Text book on Business Law Topics Covered 1.Indian contract law 2.Company Law 3.Sales and Goods Act 4.IT Act 5.LLP Act

1. LAW
BUSINESS
SACRED HEARTCOLLEGE(AUTONOMOUS),THEVARA
DepartmentofManagementStudies
BBABatch
2017-2020

2. BUSINESS LAW
Study material for semester VI
BBA 2017-2020
Sacred Heart College, Thevara

3. ACKNOWLEDGEMENT
We would like to express our gratitude to our principal Fr.Prasanth Palackapillil who
gave us the golden opportunity to do this assignment on the topic ‘BUSINESS LAW’.
Our special gratitude to our director Fr. Limson for being so supportive.
We would like to extend our thanks to Head of department Mrs. Kalpita Chakrabortty
and rest of the staff for their blessings and constant support and guidance in completing
this assignment.
Special thanks to our course faculty Dr. Aravind T.S, without whom this project would
not have been possible.
This assignment helped us in doing research which enriched our knowledge and
accustomed us to new terms and topics.
Lastly I would like to thank each and every team member who helped in finalising this
textbook within the limited time period.
Date: BBA 2017-2020 Batch

4. 3
Contents
MODULE 1................................................................................................................................4
1.1 Contract............................................................................................................................4
1.2 Characteristics of a Simple Contract................................................................................4
1.3 Essential elements of a valid Contract .............................................................................4
1.4 Discharge of contract .......................................................................................................6
1.5 Breach of contract ............................................................................................................9
1.6 Contingent contract:.......................................................................................................15
1.7 Quasi contract.................................................................................................................16
1.8 Contract of indemnity ....................................................................................................19
1.9 Contract of guarantee .....................................................................................................22
1.10 Contract of bailment.....................................................................................................23
1.11 Contract of agency .......................................................................................................26
MODULE 2..............................................................................................................................29
2.1 Company ........................................................................................................................29
2.2 CORPORATE PERSONALITY....................................................................................36
2.3 Stages of Formation of a Company................................................................................38
2.4 Distinction between Memorandum and Articles: ..........................................................49
2.5 Prospectus and other documents:...................................................................................52
2.6 Transfer and Transmission of Shares.............................................................................58
2.7 Directors.........................................................................................................................60

5. 4
2.8 Meeting ..........................................................................................................................62
2.9 Winding up.....................................................................................................................64
2.10 Amendment..................................................................................................................65
MODULE 3..............................................................................................................................66
3.1 Salient features of LLP...................................................................................................66
3.2 Difference between Partnership and Limited Liability Partnership (LLP)....................67
3.3 Difference between Private limited company Vs LLP ..................................................72
3.4 Limited liability partnership...........................................................................................74
3.5 PARTNERS AND DESIGNATED PARTNERS..........................................................78
3.6 INCORPORATION.......................................................................................................79
3.7 LLP PARTNERS & THEIR RELATIONSHIP.............................................................83
MODULE 4..............................................................................................................................85
4.1 Contract of sale ..............................................................................................................85
4.2 DIFFERENCES BETWEEN SALE AND AGREEMENT TO SELL..........................88
4.3 Warranty and Conditions ...............................................................................................90
4.4 TRANSFER OF OWNERSHIP IN GOODS INCLUDING SALE BY NON-OWNERS
..............................................................................................................................................92
4.5 The Performance of a Sale Contract ..............................................................................94
4.6 Unpaid seller ..................................................................................................................96
MODULE 5............................................................................................................................101
5.1 Information technology act 2000 .................................................................................101
5.2 Digital signature...........................................................................................................101

6. 5
5.3 Electronic governance..................................................................................................102
5.4 Retention of electronic records (Section 7)..................................................................103
5.5 Publication of rules, regulations, etc., in Electronic Gazette (Section 8).....................104
5.6 Regulation of certifying authorities: ............................................................................106
5.7 Penalties and adjudications ..........................................................................................111
5.8 Offences .......................................................................................................................112
REFERENCE LINKS........................................................................................................123

7. 6
MODULE 1
1.1 Contract
An agreement between private parties creating mutual obligations enforceable by law. The
basic elements required for the agreement to be a legally enforceable contract are: mutual
assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and
legality.
1.2 Characteristics of a Simple Contract.
A simple contract is an agreement made by two parties. This agreement can be an oral or a
written one. There must be an offer, a consideration and an acceptance to make it worth or
valid.
1.3 Essential elements of a valid Contract
1.3.1 Offer and Acceptance:
There must be a lawful offer and acceptance for the formation of an agreement. The
adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the
contract act in relation thereto. The offer or proposal is defined under section 2(a) of the
Contract Act. Section 2(b) of the Act provides that when an offer is accepted then it becomes
a promise.

8. 7
1.3.2 Intention to create a legal relationship:
There must be a clear intention among the parties that the agreement should be attached by
legal consequences and create a legal obligation.
1.3.3 Competent parties:
Section 11 of the act declares that who are competent to contract. According to this section
the contracting parties Section 11 of the Act states the criteria of parties competent to
contract, which is as follows: Must attain the age of majority (an agreement with a minor is
void ab initio –Person of sound mind- The person should not be disqualified by law
1.3.4 Free consent:
Free consent of the parties is another essential of the contract. Section 14 of the Act defined
the term free consent as follows-consent is said to be free.
1.3.5 Lawful consideration:

9. 8
Section 23 of the Indian Contract Act, 1872 - What considerations and objects are lawful and
what not the consideration or object of an agreement is lawful, unless- It is forbidden by law;
or is of such a nature that, if permitted, it would defeat the provisions of any law
1.3.6 Lawful object:
For the formation of a contract, it is also necessary that the parties to an agreement must
agree to a lawful object. The object must not be fraudulent or illegal or immoral or against the
public policy or must not imply injury to the person or the other of the reason mentioned
above the agreement is void. If A forces B to sign a contract for murdering C. This is not a
lawful object. Hence, the contract will be void.
1.3.7 Not expressly declared void:
An agreement must not be one of those, which have been expressly declared to be void.
1.4 Discharge of contract
Discharge of a contract means termination of a contract. It is the act of making a
contract or agreement null. A discharged contract refers to contract that is fully
performed.
Discharge may take place by:

10. 9
 Performance of the contract.
 Accord and satisfaction.
 Release.
 Set off.
 Rescission of the contract.
 Extinguishment.
 Confusion, where the duty to pay and the right to receive unite in the same
person.
 Extinction, or the loss of the subject matter of the contract.
 Defeasance.
 The inability of one of the parties to fulfil his/her part.
 The death of the contractor, as where s/he undertook to teach an apprentice.
 Bankruptcy.
 By lapse of time.
 By neglecting to give notice to the, person charged.
 By releasing one of two partners.

11. 10
 By neglecting to sue the principal at the request of the surety, the latter is
discharged.
 By the discharge of a defendant, who has been arrested under a capias ad
satisfaciendum.
 By a certificate and discharge under the bankruptcy laws.
1.4.1 Discharge of Contract by Performance:
Discharge of Contract by Performance According to Sec. 37 of Indian Contract Act 1872 –
“If both parties to the contract have performed what they have agreed to do, the contract is
discharged.”
Performance of obligation by parties to the contract puts an end to the contract.
Example:
Peter agrees to sell his cycle to John for an amount of Rs 10,000 to be paid by John on the
delivery of the cycle. As soon as it is delivered, John pays the promised amount.
Since both the parties to the contract fulfil their obligation arising under the contract, then it
is discharged by performance. Now, discharge by the performance of a contract can be by:
 Actual performance
 Attempted performance

12. 11
As shown in the example above, actual performance is when all the parties to a contract do
what they had agreed for under the contract. On the other hand, it is possible that when the
promisor attempts to perform his promise, the promisee refuses to accept it. In such cases, it
is called attempted performance or tender.
1.5 Breach of contract
Section 73 of the Act provides that "When a contract has been broken, the party who suffers
by such breach is entitled to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him thereby”.
1.5.1 Coercion (S.15):
Committing any act forbidden by The Indian Penal Code 1860 or unlawful detaining of
property, or threatening to commit these acts. Chickam Amiraju v. Chickam Sheshamma –
Threat to suicide amounts to coercion
1(a) CASE:
A Coercion Example Involving School Prayer:
An example of coercion that made it to the U.S. Supreme Court concerns the case of Lee v.
Weisman, which was decided in 1992. This case involved Robert E. Lee – not the general but

13. 12
the principal of a school – invited a rabbi to come and give a speech at his middle school’s
graduation ceremony. This was not out of the norm, as other middle and high schools in the
Providence, Rhode Island area were doing the same thing.
One student’s father – Daniel Weisman – was offended when he found out the rabbi was
scheduled to speak at his daughter’s school, and he filed for a restraining order with the
District Court in an attempt to stop it. The court denied his request. The ceremony took place
as scheduled, Weisman and his family attended, and the rabbi engaged the students in prayer.
After the ceremony, Weisman sought a permanent injunction in the hopes of banning Lee and
other principals in the area from inviting members of the clergy to speak and engage students
in prayer during graduation ceremonies in the future. The First Circuit Court of Appeals
decided in Weisman’s favour. Now it was the school’s turn to appeal. The school applied for
a writ of certiorari with the U.S. Supreme Court, arguing that the prayer was not related to a
particular religion, and the students were not required to participate. The Court agreed to hear
the case.
The issue for the Court to decide was whether the invitation of members of the clergy to
speak at school graduation ceremonies was a violation of the First Amendment’s
Establishment Clause. The Establishment Clause essentially says that state-run organizations,
including schools, are prohibited from forcing their students to participate in religious
activity.
The Court decided in a 5-to-4 vote that yes, by inviting members of the clergy to speak at
school graduations, they were fostering “a state-sponsored and state-directed religious
exercise in a public school.” It did not matter whether the prayers being said related to a
specific religion. By encouraging the students to stand and remain quiet for the prayer, the
students were being coerced into acting in such a way as to effectively establish a state
religion.

