to the other when right and liability
reach the same person, the result is discharge
of contract.

Discharge of contract by Agreement
• By Alterations: Whenever Material alterations in
contract are made, then it is said that old
contract has got discharged and a new contract
has come into force.
• By Renewal: At times parties to the contracts
may substitute completely new contract in the
place of old contract. Now the old contract has
got discharged.
• By Recession: In case of recession old contract
gets discharged and there will be no formation of
new contract.

Unit -2
Contracts of Indemnity,
Guarantee, Bailment,
Pledge and Agency

Contract of Indemnity
Indemnity is compensation for damages or
loss, and in the legal sense, it may also refer to
an exemption from liability for damages. The
concept of indemnity is based on a
contractual agreement made between two
parties, in which one party agrees to pay for
potential losses or damages caused by the
other party.

Definition
Section 124 - A contract by which one party
promises to save the other from loss caused to
him by the conduct of the promisor himself or
by the conduct of any other person is a
"contract of Indemnity".

This definition provides the
following essential elements –
1. There must be a loss.
2. The loss must be caused either by the
promisor or by any other person (in Indian
context loss is to be caused by only by a
human agency.)
3. Indemnifier is liable only for the loss. Thus, it
is clear that this contract is contingent in
nature and is enforceable only when the loss
occurs.

Contract of Guarantee
A Contract to perform the promise, or
discharge the liability, of a third person in case
of his default is called Contract of Guarantee.
A guarantee may be either oral or written. The
person who gives the guarantee is called the
Surety. The person on whose default
the guarantee is given is called the Principal
Debtor.

Difference between contracts of
indemnity and guarantee
A contract of guarantee always has three
parties; they are, the creditor, the principal
debtor and the surety; whereas a contract of
indemnity has two parties, the indemnifier
and the indemnity holder. In a contract of
indemnity, there is a single promise
or contract; a promise to pay if there is a loss.

Difference between contracts of
indemnity and guarantee
Indemnity is when one party promises to
compensate the loss occurred to the other
party, due to the act of the promisor or any
other party. On the other hand,
the guarantee is when a person assures the
other party that he/she will perform the
promise or fulfill the obligation of the third
party, in case he/she default.

Cont..
Number of Parties: Indemnity contract includes two parties
namely, indemnifier and indemnity holder. But guarantee contract
includes three parties namely creditor, Principal debtor and surety.
Number of Contracts: In case of indemnity contract, as there are
only two parties, there is possibility for existence of one contract
only. But a contract of guarantee includes three sub-contracts
Nature: As indemnity contract includes two parties and one
contract, it can be said that indemnity contract is simple in nature.
But guarantee contract includes three parties and three sub-
contracts and hence be said that guarantee contract is complex in
nature

Cont..
• Liability: In contract of guarantee there will be two types of
liabilities namely; primary and secondary liabilities which will
be with principal debtor and surety respectively. But in
contract of indemnity there is no classification and sharing of
liability where the absolute liability rests with indemnifier.
• Recovery: In case of indemnity contract the indemnifier, after
compensating indemnity holder`s loss, cannot recover that
amount from any person. But in contract of guarantee, if
surety makes payment to creditor, he (surety) can recover that
amount from principal debtor.
• Interest of parties: Indemnity contract gets formed upon
indemnifier`s interest and guarantee contract gets formed
upon principal debtor`s interest.

Bailment and Pledge
Bailment and Pledge According to Sec 148 of
the Contract Act, 1872, 'A bailment is the
delivery of goods by one person to another for
some purpose, upon a contract that they
shall, when the purpose is accomplished, be
returned or otherwise disposed of according
to the directions of the person delivering
them

Bailment & Pledge
bailment refers to hand over or assignment the goods, which
involves change in possession but not in the ownership of
goods. It is the transfer of goods from one party to another
party for some specific purpose. It is not same as pledge,
which is just a variant of bailment.
Pledge implies a contract, in which an article is delivered or say
deposited with the money lender, as security for repayment
of a debt owed by him/her or performance of promise.

Unit-3
Sale of Goods Act 1930

Sale of Goods Act 1930
• This Act may be called the 1 Sale of Goods Act,
1930. It is applicable to all over India, except
Jammu and Kashmir
• It shall come into force on the 1st day of July,
1930.
• It is a contract whereby the seller transfers or
agrees to transfer the property in the goods to
the buyer for price..