14. 13
Said the Court in its Decision:
“Petitioners’ argument that the option of not attending the ceremony excuses any inducement
or coercion in the ceremony itself is rejected. In this society, high school graduation is one of
life’s most significant occasions, and a student is not free to absent herself from the exercise
in any real sense of the term ‘voluntary.’ Also, not dispositive is the contention that prayers
are an essential part of these ceremonies because for many persons the occasion would lack
meaning without the recognition that human achievements cannot be understood apart from
their spiritual essence. This position fails to acknowledge that what for many was a spiritual
imperative was for the Weismann’s religious conformance compelled by the State. It also
gives insufficient recognition to the real conflict of conscience faced by a student who would
have to choose whether to miss graduation or conform to the state-sponsored practice, in an
environment where the risk of compulsion is especially high.”
Related Legal Terms and Issues
 Injunction – A court order preventing an individual or entity from beginning or
continuing an action.
 Writ of Certiorari – An order issued by a higher court demanding a lower court forward
all records of a specific case for review.
1.5.2 Undue influence (S.16):

15. 14
The use by one party to the contract of his dominant position for obtaining an unfair
advantage over the other party.
Example:
Let's say John Doe for whatever reason lands in jail for a night. He calls his girlfriend, Jane
Smith, to bail him out. She does so only on the condition that John signs a contract agreeing
to purchase 40% of her pizza parlour business for $100,000.
John, wanting to get out of jail and not lose Jane Smith's affections, signs the contract. He
does not do so with reasonable care because he is being pressured by the other party, which
happens to have the upper hand over John.
Undue influence is often claimed in estate disputes; disappointed heirs often argue that the
deceased wrote a will or created a trust under undue influence from a beneficiary of the will
or trust.
1.5.3 Fraud (S.17):
According to the section 17 of Indian contract act 1872, fraud means and includes of any of
the following acts committed by a party to a contract or with his connivance, or by his agent
with intend to deceive another party thereto or his agent, or to induce him to enter into the
contract

16. 15
Most Common Types of Fraud:
 billing for services not provided
 billing for more expensive services than were actually preformed, commonly known as up
coding
 performing medically unnecessary services solely for the purpose of reimbursement
 billing non-covered services (e.g., cosmetic) as other covered services
 prescription fraud and pharmaceutical diversion to include Medicare Part D
 providing false information during enrolment
 accepting bribes or kickbacks for patient referrals
 routinely waiving co-payments and/or deductibles
 medical identity theft
1.5.4 Misrepresentation (S.18):
It means a false representation.
Misrepresentation is a basis for contract breach for transactions, no matter the size.
Example:
A seller of a car in a private transaction could misrepresent the number of miles to a
prospective buyer, which could cause the person to purchase the car. If the buyer later finds

17. 16
out that the car had much more wear and tear than represented, he can file a suit against the
seller. In higher stakes situations, a misrepresentation can be considered an event of default
by a lender, for instance, in a credit agreement, or grounds for termination of a mergers and
acquisitions (M&A) deal, in which case a substantial break fee could apply.
1.5.5 Mistake (S. 20, 21 and 22):
There are two types of mistakes i.e. mistake fact and mistake of law.
1.5.5.1 A mistake of fact:
A mistake of fact is just that: a mistake pertaining to some fact. For example, if you are 35
years old but I think you are 34, I have made a mistake of fact. A mistake of fact can serve as
a defence.
1.5.5.2 A mistake of law:
A mistake of law is where you are mistaken or ignorant about the law. For example, if you
believe that you don’t have to come to a complete stop at a "Stop" sign when there are no
other cars at the intersection, you have made a mistake of law. Whether there are cars or not,
you must come to a complete stop. In almost every case, you will not be allowed to argue that
you didn’t know or misunderstood the law. That is, it won’t be a defence.

18. 17
1.6 Contingent contract:
Under Section 31 of the Indian Contract Act, 1872, contingent contracts are defined as
follows: “If two or more parties enter into a contract to do or not do something, if an event
which is collateral to the contract does or does not happen, then it is a contingent contract.”
Commercial applications of contingent contracts:
 Insurance is a contract to do something if the future event occurs that will be contracted by
the parties and liability will be taken by the offeror. In all Insurance like Life Insurance,
Marine Insurance, Fire Insurance, and other Insurances, the Offeror promises to take the
risk of the offeree against the incident to do or not to do something and for that the offeree
agrees to pay a certain amount of money.
 The contingent contract can be used in the contract of guarantee as well as the contract of
warranty. Contingent guarantees generally are used when a supplier does not have a
relationship with a counterparty.
 We can use a contingent contract in negotiation. Contingent contracts normally occur when
negotiating parties fail to reach an agreement.
 We can use the contingent contract in mergers and acquisitions (M&A) as well. Depending
on the M&A deal, contingent payments such as earn-outs, Seller notes, and Buyer stock

19. 18
may be part of the Seller’s proceeds. After the deal is finalized, these contingent payments
will need continuous contact between Buyer and Seller.
 It can also be used in the contract of indemnity.
1.7 Quasi contract
It is an obligation, which the law creates in the absence of the agreement.
It can be described as, “certain contracts resembling those created by the contract.”
Quasi-contracts are based on the principle of “Nemo debet locupletari ex aliena jactura”,
which means 'No man should grow rich out of another person's loss'. Therefore, liability in
the case of quasi-contractual obligations is based on the principle of 'unjust enrichment'.
1(b) CASE:
An early example of a quasi-contract can be found in a case involving the construction of two
homes on two lots that ultimately could not be completed. In February of 1981, Walter
Salamon, a homebuilder, and Alfred E. Terra, Jr., a landowner, entered into two written
agreements wherein Terra agreed to sell two properties to Salamon for $9,000 each. From
this $9,000 amount, $8,500 was to be paid on delivery of the deeds, which was to take place
in August of that same year. The parties agreed that Salamon would take over ownership of
the lots by April 15.
The parties also agreed that Salamon would, upon taking ownership of the lots, be
responsible for paying the expenses related to the construction of houses on these properties,
and that he would then sell the properties to third parties and pay Terra from the proceeds.

20. 19
Salamon was able to partially complete the construction of both houses, but he was unable to
find the financing and purchasers necessary to complete the construction, due to the state of
the economy at that time. The sales agreement was extended by several months, but Salamon
was ultimately unable to pay for the lots.
Not only was Salamon unable to pay for the properties in full, he wanted Terra to reimburse
him for the money he spent partially building the homes. Salamon sued Terra in district court,
asking the court to create a quasi-contract so that he could recover for the costs associated
with the two partially completed houses.
The court found that no promise had existed on Terra’s part to pay Salamon for the value of
the partially completed houses. However, the court found that Terra had been unjustly
enriched, as he then had partially-built structures on his properties. The court imposed a
quasi-contract, awarding Salamon $15,000 – the value of the benefits Terra had received – to
compensate Salamon for his labour and materials.
Terra appealed the decision, and the Appellate Division reversed the lower court, holding that
the lower court’s finding of a quasi-contract was erroneous. According to the court, even if
Terra was enriched and Salamon had suffered, there was no evidence to prove that either of
these results was unjust.
The Appellate Division also stated that there was no basis for finding that Salamon had
reasonably expected Terra to pay for partially completed houses if Salamon was unable to
perform the contract. Therefore, the Appellate Division concluded that Salamon bore the
risks involved with not completing or selling the houses, and must therefore also bear the
losses suffered for not anticipating the effect of the economic downswing.
Salamon then appealed to the Commonwealth of Massachusetts, which affirmed the
Appellate Court’s decision. The court held that the evidence did not support the conclusion

21. 20
that either party should have expected Terra to pay for the value of the partially completed
houses, or the expenses that Salamon had incurred. The court went on to say that the fact that
Salamon built two houses on property Terra owned was merely part of the financing
arrangement, and that Terra did not request, or even want the houses to be built. Terra, per
the court, was only interested in receiving the balance of the purchase price of the lots.
Said the Court, in its decision:
“Where services are rendered by one party and voluntarily accepted by another, the
presumption that there is an expectation of payment therefor, as well as an implied promise of
payment for the reasonable worth of those services, may be rebutted by a showing of strong
self-interest in the outcome of the transaction by the party furnishing those services.
Compensation on a quasi-contract theory is not mandated where the services were rendered
simply to gain a business advantage or where the plaintiff did not contemplate a personal
fee.”
Related Legal Terms and Issues:
 Appellate Court – A court having jurisdiction to review decisions of a trial-level or other
lower court.
 Contract – An agreement between two or more parties in which a promise is made to do
or provide something in return for a valuable benefit.
 Defendant – A party against whom a lawsuit has been filed in civil court, or who has
been accused of, or charged with, a crime or offense.

22. 21
 Plaintiff – A person who brings a legal action against another person or entity, such as in
a civil lawsuit, or criminal proceedings.
 Remedy – The enforcement of a right, or imposition of a penalty by a court of law.
 Unjust Enrichment – A legal principle that prohibits one person from profiting, or being
enriched, at the expense of another person. In such a case, the unjustly enriched party
may be ordered to make restitution for the reasonable value of the services rendered,
property transferred or damaged, or other benefits received.
1.8 Contract of indemnity
In the contract of indemnity, one party makes a promise to the other that he will compensate
for any loss occurred to the other party because of the act of the promisor or any other person.
... Indemnity is defined in Section 124 of Indian Contract Act, 1872
1.8.1 Right of the indemnity holder – (Section 125):
An indemnity holder (i.e. indemnified) acting within the scope of his authority is entitled to
the following rights –
 Right to recover damages – he is entitled to recover all damages which he might have
been compelled to pay in any suit in respect of any matter covered by the contract.
 Right to recover costs – He is entitled to recover all costs incidental to the institution
and defending of the suit.

23. 22
 Right to recover sums paid under compromise – he is entitled to recover all amounts
which he had paid under the terms of the compromise of such suit. However,
the compensation must not be against the directions of the indemnifier. It must be
prudent and authorized by the indemnifier.
 Right to sue for specific performance – he is entitled to sue for specific performance if
he has incurred absolute liability and the contract covers such liability.
The promisee in a contract of indemnity, acting within the scope of his authority, is
entitled to recover from the promisor:
(1) All damages which he may be compelled to pay in any suit in respect of any matter to
which the promise to indemnify applies
(2) all costs which he may be compelled to pay in any such suit if, in bringing or defending it,
he did not contravene the orders of the promisor, and acted as it would have been prudent for
him to act in the absence of any contract of indemnity, or if the promisor authorized him to
bring or defend the suit;
(3) All sums which he may have paid under the terms of any compromise of any such suit, if
the compromise was not
It is important to note here that the right to indemnity cannot be claimed of dishonesty, lack
of good faith and contravention of the promisor’s request. However, the right cannot be
negative in case of oversight. [Yeung v HSBC]

24. 23
1.8.2 Right of Indemnifier –
Section 125 of the Act only lays down the rights of the indemnified and is quite silent of the
rights of indemnifier as if the indemnifier has no rights but only liability towards the
indemnified.
In the logical state of things if we read Section 141 which deals with the rights of surety, we
can easily conclude that the indemnifier’s right would also be same as that of surety.
Where one person has agreed to indemnify the other, he will, on making good the indemnity,
be entitled to succeed to all the ways and means by which the person indemnified might have
protected himself against or reimbursed himself for the loss. [Simpson v Thomson]
Principle of Subrogation is applicable because it is an essential part of law of indemnity and
is based on equity and the Contract Act contains no provision in contravention with
[Maharaja Shri Jarvat Singhji v Secretary of State for India]
1.9 Contract of guarantee

25. 24
Contract of Guarantee has been defined under Section 126 of the Indian Contract Act, 1872
i.e. “A contract of guarantee is a contract to perform the promise, or discharge the liability, of
a third person in case of his default.
 B requests A to sell and deliver to him goods on credit.
A agrees to do so, provided C will guarantee the payment of the price of the goods. C
promises to guarantee the payment in consideration of
As promise to deliver the goods. This is a sufficient consideration for Cs promise.
 A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the
debt for a year, and promises that, if he does so, C will pay for them in default of
payment by B. A agrees to forbear as requested. This is a sufficient consideration for
Cs promise.
 A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for
them in default of B. The agreement is void.

26. 25
1.10 Contract of bailment
Section 148 of Indian Contract Act 1872 defines ‘Bailment’ as 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 direction of the person
delivering them.
The person who owns and delivers the goods is called the ‘Bailor’. The person to whom the
goods are delivered is called the ‘Bailee’.
1.10.1 Duties of a Bailee:
Duties of a Bailee in respect of goods are as follows:
1.10.1.1 Take proper care of goods:
According to section 151, it is the duty of a Bailee to take care of goods bailed to him. Bailee
should take care of these goods as an ordinary man will take care of his goods of the same
value, quality, and quantity.
Thus, if the Bailee takes due care of goods then he will not be liable for any loss,
deterioration of such goods. Also, the Bailee needs to take the same degree of care of goods
whether the bailment is for reward or gratuitous.

27. 26
However, the Bailee is not liable for any loss due to the happening of any act by God or
public enemies though he agrees to take special care of the goods.
1.10.1.2 Not to make unauthorized use:
As per section 153, the Bailee shall not make any unauthorized use of goods bailed. In case
he makes any unauthorized use, then bailor can terminate the bailment.
Bailor can also claim for damages caused to goods bailed due to unauthorized use as per
Section 154.
1.10.1.3 Keep goods separate:
The Bailee needs to keep the goods separately from his own goods. He should not mix the
goods under bailment with his own goods. In case Bailee mixes the goods with his own
goods without the consent of the bailor, then:
Bailor also has an interest in the mixture.
If the goods can be separated or divided, the property in the goods remains with both the
parties. But the Bailee bears the expenses of separation or any damages arising from the
mixture.
If it is not possible to separate the goods, the Bailee shall compensate the bailor for the loss of
goods.
1.10.1.4 Not set adverse title:

28. 27
A Bailee must not set an adverse title to the goods bailed.
1.10.1.5 Return Goods:
The duty of the Bailee is to return the goods without demand on the accomplishment of the
purpose or the expiration of the time period. In case of his failure to do so, he shall be liable
for the loss, destruction, deterioration, damages or destruction of goods even without
negligence.
1.10.1.6 Return increase or profits:
A Bailee shall return the goods along with any increase or profit accruing to the goods to the
bailor, in the absence of any contract to the contrary.
1.10.2 Duties of a bailor:
● It is the duty of a bailor to disclose all faults. If bailor fails to disclose such faults then
he will be responsible for the damage caused to goods or loss suffered by the Bailee.
● Also, the bailor is under the duty to pay the extraordinary expenses incurred by the
Bailee for such bailment.
● It is the duty of the bailor to accept the goods after the purpose for which such goods
were bailed is accomplished.

29. 28
● It is the duty of the bailor to indemnify the Bailee for the cost incurred due to the
defective title of goods bailed to the Bailee.
1.11 Contract of agency
Agency signifies a relationship, which exists where one person has an authority to act on
behalf of another occupying the position of principal, to create legal relationship between him
and third parties.
Two main parties: The Principal, the Agent.
● The Indian Contract Act, 1872 defines an ‘Agent’ in Section 182 as a person
employed to do any act for another or to represent another in dealing with third
persons.
● According to Section 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
authority will be the principal.

30. 29
1.11.1 Duties of an agent:
1. Duty to execute mandate
2. Duty to follow instructions or customs
3. Duty of reasonable care and skill
4. Duty to avoid conflict of interest
5. Duty not to make secret profit
6. Duty to remit sums
7. Duty to maintain accounts
8. Duty not to delegate
1.11.2 Rights of an agent:
 Right to remuneration– an agent is entitled to get an agreed remuneration as per the
contract. If nothing is mentioned in the contract about remuneration, then he is entitled
to a reasonable remuneration. But an agent is not entitled for any remuneration if he is
guilty of misconduct in the business of agency.

31. 30
 Right of retainer– an agent has the right to hold his principal’s money till the time his
claims, if any, of remuneration or advances are made or expenses occurred during his
ordinary course of business as agency are paid.
 Right of lien– an agent has the right to hold back or retain goods or other property of
the principal received by him, till the time his dues or other payments are made.
 Right to indemnity– an agent has the right to indemnity extending to all expenses and
losses incurred while conducting his course of business as agency.
 Right to compensation– an agent has the right to be compensated for any injury suffered
by him due to the negligence of the principal or lack of skill.

32. 31
MODULE 2
2.1 Company
A Company is an artificial person created by law. ... It is considered as a legal person which
can enter into contracts, possess properties in its own name, sue and can be sued by others
etc. It is called an artificial person since it is invisible, intangible, existing only in the
contemplation of law.
2.1.1 Meaning and Definition:
Corporate law (also known as business law or enterprise law or sometimes company law) is
the body of law governing the rights, relations, and conduct of persons, companies,
organizations and businesses. The term refers to the legal practice of law relating to
corporations, or to the theory of corporations. Corporate law often describes the law relating
to matters which derive directly from the life-cycle of a corporation. It thus encompasses the
formation, funding, governance, and death of a corporation.

33. 32
2.1.2 Classification of Company:
Types of Companies:
• Companies Limited by Shares
• Companies Limited by Guarantee
• Unlimited Companies
• One Person Companies (OPC)
• Private Companies
• Public Companies
• Holding and Subsidiary Companies
• Associate Companies
• Companies in terms of Access to Capital
• Government Companies
• Foreign Companies
• Charitable Companies
• Dormant Companies
• Nidhi Companies
• Public Financial Institutions

34. 33
2.1.2.1 Classification of Different Types of Companies:
A. Companies on the Basis of Liabilities:
When we look at the liabilities of members, companies can be limited by shares, limited by
guarantee or simply unlimited.
a) Companies Limited by Shares:
Sometimes, shareholders of some companies might not pay the entire value of their shares in
one go. In these companies, the liabilities of members are limited to the extent of the amount
not paid by them on their shares.
This means that in case of winding up, members will be liable only until they pay the
remaining amount of their shares.
b) Companies Limited by Guarantee:
In some companies, the memorandum of association mentions amounts of money that some
members guarantee to pay.
In case of winding up, they will be liable only to pay only the amount so guaranteed. The
company or its creditors cannot compel them to pay any more money.

35. 34
c) Unlimited Companies:
Unlimited companies have no limits on their members’ liabilities. Hence, the company can
use all personal assets of shareholders to meet its debts while winding up. Their liabilities
will extend to the company’s entire debt.
B. Companies on the basis of members:
a) One Person Companies (OPC):
These kinds of companies have only one member as their sole shareholder. They are separate
from sole proprietorships because OPCs are legal entities distinct from their sole members.
Unlike other companies, OPCs don’t need to have any minimum share capital.
b) Private Companies:
Private companies are those whose articles of association restrict free transferability of
shares. In terms of members, private companies need to have a minimum of 2 and a
maximum of 200. These members include present and former employees who also hold
shares.