‘Transfer of property’
According to the Act, 'transfer of property'
means an act by which a person conveys the
property to one or more persons, or himself and
one or more other persons. The act of transfer
may be done in the present or for the future. The
person may include an individual, company or
association or body of individuals, and any kind of
property may be transferred, including the
transfer of immovable property.

Conditions and Warranties
Opening para of section 16 makes it clear that there is no implied
warranty or condition as to quality of fitness of goods for any
particular purpose, except those specified in Sale of Goods Act or
any other law. This is the basic principle of caveat emptor i.e. buyer
be aware. However, there are certain stipulations which are
essential for main purpose of the contract of sale of goods which go
the root of contract and non-fulfilment these cause frustration of
contract. These are termed as 'conditions'. Other stipulations,
which are not essential are termed as 'warranty'. Both of these are
collateral to a contract of sale of goods. Contract cannot be avoided
for breach of warranty, but aggrieved party can claim damages.

Rights of an unpaid seller
A seller of goods is deemed to be an unpaid seller
when:-
• The whole of the price has not been paid or
tendered;
• A bill of exchange or other negotiable instrument
has been received as a conditional payment, and
the condition on which it was received has not
been fulfilled by reason of the dishonour of the
instrument or otherwise.

The term "seller" includes any person who is in
the position of a seller, as, for instance, an agent
of the seller to whom the bill of lading has been
endorsed, or a consignor or agent who has
himself paid, or is directly responsible for, the
price.
The seller shall be called an unpaid seller even
when only a small portion of the price remains to
be unpaid.

• It is for the non payment of the price and not
for other expenses that a seller is termed as
an unpaid seller.
• Where the full price has been tendered by the
buyer and the seller refused to accept it, the
seller cannot be called as unpaid seller.

The Negotiable Instruments Act 1881
• Promissory note
A "promissory note" is an instrument in
writing (not being a bank-note or a currency-
note) containing an unconditional
undertaking, signed by the maker, to pay a
certain sum of money only to, or to the order
of, a certain person, or to the bearer of the
instrument

A "bill of exchange" is an instrument in writing
containing an unconditional order, signed by
the maker, directing a certain person to pay a
certain sum of money only to, or to the order
of, a certain person or to the bearer of the
instrument.
Bill of exchange

Cheque
• A cheque is bill of exchange drawn on a
specified banker and not expressed to be
payable otherwise than on demand and it
includes the electronic image of a truncated
cheque and a cheque in the electronic form.

Essentials of N.I
• Writing and Signature:
Negotiable Instruments must be written and signed by
the parties according to the rules relating to
Promissory Notes, Bills of Exchange and Cheques.
Money
Negotiable instruments are payable by legal tender
money of India. The liabilities of the parties of
Negotiable Instruments are fixed and determined in
terms of legal tender money.

Essentials of N.I
3. Negotiability:
Negotiable Instruments can be transferred from
one person to another by a simple process. In the
case of bearer instruments, delivery to the
transferee is sufficient. In the case of order
instruments two things are required for a valid
transfer: endorsement (i.e., signature of the
holder) and delivery. Any instrument may be
made non-transferable by using suitable words,
e.g., “pay to X only.

Essentials of N.I
4. Title: The transferee of a negotiable instrument,
when he fulfils certain conditions, is called the
holder in due course. The holder in due course
gets a good title to the instrument even in cases
where the title of the transferor is defective.
5.Notice: It is not necessary to give notice of
transfer of a negotiable instrument to the party
liable to pay. The transferee can sue in his own
name.

Essentials of N.I
6. Presumptions: Certain presumptions apply to all
negotiable instruments. Example: It is presumed that
there is consideration. It is not necessary to write in a
promissory note the words “for value received” or
similar expressions because the payment of
consideration is presumed.
7. Special Procedure:
A special procedure is provided for suits on promissory
notes and bills of exchange (The procedure is
prescribed in the Civil Procedure Code). A decree can
be obtained much more quickly than it can be in
ordinary suits

Essentials of N.I
8. Popularity:Negotiable instruments are
popular in commercial transactions because of
their easy negotiability and quick remedies.
9. Evidence:A document which fails to qualify as
a negotiable instrument may nevertheless be
used as evidence of the fact of indebtedness.