36. 35
c) Public Companies:
In contrast to private companies, public companies allow their members to freely transfer
their shares to others. Secondly, they need to have a minimum of 7 members, but the
maximum number of members they can have is unlimited.
C. Companies on the basis of Control or Holding:
In terms of control, there are two types of companies.
a) Holding and Subsidiary Companies:
In some cases, a company’s shares might be held fully or partly by another company. Here,
the company owning these shares becomes the holding or parent company. Likewise, the
company whose shares the parent company owns becomes its subsidiary company.
Holding companies exercise control over their subsidiaries by dictating the composition of
their board of directors. Furthermore, parent companies also exercise control by owning more
than 50% of their subsidiary companies’ shares.
b) Associate Companies:

37. 36
Associate companies are those in which other companies have significant influence. This
“significant influence” amounts to ownership of at least 20% shares of the associate
company.
The other company’s control can exist in terms of the associate company’s business decisions
under an agreement. Associate companies can also exist under joint venture agreements.
D. Companies in terms of Access to Capital:
When we consider the access, a company has to capital, companies may be either listed or
unlisted.
Listed companies have their securities listed on stock exchanges. This means people can
freely buy their securities. Hence, only public companies can be listed, and not private
companies.
Unlisted companies, on the other hand, do not list their securities on stock exchanges. Both,
public, as well as private companies, can come under this category.
E. Other Types of Companies:

38. 37
a) Government Companies:
Government companies are those in which more than 50% of share capital is held by either
the central government, or by one or more state government, or jointly by the central
government and one or more state government.
b) Foreign Companies:
Foreign companies are incorporated outside India. They also conduct business in India using
a place of business either by themselves or with some other company.
c) Charitable Companies (Section 8):
Certain companies have charitable purposes as their objectives. These companies are called
Section 8 companies because they are registered under Section 8 of Companies Act, 2013.
Charitable companies have the promotion of arts, science, culture, religion, education, sports,
trade, commerce, etc. as their objectives. Since they do not earn profits, they also do not pay
any dividend to their members.
d) Dormant Companies:

39. 38
These companies are generally formed for future projects. They do not have significant
accounting transactions and do not have to carry out all compliances of regular companies.
e) Nidhi Companies:
A Nidhi company functions to promote the habits of thrift and saving amongst its members. It
receives deposits from members and uses them for their own benefits.
f) Public Financial Institutions:
Life Insurance Corporation, Unit Trust of India and other such companies are treated as
public financial institutions. They are essentially government companies that conduct
functions of public financing.
2.2 CORPORATE PERSONALITY
Corporate personality is the fact stated by the law that a company is recognized as a legal
entity distinct from its members. A company with such personality is an independent legal
existence separate from its shareholders, directors, officers and creators. This is famously
known as the veil of incorporation.

40. 39
2.2.1 As a result of corporate personality, a company has perpetual succession:
It simply means the company is everlasting and will continue to do business until it is
properly wound up. As a separate legal person, a company will not be affected by changes
such as death, transfer of shares or resignation of any members but will continue to exist
despite the number of times the changes of membership occur. Even if all the members die, it
will not influence the privileges, immunities, estates and possessions of a company.
2.2.2 Proprietary interest is another principle of corporate personality:
Proprietary interest refers to the ability of a company to own property like a land or building.
A company as a body corporate has every right to acquire, hold and dispose of as well as
transfer property in its own name. Since a company gain full ownership of property, any
changes among individual membership would not affect the title.
2.2.3 Debt is also the principle in corporate personality:
A company being a legal person has an unlimited amount of debts. The company is fully
responsible for the debts that will be incurred during the course of business. However, this
principle does not apply to its members with a limited liability. In case the company is
insolvent, members are not required to pay more than the initial amount invested on their
shares or guarantee. Their liability is limited to the number of shares they subscribe or any
unpaid value on such shares.

41. 40
2.3 Stages of Formation of a Company
Formation of company is governed by the provisions contained in The Companies Act of
1956. The company form of organization is being preferred as being suitable by more and
more business firms, particularly for setting up medium and large sized organizations.
Formation of Company in India involves several steps which are explained hereunder. The
steps involved in Formation of company in India are required from the time a business idea
originates to the time. A company is legally ready to commence business are referred to as
stages in the formation of a company. Those who are taking these steps and the associated
risks area promoting a company are called its promoters. It is advisable to avail the services
of Indian company lawyer for the formation of company in India.
2.3.1 STAGES IN FORMATION OF COMPANY IN INDIA (PRIVATE LIMITED):
 Promotion is the first step towards formation of company.
 Incorporation is the second step towards formation of company.
 Commencement of business is the ultimate or final stage towards formation of
company.
2.3.2 STAGES IN FORMATION OF COMPANY IN INDIA (PUBLIC LIMITED):
 Promotion

42. 41
 Incorporation
 Subscription of capital
 Commencement of business
Under the Indian laws, a private limited company can start its business immediately after
obtaining the certificate of incorporation. As it is prohibited to raise funds from public, it
does not need to issue a prospectus and complete the formality of minimum subscription. A
public company, on the other hand, goes through the capital subscription stage and then
receives the certificates of commencement. Thus, it has to undergo all the four stages.
Formation of company in India thus involves the steps stated above and the formalities
required therein for formation of company in India.
2.3.3 Steps:
2.3.3.1 Promotion of a Company:
A business enterprise does not come into existence on its own. It comes into existence as a
result of the efforts of an individual or group of people or an institution. That is, it has to be
promoted by some person or persons. The process of business promotion begins with the
conceiving of an idea and ends when that idea is translated into action i.e., the establishment
of the business enterprise and commencement of its business.

43. 42
Who is a Promoter in a Company?
A successful promoter is a creator of wealth and an economic prophet. The person who is
concerned with the promotion of business enterprise is known as the Promoter. He conceives
the idea of starting a business and takes all the measures required for bringing the enterprise
into existence.
For example, Dhirubhai Ambani is the promoter of Reliance Industries.
The promoters find out the ways to collect money, investigate business ideas arranges for
finance, assembles resources and establishes a going concern.
The company law has not given any legal status to promoters. He stands in a fiduciary position.
Types of Promoters:
Promoters are different types such as professional promoters, occasional promoters, promoter
companies, financial promoters, entrepreneurs, lawyers and engineers.
Functions of Promoter:
 Identification of business opportunity: The first and foremost activity of a promoter in
the direction of formation of company in India is to identify a business opportunity by

44. 43
the formation of company. The opportunity may be in respect of producing a new
product or service. It may be by making some product available through a different
channel or any other opportunity having an investment potential. Such opportunity is
then analysed to see its technical and economic feasibility before formation of
company in India.
 Feasibility studies: It may not be feasible or profitable to convert all identified
business opportunities into real projects. The promoters, therefore, undertake detailed
feasibility studies to investigate all aspects of the business they intend to start.
Depending upon the nature of the project, feasibility studies may be undertaken, with
the help of the specialists like engineers, chartered accountants etc. To examine
whether the perceived business opportunity can be profitably exploited by formation
of company in India.
o Technical feasibility: Sometimes an idea may be good but technically not possible to
execute. It may be so because the required raw material or technology is not easily
available. This is an important step towards formation of company.
o Financial feasibility: Every business activity requires funds. The promoters have to
estimate the fund requirements for the identified business opportunity. If the required
outlay for the project is so large that it cannot easily be arranged within the available
means, the project has to be given up. For example, one may think that developing
townships is very lucrative. It may turn out that the required funds are in several crores of

45. 44
rupees, which cannot be arranged by floating a company by the promoters. The idea of
formation of company may be abandoned because of the lack of financial feasibility of
the project.
o Economic feasibility: Sometimes it so happens that a project is technically viable and
financially feasible but the chance of it being profitable is very little. In such cases as
well, the idea may have to be abandoned. Promoters usually take the help of experts to
conduct these studies before formation of company. It may be noted that these experts do
not become promoters just because they are assisting the promoters in these studies. Only
when these investigations throw up positive results, the promoters may decide for the
formation of company. Formation of company in India thus involves the above said
technicalities associated with it.
2.3.3.2 Registration of a Company:

46. 45
It is registration that brings a company into existence. A company is properly formed only
when it is duly registered under the Companies Act.
Procedure of Registration:
In order to get the company registered, the important documents required to be filed with the
Registrar of Companies are as follows:
2.3.3.2(A) Memorandum of Association:
It is to be signed by a minimum of 7 persons for a public company and by 2 in case of a Pvt
company. It must be properly stamped.
2.3.3.2(B) Articles of Association:
This document is signed by all those persons who have signed the Memorandum of
Association.
 List of Directors: A list of directors with their names, address and occupation is to be
prepared and filed with the Registrar of Companies.

47. 46
 Written consent of the Directors: A written consent of the directors that they have agreed
to act as directors has to be filed with the Registrar along with a written undertaking to the
effect that they will take qualification shares and will pay for them.
 Notice of the Address of the Registered Office: It is also customary to file the notice of the
address of the company’s registered office at the time of incorporation. It is to be given
within 30 days after the date of incorporation.
2.3.3.2(C) Statutory Declaration:
A statutory declaration by
 any advocate of the Supreme Court or
 of a High Court, or
 an attorney or pleader entitled to appear before a High Court or
 a practicing-chartered accountant in India, who engages in the Company formation or
 By a person indicated in the articles as director, managing director, Secretary or
manager of the company, mentioning that the requisites of the Act and the rules there
under have been complied with. It is to be filed with the Registrar of Companies.
When the required documents have been filed with the Registrar along with the prescribed fee,
the Registrar scrutinizes the documents. If the Registrar is satisfied, the name of the company

48. 47
is entered in the register. Then the Registrar issues a certificate known as Certificate of
Incorporation.
2.3.3.3 Certificate of Incorporation:
On the registration of Memorandum of Association, Articles of Association and other
documents, the Registrar will issue a certificate known as the ‘Certificate of Incorporation ‘.
The issue of certificate is the evidence of the fact that the company is incorporated and the
requirements of the Companies Act have been complied with.
2.3.3.4 Certificate of Commencement of Business:
As soon as a private company gets the certification of incorporation, it can commence its
business. A public company can commence its business only after getting the “certificate of
commencement of business”. After the company gets the certificate of incorporation, a public
company issues a prospectus for inviting the public to subscribe to its share capital. It fixes the
minimum subscription. Then it is required to sell the minimum number of shares mentioned in
the prospectus.
After completing the sale of the required number of shares, a certificate is sent to the Registrar
along with a letter from the bank stating that all the money is received.

49. 48
The Registrar then scrutinizes the documents. If he is satisfied, he issues a certificate known as
‘Certificate of Commencement of Business’. This is the conclusive evidence for the
Commencement of Business.
2.3.3.4.1 Prospectus:
A public company can raise the required funds from the public by means of issue of shares
and debentures. For doing the same, it has to issue a prospectus which is an invitation to the
public to subscribe to the capital of the company and undergo various other formalities. The
following steps are required for raising funds from the public.
 SEBI Approval: SEBI (Securities and Exchange Board of India) which is the
regulatory authority in our country has issued guidelines for the disclosure of
information and investor protection. A company inviting funds from the general
public must make adequate disclosure of all relevant information and must not
conceal any material information from the potential investors. This is necessary for
protecting the interest of the investors. Prior approval from SEBI is, therefore,
required before going ahead with raising funds from public.
 Filling of Prospectus: A copy of the prospectus or statement in lieu of prospectus is
filed with the Registrar of Companies. A prospectus is any document described or
issued as a prospectus including any notice, circular, advertisement or other document

50. 49
inviting deposits from the pubic or inviting offers from the public for the subscription
or purchase of any shares or debentures of, a body corporate. In other words, it is an
invitation to the public to apply for shares or debentures of the company or to make
deposits in the company. Investors make up their minds about investment in a
company primarily on the basis of the information contained in this document.
Therefore, there must not be a miss-statement in the prospectus and all significant
information must be fully disclosed.
 Appointment of Bankers, Brokers, and Underwriters: Raising funds from the public is
a stupendous task. The application money is to be received by the bankers of the
company. The brokers try to sell the shares by distributing the forms and encouraging
the public to apply for the shares. If the company is not reasonably assured of a good
public response to the issue, it may appoint underwriters to the issue. Underwriters
undertake to buy the shares if these are not subscribed by the public. They receive a
commission for underwriting the issue. Appointment of underwriters is not necessary.
 Minimum Subscription: In order to prevent companies from commencing business
with inadequate resources, it has been provided that the company must receive
applications for a certain minimum number of shares before going ahead with the
allotment of shares. According to the Companies Act, this is called the minimum
subscription. The limit of minimum subscription is 90 per cent of the size of the issue.
Thus, if applications received for the shares are for an amount less than 90 per cent of
the issue size, the allotment cannot be made and the application money received must
be returned to the applicants.
 Application to Stock Exchange: An application is made to at least one stock exchange
for permission to deal in its shares or debentures. If such permission is not granted

51. 50
before the expiry of ten weeks from the date of closure of subscription list, the
allotment shall become void and all money received from the applicants will have to
be returned to them within eight days.
 Allotment of Shares: In case the number of shares allotted is less than the number
applied for, or where no shares are allotted to the applicant, the excess application
money, if any, is to be returned to applicants or adjusted towards allotment money due
from them. Allotments letters are issued to the successful allot-tees. Return of
allotment, signed by a director or secretary is filed with the Registrar of Companies
within 30 days of allotment.
A public company may not invite public to subscribe to its shares or debentures. Instead, it
can raise the funds through friends, relatives or some private arrangements as done by a
private company. In such cases, there is no need to issue a prospectus. A ‘Statement in Lieu
of Prospectus’ is filed with the Registrar at least three days before making the allotment.
2.4 Distinction between Memorandum and Articles:

52. 51
Comparison Chart:
BASIS FOR
COMPARISON
MEMORANDUM OF
ASSOCIATION
ARTICLES OF
ASSOCIATION
Meaning Memorandum of Association is a
document that contains all the
fundamental information which are
required for the incorporation of the
company.
Articles of Association is a
document containing all
the rules and regulations
that governs the company.
Defined in Section 2 (56) Section 2 (5)
Type of
Information
contained
Powers and objects of the company. Rules of the company.
Status It is subordinate to the Companies
Act.
It is subordinate to the
memorandum.
Retrospective
Effect
The memorandum of association of
the company cannot be amended
retrospectively.
The articles of association
can be amended
retrospectively.

53. 52
BASIS FOR
COMPARISON
MEMORANDUM OF
ASSOCIATION
ARTICLES OF
ASSOCIATION
Major contents A memorandum must contain six
clauses.
The articles can be drafted
as per the choice of the
company.
Obligatory Yes, for all companies. A public company limited
by shares can adopt Table
A in place of articles.
Compulsory filing
at the time of
Registration
Required Not required at all.
Alteration Alteration can be done, after passing
Special Resolution (SR) in Annual
General Meeting (AGM) and previous
approval of Central Government (CG)
or Company Law Board (CLB) is
required.
Alteration can be done in
the Articles by passing
Special Resolution (SR) at
Annual General Meeting
(AGM)
Relation Defines the relation between company
and outsider.
Regulates the relationship
between company and its

54. 53
BASIS FOR
COMPARISON
MEMORANDUM OF
ASSOCIATION
ARTICLES OF
ASSOCIATION
members and also between
the members inter se.
Acts done beyond
the scope
Absolutely void Can be ratified by
shareholders.
2.5 Prospectus and other documents:
2.5.1 Doctrine of indoor management:

55. 54
According to this doctrine, persons dealing with the company need not inquire whether
internal proceedings relating to the contract are followed correctly, once they are satisfied
that the transaction is in accordance with the memorandum and articles of association.
Shareholders, for example, need not enquire whether the necessary meeting was convened
and held properly or whether necessary resolution was passed properly. They are entitled to
take it for granted that the company had gone through all these proceedings in a regular
manner.
The doctrine helps protect external members from the company and states that the people are
entitled to presume that internal proceedings are as per documents submitted with the
Registrar of Companies.
The doctrine of indoor management evolved around 150 years ago in the context of the
doctrine of constructive notice. The role of doctrine of indoor management is opposed to of
the role of doctrine of constructive notice.
Whereas the doctrine of constructive notice protects a company against outsiders, the
doctrine of indoor management protects outsiders against the actions of a company. This
doctrine also is a possible safeguard against the possibility of abusing the doctrine of
constructive notice.

56. 55
2.5.2 Shares:
The doctrine of maintenance of capital underpins the legal rules in the following important
areas payment of dividends or other distributions to shareholders; reduction of a company's
share capital and/or reserves; prohibition on the provision by a company of financial
assistance for the purchase of its own shares;
A unit of ownership that represents an equal proportion of a company's capital. It entitles its
holder (the shareholder) to an equal claim on the company's profits and an equal obligation
for the company's debts and losses.
Two major types of shares are:
Ordinary shares (common stock):
Which entitle the shareholder to share in the earnings of the company as and when they
occur, and to vote at the company's annual general meetings and other official meetings.
Preference shares (preferred stock):
Which entitle the shareholder to a fixed periodic income (interest) but generally do not give
him or her voting rights.

57. 56
2.5.3 Debentures:
Debenture is used to issue the loan by government and companies. The loan is issued at the
fixed interest depending upon the reputation of the companies. When companies need to
borrow some money to expand themselves, they take the help of debentures. There are four
different types of debentures. Let us learn the Debenture, features of debentures, advantages,
and disadvantages of debentures in detail.
Similar to most bonds, debentures may pay periodic interest payments called coupon
payments. Like other types of bonds, debentures are documented in an indenture. An
indenture is a legal and binding contract between bond issuers and bondholders. The contract
specifies features of a debt offering, such as the maturity date, the timing of interest or
coupon payments, the method of interest calculation, and other features. Corporations and
governments can issue debentures.
Corporations also use debentures as long-term loans. However, the debentures of
corporations are unsecured. Instead, they have the backing of only the financial viability and
creditworthiness of the underlying company. These debt instruments pay an interest rate and
are redeemable or repayable on a fixed date. A company typically makes these scheduled
debt interest payments before they pay stock dividends to shareholders. Debentures are
advantageous for companies since they carry lower interest rates and longer repayment dates
as compared to other types of loans and debt instruments.
Convertible debentures are attractive to investors that want to convert to equity if they believe
the company's stock will rise in the long term. However, the ability to convert to equity

58. 57
comes at a price since convertible debentures pay a lower interest rate compared to other
fixed-rate investments.
Nonconvertible debentures are traditional debentures that cannot be converted into equity of
the issuing corporation. To compensate for the lack of convertibility investors are rewarded
with a higher interest rate when compared to convertible debentures.
2.5.4 Dividend:
A dividend is the distribution of reward from a portion of the company's earnings and is paid
to a class of its shareholders. Dividends are decided and managed by the company’s board of
directors, though they must be approved by the shareholders through their voting rights.
Dividends can be issued as cash payments, as shares of stock, or other property, though cash
dividends are the most common. Along with companies, various mutual funds and exchange
traded funds (ETF) also pay dividends.
A dividend is a token reward paid to the shareholders for their investment in a company’s
equity, and it usually originates from the company's net profits. While the major portion of
the profits is kept within the company as retained earnings, which represent the money to be
used for the company’s ongoing and future business activities, the remainder can be allocated
to the shareholders as a dividend.