Holder and Holder in due Course Holder
• The holder of a negotiable instrument means any person entitled to the
possession of the instrument in his own name and to receive or recover the
amount due there on from the parties liable thereto. Thus, in order to be called a
‘holder’ a person must satisfy the following two conditions : (Sec. 8).
• If a person is in possession of a negotiable instrument without having a right to
possess the same he cannot be called the holder. Thus, a thief, or a finder on the
road, or an indorsee under a forged endorsement, although may be having the
possession of the instrument, cannot be called its holder because he does not
acquire legal title thereto and hence is not entitled in his own to the possession
thereof.
• He must be entitled to receive or recover the amount due there on from the
parties liable thereto. In order to be called a holder, besides being entitled to the
possession of the instrument in his own name, the person must also have the right
to receive or recover the amount of the instrument and give a valid discharge to
the payer.

When a maker or holder writes the person‟s
name on the face or back of the instrument &
puts his signatures thereto for the purpose of
negotiation, it is called “endorsement.”
• Person who signs – endorser
• To whom it is endorsed – endorsee.
Meaning of
Endorsement

1. On the back or face of the instrument.
2. Must be made by maker or holder.
3. Must be properly signed by the endorser.
4. It must be for the entire negotiation
instrument.
5. No specific form of words are necessary for
endorsement.
Essentials of valid endorsement

1. Blank or general endorsement – where
endorsee simply puts his signature on the back
of the instrument without writing name of the
person in whose favor the instrument is
endorsed.
2. Special or full endorsement – An endorsement
with the direction to pay amount mentioned in
the instrument to a specified person or his order
& the endorser writes his signature under it.
Kinds of endorsement

Cont..
3.Partial endorsement – When an endorser is willing to
transfer to an endorsee only a part of the amount of the
instrument. Such an endorsement does not operate as a
negotiation of the instrument.
4. Restrictive endorsement – An endorsement is said to be
restrictive if it prohibits or restricts the further negotiability
of the instrument. The holder of such an instrument can
only receive the payment but he cannot negotiate it further.
An instrument can be made restrictive only by expressed
words.

Cont..
5. Conditional endorsement – If the endorser of the
instrument by express words in the endorsement
makes his liability dependent on the happening
of a specified event. Although such event may
never happen, such endorsement is termed as
“conditional endorsement”. It limit the liability of
the endorser. E.G. – “ Pay A or order on his
marrying B”.

Effects of Endorsement
• The property in instrument is transferred
from endorser to endorsee.
• The endorsee gets right to negotiate the
instrument further.
• The endorsee get the right to sue in his own
name to all other parties.

Unit-4
The Companies Act, 1956

Company
A company as an entity has many distinct
features which together make it a unique
organization

The essential characteristics of a
company are following
Separate Legal Entity
Limited Liability
Perpetual Succession
Separate Property
Transferability of Shares
Common Seal
Common Seal

In India, the following types of
business entities are available:
1. Private Limited Company
2. Partnership
3. Limited Liability Partnership
4. Proprietorship
5. One Person Company
6. Section 8 Company(NPO)

the most important documents issued
by a company are as follows:
1. Memorandum of Association
2. Articles of Association
3. Prospectus

1. Memorandum of Association:
The Memorandum of Association is the
constitution of the company and provides the
foundation on which its structure is built. It is
the principal document of the company and
no company can be registered without the
memorandum of association. It defines the
scope of the company’s activities as well as its
relation with the outside world.

Articles of Association
The rules and regulations which are framed for
the internal management of the company are
set out in a document named Articles of
Association. The articles are framed to help
the company in achieving its objectives set out
in memorandum of association. It is a
supplementary document to the
memorandum.

The nature of Articles of Association
may be explained as follows:
(i) Articles of association are subordinate to
memorandum of association.
(ii) These are controlled by memorandum.
(iii) Articles help in achieving the objectives laid
down in the memorandum.
(iv) Articles are only internal regulations over
which members exercise control.
(v) Articles lay down the regulations for
governance of the company.

Kinds of shares
1. Ordinary Shares
This is the most commonly issued share type,
essentially the same as common stock in U.S.
equities. Ordinary shares carry voting rights, but
not usually any special rights beyond that.
Ordinary shares may be subdivided into different
classes such as A or B and have different share
prices.