59. 58
However, at times, companies may still make dividend payments even when they don’t make
suitable profits. They may do so to maintain their established track record of making regular
dividend payments.
1. The company generates profits and retained earnings
2. The management team decides some excess profits should be paid out to shareholders
(instead of being reinvested)
3. The board approves the planned dividend
4. The company announces the dividend (the value per share, the date when it will be
paid, the record date, etc.)
5. The dividend is paid to shareholders
2(a) CASE:
Below is an example from General Electric’s (GE)’s 2017 financial statements. As you can
see in the screenshot, GE declared a dividend per common share of $0.84 in 2017, $0.93 in
2016, and $0.92 in 2015.
This figure can be compared to Earnings per Share (EPS) from continuing operations and Net
Earnings for the same time periods.

60. 59
Source: GE
2.6 Transfer and Transmission of Shares
One of the most important features of the securities is that they are transferable, which
facilitates the company in acquiring permanent capital and liquid investments to the
shareholders. Transfer of shares is a voluntary act of a member that takes place by way of

61. 60
contract. It is not exactly same as transmission of shares, as the two differ in their meaning
and concept as well. The transmission of shares occurs due to the operation of law i.e. in case
if the member passes away or becomes insolvent/lunatic.
Transfer of shares requires and instrument of transfer, whereas no such instrument is required
in the transmission of shares. To further understand, the difference between transfer and
transmission of shares, you need to have a glance at the article excerpt, provided below.
Comparison Chart:
BASIS FOR
COMPARISON
TRANSFER OF
SHARES
TRANSMISSION OF
SHARES
Meaning Transfer of shares refers to
the transfer of title to shares,
voluntarily, by one party to
another.
Transmission of shares means the
transfer of title to shares by the
operation of law.
Affected by Deliberate act of parties. Insolvency, death, inheritance or
lunacy of the member.
Initiated by Transferor and transferee Legal heir or receiver

62. 61
BASIS FOR
COMPARISON
TRANSFER OF
SHARES
TRANSMISSION OF
SHARES
Consideration Adequate consideration must
be there.
No consideration is paid.
Execution of valid
transfer deed
Yes No
Liability Liabilities of transferor cease
on the completion of transfer.
Original liability of shares
continues to exist.
Stamp duty Payable on the market value
of shares.
No need to pay.
2.7 Directors
Directors, as the word suggests, are a special group of people who direct the company. The
directors give certain direction to all the other members of the company to achieve certain
goals.

63. 62
There may be one director or a board of directors of a company depending on the company.
All the important decisions of the company are made by the board of directors of the
company. Many general and special board meetings are conducted by the company for the
directors to make crucial decisions pertaining to the company. All the important future
planning is also done by the board of directors. The board of directors plays the most vital
role in the rise and fall of a company.
In other words, the board of directors actually is the leading body of the company. All the
other members of the company have to comply with the decisions made by the board of
directors.
A board of directors ensures that a clearly outlined structure is in place which will help the
business to work much more efficiently.
2.7.1 Larger businesses and organizations will form a clear board structure as the
following:
 Chairman - This particular role within the company is often a non-executive role that also
has the task of overseeing the entire business or organization.

64. 63
 Managing Director - A managing director is employed by the business, often by the
chairman. Other roles include running the business and producing salaries. The managing
director manages the board of directors and oversees the performance of the business,
thus reporting back to the chairman.
 Executive Directors - A group of executive directors who each play a significant role
within the company. They maintain full responsibility over their respective departments
such as Finance, Marketing and Sales. Each director manages their department ensuring
that tasks and objectives are being met. Executive directors also sit on the board.
 Non-executive directors - These advise the business by proposing different forms of
strategy and also decide remuneration of the executive directors.
Having a clear structure within the business has a positive impact on the employees and it
also helps to organize the business. By having a team of executive directors, employees can
report to their executive directors if a problem or an issue occurs.
2.8 Meeting
The word “meeting” is not defined anywhere in the Companies Act. Ordinarily, a company
may be defined as gathering, assembling or coming together of two or more persons (by

65. 64
previous notice or by mutual arrangement) for discussion and transaction of some lawful
business.
A company meeting may be defined as a concurrence or coming together of at least a quorum
of members in order to transact either ordinary or special business of the company.
2.8.1 Common types of meeting include:
 Committee meeting, a coming-together of a defined subset of an organization.
 Investigative meeting, generally when conducting a pre-interview, exit interview or a
meeting among the investigator and representative.
 Kick-off meeting, the first meeting with a project team and the client of the project to
discuss the role of each team-member.
 Town hall meeting, an informal public gathering.
 Work meeting, which produces a product or intangible result such as a decision compare.
 Board meeting, a meeting of the board of directors of an organization.
 Management meeting, a meeting among managers.
 Staff meeting, typically a meeting between a manager and those that report to that
manager.

66. 65
 Team meeting- a meeting among colleagues working on various aspects of a team
project.
2.9 Winding up

67. 66
Winding up is the process of dissolving a company. While winding up, a company ceases to
do business as usual. Its sole purpose is to sell off stock, pay off creditors, and distribute any
remaining assets to partners or shareholders.
The term is used primarily in Great Britain, where it is synonymous with liquidation.
Some examples of well-known American companies that were liquidated, or wound up,
including Circuit City, RadioShack, Blockbuster, Borders Group, and Toys "R" Us. In
February 2019, the discount shoe store chain Payless closed its remaining stores, effectively
beginning the winding-up process.
All of those retailers were in deep financial distress before filing for bankruptcy and agreeing
to liquidate.
Once the winding-up process has begun, a company can no longer pursue business as usual.
The only action they may attempt is to complete the liquidation and distribution of its assets.
At the end of the process, the company will be dissolved and will cease to exist.
2.10 Amendment

68. 67
An amendment is a formal or official change made to a law, contract, constitution, or other
legal document. It is based on the verb to amend, which means to change for better.
Amendments can add, remove, or update parts of these agreements.
They are often used when it is better to change the document than to write a new one.
Example:
The constitution can be amended in three ways:
 Amendment by simple majority of the parliament.
 Amendment by special majority of the parliament.
 Amendment by special majority of the parliament and the ratification of half of the
state legislatures.
MODULE 3

69. 68
3.1 Salient features of LLP
A Limited Liability Partnership (‘LLP’) is an alternative corporate business vehicle that
combines the flexible structure of a partnership with the benefits for its partners (or
“Members”) of limited liability.
LLPs are relatively new entities, the legislation creating them having come into existence in
April 2001.
Some of the key features of LLPs are:
 They are a separate legal entity from their Members.
 They have the benefit of limited liability for their Members.
 They are taxed as a partnership.
 They have the organisational flexibility of a partnership.
 Any agreement (“LLP agreement”) between the Members governing the operation of the
LLP is a private document which is confidential to the Members.
 They must have at least two “designated” Members.

70. 69
 Their “trading disclosure” requirements are similar to those of a company.
 They must be registered at Companies House.
 They have the ability to create floating charges.
 Their accounting and filing requirements are similar to those of a company.
3.2 Difference between Partnership and Limited Liability Partnership (LLP)
LLP is also a form of partnership, where the liability of partners is limited as well as any partner
will not be held liable for the acts of other partners. General Partnership, on the other hand,
brings unlimited liabilities to the partners concerned and so they are jointly or severally liable
for the debts.
3.2.1 Definition of Partnership:
The term ‘partnership’ is defined as the abstract legal relation between the persons. It is the
form of business operation; wherein the partners agree to pool their capital and resources, to
run a business carried on by all the partners or any one partner on behalf of all the partners and
share profits and losses in the manner prescribed in the agreement called ‘partnership deed’.

71. 70
In this arrangement, the individuals who have entered into the agreement with each other are
called as individual ‘partners. The material thing symbolising the joint entity for all partners is
called ‘firm’ and the name under which business is conducted is called the ‘firm name’. Hence,
partnership is the invisible bond among partners while the firm is the concrete form of partners.
3.2.2 Definition of Limited Liability Partnership (LLP):
Limited Liability Partnership, shortly known as LLP is described as a body corporate created
and registered under Limited Liability Partnership Act, 2008. LLP is a business vehicle that
integrates the advantages of limited liability of a company and the flexibility of the partnership,
i.e. for organising their internal composition and operation as a partnership.
LLP has a separate legal existence, distinct from its partners and has a perpetual succession. If
there is any change, in the partners, then it will not influence the rights, existence or liabilities
of the entity. Any individual or body corporate can become a partner in LLP, provided they are
capable of becoming a partner.
3.2.3 Key Differences between Partnership and Limited Liability Partnership (LLP):
The following points are vital so far as the difference between partnership and limited liability
partnership (LLP) is concerned:

72. 71
 The partnership is defined as an association of persons joined for earning profits from
business, undertaken by all the partners or any one partner on behalf of all the partners.
Limited Liability Partnership is a form of business operation which combines the features
of a partnership and a body corporate.
 The partnership is governed by the Indian Partnership Act, 1932. On the contrary, Limited
Liability Partnership Act, 2008 governs LLP in India.
 The incorporation of the partnership is voluntary, whereas the registration of the LLP is
obligatory.
 The document that guides the partnership is called Partnership Deed. As opposed to limited
liability partnership, the LLP agreement is the charter document.
 A partnership firm cannot enter into a contract in its name. On the other hand, the LLP can
sue and be sued in its name.
 A partnership has no separate legal status apart from its partners, as the partners are
individually known as a partner and collectively known as firm. Unlike, LLP which is a
separate legal entity.
 The partner’s liability is limited to the extent of the capital contributed by them. As against
this, the partners of a partnership have unlimited liability.

73. 72
 Partnership can be started with any name of choice conversely; the limited liability
partnership must use the word “LLP” by the end of its name.
 Any two persons can start a partnership or LLP, but the maximum number of partners in a
partnership firm are limited to 100 partners. In contrast, there is no limit of maximum
partners in LLP.
 A limited liability partnership has perpetual succession whereas a partnership may dissolve
any time.
 The maintenance and audit of books of accounts is not mandatory for a partnership, as
against this, the LLP is required to maintain and audit books of accounts if turnover and
capital contribution overreaches 40 lakhs and 25 lakhs respectively.
 The partnership firm cannot hold property in its name. Conversely, the LLP is allowed to
held property in its name.
 In a partnership, the partners act an agent of the partners and the firm. On the other hand,
the partners are agents of partners in case of LLP.
3.2.4 Similarities:

74. 73
In both the forms of business organisation, partners are not the employees; rather they are
agents.
Partners are entitled to remuneration, only if it is provided in the agreement.
No partner is allowed to carry on competing for business without the prior consent of other
partners.
The introduction of a new partner to the partnership can be done, only with the consent of the
existing partners.
In the case of insolvency of a partner, he/she is not allowed to continue as a partner.
3.2.5 Conclusion:
So, with the above discussion, it is quite clear that both general partnership and limited liability
partnership are the two varieties of partnership.
Further, an LLP is different from a partnership, in the way that partners are joints or severally
liable for the acts of the partners and the firm, in a partnership. On the other hand, in the case
of limited liability partnership, the partners are not held responsible for the acts of other
partners.

75. 74
3.2(a) FIGURE
3.3 Difference between Private limited company Vs LLP
While starting up a company one has to decide which business organization they want to
incorporate and carry on. The choice of business organization is very important to give shape
to your business motive. Here, if one has to choose between the Private limited company
registration and LLP one can see the advantages and the difference so as to choose what’s best
for them.
While starting up a company one has to decide which business organization they want to
incorporate and carry on. The choice of business organization is very important to give shape
to your business motive. Here, if one has to choose between the Private limited company
registration and LLP one can see the advantages and the difference so as to choose what’s best
for them.

76. 75
Private company are those companies where the all shares of the company are held privately.
They can operate their business themselves or hire directors to manage the company on their
behalf. It is a business entity which is privately held by some shareholders. It limits the owner
liability to the extent of their shareholding and limits the no. of shareholders to 50 only. It also
restricts shareholders to trade shares publicly.
3.3.1 Advantages:
 The liability of the shareholders is limited to the extent of their shareholding their personal
assets are not taken to repay the debts of the company. Although this has one exception
where there is fraud committed in relation to the company it will negate the owner’s liability
protection.
 There is restricted trade of shares, it is an advantage to the shareholders who do not want
to sell the shares to the outsiders. So, the risk of hostile takeover is low.
 It has perpetual succession and has an independent identity which is different from its
owners or shareholders. It means that the company will still and continue to exist even if
the members die or ceases to be a member. The change in shareholders will not bring any
effect on the identity of the company. It will be the same with same privileges, immunities,
estates and possessions. It will continue to exist till wound up is there according to the
Companies Act 2013 or any relevant act.

77. 76
 It is a Separate legal entity. It has its own assets and liability is a legal entity which can be
sued or sue or can hold and dispose of property of the company. It is capable of owing the
funds and other properties. It is a legal person under whose name the company’s property
is vested and is not of the shareholders.
 There are few shareholders the decisions taken are quick and prompt. They are governed
by the Companies Act 2013 and have to follow the procedures and disclosure norms under
the act.
 Income tax act 1961 provides a lower tax burden and rates for the companies compared to
other type of business.
 A company being a legal entity has the power to sue in its name and can be sued by others.
3.4 Limited liability partnership
LLP Registration is limited liability partnership. It is new form of business where both
partnership and corporation exist. Here the partnership is with limited liability. It is registered
under LLP Act, 2008 and with Ministry of corporate affairs.

78. 77
3.4.1 Advantages of LLP:
 LLP can be formed by any amount of capital. There is no need for minimum capital for
LLB. It is so set up hassle free and not burdensome on the owners.
 It requires a minimum of 2 partners and there is no limit on the maximum number of
partners of the LLP.
 The cost of registering LLP is low as compared to a company.
 All limited companies have to get their accounts audited but in case of LLP there is no such
requirement. Although it is required to audit when the contributions of LLP exceed Rs. 25
lakh or annual turnover exceeds Rs. 40 lakhs.
 The LLP has to file only two i.e. annual return and statement of accounts and solvency.
 LLP is treated in par with the partnership firm. The provision of dividend distribution tax
is not payable on LLP. Also, under Section 40(b) deductions are allowed on the interest
given to partners, any payment of salary bonus commission or remuneration.

79. 78
3.4.2 Problems with LLP:
LLP can be bind by the act of one partner without the other partner i.e. one partner can make
all other liable or bind them. They cannot raise money from public.
Difference between the LLP and Private Limited Co.:
3.4(a) FIGURE

80. 79
3.4.3 NATURE OF LLP:
Concept of limited liability partnership:
 LLP is an alternative corporate business form that gives the benefits of limited liability of
a company and the flexibility of a partnership.
 The LLP can continue its existence irrespective of changes in partners. It is capable of
entering into contracts and holding property in its own name.
 The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the
partners is limited to their agreed contribution in the LLP.
 Further, no partner is liable on account of the independent or un-authorized actions of other
partners, thus individual partners are shielded from joint liability created by another
partner’s wrongful business decisions or misconduct.
 Mutual rights and duties of the partners within an LLP are governed by an agreement
between the partners or between the partners and the LLP as the case may be. The LLP,
however, is not relieved of the liability for its other obligations as a separate entity.
 Since LLP contains elements of both a corporate structure as well as a partnership firm
structure LLP is called a hybrid between a company and a partnership.

81. 80
3.5 PARTNERS AND DESIGNATED PARTNERS
Differences between a Partner and a Designated Partner in LLP:
Partner and designated partner in an LLP both are responsible for all acts, matters and things
required to be done in a limited liability partnership (LLP). The duties of designated partners
in a Limited Liability Partnership (LLP) are same as that of partners. Also, they perform the
same role as that of a director performs in a Company. They are governed by mutual rights and
duties as provided in the LLP agreement. But there lie some disparities in the definition and
functions of partners and designated partners in LLP and these are as follows Such as: -
 A Partner is a generic term used to represent partners in case of General Partnerships while
Designated Partner is a term used in case of Limited Liability Partnerships.
 A The duties, rights and liabilities of a partner are generally laid down in a partnership deed
where as in case of a designated partner; his duties, rights and liabilities are mentioned in
the LLP Agreement.
 A The liability of a partner to third parties is unlimited and extends to his personal property
where as the liability of a designated partner is only up to the capital introduced by them or
as provided in the LLP Agreement.

82. 81
 The Designated Partners are solely responsible for the management and the execution of
all the acts and things required to be carried out by the LLP including compliance of the
provisions such as filing of documents/returns/statements as required by the LLP Act. On
the contrary, partners in an LLP are not responsible for any such acts and are only required
to make contribution in the LLP.
 A The extent of liability on the partners and the designated partners for penalties imposed
for any contravention of the provisions shall be governed by the Partnership Deed and the
LLP Agreement respectively.
3.6 INCORPORATION
3.6.1 The Incorporation Document:
The Incorporation Document of an LLP contains key information about the business to be
registered and should:
 State the proposed name of the LLP under which the business is to be registered
 State the proposed business of the LLP under incorporation;
 State the details of proposed registered office of the LLP

83. 82
 State the name and address of every individual proposing to be partners of the LLP on
incorporation;
 State the name and address of every individual who are to be the designated partners of the
LLP on incorporation
 Contain any other information concerning the proposed LLP as may be prescribed.
3.6.2 Process for the Incorporation of an LLP:
The following things need to be ensured for the incorporation of LLP:
 Appoint/nominate partners and designated partners.
 Obtain the DPINs and Digital Signature Certificates (DSCs)
 Register a unique LLP name (applicant can indicate up to 6 choices)
 Draft the LLP Agreement
 File the required documents, electronically

84. 83
 Apply for the Certificate of Incorporation along with LLPIN (Limited Liability
Partnership Identification Number)
3.6.3 The contents of an LLP agreement:
 Name of the LLP
 Names and addresses of the partners and designated partners
 The form of contribution and interest on contribution
 Profit sharing ratio
 Remuneration of partners
 Rights and duties of partners
 The proposed business
 Rules for governing the LLP
3.6.4 Steps for the Incorporation of an LLP:
 Reserve the name of the LLP. Applicant files e-Form 1 to ascertain the availability and
register the name of the LLP. Once the Ministry approves the name, it reserves it for
the applicant for a period of 90 days. Also, if the LLP is not incorporated within that
time frame, the reservation is removed and the name is made available to other
applicants.