Kinds of shares
2. Cumulative Preference Shares
This share type roughly corresponds to preferred
stock shares of U.S. companies. Like U.S.
preferred stock, they come with the stipulation
that any scheduled dividends that cannot be paid
when due are carried forward and must be paid
before the company can pay out ordinary share
dividends.

Kinds of shares
3. Preference Shares
This is a slightly less preferred share type. Preference shareholders have the right
to be paid dividends prior to dividends being paid for other share types.
Preference shares do not typically carry voting rights.
4. Bearer Shares
Bearer shares are most commonly in the form of warrants – a legal document
certifying that the bearer is entitled to own the shares designated in the warrant.
The warrants usually come with vouchers enabling the bearer to claim any due
dividends. Warrants are completely transferable.
5.Redeemable Shares
As the name implies, redeemable shares are issued with the shareholder agreeing
that the shares can be redeemed – bought back by the company – either after a
certain time period or on a given date. Redeemable shares can vary according to
which party, either the company or the shareholder, has the option to exercise the
company

UNIT-5

DIRECTORS
• DIRECTOR, senior level management position.
• Company director, a member of a board of
directors, a group of managers of a company.
• A director is a person from a group of
managers who leads or supervises a particular
area of a company

Managing director
The person who is an overall in-charge of the
running of an organization or business.
A managing director is someone who is
responsible for the daily operations of a
company, organization, or corporate division.
In some countries, the term is equivalent
to CEO (Chief Executive Officer) the executive
head of a company.

Appointment of director
1. Minimum two directors in case of Private Limited Company.
2. Minimum three directors in case of Public Limited Company.
3. In the case of one person Company minimum one director.
4. Maximum 15 directors any Company shall have If Company wants
to have more than 15 directors necessary approvals is required
under the law.
5. Further, every Company should have one Resident Director (i.e a
person who has lived at least 182 days in India in the previous
calendar year.)
6. Director’s appointment is covered under section 152 of
Companies Act, 2013, along with Rule 8 of the Companies

Qualifications for Directors
• The Companies Act does not prescribe any qualifications for
Directors of any company.
• Apply for DSC: In India, The appointment of directors can be only
done thru the digital signature and so 1st step is to create DSC.
• Apply for DSC: That’s the mandatory requirement for becoming a
director in a Company. A person must have DIN i.e. Director
Identification Number which can be obtained online by filing DIR -3
on MCA.
• Documentation Preparation: A letter in writing stating his consent
as Director; A letter in writing to the effect that the person is not
disqualified to be appointed as Director as specified under Law;
qualifications for Directors.

Rights/Powers and Duties of Directors
under the Ordinance:
• Section 86: Further issue of Capital:
The decision to increase the capital of the company by the issue of further shares lies with
the directors of such company. With respect to further issue of shares, if existing members
decline or do not subscribe to the offer of new shares, the directors have the power to allot
and issue such shares in such manner as they deem fit.
• Section 159: Calling of Extraordinary General Meeting
An extra ordinary general meeting may be called at any time by the directors for
consideration of any matter requiring approval of the company in a general meeting.
• Section 160: Presiding General Meeting:
The chairman of the Board of Directors presides as chairman at every general meeting of the
company. If there is no such chairman, or if at any meeting he is not present within fifteen
minutes after the time appointed for holding the meeting, or is unwilling to act as chairman,
any one of the directors present may be elected to be chairman.
• Section 180: Casual Vacancy on the Board of Directors
Any casual vacancy in the Board of Directors of a company is filled up by the directors.
• Section 191: Remuneration of the Directors:
The directors in general meeting determine the remuneration of a director for performing
extra services, including the holding of the office of chairman.

Powers of Directors with regard to managing
the business of the company
• to make calls on shareholders in respect of moneys unpaid on their shares;
• to issue shares;
• to issue debentures or any instrument in the nature of redeemable capital;
• to borrow moneys otherwise than on debentures;
• to invest the funds of the company;
• to make loans;
• to authorize a director or the firm of which he is a partner or any partner of such
firm or a private company of which he is a member or director to enter into any
contract with the company for making sale, purchase or supply of goods or
rendering services with the company;
• to approve annual or half-yearly or other periodical accounts as are required to be
circulated to the members;
• to approve bonus to employees;
• to incur capital expenditure on any single item or dispose of a fixed asset in
accordance with the limits as prescribed by the Commission from time to time;

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