85. 84
 Incorporation of a new LLP. Applicant files e-Form 2 which contains the details of the
proposed LLP along with details of the partners and designated partners
 Consent of the partners and designated partners to act in the said role.
 File the LLP Agreement with the Registrar within 30 days of incorporation of the LLP.
Applicant files e-Form 3. According to Section 23 of the LLP Act, 2008, execution of
LLP Agreement is mandatory.
3.6.5 Incorporation by registration:
 When the requirements imposed by clauses (b) and (c) of sub-section (1) of section 11
have been complied with, the Registrar shall retain the incorporation document and,
unless the requirement imposed by clause (a) of that sub-section has not been complied
with, he shall, within a period of fourteen days--
 Register the incorporation document; and
 Give a certificate that the limited liability partnership is incorporated by the name
specified therein.

86. 85
 The Registrar may accept the statement delivered under clause (c) of sub-section (1) of
section 11 as sufficient evidence that the requirement imposed by clause (a) of that sub-
section has been complied with.
 The certificate issued under clause (b) of sub-section (1) shall be signed by the Registrar
and authenticated by his official seal.
 The certificate shall be conclusive evidence that the limited liability partnership is
incorporated by the name specified therein.
3.7 LLP PARTNERS & THEIR RELATIONSHIP
Section 23:
 Save as otherwise provided by this Act, the mutual rights and duties of the partners of a
limited liability partnership, and the mutual rights and duties of a limited liability
partnership and its partners, shall be governed by the limited liability partnership agreement
between the partners, or between the limited liability partnership and its partners.

87. 86
 The limited liability partnership agreement and any changes, if any, made therein shall be
filed with the Registrar in such form, manner and accompanied by such fees as may be
prescribed.
 An agreement in writing made before the incorporation of a limited liability partnership
between the persons who subscribe their names to the incorporation document may impose
obligations on the limited liability partnership, provided such agreement is ratified by all
the partners after the incorporation of the limited liability partnership.
 In the absence of agreement as to any matter, the mutual rights and duties of the partners
and the mutual rights and duties of the limited liability partnership and the partners shall be
determined by the provisions relating to that matter as are set- out in the First Schedule.

88. 87
MODULE 4
4.1 Contract of sale
The contract of the sale of goods is governed by The Sale of Goods Act, 1930. The Act extends
to the whole of India except the state of Jammu & Kashmir. Till 1930, all the transactions
related to the sale of goods was regulated by The Indian Contract Act, 1872. In 1930, Sections
76-123 were replaced by the Act of 1930.
A contract for the sale of goods has certain unusual features such as transfer of ownership of
the goods, delivery of goods, rights and duties of the buyer and seller, remedies for breach of
contract, conditions and warranties implied under a contract for the sale of goods, etc.
These unusualities are subjected to the provisions of the Sale of Goods Act, 1930.
The Act deals with the subject-matter of movable property. This Act does not deal with the
sale of immovable property. The transaction relating to immovable properties, e.g., the sale,
lease, gifts, etc., are governed by a separate Act known as the Transfer of Property Act, 1882.

89. 88
4.1.1 Meaning & concept:
Contract of the sale is an agreement between the buyer and the seller intending to exchange
property. Section 4(1) defines the contract of the sale as – a contract of the sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in goods to a buyer for a
price.
4.1.2 Essential elements of Contract of sale:
4.1.2.1 Seller and buyer:
There must be a seller as well as a buyer. ‘Buyer’ means a person who buys or agrees to buy
goods [Section 2910].’Seller’ means a person who sells or agrees to sell goods [Section
29(13)].
4.1.2.2 Goods:
There must be some goods. ’Goods’ means every kind of movable property other than
actionable claims and money includes stock and shares, growing crops, grass and things

90. 89
attached to or forming part of the land which are agreed to be severed before sale or under the
contract of sale [Section 2(7)].
4.1.2.3 Transfer of property:
Property means the general property in goods, and not merely a special property [Section
2(11)]. General property in goods means ownership of the goods. Special property in goods
means possession of goods. Thus, there must be either a transfer of ownership of goods or an
agreement to transfer the ownership of goods. The ownership may transfer either immediately
on completion of sale or sometime in future in agreement to sell.
4.1.2.4 Price:
Price here means the money consideration for a sale of goods [Section 2(10)]. When the
consideration is only goods, it amounts to a ‘barter’ and not sale. When there is no
consideration, it amounts to gift and not sale.
4.1.2.5 Essential elements of a valid contract:
In addition to the aforesaid specific essential elements, all the essential elements of a valid
contract as specified under Section 10 of Indian Contract Act, 1872 must also be present since
a contract of sale is a special type of a contract.

91. 90
4.2 DIFFERENCES BETWEEN SALE AND AGREEMENT TO SELL
The following are the major differences between a Sale and Agreement to Sell:
Sale Agreement to Sell
1. The ownership rights are transferred to the buyer immediately.
Here, the ownership rights
are transferred to the buyer
only in future.
2. If the goods are destroyed, the loss will fall on the buyer even
if the goods are in the possession of the seller.
If the goods are destroyed,
the loss will fall on the seller
even if the goods are in the
possession of the buyer.
3. If the buyer fails to pay the price, the seller can sue him for
the price.
In a similar case, the seller
can only sue the buyer for
damages.
4. The seller cannot re-sell the goods (if he is keeping
possession). If he does so, the second buyer does not get a good
title.
In case of re-sale by the
seller, the second buyer gets
a good title provided he buys
in good faith. The first buyer

92. 91
Sale Agreement to Sell
can only sue the seller for
damages.
5. It creates 'jus in rem' (right against the world) i.e., right to
enjoy the goods against the whole world.
It creates 'jus in personam'
(right against a person) i.e.,
right to the buyer to sue the
seller for damages.
6. If the buyer becomes insolvent before paying the price, the
seller can get only a rateable dividend from the buyer's estate
towards the price.
If the buyer becomes
insolvent before paying the
price, the seller is not bound
to part with the goods.
7. If the seller becomes insolvent, the buyer can recover the
goods from the Official Receiver.
If the buyer has already paid
the price and the seller has
become insolvent, the former
can claim only a rateable
dividend from the latter's
estate and not the goods.
4.2(a) FIGURE

93. 92
4.3 Warranty and Conditions
In a contract of sale, parties may make certain statements about the stipulation or the course of
trade. These stipulations in the contract of sale are made with reference to the subject matter of
the sale. These stipulations may either be a condition or in the form of a warranty.
The provisions of the conditions and warranty are provided in the sections 11 to 17 of the Act.
The stipulations are the essence of the contract of sale and a breach of these stipulations
provides a remedy to the grieved party.
4.3.1 Stipulations as To Time – Sec 11:
To understand the concept of warranty and conditions, we need to learn about the stipulation
as to time. The stipulation as to time may be with regards to the delivery of goods or it may be
with regards to the payment of price.
4.3.2 Conditions:

94. 93
A condition is a stipulation essential to the main purpose of the contract, the breach of which
gives the right to repudiate the contract and to claim damages. (Sec 12 (2)).
Example:
Say ‘X’ wants to purchase a car from ‘Y’, which can have a mileage of 20 km/lt. ‘Y’ pointing
at a particular vehicle says “This car will suit you.” Later ‘X’ buys the car but finds out later
on that this car only has a top mileage of 15 km/ litre.
This amounts to a breach of condition because the seller made the stipulation which forms the
essence of the contract.
In this case, the mileage was a stipulation that was essential to the main purpose of the contract
and hence its breach is a breach of condition.

95. 94
4.4 TRANSFER OF OWNERSHIP IN GOODS INCLUDING SALE BY NON-
OWNERS
A sale by non-owner in business law occurs when goods are sold by a person who is not the
owner without the owner’s permission. Only the person who owns the title to a piece of
property, whether that is personal property or real estate, can transfer the title to someone
else.
Nemo dat quod non habet is a legal term that’s often abbreviated to nemo dat. It simply
means no one can transfer what they don’t have. As such, a seller can only transfer ownership
to a buyer if he possesses the right to do so. Nemo dat may apply if a seller sells stolen goods
without the rights to them or a buyer purchases stolen goods.
4.4.1 Nemo dat exception:
Nemo dat protects the rightful owner of a piece of property, precluding the innocent
purchaser from maintaining ownership of the title. However, there are several exceptions to
the rule. Each exception is contained in one of the following acts:
 The Sale of Goods Act 1979 (SGA)
 The Factors Act 1889 (FA)
 The Hire Purchase Act 1964 (HPA)

96. 95
When any of these exceptions are enacted, the rightful owner of the property loses ownership
of the title in favor of the purchaser. In essence, these exceptions protect the innocent
purchaser.
Example:
Here’s an example of a scenario where the transfer of ownership to a non-owner may arise:
•Mr. Smith steals a piece of property and sells it to Mr. Jones.
•Mr. Smith sells another piece of property to Mr. Murphy but retains possession of it while
wrongfully selling it again to Mr. Napoli.
•Mr. Smith then passes the property to Mr. Jones in search of an offer for sale. Meanwhile,
Mr. Jones goes on to sell the property without Mr. Smith’s
Authority and maintains the proceeds from the sale.
•Mr. Smith buys the piece of property on credit and resells it to Mr. Jones, with no intention
of paying for the property.
This situation becomes tricky when you pause to consider why the two innocent parties
should suffer at the hands of one deviant.

97. 96
4.5 The Performance of a Sale Contract
The performance of a contract of sale implies delivery of goods by the seller and acceptance
of the delivery of goods and payment for them by the buyer, in accordance with the contract.
4.5.1 Important aspects:
•Delivery of goods
•Acceptance of the delivery
•Payment
•Delivery
4.5.2 Delivery of goods:
Delivery of goods means voluntary transfer of possession of goods from one person to
another. If transfer of possession is not voluntary, i.e., possession is obtained under pistol
point or by theft, there is no delivery
4.5.2.1 Modes of Delivery: