Business law.

Q.1 what is law?

- rules of conduct enforced by the state
- function and duties of the state/govt to enforce


Definition by Holland : law is a rule of external human action enforced by the
sovereign political authority
3 essential characteristics
1) Rules relating to the actions.
2) Attempts to regulate actions.
3) Enforced by the state.


Definition by salmond: law is a body of recognized and applied by the state in
administration of justice.
Features: law is not static. Law are changed or developed to fit the requests of people
in the society.

Need for the knowledge of law:
1) Ignorantia juris not excus at means ignorance of law is no excuse.
2) For the student of business management every business transaction has legal
implications.

Meaning: (business law or commercial law or mercantile law), law relating to trade,
industry and commerce.

Features:
1) Rights and obligations arising out of a business organization.
2) Scope is fairly large and no line of demarcation between business law and others
branches.
3) The contract law is applicable not only to business people but also to all other
persons.
4) No difference in procedure do not form comprehensive code dealing will all
aspects of business activities









Q.2 The Indian contract act, 1872.

- The law relating to contracts
- The law of contract affects every person.

It is divided into 2 broad needs
1) general principal of contract [ section 1 to 75 ]
2) specific kind of contract [ section 124 to 238 ]
3) no sections between 75 & 124
Q.3 FORMATION OF A CONTRACT
For the formation of a contract the process of proposal or offer by one party and the
acceptance thereof by the other is necessary. This generally involves the process of
negotiation where the parties apply their minds make offer and acceptance and create a
contract.
When one person signifies to another his willingness to do or abstain from doing
anything with a view to obtaining the assent of the other to such act or abstinence, he is
said to make a proposal.
When the person to whom the proposal is made signifies his assent thereto, the proposal
is said to be accepted.
In order to convert a proposal into a promise, the acceptance must be
1. Absolute and unqualified Any departure from the terms of the offer or any
qualification vitiates the acceptance unless it is agreed to by the person from
whom the offer comes. An acceptance with a variation is no acceptance; it is
simply a counter proposal.
2. Expressed in some usual and reasonable manner. If the proposer prescribes
any particular manner of acceptance it has to be in that manner and where no
manner is prescribed it should be in a usual and reasonable manner.

Q.4 All contract are agreements but all agreements are not contract
Give reason.

Ans- proposal-sec 2 (a):- when one person signifies to another, his willingness to do or
to abstain from doing anything with a view to obtain the assent of that other to such act or
abstinence he said to make a proposal.

Acceptance-sec 2 (b):- when the person to whom the proposal is made signifies his
assent there for the proposal is said to be accepted a proposal when accepted, become a
promise.

Sec 2 (c):- the person making a proposal called the promisor & the person accepting
the proposal is called the promisee

Agreement sec 2 (e):- every promise and every set of promises forming the
consideration for each others is an agreement.

Sec 2 (h): - An agreement becomes a contract when it is enforceable by law.

Sec 2 (g) :- an agreement not enforceable by law is said to be void.

Proposal- acceptance-promise-agreement-contract.
Hence, all contracts are agreements but all agreements are not contracts.


Q.5 Rules regarding proposal and offer:

1) At the too, a proposal must be a definite proposal/offer by one and unqualified
acceptance by the other.
2) A proposal may be expressed or may be implied. Acceptance can be expressed or
implied.
3) A proposal is to obtain the assent of the other eg: person and the intention is to
create a legal relationship.
4) It should be to a definite person definite class of person or to the world at large.
5) The terms of proposal must be certain.
6) A mere statement of intention is not an offer of. Price list and catalogs. A more
statement of intention is not a proposal but invitation to others to make proposal.
7) Proposal must be communicated to the person to whom it is made.
8) An offer or proposal may be conditional. A proposal may be made subject to
certain conditions.
9) The person to whom a proposal is indented can accept it.

Q.6 Rules regarding acceptance:

1) Acceptance must be an absolute and unqualified. sec. 7 (1) In order to convert a
proposal into a promise the acceptance must be absolute and unqualified.
2) Sec 7(2) - the acceptance must be expressed in some usual and reasonable
manner. Unless the proposal prescribed the manner in which it is to be accepted.
3) Mental acceptance or uncommunicated acceptance does not result in a contract.







Q.7 The communication of proposal acceptance and revocation (Sec. 3
to 8)

A proposal its acceptance and their revocation (withdrawal) in order to be complete must
be communicated.

Sec 3 : The communication of proposal the acceptance of proposal, the revocation of
proposal respectively are deemed to be made by any Act or omission of the party
proposing accepting or revoking by which he intends to communicate such proposal
acceptance or revocation or which has the effect of communicating it. Thus proposal
acceptance and revocation may be communicated by words or by conduct. Acceptance
means communicated.

Sec 4: Rules as to how:
A proposal is communicated (is completed)
An acceptance is communicated (is completed)
Revocation is completed.

1. Communication of a proposal is complete when it comes to the knowledge of the
person to whom it is made.
2. Communication of acceptance is completed when (a) as against the proposal
when it is put in course of transmission to him, so as to be out of the power of the
acceptor. (b) As against the acceptor when it comes to the knowledge of the
proposer.
3. Communication of the revocation it completed (a) as against the person who
makes it, when it is put into the course of transmission (b) as against the person to
whom it is made when it comes to his knowledge.



Sec. 5: When a proposal or acceptance may be revoked.

A proposal may be revoked at any time before the communication of acceptance is
complete as against the proposal but not afterwards.

An acceptance may be revoked at any time before the communication of acceptance is
completed as against the acceptor but not afterwards.

Sec 6: How a proposal can be revoked.

1 By the communication of notice of revocation
2 By the lapse of time prescribed in such proposal fore its acceptance.
3 By the failure of the acceptor to fulfill a condition precedent to acceptance.
4 By the death or insanity of the proposer if the fact come to the knowledge of
the acceptor before accepting.


Q.8 Consideration: Essential element in a contract.

Sec. 2 (d) - Refines consideration as when at the desire of the promise the promisee or
any other person
(i) Has done or abstained from doing something.
(ii) Does or abstains from doing something.
(iii) Promises to do or abstains from doing something.
Then such an act abstinence or promise is called a consideration than promise.

Definition analyzed:

I. At the desire of the promisor:
The act or forbearance must be done at the desire of the promisor. A voluntary
act is not a consideration.

II The promisee or any other person.
Consideration can be furnished by the promisee or any other person it may m ove
from the promisee or a third party. .

In English law, consideration must move from the promisee himself and not from
any other person.

III has done or abstained from doing.
Past consideration. Something wholly does not suffered, before making the
agreement.
In Indian Law past consideration is sufficient to sustain a valid contract. In
English law it has to be either present or future.



IV. Does or abstains from doing.
Consideration may consist either or some act which the promisee does, or of some
omission or for bearance on the part of the promisee or any other person.

Definition by pollock: Pollock defines consideration as the price for which the
promise of the other is bought and the promise thus given for value is enforceable.


Consideration is a important requisite or contract. There as 2 clearly separable part the
promise on one hand and the consideration for the promise on the other hand.

Sec.2 (e) -Every promise and every set of promises forming the consideration for each
other is an agreement.

Sec. 2 (f) - Promises which from consideration or part of the consideration for each other
is called reciprocal promises.
Consideration is a necessity to the validity of a contract. Law insist on the
existence of consideration.

Ex nudo pacto non oritur actio : Law will not enforce a promise given for nothing out
of nacked pact. No cause of action arises.

Consideration need not to adequate.
Anson: Court does not sit to make bargains for the parties, although the act must be done
for some consideration for some value.


Q.9 Points of difference between English and Indian law as regards
consideration:


1 English law, a contract under seal (registered) is binding without consideration Indian
Law has not such distinction. Consideration is a must.

2 English law, consideration must move from promisee only. Indian law, it may move
from promisee or any other person.

3 English law, consideration need not be adequate but must have some value Indian law
as per Sec. 25 natural love and affection is a good consideration.

4 English law, consideration may be present or future. Indian law past consideration
future. Indian law past consideration supports the subsequent promise.


Q.10 VALID CONTRACT

A contract is an agreement which is enforceable by law, Agreement may be valid or may
be valid but contracts are valid or void able.

Sec 10- All agreement are contracts if they are made
1. by the free consent
2. Of the parties competent to contract.
3. For a lawful consideration and lawful object.
4. are not expressly declared to be void.


Ingredients of a valid contract:
1) Free consent Sec. 13 =22
2) Competency of the Parties Sec. 11 & 12
3) Lawful consideration and object Sec. 23 =25
4) Not expressly declared to be void Sec. 26 =30

All these ingredients must be present for a valid contract. They must co-exist with
each other. They must be conjunctive and not disjunctive.

Competency of the parties Sec. 11 & 12:

All the parties must be competent to contract

Sec. 11: Every person is competent to contract who is:

1. Of the age of majority
2. Who is of round mind, and
3. Is not disqualified from contracting.

Q.11 Minors Agreement:

According to Sec-3 of Indian majority Act 1875, a minor is one who has not completed
has 18 years of age, but in cases where a guardian of the minors person or property is
appointed or where the minors property is taken over by the court of words, the majority
continues up to the completion of his 21 years of age. A minor is not competent to
contract:

1. Minors contract is absolutely Void: A minors agreement being absolutely void,
neither he nor the other party acquits any right or incurs any liability under the
agreement. A minor is incapable of giving a promise imposing a legal obligation
upon himself.

2. Rectification of minors contract: Since a minors contract is void, there can be
no question of rectifying it as the consideration given during the minority is to be
no consideration at all.
3. Persons of unsound mind: Sec 12: A lunatic of a person of unsound mind cannot
enter into a valid contract. He is incompetent to contract. Unsoundness of mind
i.e. insanity or lunacy, idiocy, drunkenness, mental unsound mind, are absolutely
void.

Q.12 Free Consent Sec 13 to 22
Free consent is an important ingredient of a contract.
As per Sec. 13 an agreement is valid only when it is the result of free consent of all the
parties, consenting to the same thing in the same sense.

As per Sec 14: consent is said to be free only when it is not caused by
1. Coercion
2. Undue influence
3. Fraud
4. Mis-representation
5. Mistake

1. COERCION Sec 15:
Coercion is committing, or threatening to comorit any act forbidden by the Indian Penal
Code, or the unlawful detaining or threatening to detain any property to the prejudice of
any person whatsoever, which the intention of causing any person to enter into an
agreement.

2. UNDUE INFUENCE Sec 16:
Sec 16 (1) undue influence as A Contract is said to be induced by undue influence
where the relations subsisting between the parties are such that one of the parties is in
position to dominate the will of the other and uses the position to obtain an unfair
advantage over the other.

Sec 16 (2): A person is deemed to be in a position to dominate the will of another:
1. Where he holds a real or apparent authority over the other of
2. Where he stands in a fiduciary authority over the other or
3. Where he makes a contract with a person whose mental capacity is affected.

3. FRAUD Sec 17:
Sec 17 defines fraud as fraud means and includes any of the following acts committed
by (i) a party to a contract or (ii) with his connivance or (iii) by his agent, with intent to
deceive another party, or to induce him to enter into the contract.
1) A false statement intertially made is a fraud.
2) Active concealment of a fact by one having a knowledge or belief of the facts:
3) A Promise made without any intention of performing it.
4) Any other act done to deceive.
5) Any other act or omission as the law specially declared to be fraudulent.
4. MIS REPRESENTATION Sec 18:

Consent given under misrepresentation of facts is no consent at all.
ACC to Sec 18, Misrepresentation means and includes:

1. Positive assertions in a manner not warranted by the act of the person making it.
2. Any breach of duty which without an intent to deceive, gains an advertisement to
the person committing it by misleading another to his prejudice or any one
claiming under him.
3. Causing however innocently another party to make a mistake as to the substance
of a subject matter of the agreement.

5. MISTAKE Sec 20 to 21:
An erroneous belief about something is called mistake. A agreement enforced under a
mistake consent is not face.

Mistakes are of 2 kinds.

1. Mistake of facts Sec 20.
2. Mistake of Law Sec 21

Mistake of facts: Where both the parties to an agreement are under a mistake as to a
matter of fact essential to an agreement, the agreement is void.

1. Bilateral Mistake: Bilateral or mutual mistake as to an existing fact essential to
the agreement tenders the agreement void. Under bilateral mistake, both parties
are under a mistake as to a matter of fact.

2. Unilateral Mistake: A contract is not voidable merely because it was caused by
one of the parties to it being under a mistake as to a matter of fact (Sec 22 ) In
unilateral mistake only one party is under a mistake as to matter of fact., the
agreement is not rendered to be void.

3. Mistake as to identity of a person: Generally, mistake arises as to the identity of
a person. Identity of a person will render a contractvoidable where such identity
is essential to the contract. If the identity of the person is immaterial, mistake will
not avoid a contract, Mistake as to subject matter: when both the parties believe in
existence of certain state of thing as a subject matter, which is reality do not exist,
the contract shall be held to be void.

4. Mistake of law: They are of 2 types (Sec 21) Sec 21 of the act provides that a
contract is not voidable because it is caused by a mistake as to any law in force in
India, but a mistake as to a law not in force in India has the same effect as a
mistake of fact.


Mistake of law in force in India: Mistake on a point of Indian Law does not
affect the contract.
Mistake of law not enforce in India: In treated as a mistake of fact.



Q.13 LAWFUL CONSIDERATION Sec 23 to 25: Consideration and object
must be lawful. Sec 23 states that the consideration or object of an agreement is unlawful
if:

1. If is for bidden by the law
2. It is fraudulent
3. It would defeat the provisions of the law if permitted.
4. It involves of implies injury to the person or property of another.
5. The court regards it as inmoral or opposed to public policy.

Sec 24: If the consideration or object of an agreement is lawful (Partly) and partly under
lawful and the lawful and unlawful portions are inseparable, then the entire agreement is
void.

Sec 25: Agreement without consideration: Consideration is essential for a validity of a
contract nudum pactum (a nacked pact) is unenforceable.


Q.14 Sec 25 lays down the exceptional cases where a contract is
enforceable even though there is no consideration.

1. Sec 25 (1) States : An agreement made without consideration is void unless it is
expressed in writing and registered under the law for the time being in force for
the registration of documents and is made on account of natural love and affection
between the parties standing in near relation to each other.

2. Sec 25 (2) States : An agreement without a consideration is void unless it is
promise to compensate a person who has already and voluntarily done something
for the promised or something which the promisor was legally complellable to do.

3. Sec 25 (3) States : An agreement made without consideration is void unless it is
promise made in writing and signed by the debtor or his agent to pay wholly or in
part, the time bared debt by the law of timitation


A debt bared by law of limitation cannot be recovered unless it is written and signed
promise by the debt or his agent making it enforceable without any fresh consideration.



Q.15 VOID AGREEMENTS Sec 26 to 30

A void agreement is not enforceable by Law. The Indian Contract Act declares
certain types of agreements to be void:

1. Agreements in restraint of marriage: Sec 26 : Every agreement is restraint of
marriage of any person other than a minor is void. Every person has the right to
get married and has right to exercise his choice. Any restraint or interference with
the freedom of choice in marriage is illegal.

2. Agreement in restraint of trade- sec-27: Agreement by which anyone is
restrained from exercising a lawful profession, trade or business or any kind, is to
that extent void.
Fundamental rights under the constitution states the exceptions to their case.
Sale of goodwill of business.
Agreement between partners.
Service agreements.

3. Agreement in restraint of legal proceedings Sec 28 : Any agreement which
prohibits a person from initiating the judicial proceedings in respect of any right is
void to that extent

Exceptions.
Agreements to refer future disputes to the arbitrations.
Agreements to refer pending disputes to the arbitrations.

4. Uncertain agreements Sec 29: An agreement meaning of which is not certain
or not capable of being made certain, are void agreements.

5. Agreements by the way of wager Sec 30 : Such agreements are void. A wager
is an agreement by which money is payable by one person to another on the
happening or non happening of a future uncertain event such as gambling, gaming
or wagering. One looses and the other wins, upon a future uncertain event. No
suit can be brought for recovering any thing alleged to be won or any wagery.

6. Agreements to do an impossible act Sec 56 : An agreement to do an
impossible act in itself is void.



Q.16 Contingents contracts:

Sec 31 defines contingent contract as A contingent contract is a contract to do or not to
do something, if some event, collateral to such contract, does or does not happen.

Essentials Characteristics of a Contingent Contract:
1. There should be existence of a contingency, happening or non happening of some
event in future.
2. Contingency must be certain.
3. The event must be collateral incidental to the contract.

Illustration:
As contract to pay B Rs. 10000 if Bs house is burnt. This is a contingent contract.
A conditional or contingent contract is one in which a promise is conditional and the
contract shall be performed only on the happening or not happening of some future
uncertain event.

Q.17 PERFORMANCE OF CONTRACTS:

Contracts create legal obligations. Performance means carrying out all these
obligations. Rules regarding performance of contract can be studied under the following
broad heads:

1. By whom contracts must be performed?

The parties to a contract must either perform at offer to perform their respective
promises, unless such performance is dispensed with or excused under the provisions of
this Act, or of any other Law. (Sec 37)
Persons who should perform the Promise:
1) In case of a personal contract by the promisor personally.
2) In case of Non Personal contracts:
by the promisor personally.
By the third person on behalf of promisor.
In the event of the death of promisor by his legal representatives.

3) In case of joint promisors- by the promisors jointly or third person on behalf of
the permisors or their legal representatives.


2. Time and place for performance:

Where no time is specified, act must be performed within a reasonable time, when
time is specified, the promisor may perform it may time during the usual hours of
business on such day and at such place at such place at which the promise ought to be
performed. The performance of any promise may be made in any manner or at any time
which the promise prescribes or sanctions.

Time as essence of the contract: where time is essential and the party fails to do any
such this before the specified time, the contract becomes voidable at the option of the
promises.

Where time is nest essential, the contract does not become voidable, but the promisee is
entitled to compensation for any loss suffered by him. Whether time is the essence of the
contract or not depends on the intention of the parties or the terms of the contract.

If the promises accepts performance at any time other than that agreed, the promises can
claim compensation only if he has given notice of his intention to do so to the promisor.

3. Performance of reciprocal promises:
Promises which form consideration or part of the consideration for each other is
called reciprocal promises.

Recirocal promises must be simultaneously performed. (Sec 51)

If the order in which reciprocal promises are to be performed is specified, they
shall be performed in the order. (Sec 52)

In case of dependent promises where one cannot be performed till the other is
performed its performance cannot be claimed till the other has ben performed
(Sec 54).

When one party to a contract prevents the other from performing his promise the
contract become voidable at the option of the party so prevented (Sec 53).

Where persons reciprocally promise directly to do certain thing which are legal
and 2ndly certain things which are illegal, the first set of promise is a contract, but
the second set is a void agreement (Sec 57).

4. Performance of alternative promises:
In the case of alternative promises, one branch of which is legal and the other
illegal, the legal branch only can be enforced (Sec 58).

Illustration:
A & B agree that A shall pay and Rs. 1000 for which B shall after words deliver to A
either rice at smuggled opt6ion.
The contract is valid as to the delivery of rice and void as to the delivery of the opium.


5. Appropriation of Payments:

Appropriation means application of payments. The rules of appropriation of
payments are as under:

1. The debtor has a 1
st
right to intimate appropriation of a debt at the time of
payment. The creditor, if he accepts, shall then apply the creditor, if he accept,
shall then apply the payment accordingly.
2. If the debtor fails to exercise his right, the right than devolves on the creditor to
appropriate the payment to any lawful debt through barred by the law of
limitation.
3. If the creditor also fails to exercise his rights, the appropriation will be done in
order of time.
4. In case of debts of equal standing each will be appropriated proportionately.

The above rules of appropriation of payment would apply to separate and distinct
debts and not where there is only one debt though payable in installments.

6. Modes of discharge of contract:
Discharge of contract means termination of contract. By discharges, the rights and
the obligations of the parties come to an end. The discharge of contract could be in any
of the following ways.

1. By performance.
2. Death of promisor discharges the contract of the personal skill or ability.
3. Where one party refuses to accept the offer of performance the other party is
discharged.
4. By breach of contract. Breach of contract may be actual breach or anticipatory
breach.


Q.18 ANTICIPATORY BREACH OF CONTRACT:

When a party to a contract refuses to perform his part of the contract before the
actual time of the performances of contract is due, it is called an anticipatory breach of
contract it is called an anticipatory breach of contract

Anticipatory breach of contract may be

1. By repudiation of the contract: When a party communicates his inability to
perform his part of the contract before the fixed times for the actual performances
is due, he is said to have expressly repudiated the contract.
2. By impossibility of performances: When the breach takes places by either party
to the contract by his own voluntary act, which makes performances of the
contract impossible anticipatory breach of contract is committed by impossibility
of performances.

In case of anticipatory breach, the aggrieved party has the following remedies.

1. He may elect to rescind the contract, e.g. treat the repudiation as an immediate
breach putting an end to the contract and immediately sue for damages or.

2. He may treat the contract as still operative and subsisting and wait for the time of
performances when the contract is to be executed and then hold the other party
responsible for all the consequences of non performances.

In this case, the contract remains operative for benefits of the both the parties.

Q.19 QUASI CONTRACT:

Contractual obligations are voluntarily created by free consent through proposal
and acceptance. In some cases, some obligations though not contractual but treated as
contractual by law.

In fast there is no contract but there is one in contemplation of law i.e. quasi
contract law of quasi contract, is also known as the law of restitution.

Sec. 68 to 72 deals with five kind of quasi contractual obligations. They are as
follower:


1. Claim for necessaries supplied to a person incapable of contracting Sec. 68:
If a person in capable of entering into a contract or any one who he is legally
bound to support is supplied by another person with necessary suited to his condition in
life, the person who has furnished such supplied, is entitled to be reimbursed from the
property of such in capable person.

Illustration: A supplies B a Lunatic with necessaries suitable to his condition in
life. A is entitled to be reimbursed from Bs property.

2. Reimbursement of many paid in which he is interested (Sec 69)
A person, who is interested in the payment of the money which another is bound
to pay by law, and who therefore pays it, is entitled to be reimbursed by the other.

Illustration:
B hold land in Bengal, on a lease granted by A the reminder. The revenue
payable by A to the Govt. being in arrear, his land is advertised for sale by the Govt.
under the revenue law, the consequences o f such sale will be annulment of the Bs lease.
B to prevent the sale B the consequent annulment of his own lease, pays the Govt. the
sum due from a. A is bound to make good the B the amount paid so.



3. Obligations of person to pay for enjoying benefit of non gratuities act Sec. 70
Where a person lawfully does something for another or delivers anything to him,
not intending to so graduating and such other person enjoys the benefit thereof, the later
is bound to make compensation for the further.

Illustration:
A, a tradesman, leaves goods at Bs house by mistake, B treats the goods as his
own. He is bound to pay A for them.

4. Responsibility of finder of goods (Sec. 71).
An agreement is implied by law where a person finds goods belonging to another
and takes them into his custodies, he is subject to the some responsibility as a bailee, its
his responsibility to care of the goods and try to find out the true owner, he is entitled to
its possession as against everyone except the true owner.

5. Payment or delivery of mistake or under coercion (Sec,72)
A person whom money has been paid or anything delivered by mistake or under
coercion must repay it or return it.

E.g. A & B jointly owe Rs. 100 to C. A alone pay the amount to c and B not
knowing this facts, pay Rs. 100 over again to C. C is bound to repay the amount to B.

Further as per sec. 73 the rights and liabilities of partners to a quasi contract are
the same as if they willingly? IN fact entered into such a contract.


Q.20 Termination of agency (Sec. 201 .210)
Agency may be terminated in any of the following ways.

By Acts of parties.
By operation of law

1) By acts of parties:

1. By Agreement: Agency may be terminated by the parties by an agreement at
any time by mutual consent.

2. By Revocation: The principal may be notices, revoke the authority, of an
agent.

3. By renouncing: The agency may, by notices, renounce the business of
agency.

Sec. 205: Where there is an express or implied agreement to continue the agency for any
length of time, and the contract is revoked or renounced without sufficient cause,
compensation must be paid to the injured party.

2) By operation of law:

By death of insanity : When the principle or agent dies, or becomes of unsound
mind the agency is terminated.
By involving of principle: When the principle is declared insolvent under the
provision of any Act for the time being in force for the relief of insolvent debtors
the agency is terminated.
By efflux of time: Where an agency is for a fixed period of time, it is terminated
on the expiry of time whether the purpose for which agency was constituted is
accomplished or not.
Determination of subject matter: When the subject matter of the agency is
determination to be destroyed, the agency is terminated. Performance of the
object: when by the happening of an event which renders agency or its object
unlawful, the agency is terminated.
By incapacity of principle or agent: Where a principle or an agent possesses any
disqualification essential to a contract agency is terminated.

Sec 208: The termination of the authority of an agency takes effect as regards the agency
from the time it becomes known to him. As regards third parties it becomes effective
when they know it.




Principle can not revoke the authority of an agency if:

When the agency has exercised his authority fully or partially the principal can
not revoke the acts already done.
The agent has an interest in the subject matter of the contract, his authority can
not be revoked so as to prejudice that interest.

Q.21 Continuing Guarantee:

As per Sec. 126 of Indian contract Act a contract of guarantee also known as a contract of
surety ship is a contract to perform the promise or discharge the liability of third party
peers on in case of his defaults.

There as 3 parties: Surety The person who gives the guarantee. Principle debtor the
person in respect of whose default the guarantee is given and creditor. The person whom
the guarantee is given. A guarantee may be oral or written.

Continuing guarantee: Sec. 129: A guarantee which extends to a series of transactions
is called a continuing guarantee, single transaction it is simple guarantee.

Illustration: An in consideration that B will employ C in collecting the rents of Bs
reminders promises B to be responsible to the amount of Rs. 5000/- for the due collection
and payment by C of those rents. This is a continuing guarantee.
Revocation of continuous guarantee: By notice: A continuing guarantee may at any
time be revoked by the surety as to future transactions by notice to the creditor. Sec. 130
surety continues to be liable for transaction entered into prior to the notice.


By notice: Illustration: A guarantee to B to the extent of Rs. 10000/- that C shall pay all
the bills that B shall draw upon him B draws upon C. C accepts the bill A gives notice
of revocation C dishonors the bills on maturity. A is liable upon his guarantee.

3) By death of the surety (Sec 131) the death of the surety operates in the
absence of the contract to the contrary as a revocation for future
transaction. Estate of the surety is liable for all transactions interact into
prior to his death. It is not necessary that creditor must have notice of
surety death.









Q.22 Partnership Act


Definition: Section 4 on the Indian Partnership Act defines it as The relation
between persons who have agreed to share the profits of a business carried on by all or
any one of them acting for all.

Persons who have entered into partnership with one another are called individually
partners and collectively a firm and the name under which their business is carried on,
is called the firm name.

Essentials of Partnership:

1. Relationship: The relation between the partners is abstract in a partnership firm.
2. Minimum and Maximum number: Minimum number to constitute a partnership is
Maximum number in case of partnership firm carrying on banking business must
not exceed to and in case of non-banking business it mush not exceed 20.
3. Agreement: Partnership arises out of an agreement but not out of status. Such
agreement may be expressed or implied. It may be oral or written. It contains
details relating to:-
Name of the firm and the name of the partners.
Nature and place of the business.
The date of commencement and the duration of the partnership.
Capital and banking account.
Sharing of profits and losses.
Management and accounts.
Arbitration, etc.

4. Business: The object pf the partnership is to carry on any business i.e. trade,
occupation and profession, such business must be lawful. More holding of
property in common is not partnership. E.g. Co-ownership.
5. Profit Sharing: A partnership firm is formed for the purpose of earning profits and
this profit must be shared by all the partners depending upon the agreement.
Profits can be shared equally or the basis of capital contribution.
6. Carried on by all or any one of them acting for all: Each partner acts as an agent
for each other and Principal for themselves in the firm. Since a partner is also
bound by the acts of the other partners, he can be called the principal. Thus, the
law of partnership is a branch of the general law of agency as every partner has
implied power to bind other partners for the acts of the firm, done in the course of
conduct of the business.





Q.23 TYPE OF PARTNERSHIP:

1. Partnership for a fixed term: The partners are free to fix the duration of the
partnership where partners have agreed to carry on the business for a definite period
of time, the partnership is said to be for a fixed period. It shall come to an end only
after the expiry of the stipulated period. However, where the partners continue the
business even after of the stated period, the partnership gets converted into
partnership at will.

2. Partnership at will (Sec 7 & Sec 43). Where no provision is made by contract
between the partners for the duration of their partnership, or for the determination of
their partnership, the partnership is partnership at will. It has two
characteristics.

There is no provision in the contract between the partners for duration of
the partnership.
There is no provision in the contract for determination or termination of
the partnership. This partnership has no fixed or definite date of
termination and therefore, death or retirement of any of the partners does
not affect the existence of partnership.

3. Particular Partnership (Sec 8). A person may become a partner with another person
in particular adventure or undertakings (Sec 8). When two or more persons agree to
do business in particular adventure or undertaking such partnership is called
Particular Partnership.



Q.24 KINDS OF PARTNERS:

Active or Actual Partner: He is the person who is actively, actually or effectively a
partner. He conducts the business of the firm. He is the agent of the other partners
and has authority to bind the firm and the other partners in the ordinary course of
business. He is liable for the debts of the firm.
Dominant or Sleeping Partner: He takes no active interest in the affairs of the firm
and in conducting the business of the firm. He invests capital and shares profit of the
firm. To the third party, he is unknown, but he is liable for the debts of the firm like
an actual partner.
Normal Partner: A person who lends his name to the firm without taking interest in
the affairs or management of the firm is called a nominal partner, unlike sleeping
partner, he is known to the world. He however, does not share the profits of the firm
nor does he invest in the business of the firm. He is however, liable for all acts of the
firm.
Partner by Estoppel: When a person behaves in such a manner that he other person
feels he is a partner of the firm, he is known as Partner by Estoppel. In reality, he is
not a partner but he wrongly admits that he is a partner of the firm. If the third party
lends loan to the firm on his behavior and it the firm is unable to pay, the 3
rd
party can
recover the money from partner by Estoppel.
Partner by Holding out: He is actually not a partner of the firm as he does not
contribute any capital nor does he participate in the management of the firm. He is
one who is declared as a partner though he does not positively expresses himself as a
partner

E.G When a person asks another person whether A is a partner in the firm and the other
person neither says yes nor No, his silence is an indication that A is a partner and such
a partner is known as partner by holding out. The liability of such a partner is unlimited.

Q.25 REGISTRATION OF THE FIRM:

The Indian Partnership Act does not provide for the compulsory registration of the firm.
If has left it to the option of the firm to get themselves registered. But indirectly by
creating certain disabilities to a non-registered firm, it has forced the partners to get he
firm registered at one time or the other.

Procedure for Registration: For registering a partnership firm, the partners have to first
of all approach the register of partnership firm appointed by the Govt. of India. An
application form is to be then obtained from the registrar Office and complete
information about the partners and the firm should be given in this application form. The
information to be submitted are:
Name and Address of the Partnership firm.
Name and Address of the Partners.
Nature of Business.
Type of Partnership.
Capital contributed by the partners.
Profit sharing ratio, etc.


The application form should be duly signed by all the partners. Along with this firm, the
partners have to submit Partnership Deed, and if satisfied will be issued a certificate of
Registration by the Registrar. Once the certificate is obtained, it means the firm is
registered.

Q.26 EFFECTS OF NON REGISTTRATION (Sec 69).

1. Suits between partners and firm: A partner of an unregistered firm cannot sue the
firm or any partners of the firm to enforce a right arising from a contract or conferred
by Partnership Act.
2. Suits between firm and third parties: An unregistered firm can not sue a third party to
enforce a right arising from a contract until:
3. the firm is registered and
4. The name of the person suing appears as partner in the Register of Firm.
5. No right to counter claim or set-off: An unregistered firm or any partner thereof
cannot counter claim or set-of in a proceeding instituted against the firm by a third
party to enforce a right arising from a contract, until the registration of the firm is
effected.

Q.27 RIGHT OF THE PARTNER:

1. Right to take part in business: Every partner has a right to take part in the
conduct and management of the business. (Sec 12 a)
2. Right to be consulted: Every partner has an inherent right to be consulted in all
matters affecting the business or the partnership and express his views before any
decision is taken by the partners.
3. Right to access to Accounts: Every partner has a right to have access to and
inspect any copy any of the books of the firm. (Sec 12 d).
4. Right to share the profits: In the absence of any agreement, the partners are
entitled to share equally in the profits earned and are liable to contribute equally
to the losses sustained by the firm.
5. Right to indemnify: a partner has authority, in an emergency, to do all such acts
for the purpose of protecting the firm from loss as would be done by a person of
ordinary prudence, in his own case, acting under similar circumstances. Such acts
of the partner bind the firm. If as a consequence of any such act, the partner
incurs any liability or makes any payment, he has a right to be indemnified.
6. Right to interest on Capital: The partnership agreement may contain a clause as
to the right of the partners to claim interest on capital at a certain rate. Such
interest, subject to contract between the partners, is payable only out of profits, if
any, earned by the firm.
7. Right to Interest on Advances: where a partner makes, for a purpose of the
business of the firm, any advance beyond the amount of capital, he is entitled to
interest.
8. Right to use of partnership properly: Subject to contract between the partners,
the property of the firm shall be held and used by the partners exclusively for the
purpose of the business of the firm.
9. No New Partner to be introduced: Every partner has to right to prevent
introduction of a new partner unless to consent to that or unless there is an express
term in the contract parenting such introduction. This is because partnership is
found on mutual trust and confidence.
10. No liability before joining: A person who is introduced as a partner into a firm is
not liable for any act of the firm done before he becomes a partner.
11. Right to retire: A partner has a right to retire (a) with the consent of all other
partners, or (b) in accordance with an express agreement between the partners, or
(c) where the partnership is at will, by giving a notice to all the other partners of
his intention to retire.
12. Right of partner as Agent of the firm: Every partner for the purpose of the
business of the firm is the agent of the firm.


Q.28 DUTIES OF THE PARTNER

The duties are spread over the partnership Act. These duties are summed a sunder:

1. To carry on business to the greatest common advantage: Every partner is bound to
carry on the business of the firm to the greatest common advantage. He is bound,
in all transactions affecting the partnership, to do his best in the common interest
of the firm.
2. To observe faith: Partnership is a fiduciary relation. Every partner must be just
and faithful and observe utmost good faith towards every other partner of the
firm.
3. To indemnify for fraud: Every partner is bound to indemnify the firm for any loss
caused to it by his fraud in the conduct of the business of the firm.
4. To attend diligently: It is the duty of every partner to attend diligently to his duties
in the conduct of the business of the firm. (Sec 12 b) and to use his knowledge
and skill to the common advantage of all the partners.
5. Not to claim remuneration: A partner is not entitled to receive any remuneration
in any form for taking part in the conduct of the business of the firm. It is
however, usual to allow some remuneration to the working partners provided
there is a specific agreement to that effect.
6. To indemnify for willful neglect: Every partner is bound to indemnify the firm for
any loss caused to it by his willful neglect in the conduct of the business of the
firm.
7. To share losses: It is the duty of every partner to contribute to the losses of the
firm. In the absence of an agreement to the contrary, the partners are bound to
contribute equally to the losses sustained by the firm. An agreement to share
profits implies an agreement to share losses also.
8. To use partnership Property: It is the duty of every partner of the firm to hold and
use the property of the firm exclusively for the purposes of the business of the
firm.
9. To account for personal profits: If a partner derives any benefit, without the
consent of the other partners, from the partnership transaction, he must account
for it and pay it to the firm. This is because the relation between partners is a
fiduciary relationship and no partner is entitled to make any personal profits.
10. To account for profits in competing business: A partner must not carry on any
business of the same nature as competing with that of the firm. If he does that he
is bound to account for and pay to the firm all profits made by him in that
business.
11. To act within authority: Every partner is bound to act within the scope of his
actual or implied authority. Where he exceeds the authority conferred on him and
the firm suffers a loss, he shall have to compensate the firm for any such loss.
12. To be liable jointly and severally: Every partner is liable, jointly will all the other
partners and also severally, for all the acts of the firm done while he is a partner.
13. Not to assign his rights: A partner cannot assign his rights and interest in the firm
to an autsider so as to make him the partner of the firm. He can, however, assign
his share of the profits and his share in the assets of the firm.

Q.29 MINOR AS a PARTNER:

According to Sec 11 of the Indian Contract Act, on agreement by or with a minor is void.
As such, he is incapable of entering into a contract of partnership. But with the consent
of all the partners for the time being, a minor may be admitted to the benefits of
partnership.

The positions of a minor partner may be studied under the following two heads:
1. Position before attaining majority:

Rights:
1. He has a right to such share of the property and of profits of the firm as may have
been agreed upon.
2. He has right to have access to and inspect and copy any of the accounts, of the
firm [Sec 30 (2)] but not the books.
3. When he is not given his due share in profits, he has a right to file a suit for his
share of the property of the firm. But he can do so only if re wants to serve his
connection with the firm. [Sec 30 (4)].

Liabilities:

1. The liability of the minor partner is confined only to the extent of his share in the
profits and property of the firm. Over and above this, he is neither personally
liable not is his private estate liable. [Sec 30 (3)].
2. He cannot be declared insolvent, but if the firm is declared insolvent, his share in
the firm vests with the official Receiver or Official Assignee.
2. Position on attaining majority:
On attaining majority, the minor has to decide within 6 months whether he shall
continue in the firm or leave it. These 6 months run from the date of his attaining
majority or from the date when he comes to know first that he has been admitted to the
benefits of partnership, whichever date is later. Within this period, he should give a
public notice of his choice to become, or not to become, a partner in the firm. If he
fails to give a public notice, he is deemed to have become a partner in the firm on the
expiry of the said 6 months [ Sec 30 (5)]. The burden of proof that he had no knowledge
of his admission until a particular date after the expiry of 6 months of his attaining
majority lies no the person asserting that fact. [ Sec 30(6)].

1. Where he elects to become a Partner:

He become personally liable to the third parties for all acts of the firm done
since he was admitted to the benefits of partnership.
His share in the property and profits of the firm is the share to which he was
entitled as a minor partner. [ Sec 30 (7) ].

2. Where he elects not be become a partner:

His rights and liabilities continue to be those of a minor till the date of the
notice.
His share is not liable for any acts of the firm done after the date of the public
notice.
He is entitled to sue the partners for his share of the property and profits in the
firm. [ Sec 30 (8) ]

Q.30 DISSOLUTION OF FIRMS:


Section 39 of Indian Partnership Act lays down that the dissolution of partnership
between all the partners of a firm is called Dissolution of the firm.

Dissolution of a firm is different form dissolution of partnership:

In dissolution of firm, the relationship between partners comes to an end or ceases. It
implies complete break-down of relations of partnership between all partners.
On the other hand, Dissolution of partnership involves a charge in relationship of the
partners and a new firm is reconstituted.

Dissolution of partnership takes place on the happening of certain contingencies.
A partnership is dissolved by:

The death of the partner.
The completion of the adventure of the partnership.
The insolvency of a partner, and
The retirement of a partner.
In all these cases, the remaining partners may constitute the firm. Hence, dissolution of
partnership does not necessarily involve dissolution of the firm. If they do not continue,
the firm is dissolved automatically.


Q.31 MODES OF DISSOLUTION:

Dissolution of a firm may be brought about either by:
Voluntary acts of the partner i.e. without interference of the court. ( Sec 40 42).
Order of the court ( Sec 4).

I. By Voluntary Acts of The Partners:

A) By Agreement: (Sec 40)

A firm may be dissolved:
With the consent of all the partners, or
In accordance with a contract between the partners. The contract may be
expressed or implied.

B) By Compulsory Dissolution: (Sec 41)
By insolvency of all the partners except one, or
By the business of partnership becoming illegal or unlawful by subsequent events.

C) On the happening of certain contingencies (Sec 42):
Subject to the contract between the partners under the foll circumstances, the firm is
dissolved.
If the firm is constituted for a fixed term, then by expiry of that term. However,
the authority of the partners continues for the purpose of winding up.
If the
firm is constituted to carry out one or more adventures or undertaking, then by
completion thereof.
By the death of a partner.
By insolvency of partner.

D) By Notice: ( Sec 43).

I) In case of partnership at will, the firm may to dissolved by any partner giving a
notice to the other partners of his intention to dissolve the firm. But the notice must be in
writing and unambiguous. Once given, it cannot be withdrawn, the firm is dissolved
from the date mentioned in the notice, or if the date is not mentioned, from the date of the
communication of the notice.

II. By order of the Court (Sec 44) The essential element to be noted here is that only on
the suit by a partner, the court will interfere and order the dissolution of the firm on any
of the following grounds:
That a partner has become of unsound mind.
That a partner has become permanently incapable of performing his duties.
That a partner is guilty of conduct which is likely to affect prejudicially, the
carrying on of the business.
That a partner persistently commits breach of agreement, for instance, a firm is
dissolved when (i) a partner commits breach of trust, or (ii) takes away the
partnership books, etc.
That a partner has transferred his interest to a third party or allowed his share to
be charged or sold in the recovery of arrears of land revenue.
On any other ground which renders it just and equitable that he firm should be
dissolved.
That the business of the firm cannot be carried on, save at a loss.







Q.32 COMPANIES ACT 1956


Meaning and definition:

The word company ordinarily means an association of a number of persons for some
common purpose. Sec 3(i) (i) of the Companies Act 1956 defines a company as A
company formed and registered under this act or an existing company. An existing
company means a company formed and registered under any of the former Companies
Act.
But Heneys brief definition brings out clearly many of the characteristics of a company.
He defines A Company is an incorporated association which is an artificial person
created by law, having a separate legal entity with a perpetual succession and a common
seal.

Characteristics of a Company:
1. Registration: A Company is an in corporated association i.e. registration of a
company is compulsory. All the companies whether private Ltd or public Ltd
must get registered as per the provision of Indian Companies Act,1956
Registration is a must in a case of Limited company.
2. Separate legal entity: A company is a artificial person created by law. It enjoys
separate legal status. It can by or sell any property and it can also enter into a
contract like any other person.
3. Perpetual Succession: A company has a or enjoys continuity i.e. perpetual
succession. Death insolvency and insanity or any change in its membership does
not affect its continuity. It is said, Men come and go, but company goes for
ever.
4. Limited Liability: The liability of the member of the company having share
capital is limited to the extent of the nominal of share held by them. Shareholders
can not be called upon to pay more than the unpaid value of his shares, whatever
may be the level of indebtness of the company. In case of Guarantee Company
the liability of members is limited to such amount or as the members may
undertake to contributes to the assets of the company.
5. Common Seal: The company being an artificial person cannot sign its name on a
contract. The common seal is used as a substitute for its signature. The common
seal bears the name and place of the company and date of its incorporation
engraved on it.
6. Separate Property: A company has every right to acquire as well as transfer the
property in its own name, as it is a legal person. No shareholders has any legal or
equitable interest in the property of the company.
7. Transfer of Shares: The shares of the company are freely transferable from one
person to another except in case of private company.
8. Capacity to sue and be sued: As a legal person it can sue and be sued in its own
name.


Q.33 KIND OF COMPANIES:

On the basis of Incorporation:
1. Chartered Company: Companies set up as a result of a royal Charter granted
by a kind of queen of a country are known as chartered companies. E.g. East
India Company, the Bank of England, etc.
2. Statutory Company: Companies set up by Special Acts of Parliament or
State Legislature are called statutory companies. 100 % capital is contributed
by the Government. Reserve Bank of India, UTI , LIC , etc.
3. Registered Company: Companies registered under the Indian Companies Act
1956 at under any of the previous companies Acts are called registered
companies. Most of the companies in India, being to this category.
4. Licensed Company: Companies established for the promotion of arts,
Science, religion, Charity or any other similar object can obtain license under
Sec 25 from the Central Govt. and enjoy certain privileges. Such companies
are called licensed companies.
5. Foreign Company: A company incorporated outside of India under the Laco
of the country of incorporation but having established its business in India is
called a foreign Company.

On the basis at liability:
1. Companies with limited liability: in case of such company, the liability of the
share holders are limited to the extend of nominal value of share held by them
i.e. in case of loss, the personal property of the shareholder cannot be utilized
for settlement of the business debts.
2. Companies with unlimited liability: In such companies, the liability of its
members is unlimited. In other words, their liability extends to their private
properties also unlimited companies are almost non existent these days.
3. Company limited by guarantee In a guarantee company, the liability of
shareholder is limited to the amount he has voluntarily undertaken to
contribute towards the assets of the company to met out any deficiency at the
time of it winding up. Such company may or may not have a share capital.

On the basis of Number of members:

1. Private Company: As per Section 3 (i) (iii), a private company means a
company which by its article, restricts the right to transfer of its members to
so and prohibits invitation shares from the public.
2. Public Company: According to Section 3(i) (iv): A public company means a
company which is not a private company.

On the Basis of Control:
1. Holding Company and Subsidiary Company: A company which holds more than
50 % of the paid up share capital of the company is known as Holding Company.
{Sec. 4(4)}. The Company whose shares are held by another company is known
as subsidiary company. [ Sec 4(1)]
2. A holding company controls the working of a Subsidiary Company.


E) On the Basis of ownership:

1. Government Company: Ref. (Sec 617): A Govt. Company means any company is
which not less than 51 % of the paid up share capital is hold by the Central
Government or by any State Government or Governments, or partly by one or
more State Governments and includes a company which is a subsidiary of a
Government Company.

Q.34 Privileges and exemptions enjoyed by Private Companies:

2. A Private Company can be registered with a minimum of two members.
3. It is entitled to commence business immediately of the incorporation.
4. It is not required to issue a prospectus.
5. It is not required to hold a statutory meting.
6. It can proceed to allot shares before minimum subscription is received.
7. Restrictions on further issue of capital do not apply to private company.
8. The minimum number of directors of a private company is only Two.
9. It is not necessary for the directors to file a written consent to act as director, to
the Registrar.
10. It is not necessary for Directors to take up qualification shares.
11. It is not required to maintain a separate index of members.
12. 2 members present can form a quorum in any meting of a private company.
13. The directors are not liable to retirement by rotation.
14. The restrictions regarding remuneration of directors are not applicable to the
private companies.
15. Restrictions regarding appointment of Managing Directors for mote than 5 years
at a time are not applicable.


Q.35 INCORPORATION OF A COMPANY:

A company is said to have been incorporated or registered when it gets the Certificate of
Incorporation from the Registrar of Companies. Certain steps have to be taken any
necessary legal formalities completed for that purpose. The steps and formalities
required for the incorporation of company varies according to type of the company
concerned.

Steps for the Incorporation of a Public Company Limited by Shares:

1. Application for approval of name: The first step is to obtain approval of the
Registrar of Companies for the proposed name with which the company is to be
registered. A company may adopt any name which is not prohibited under the
Emblems & Names Act, 1950 and which is not identical with or does not closely
resemble the name of the company already registered.
2. Preparation of Memorandum of Association: The next step is to prepare the MOA
of the Company. If is the constitution of the company which defines the objects and
slope of the companys activities and its relation with the outsi8de world.
3. Preparation of Article of Association: It is the documents containing the rules and
regulations relating to the internal management of the company.
4. Printing, Signature and Stamping of MOA & AOA: The next step is to arrange
for the printing signature and stamping of the memorandum and articles.
5. Preparation of other Documents:
Power of Attorney.
Preliminary Agreements, if any
Consent of the Directors in From No. 29
Particulars of the Directors in Form No. 32
Notice of Registered Address in form No. 18.
Statutory Declaration.

6. Filling of Documents for Registration: The following documents are to be filled
with the Registrar along with the registration fee for registering the company.
MOA printed and duly signed.
AOA printed and duly signed.
Name availability letter received from the Registrar of Companies.
Consent of the Directors in form NO. 29
Particulars of Directors in form No. 32.
Notice of Registered Address in form No. 18.
Power of Attorney empowering the attorney of the promoters.
A declaration that all the requirements of the companies Act 1956 and the
rules there to have been compiled with in respect of registration.

7) Certificate of Incorporation: When the requisite documents are filed with the
Registrar, the Registrar shall satisfy himself that the statutory requirements regarding
registration have been duly complied with. If the Registrar is satisfied as to the
compliance of statutory requirement, he retains and registers the MOA, AOA and other
documents filed with him and issues a Certificate of Incorporate i.e. of the formation of
the company. A company comes into existence as a legal person upon the issue of the
certificate of incorporation.










Q.36 MEMORANDUM OF ASSOCIATION:

The MOA is the charter of the company and provides the foundation on which the
structure of the company is built. It defines scope of the companys activities as well as
its relation with the outside world.

Definition:
Sec 2(28) of the Companies Act defines a memorandum as, the MOA of a company as
originally framed or as altered from time to time in pursuance of any previous Company
Law or of this Act.

Sec 13 of the Act specifies the content of the memorandum.

The importance of MOA is that it lays down the ambit of the powers of the company, the
area within which the company can operate and beyond which it cannot go.

The MOA must be (a) Printed (b) divided into paragraphs, numbered consecutively and
(c) signed by each subscriber.

CONTENTS OF THE MEMORANDUM:

a. Name Clause: The Memorandum of every company must state the name of the
company with the word Limited as the last word of the name in case of Public
Limited Company and with Private Limited as the last word of the name in case of
Private Limited Company.
b. Object Clause: The memorandum must include under this clause:
The main objects of the company and objects incidental or ancillary to the main
object.
Any other object.
The object clause lays down the scope of activities of the company and defined
the extent of its power.
c. Domicile or Situation Clause: This clause mentions the name of the state in which
the registered office of the company is situated. This determines the jurisdiction of
the Court and indicates the domicile and nationality or the company.

d. Liability Clause: A Limited company has the liability of its member limited to the
face values of the shares hold by them. Liability clause of MOA contains a clear
statement to this effect. The effect of this clause is that no member can be held liable
for debts of the company beyond the amount which he has agreed to contribute to the
share capital of the company. Similarly, in case of company Limited by Guarantee,
the liability of the members is limited to the amount of guarantee given by him.

e. Capital Clause: In case of a limited company, having share capital, the Companies
Act requires that the MOA shall state the amount of share capital with which the
company is to be registered and the division thereof into shares of a fixed amount. [
Sec 13 (4) ]. This is the maximum share capital that he company is authorized by the
memorandum to raise. Hence it is called as the authorized or nominal capital.

f. Association Clause: Under this clause, the subscribers to the MOA express their
assent to form a company and signify their agreement for that purpose.

Q.37 ALTERATION OF MEMORANDUM:

1) Alteration Of name Clause:
A Company may change its name by a special resolution and with the approval of the
Company Law Board (CLB) signified in writing. But a change of name which merely
involves the deletion or addition of the word Private on the conversion of a private
company into a public company or vice-versa does not require the approval of the CLB.
If through inadvertence or otherwise, a company is registered by a name which in the
opinion of the CLB, is identical with or too nearly resembles, the name of an existing
company, the company:
May change its name by ordinary resolution and with the previous approval of
CLB.
Shall change the name if the CLB so directs within 12 months of its first
registration or registration by its new name, as the case may be.

2) Alteration of Situation Clause:
This may involve:
Change of registered office from one place to another place in the same city,
town or village.
Change of the registered office from one town to another within the state.
Change of office from one state to another state,

a) In case (a) a notice is to be given within 30 days after the date of the
change to the register who shall record the same.
b) In case (b) a special resolution required to be passed at the general meting
of the shareholders and a copy of it is to be filed with the register within
30 days. Then within 30 days of shifting of the office, a notice ha to be
given to the registrar of the new location of the office.
c) In case ( C ) , a special resolution is required to be passed at the general
meting of the shareholders and a copy of it is to be filed with the registrar
within 30 days. The alteration shall take effect only when it is confirmed
by the CLB. A certified copy of the order confirming the alteration shall
be filed by the company with the registrar of each of the states and the
registrar of each state shall register the same.



3) Alternation of Object Clause: By Sec 17 (1) , the objects of the company may be
altered by special resolution so as to enable the company.
To carry on its business more economically or more efficiently.
To enlarge or change the local area of its operation.
To restrict or abandon any of the objects specified in the Memorandum.
To amalgamate with other company or body of persons.

4) Alternation of Liability Clause: A company limited by shares or guarantee cannot
change its memorandum so as to impose any additional liability on the members or to
compel them to buy additional shares of the company unless all the members agree in
writing to such change.

5) Alteration of Capital Clause: The procedure for alteration of capital and the power
to make such alterations are generally provided in the AOA of a company. If the power
and procedure are not laid down in the article, the company must alter the articles by
passing a special resolution. If so authorized by the article, a company may alter its share
capital so as to:
Increase the amount of share capital.
Cancel the unissued capital.
Convert all or any of its fully paid shares into stock and reconvert stock
into share, etc.


Q.38 ARITCLES OF ASSOCIATION:
The rules and regulations which are framed for the internal management of a company
are set out in a document known as the Article of Association. The articles are framed to
enable the company to carry out its aims and object of the company set out in
Memorandum of Association.

Contents of Article:
The regulations and bylaws laid down in the articles relate to the following:
Share Capital and its sub division into different classes of shares, right of
shareholders and their variation.
Alteration and reduction of capital.
Appointment of Manger, Managing Directors, Secretary, etc.
Reclaration of dividend.
Procedure of conducting different kinds of meetings, voting rights and
Maintenance of books of accounts and their audit.
Seal of the company.
Winding up.









Q.39 Alteration of Articles:
The AOA can be altered or added to by passing a special resolution in the extra ordinary
general meeting provided:
The alteration is not contrary to the provisions of the Act.
It is not insistent with or beyond the provision of the Memorandum, and
It does not increase the liability of members without his written consent by
compelling him to take more shares than he had help prior to the alteration.

Any alteration mad in the Article should be in the interest of the company as a whole,
should not be such as to cause a breach of contract and should not be such as to constitute
a fraud by the majority shareholders.

Q.40 DOCTRINE OF ULTRA VIRES:

Ultra means beyond and Vires means power. The term ultra vires a company means
that the doing of the act is beyond the legal power and authority of the company. The
Doctrine of Ultra Vires is important in defining the limits of the powers conferred on the
company by its MOA.

According to this doctrine, the vires (power) of a company be enter in to a contract or a
transaction is limited by the ambit of the object clause of the MOA and the provisions of
the companies Act. Whatever is not permitted by the object clause and the Act, is
prohibited by the doctrine of Ultra Vires.

Thus under this doctrine, a company has powers to engage in only such activities or
enter into such transactions:

Which are essential to the attainment of the objects specified in the Memorandum.
Which are reasonably and fairly incidental to the main objects, and
Which are permitted by the provisions of the companies Act.

CASE:

ASHBURY RATIWAY CARIAGE AND IRON CO LIMITED
VS
M/S RICHE

The doctrine of Ultra Vires was first enunciated by in the celebrated case Ashbury
Railway Carriage and Iron Co. Ltd. VS Richa. The company was registered with the
following objects:

To carry on the business of mechanical engineers and general contractors.
To make , and sell, or lend on hire, railway carriage and wagons.
To purchase, lease, work and sell mines, minerals, land and buildings.

The directors contracted with M/s. Riche to purchase a concession for laying a railway
line in Belgium. The contract was ratified by a special resolution. Later, the contract
was repudiated by the company on the ground of its being ultra vires and Riche brough
on action on the ground of breach of contract.

It was held by the House of Lords that he contract was ultra vires company so void ab
inito. It was also held that, not even the assent of the whole body of shareholders can
ratify such a contract, as the contract was ultra vires the objects clause.


Effects of Ultra Vires Transactions: If a company enters into transactions, which are
ultra vires, it will have the following effects:
1. Injunction: Wherever a company goes beyond the scope of the object clause, any of
its members can get an injunction from the court to restrain the company from under
taking the ultra vires act.
2. Personal Liability of Directors: If the transaction is ultra vires, for instance, if the
funds of the company are misapplied, the directors will be held personally liable.
3. Ultra Vires Contract: Contracts entered into by a company, which are ultra vires, are
void ob initial and unenforceable.
4. Property Acquired Ultra Vires: If a company acquires any property under an ultra
vires transaction, it has a right to hold the properly and protect it against damage by
other persons.
5. Ultra Vires Torts: A Company is not liable for torts committed by its agent or
employees in the course of ultra vires transactions.


Q.41 DOCTRINE OF CONSTRUCTRUCTIVE NOTICE:
The memorandum and Article, on registration, assume the character of public documents.
The office of Registrar is a public office and documents registered there are open and
accessible to the public at large. Therefore, every outsides dealing with the company is
deemed to have notice of the contents of the MOA & AOA. This is known as the
Constructive Notice of Memorandum and Articles.

Under this doctrine of Constructive Notice, every person dealing or proposing to enter
into a contract with the company is deemed to have constructive notice of the contents of
Memorandum and articles. Whether he has actually read them or not, it is presumed that
he has read these documents and has ascertained the exact powers of the company to
enter into contract. He is presumed not only to have read them, but to have understood
them properly.

Consequently, if a person enters into a contract which is ultra vires the Memorandum, ar
beyond the authority of the directors conferred by the Article, then the contract becomes
void or invalid and he cannot enforce it, not withstanding the fact that he acted in good
faith and money was supplied for the purpose of the company.


Q.42 DOCTRINE OF INDDOR MANAGEMENT:
The doctrine of indoor management follows from the doctrine of Constructive Notice
laid down in various judicial decisions. According to this doctrine, after satisfying
themselves that he proposed contract is intra vires the memorandum and articles, persons
dealing with the company are not beyond to equire whether the internal proceedings were
correctly followed.

They are entited to assume that the proceedings relating to the contract are regular as per
the memo and Article and assume that the proceedings (internal) are in a regular manner.
This is known as the Doctrine of Indoor Manbgement.





CASE

ROYAL BRITISH BANK
VS
TARQUAND

The doctrine of Indoor Management was first propounded by lord Notherlyin the
celebrated case Royal British Bank VS Tarquand (1856).

The Directors of the Bank had issued a bond to Tarquand. The company was empowered
by its Articles to issue bonds provided it was authorized by a resolution of the company
in general meeting.

In this case, no such resolution had been passed. In was held that Traquand could recover
the amount of bond from the company on the ground that he was entitled to assume that
the necessary resolutions had been passed by the company.

Exceptions to the Doctrine of Indoor Management: No benefits under the doctrine of
Indoor management can be claimed by the person under the following circumstances:

Where a person dealing with the company has actual or constructive notice of any
irregularity in the internal proceedings of the company.
Where a person did not in fact consult the Memorandum and Article of the
company and consequently did not act on knowledge of these documents.
Where a person dealing with the company was negligent and had he not been
negligent could have discovered the irregularity by proper enquiries, etc.
Where a person dealing with the company relies upon a forget document or the
act done by the company is void.



Q.43 METHODS OF APPOINTMENT OF DIRECTORS:
The persons who are in charge of the management of the affairs of a company are termed
as Directors. They are collectively known as Board of Directors.
The Companies Act defines a director as any person occupying the position of director
by whatever name called [Sec 2 (18)].

This is however, an inadequate definition. In the absence of a precise definition, we can
only determine whether a person is a director or not by referring the nature of his office
and functions. According to the functions performed by him, a director may be defined
as a person who directs, conducts, manages and supervises the affair of a company.

Appointment of Directors:

First Directors: The first directors are usually mentioned in the AOA of the company. If
not, they shall be determined in writing by the subscribers of the memorandum. If this
also is not done, all the subscribers of the memorandum shall be deemed to be the 1
st

directors of the company.

Q.44 Sale of Goods

The Sale of Goods Act, 1930 governs the contracts relating to sale of goods. It applies to
the whole of India except the State of J ammu & Kashmir.
The contacts for sale of goods are subject to the general principles of the law relating to
contracts i.e. the Indian Contact Act. A contract for sale of goods has, however, certain
peculiar 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 sale of goods, etc. These peculiarities are the subject matter
of the provisions of the Sale of Goods Act, 1930.

ELEMENTS OF A SALE, SALE CONTRACT AND GOODS
A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer
the property in goods to the buyer for a price. It thus includes both an actual 'sale' and an
'agreement to sell', which has been distinguished later.
'Goods' means every kind of movable property other than actionable claims and money;
and includes stocks and shares, growing crops, grass and things attached to or forming
part of the land, which are agreed to be served from land before sale, or under for
contract of sale.
A 'sale' must be distinguished from an 'agreement to sell' since the legal implications of
the two terms are vastly different. A contract wherein, the property in the goods is
transferred from the seller to the buyer, the contract is called a sale, but where the transfer
of property in the goods is to take place at a future time, or subject to some conditions,
thereafter to be fulfilled, it is called an agreement to sell. An agreement to sell becomes a
sale when the time elapses or the conditions are fulfilled subject to which the property in
the goods is to be transferred.
Q.45 EFFECTS OF DESTRUCTION OF GOODS - ALREADY
CONTRACTED
There are various kinds of goods and the parties have various options to agree about the
delivery of the goods. What shall be the fate of a contract if the goods are perished or
destroyed?
A) Destruction before making of contract -- Where in a contract for sale of specific
goods, at the time of making the contract, the goods, without knowledge of the seller,
have perished or become so damaged as no longer to answer to their description in the
contract, the contract shall become null and void. This is based on the rule of
impossibility of performance. Since the subject matter of the contract, which is one of its
essential ingredients, itself is destroyed, the contract cannot be carried out.
'Perishing of goods' includes not only complete destruction of the goods when the seller
has been irretrievably deprived by the goods or when the goods have been stolen or have
in some other way been lost and are untraceable, but also when the goods become un
merchantable i.e. when the goods has lost their commercial value.
B) Destruction After the Agreement to Sell but before Sale -- Where in an agreement to
sell specific goods, if subsequently the goods, without any fault on the part of the seller of
buyer, perish or become so damaged as no longer answer to their description in the
agreement, the agreement shall become void, provided the goods are perished before the
ownership and risk passes to the buyer. This rule is based on the ground of impossibility
of performance.
If the title to be goods has already passed to the buyer, he must pay for the goods though
the same cannot be delivered.
Q.46 DOCUMENTS OF TITLE TO GOODS
A document of title to goods is one, which entitles and enables its rightful holder to deal
with the goods represented by it, as if he were the owner. It is used in the ordinary course
of business as proof of the ownership, possession or control of goods. It authorises the
possessor to receive the goods. It also confers a right on the possessor to transfer the
goods to another person, by mere delivery or by proper endorsement the delivery.
Cash memo, bill of lading, dock warrant, warehouse keeper's or wharfinger's certificate,
lorry receipt (L/R), railway receipt (R/R) and delivery order are some of the instances of
document of title to goods.

Q.47 RIGHTS AGAINST THE GOODS
a) Where the property in the goods has passed to the buyer.
i. Right of Lien -- 'Lien is the right to retain possession of goods until certain
charges in respect thereof are paid. An unpaid seller who is in possession of the
goods is entitled to retain them until payment of the price, where --

a) The goods have been sold without any stipulation s to credit;

b) The goods have been sold on credit, but the term of credit has expired or

c) The buyer becomes insolvent.
Where the goods have been sold on credit, the right of lien shall remain
suspended over the period of credit and shall revive on the expiry of that period.
The right of lien is linked with possession of the goods and not with the title. It is
not affected even if the seller has transferred the documents of title till he remains
in possession of the goods. However, if the buyer has further transferred the
documents of title to a bona fide purchaser the seller's lien is defeated.
ii. Right of Stoppage in transit --The right of stoppage of goods in transit, arises to
an unpaid seller after he has parted with the possession of the goods. The seller
has the right to resume possession of the goods while they are in the course of
transit and to retain them until payment or tender of the price.
The right of stoppage in transit is available to an unpaid seller, when the buyer
becomes insolvent and the goods are in transit.
The buyer is said to be 'insolvent' when he has ceased to pay his debts in the
ordinary course of business, or cannot pay his debts as they becomes due whether
he has committed an act of insolvency or not.
iii. Right of Resale -- The rights of lien and stoppage in transit, would not have been
of much value if he seller had no right to resell the goods, because the seller
cannot continue to hold the goods indefinitely. Section 54 provides an unpaid
seller with a limited right to resell the goods.
An unpaid seller may resell the goods --
1) When the goods are of perishable nature, without giving any notice to the
buyer, of the resale.
2) In case of other goods, when after giving a notice to the buyer of his intention
to resell the goods, the buyer does not pay the price within a reasonable time; and

3) Where the seller has expressly reserved the right of resale in the contract. No
notice to the buyer is required in that case.
b) Where the property in the goods has not passed to the buyer
Right of with holding Delivery -- Where the property in the goods has not passed to the
buyer, the unpaid seller has the right to withhold delivery of the goods, which is similar
to and co-extensive with his rights of lien and stoppage in transit which he would have
had if the property had passed.
Rights Against the Buyer Personally (Seller's Remedies Against buyer for Breach of
Contract)-- Besides, the above rights against the goods, an unpaid seller has certain rights
against the buyer personally. The seller enjoys the following rights in personam (also
known as remedies for breach of contract).
1. Suit for Price -- When the property in the goods has passed to the buyer, and the
buyer wrongfully neglects or refuses to pay the price, the seller is entitled to sue
him for the price.

Where under a contract of sale the price is payable on a certain day irrespective of
delivery or passing of property, and the buyer refuses or neglects to pay on that
day, the seller may sue him for the price.
2. Suit for Damages for Non-Acceptance -- Where the buyer wrongfully neglects
or refuses to pay for the goods, the seller may sue him for damages for non-
acceptance.
3. Suit for Damages for Repudiation of contract before date of delivery Where
the buyer repudiates the contract before the date of delivery, the seller may adopt
any of the following two courses of action, viz.-

a) The seller may treat the contact as rescinded and sue the buyer for damages.
This is also known as 'damages for anticipatory breach'. The damages will be
assessed according to the prices prevailing on the date of breach.

b) The seller may treat the contract as subsisting and wait till the date of delivery.
The contract remains open at the risk and for the benefit of both the parties. If the
buyer subsequently chooses to perform there shall be no damages; otherwise he
shall be liable to damages assessed according to the prices on the day stipulated
for delivery.
4. Suit for Interest --The seller may recover interest or special damages whereby
law interest or special damages may be recoverable.


Q.48 BUYER'S REMEDIES AGAINST SELLER FOR BREACH OF
CONTRACT
A buyer also has certain remedies against the seller who commits a breach. These are:
1. Suit for Damages for Non-Delivery- When the seller wrongfully neglects or refuses
to deliver the goods to the buyer, the buyer may sue the seller for damages for non-
delivery. This is in addition to the buyer's right to recover the price, if already paid, in
case of non-delivery.
2. Suit for price- Where the buyer has paid the price and the goods are not delivered to
him, he can recover the amount paid.
3. Suit for specific performance- When the goods are specific or ascertained, a buyer
may sue the seller for specific performance of the contract and compel him to deliver the
same goods. The court orders for specific performance only when the goods are specific
or ascertained and an order for damages would not be an adequate remedy. Specific
performance is generally allowed where the goods are of special significance or value
e.g. a rare paining, a unique piece of jewellery, etc.
4. Suit for Breach of Warranty- Where there is a breach of warranty by the seller, or
where the buyer elects or is compelled to treat the breach of condition as breach of
warranty, the buyer cannot reject the goods. The buyer may, (a) set up the breach of
warranty in extinction or diminution of the price payable by him, or (b) sue the seller for
damages for breach of warranty.
5. Suit for Damages for Repudiation of contract before Due date-Where the seller
repudiates the contract before the date of delivery, the buyer may adopt any of the
following two courses of action --
A. He may treat the contract as rescinded and sue the seller for damages. This is also
known as 'damages for anticipatory breach'. The damages will be assessed
according to the prices prevailing on the date of breach.
B. He may treat the contract as subsisting and wait till the date of delivery. The
contract remains open at the risk and for the benefit of both the parties. If the
seller subsequently chooses to perform there shall be no damages otherwise he
shall be liable to damages assessed according to the prices on the day stipulated
for delivery.
6. Suit for interest- The buyer may recover such interest or special damages, as may be
recoverable bylaw. He may also recover the money paid where the consideration for the
payment of it has failed.
In the absence of a contract to the contrary, the court may award interest, to the buyer, in
a suit by him for the refund of the price in a case of a breach on the part of the seller, at
such rate as it thinks fit on the amount of the price from the date on which the payment
was made.

Q.49 RIGHTS AND DUTIES OF THE BUYER
RIGHT DUTIES
1. To have delivery of the goods as per
contract. (secs. 31 & 32)
1 To accept the delivery of goods,
when the seller is willing to make the
delivery as per the contract
(Sec. 31)
2. To reject the goods when they are not
of the description, quality or quantity
as specified in the contract (Sec 37).
2. To pay the price in exchange for
possession of the goods
3. To repudiate the contract when goods
are delivered in installments without
any agreement to that effects [ Sec.
38 (1)]
3. To apply for delivery of the goods.
(Sec. 35)
4. To be informed by the seller, when
the goods are to be sent by sea route,
so that he may arrange for their
insurance [Sec 39 (30]
4 To demand delivery of the goods at a
reasonable hour ( sec 36 (4)
5 To have a reasonable opportunity to
examine the goods for ascertaining
whether they are in conformity with
the contract. (sec. 41)
5 To accept delivery of the goods in
installments and pay for them, in
accordance with the contract. (Sec. 38
(2)
6 To sue the seller for recovery of the
price, if already paid, when the seller
fails to deliver the goods.
6 To bear the risk of deterioration in the
course of transit, when the goods are
to be delivered at a place other than
where they are sold ( sec 40)
7 To sue the seller for damages if the
seller wrongfully neglects or refuses
to deliver the gods to the buyer ( sec
57)
7 To inform the seller in case the buyer
refuses to accept or rejects the goods (
sec 43)
8 To sue the seller for specific
performance
8 To take the delivery of the goods
within a reasonable time after the
seller tenders the delivery (Sec. 44)
9 To sue the seller for damages for
breach of a warranty or for breach of
a condition treated as breach of a
warranty ( Sec 59)
9 To pay the price, where the property
in the goods are passed to the buyer,
in accordance with the terms of the
contract ( Sec 55)
10 To sue the seller the damages for
anticipatory breach of contract ( Sec
60)
10 To pay damages for non-acceptance
of goods ( Sec 56)
11 To sue the seller for interest where
there is a breach of contract on the
part of the seller and price has to be
refunded to the buyer ( sec 61)



Q.50 RIGHTS AND DUTIES OF THE SELLER
The rights and duties of a seller, under the Act, may be summarized as below:
RIGHT DUTIES
1. To reserve the right of disposal of
the goods until certain conditions
are fulfilled. ( sec 25 (1)
1 To make the arrangement for
transfer of property in the goods to
the buyer.
2. To assume that the buyer has
accepted the goods , where the
buyer

i) Conveys his acceptance;
ii) Does an act adopting the sale;
or
iii)Retains the goods without
giving a notice of rejection,
beyond the specified date (or
reasonable time), in a sale on
approval. ( sec 24)
2. To ascertain and appropriate the
goods to the contract of sale
3. To deliver the goods only when
applied for by the buyer ( sec 35)
3. To pass an absolute and effective
title to the goods, to the buyer.
4. To make delivery of the goods in
installments, when so agreed (
sec 39 (1)
4. To deliver the goods in
accordance with the terms of the
contract ( sec 31)
5. To exercise lien and retain
possession of the goods, until
payment of the price ( sec 47 (1)
5. To ensure that the goods supplied
conform to the implied / express
conditions and warranties.
6. To stop the goods in transit and
resume possession of the goods,
until payment of the price ( sec 49
(2) and 50
6. To put the goods in a deliverable
state and to deliver the goods as
and when applied for by the buyer
( sec 35)
7 To resell the goods under certain
circumstances ( sec 54)
7 To deliver the goods within the
time specified in the contract or
within a reasonable time and a
reasonable hour. [ sec 36 (2) and
(4)]
8 To withhold delivery of the goods
when the property in the goods
8 To bear all expenses of and
incidental to making a delivery (
has not passed to the buyer (sec
46 (2)
i.e. upto the stage of putting the
goods into a deliverable sate 0
(sec 36 (5)
9 To sue the buyer for price when
the property in the goods has
passed to the buyer or when the
price is payment on a certain day,
in terms of the contract, and the
buyer fails to make the payment
(sec 55)
9 To deliver the goods in the agreed
quantity. (Sec. 37 (1).
10 To deliver the goods in
installments only when so desired
by the buyer. (Sec 38 (1))
11 To arrange for insurance of the
goods while they are in
transmission or custody of the
carrier. (Sec. 39 (2).
12 To inform the buyer in time, when
the goods are sent by a sea route,
so that he may get the goods
insured [Sec. 39 (3) ]

Q.51 Insurance
The aim of all insurance is to compensate the owner against loss arising from a variety of
risks, which he anticipates, to his life, property and business. Insurance is mainly of two
types: life insurance and general insurance. General insurance means Fire, Marine and
Miscellaneous insurance which includes insurance against burglary or theft, fidelity
guarantee, insurance for employer's liability, and insurance of motor vehicles, livestock
and crops.
The Insurance Act, 1972 and the General Insurance Business (Nationalization) Act, 1972
govern Fire and Marine Insurance, while the Indian Marine Insurance At, 1963 governs
marine insurance in our country. These laws contain provisions relating to the
constitution, management and winding up of insurance companies and the conduct of
insurance business of all types. All insurance business in India has been nationalized.
A Contract of insurance is a contract by which one party undertakes to make good the
loss of another, in consideration of a sum of money, on the happening of a specified
event, e.g. fire accident or death. Law recognizes insurance as a system of sharing risk
too great to be borne by one individual.

Q.52 FUNDAMENTAL PRINCIPLES OF INSURANCE
Some useful terms in Insurance:
INDEMNITY
A contract of insurance contained in a fire, marine, burglary or any other policy
(excepting life assurance and personal accident and sickness insurance) is a contract of
indemnity. This means that the insured, in case of loss against which the policy has been
issued, shall be paid the actual amount of loss not exceeding the amount of the policy, i.e.
he shall be fully indemnified. The object of every contract of insurance is to place the
insured in the same financial position, as nearly as possible, after the loss, as if he loss
had not taken place at all. It would be against public policy to allow an insured to make a
profit out of his loss or damage.
UTMOST GOOD FAITH
Since insurance shifts risk from one party to another, it is essential that there must be
utmost good faith and mutual confidence between the insured and the insurer. In a
contract of insurance the insured knows more about the subject matter of the contract
than the insurer. Consequently, he is duty bound to disclose accurately all material facts
and nothing should be withheld or concealed. Any fact is material, which goes to the root
of the contract of insurance and has a bearing on the risk involved. It is only when the
insurer knows the whole truth that he is in a position to judge (a) whether he should
accept the risk and (b) what premium he should charge.
If that were so, the insured might be tempted to bring about the event insured against in
order to get money.
Insurable Interest - A contract of insurance effected without insurable interest is void.
It means that the insured must have an actual pecuniary interest and not a mere anxiety or
sentimental interest in the subject matter of the insurance. The insured must be so situated
with regard to the thing insured that he would have benefit by its existence and loss from
its destruction. The owner of a ship run a risk of losing his ship, the charterer of the ship
runs a risk of losing his freight and the owner of the cargo incurs the risk of losing his
goods and profit. So, all these persons have something at stake and all of them have
insurable interest. It is the existence of insurable interest in a contract of insurance, which
distinguishes it from a mere watering agreement.
Causa Proxima - The rule of causa proxima means that the cause of the loss must be
proximate or immediate and not remote. If the proximate cause of the loss is a peril
insured against, the insured can recover. When a loss has been brought about by two or
more causes, the question arises as to which is the causa proxima, although the result
could not have happened without the remote cause. But if the loss is brought about by
any cause attributable to the misconduct of the insured, the insurer is not liable.
Risk - In a contract of insurance the insurer undertakes to protect the insured from a
specified loss and the insurer receive a premium for running the risk of such loss. Thus,
risk must attach to a policy.
Mitigation of Loss - In the event of some mishap to the insured property, the insured
must take all necessary steps to mitigate or minimize the loss, just as any prudent person
would do in those circumstances. If he does not do so, the insurer can avoid the payment
of loss attributable to his negligence. But it must be remembered that though the insured
is bound to do his best for his insurer, he is, not bound to do so at the risk of his life.
Subrogation - The doctrine of subrogation is a corollary to the principle of indemnity
and applies only to fire and marine insurance. According to it, when an insured has
received full indemnity in respect of his loss, all rights and remedies which he has against
third person will pass on to the insurer and will be exercised for his benefit until he (the
insurer) recoups the amount he has paid under the policy. It must be clarified here that the
insurer's right of subrogation arises only when he has paid for the loss for which he is
liable under the policy and this right extend only to the rights and remedies available to
the insured in respect of the thing to which the contract of insurance relates.
Contribution - Where there are two or more insurance on one risk, the principle of
contribution comes into play. The aim of contribution is to distribute the actual amount of
loss among the different insurers who are liable for the same risk under different policies
in respect of the same subject matter. Any one insurer may pay to the insured the full
amount of the loss covered by the policy and then become entitled to contribution from
his co-insurers in proportion to the amount which each has undertaken to pay in case of
loss of the same subject-matter.
In other words, the right of contribution arises when (I) there are different policies which
relate to the same subject-matter (ii) the policies cover the same peril which caused the
loss, and (iii) all the policies are in force at the time of the loss, and (iv) one of the
insurers has paid to the insured more than his share of the loss.

Q.52 TERMS OF POLICY
Terms of policy mean the duration for which the policy will cover the risk. Except in case
of life insurance, a contract of insurance is from year to year only and the insurance
automatically comes to an end after the expiry of the years unless, of course, it is
renewed.

RE-INSURANCE & DOUBLE INSURANCE
Every insurer has a limit to the risk he can undertake. If a profitable proposal comes his
way he may insure it even if the risk involved is beyond his capacity. Then, in order to
safeguard his own interest, he may insure the same risk, either wholly or partially, with
other insurers, thereby spreading the risk. This is called -re-insurance. Re-insurance can
be resorted to in all kinds of insurance and a contract of re-insurance is also a contract of
indemnity. The re-insurers are liable to pay the amount to the original insurer only if the
latter has paid to the insured. Re-insurance is subject to all the conditions in the original
policy and the re-insurer is entitled to all the benefits, which the original insurer enjoys
under the policy.
When the insured insures the same risk with two or more independent insurers, and the
total sum insured exceeds the value of the subject matter, the insured is, said to be over
insured by double insurance. Both double insurance and over-insurance are perfectly
lawful, unless the policy otherwise provides. A man may insure with as many insurers as
he pleases and up to the full value of his interest with each one of them. If a loss occurs,
he may claim payment from the insurers in such order as he thinks fit; but in no case he
shall be entitled to recover more than his loss, because a contract of insurance is a
contract of indemnity only.
Q.53 KIND OF INSURANCE POLICIES
Characteristics of various types of insurance policies, prevalent today are:
1) SHOPKEEPER'S INSURANCE POLICY
This is most comprehensive policy that covers almost every risk. The insured may not,
however, opt for all risks except -those compulsory. The risks covered are :
a. Fire and Allied Perils : The insurer will indemnify in respect of loss of or damage to
the building and / or contents whilst contained in the insured premises, by--
i. Fire, lightning, explosion of gas in domestic appliances,
ii. Bursting and overflowing of water tanks apparatus or pipes,
iii. Aircraft or articles dropped therefrom,
iv. Riot, strike or malicious act,
v. Earthquake, subsidence and landslide,
vi. Flood, inundation, storm, tempest, typhoon, hurricane, tornado or cyclone,
vii. Impact damage.
It, however, does not cover loss of or damage to livestock, motor vehicles, pedal cycles,
money, securities, stamps, bullion, deeds, bonds, bills of exchange, promissory notes,
stock and share certificates, business books, manuscripts, documents, unset precious
stones and jewelry and valuables.
Average Clause - If the sum insured under this risk is less than 85% of the collective
value of the property insured, the insured will bear a ratable proportion of the loss
b) Burglary and House breaking: The insurer will indemnity in respect of loss of or
damage to the contents (except moneys and valuables) whilst contained in the insured
premises by burglary and / or house - breaking.
c) Money Insurance : the insurer will indemnify in respect of --
i. Loss of insured 's money in transit between any two places within a radius of
fifteen miles from he insured premises,
ii. Loss of money / valuables kept in safe steel cupboards/ cash box, etc. under lock
and key, by burglary / housebreaking, and
iii. Loss of money from cashier's till and / or counter during business hours,
following assault, violence against the insured or his employee.
d) Neon Sign / Glow sign: the insurer will indemnify in respect of loss of or damage to
Neon sign / glow sign, by
i. Accidental external means,
ii. Fire, lightning or external explosion or theft,
iii. Riot, strike or malicious act,
iv. Floods, Inundation, storm, typhoon, hurricane, tornado or cyclone.
e) Personal Accident: If the insured (or any named partner, director of member of
managerial staff or employee permanently working with the insured) aged between 16
and 65 years, sustain bodily injury solely and directly caused by accidental, violent,
external and visible means resulting in death or disablement, the insurance company shall
pay to the victim or his assignee / legal representative, the specified sum.
f) Fidelity Guarantee: If the insured sustains direct pecuniary loss caused by act of fraud
or dishonesty committed by any of his employees in the insured premises, the insurer will
indemnify in respect of such loss.

g) Liability: The insurer will indemnify in respect of sums which the insured becomes
legally liable to pay as
i. Compensation and litigation expenses incurred by the insured , in connection with
accidental death of or bodily injury to any person other than an employee, and / or
accidental damage to property caused by or through the fault or negligence of the
insured or his family member,
ii. Compensation to the insured employees under the Fatal Accident Act/ Workmen's
compensation Act,
h) Business Interruption: The insurer undertakes to indemnify for losses arising out of
business interruption i.e. cessation of normal commercial activity on account of or as a
direct result of fire and allied perils (covered in clause "a" above)
2) FIRE POLICY "A"
Under this policy the insurer undertakes to indemnify in respect of any loss of, or damage
to, the property insured, caused by --
a. Fire
b. Lightning
c. Explosion / Implosion excluding damage to boilers, economisers or other vessels
in which steam is generated,
d. Riot , strike and malicious damage,
e. Impact damage by any rail/road vehicle or animal,
f. Aircraft and other aerial and / or space devices and / or articles dropped there
from,
g. Storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation,
h. Subsidence and landslide ( including rockslide) damage,
i. Earthquakes fire and shock.

3) FIRE POLICY "B"
This policy is similar to Fire Policy "A" and provides insurance from all risks enumerated
therein except subsidence, landslide and earthquake.
4) CONTRACTOR'S ALL RISKS INSURANCE POLICY

This policy provides insurance against -
a. Loss, damage or destruction of property insured in a manner necessitating
replacement or repair,
b. Cost of clearance and removal of debris.

The risks covered under the policy are -
I. Earthquake -- fire and shock,
II. Landslide / Rockslide / Subsidence,
III. Flood / Inundation,
IV. Storm / Tempest/Hurricane /Typhoon /Cyclone,
V. Collapse
VI. Water damage in contracts involving work in rivers, canals, lakes or sea.
c. Liability for accidental loss or damage caused property of other persons or for
fatal or non-fatal injury to any person other than the insurer's own employees or
the employees of the owner of the works or premises.
d. Cost and expenses of litigation recovered by any claimant from the insured or
incurred by the insured.

5) MOTOR CAR INSURANCE POLICY
This policy covers the same risks as stated under "Motor Cycle / Scooter Insurance
Policy' in respect of cars used solely for private or professional purposes.
6) COMMERCIAL VEHICLES INSURANCE B POLICY
This policy covers the same risks as stated under "Motor Cycle / Scooter Insurance
Policy', in respect of motor vehicles used for carrying goods.
7) PERSONAL ACCIDENT INSURANCE POLICY
Under this policy the insurer pays the specified sum, if the insured sustains any bodily
injury resulting solely and directly from accident caused by external violent and visible
means.
Q.54 FIRE INSURANCE
Fire insurance is a contract to indemnify the insured for destruction of or damage to
property or goods, caused by fire, during a specified period. The contract specifies the
maximum amount, agreed to by the parties at the time of the contract, which the insured
can claim in case of loss. This amount is not, however, the measure of the loss. The loss
can be ascertained only after the fire has occurred. The insurer is liable to make good the
actual amount of loss not exceeding the maximum amount fixed under the policy.

CAUSA PROXIMA
It is a rule of law that in actions on fire policies, full regard must be had to the causa
proxima. If the proximate cause of the loss is fire, the loss is recoverable. If the cause is
not fire but some other cause remotely connected with fire, it is not recoverable, unless
specifically provided for. Fire risks do not cover damage by explosion, unless the
explosion causes actual ignition, which spreads into fire. The cause of the fire is
immaterial, unless it was the deliberate act of the insured.
STEPS TO BE TAKEN IN FIRE INSURANCE CLAIMS
It is the duty of the insured, or any other person on his behalf, to give immediate
notice of fire to the insurance company so that they can safeguard their interest,
such as, deal with the salvage, judge the cause and nature of fire and assess the
extent of loss caused by the fire.
Failure to give notice may avoid the policy altogether.
The insured is further required by the terms of the policy, to furnish within the
specified time, full particulars of the extent of loss or damage, proof of the value
of the property and if it is completely destroyed, proof of its existence.
Delivery of all these details to the company is a condition precedent to the claim
of the assured to recover the loss. If the assured prefers a fraudulent claim,
whether for whole or part of the policy, he would forfeit all benefits under the
policy, whether or not there is a condition to this effect in the policy. Generally,
the fraud consists in over -valuation, but over-valuation due to mistake is not
fraudulent. In a majority of fire insurance claims, the expert assessors of the
company are able to arrive at mutually acceptable valuation.

Q.55 MARINE INSURANCE
The contract of marine insurance is generally effected through the agency of insurance
brokers employed by the insured. The broker prepares a brief memorandum of the risks
to be covered and takes it to a number of individual insurers, called underwriters, each of
whom initial the note for the amount he is prepared to underwrite. The document, known
as "The slip, " contain information such as the name of the ship, the date of voyage, the
description of the risk, the sum insured and the rate of premium. "The Slip" is in practice
a complete and final contract. However, a contract of marine insurance must be embodied
in a marine policy in accordance with the Act.

KINDS OF MARINE POLICIES
The document containing the terms and conditions of the contract is called the Marine
Policy. It must contain the names of the assured and the insurer or insurers. The subject-
matter insured and the risk covered the voyage or period of time or both and the sums
insured. It must be duly signed by the insurer and stamped under the Stamp Act, 1899.
The Marine Insurance Act deals with the following types of policies:
Voyage Policy
When the contract is to insure the subject matter at and from one place to another, the
policy is called a "Voyage policy". In this case the risk attaches only when the ship starts
on the voyage.
Time Policy
Where the subject -matter is insured for a definite period of time, it is called a "Time
Policy. The ship may pursue any course it likes; the policy would cover all the risks from
perils of the sea for the sated period of time. A time policy cannot be for a period
exceeding one year, but it may contain a continuation clause.
Mixed Policy
It is a combination of voyage and time policies and covers the risk during particular
voyage for a specified period of time.
Valued Policy
It is a policy, which specifies the agreed value of the subject-matter insured. If there is no
fraud or mis-representation, the value in a valued policy is conclusive as between the
insurer and the insured, whether the loss is partial or total.
Open or Un-valued Policy
In this policy the value of the subject-matter insured is not specified. Subject to the limit
of the sum assured, it leaves the value of the loss to be subsequently ascertained.
Floating Policy
The practice of taking out floating policies has come in vogue because of the difficulty of
knowing by which ship or ships the goods are to be shipped. Such a policy therefore only
mentions the amount for which the insurance is taken out and leaves the name of the
ship(s) and other particulars to be defined by subsequent declarations.
WARRANTIES
A warranty in a contract of marine insurance is substantially the same as a condition in a
contract of sale of goods. It gives the aggrieved party the right to avoid the contract. A
warranty may be express or implied. These are discussed below in brief:
Express warranties
An express warranty is one, which is expressly stated in the policy of insurance it must be
included in or written upon the policy. There is no limit to the number of express
warranties, but those generally included in a marine policy are that the ship is seaworthy
on a particular day, that the ship will sail on a specified day, that the ship will proceed to
its destination without any deviation and that the ship is neutral and will remain so during
the voyage.
Implied Warranties
Implied warranties are conditions not incorporated in a policy but assumed to have been
included in the policy by law, custom or general agreement. These warranties are:
a. Seaworthiness: A ship is deemed to be seaworthy when she is reasonably fit in
all respects to encounter the ordinary perils of the sea or the adventure insured.
This warranty attaches only up to the time of the sailing of the ship. In a time
policy there is no implied warranty that the ship shall be seaworthy at any stage of
the adventure. In a voyage policy where the voyage is to be performed in stage,
the ship must be seaworthy at the commencement of each stage, it must be fit to
encounter the ordinary perils of the part and if the voyage policy is on goods, it
must be fit to carry the goods to the destinations contemplated by the policy:
b. Legality of the Voyage: There is an implied warranty that the adventure insured
is a lawful one and that the adventure shall be carried out in a lawful manner.
c. Non -deviation: The warranty that the ship shall not deviate from its prescribed.
Usual or the customary route is also an implied warranty. The risk does not attach
if the places of departure or destination of the ship are hanged, or if the ship takes
the ports of call by an order different from the one mentioned in the policy. The
insurers are discharged from his liability as from the time of deviation, and also if
there is unreasonable delay are excused under certain circumstances.

ASSIGNMENT OF POLICY
A marine policy is assignable by endorsement, or in any other customary manner, and the
assignee can sue on it in his own name subject to any defence which would have been
available against the person who affected the policy. The assignment may be made either
before or after the loss, but an assured who has parted with or lost his interest in the
subject-matter insured cannot assign.
Q. 56 Mortgage
A mortgage is the transfer of an interest in specific immovable property for the purpose
of securing the payment of money advanced or to be advanced by way of loan, an
existing or future debt, or the performance of an engagement which may give rise to a
pecuniary liability.
The transferor is called a mortgagor, the transferee a mortgagee; the principal money
and interest of which payment is secured for the time being are called the mortgage-
money, and the instrument (if any) by which the transfer is effected is called a mortgage-
deed.
CREATION OF MORTGAGE
Where the principle money secured is one hundred rupees or upwards, a mortgage
otherwise than a mortgage by deposit by title deeds can be effected only by a registered
instrument signed by the mortgagor and attested by at least two witnesses. When the
principle money secured is less than one hundred rupees, mortgage may be effected either
by a registered instrument signed by the mortgagor and attested as aforesaid, or (except in
the case of a simple mortgage) by delivery of the property.
Q. 57 TYPES OF MORTGAGES
SIMPLE MORTGAGE
Where, without delivering possession of the mortgaged property, the mortgagor binds
himself personally to pay the mortgage-money, and agrees, expressly or impliedly that in
the event of his failing to pay according to his contract, the mortgagee shall have a right
to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far
as may be necessary, in payment of the mortgage-money, the transaction is called a
simple mortgage and the mortgagee a simple mortgagee.
MORTGAGE BY CONDITIONAL SALE
Where, the mortgagor ostensibly sells the mortgaged property-
i. On condition that on default of payment of the mortgage-money on a certain date
the sale shall become absolute, or;
ii. On condition that on such payment being made the sale shall become void, or ;
iii. On condition that on such payment being made the buyer shall transfer the
property to the seller,
The transaction is called a mortgage by conditional sale and the mortgagee a mortgagee
by conditional sale:
PROVIDED that no such transaction shall be deemed to be a mortgage, unless the
condition is embodied in the document, which effects or purports to effect the sale.
USUFRUCTUARY MORTGAGE
Where the mortgagor delivers possession, or expressly or by implication binds himself to
deliver possession of the mortgaged property to the mortgagee and authorises him to
retain such possession until payment of the mortgage money, and to receive the rents and
profits accruing from the property or any part of such rents and profits and to appropriate
the same in lieu of interest or partly in payment of the mortgage money, partly in lieu of
interest and partly in payment of the mortgage money, the transaction is called a
usufructuary mortgage and the mortgagee a usufructuary mortgagee.
ENGLISH MORTGAGE
Where the mortgagor binds himself to repay the mortgage money on a certain date, and
transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that
he will re-transfer it to the mortgagor upon payment of the mortgage money as agreed,
the transaction is called an English mortgage.
ANOMALOUS MORTGAGE
A mortgage which is not a simple mortgage, a mortgage by conditional sale, an
usufructuary mortgage, an English mortgage or a mortgage by deposit of title deeds
within the meaning of section 58 is called an anomalous mortgage.


Q.58 RIGHTS AND LIABILITIES OF A MORTGAGOR
The rights and liabilities of a mortgagor under a mortgage are as under:
I. Right of mortgagor to redeem:
Section 60, Transfer of Property Act provides that at any time after the principal money
has become due, the mortgagor has right on payment or tender, at a proper time and
place, of the mortgage money, to require the mortgagee
a. to deliver to the mortgagor the mortgage deed and all documents relating to the
mortgaged property which are in the possession or power of the mortgagee;
b. where the mortgagee is in possession of the mortgaged property, to deliver
possession thereof to the mortgagor; and
c. at the cost of the mortgagor either to re-transfer the mortgaged property to him or
to such third person as he may direct, or to execute and where the mortgage has
been effected by a registered instrument to have registered an acknowledgement
in writing that any right in derogation of his interest transferred to the mortgage
has been extinguished:
Provided that the right conferred by this section has not been extinguished by the act of
the parties or by decree of court.
II. Obligation to transfer to third party instead of re-transference to mortgagor
Section 60 A, Transfer of Property Act provides that where a mortgagor is entitled to
redemption, then on the fulfillment of any conditions on the fulfillment of which he
would be entitled to require a retransfer, he may require the mortgagee, instead of
retransfering the property, to assign the mortgage debt and transfer the mortgaged
property to such third person as the mortgagor may direct the mortgagee and the
mortgagee shall be bound to assign and transfer accordingly.
The provisions of this section do not apply in the case of mortgagee, who is or has been
in possession.
III. Rights to inspection and production of documents
A mortgagor as long as his right of redemption subsists, shall be entitled at all reasonable
times at his request and at his own cost, and on payment of the mortgagees cost and
expenses in this behalf, to inspect and make copies or abstracts of or extracts from
documents of title relating to the mortgaged property which are in the custody or power
of the mortgagee.


IV. Rights to redeem separately or simultaneously
A mortgagor who has executed two or more mortgages in favour of the same mortgagee
shall, in the absence of a contract to the contrary, when the principal money of any two or
more of the mortgages has become due, be entitled to redeem any one such mortgage
separately or any two or more of such mortgages together.
V. Right of usufructuary mortgagor to recover possession
In the case of usufructuary mortgage, the mortgagor has a right to recover possession of
the property together with the mortgage deed and all documents relating to the mortgaged
property which are in the possession or power of the mortgagee.
VI. Accession to mortgaged property
Where mortgage property in possession of the mortgagee has during the continuance of
the mortgage received any accession, the mortgagor upon redemption, shall, in the
absence of a contract to the contrary, be entitled as against the mortgagee to such
accession.
VII. Improvements to mortgaged property
Section 63A (1), Transfer of Property Act provides that where mortgaged property in
possession of the mortgagee has during the continuance of the mortgage, been improved,
the mortgagor, upon redemption, shall, in the absence of a contract to the contrary, be
entitled to the improvement and the mortgagor shall save only in cases provided for in
sub-section (2) be liable to pay the cost thereof.
VIII. Renewal of mortgaged lease
Where the mortgaged property is a lease, and the mortgagee obtains a renewal of the
lease, the mortgagor, upon redemption, shall in absence of a contract by him have the
benefit of the new lease.
IX. Mortgagors power to lease
Section 65A(1), Transfer of Property Act provides that a mortgagor, while lawfully in
possession of the mortgaged property, shall have power to make leases thereof which
shall be binding on the mortgagee.
X. Waste by mortgagor in possession
A mortgagor in possession of the mortgaged property is not liable to the mortgagee for
allowing the property to deteriorate; but he must not commit any act, which is destructive
or permanently injurious thereto, if the security is insufficient or will be rendered
insufficient by such act.
A security is insufficient, unless the value of the mortgaged property exceeds by one-
third or, if consisting of buildings, exceeds by one-half the amount for the time being due
on the mortgage.

Q.59 RIGHTS AND LIABILITIES OF MORTGAGEE
The rights and liabilities of a mortgagee are as under:
I. Right to foreclosure for sale
In the absence of a contract to the contrary, the mortgagee has, at any time after the
mortgage money has become due to him, and before a decree has been made for the
redemption of the mortgaged property, or the mortgage money has been paid or deposited
as hereinafter provided, a right to obtain from the Court a decree that the mortgagor shall
be absolutely debarred or his right to redeem the property, or a decree that the property be
sold.
II. Right to sue for mortgage money
The mortgagee has a right to sue for the mortgage money in the following cases and no
others, namely:
a. Where the mortgagor binds himself to repay the same;
b. Where, by any cause other than the wrongful act or default of the mortgagor, or
mortgagee, the mortgaged property is wholly or partially destroyed or the security
is rendered insufficient within the meaning of section 66, and the mortgagee has
given the mortgagor a reasonable opportunity of providing further security
enough to render the whole security sufficient, and the mortgagor has failed to do
so;
c. Where the mortgagee is deprived of the whole or part of his security
by or in consequence of the wrongful act or default of the mortgagor;
d. Where the mortgagee being entitled to possession of the mortgaged
Property, the mortgagor fails to deliver the same to him, or to secure the
Possession thereof to him without disturbance by the mortgagor or any person claiming
under a title superior to that of the mortgagor;
Provided that, in the case referred to in clause (a), a transferee from the mortgagor from
his legal representative shall not be liable to be sued for the mortgage money.

III. Right of power of sale of mortgaged property, if any
Section 69(1), Transfer of Property Act provides that the mortgagee, or any person acting
on his behalf, subject to the provision of this section, have power to sell or concur in
selling the mortgaged property, or any part thereof in default of payment of the mortgage
money, without the intervention of the Court, in the following cases and in no others,
namely:
a. Where the mortgage is an English mortgage, and neither the mortgagor nor the
mortgagee is a Hindu, Mohammedan or Buddhist, or a member of any other race,
sect, tribe or class from time to time specified in this behalf, by the State
Government in the Official Gazette;
b. Where a power of sale without the intervention of the Court is expressly conferred
on the mortgagee by the mortgage deed, and the mortgagee is the Government;
c. Where a power of sale without the intervention of the Court is expressly
conferrred on the mortgagee by the mortgage deed, and the mortgaged property or
any part thereof, was on the date of the execution of the mortgage deed, situate
within the towns of Calcutta, Madras, Bombay, or in any other town or area
which the State Government may by notification in the Official Gazette, specify
in this behalf.
No such power shall be exercised unless and until
a. notice in writing requiring payment of the principal money has been served on the
mortgagor, or on one of several mortgagors, and default has been made in
payment of the principal money or of part therof, for three months after such
service or;
b. some interest under the mortgage amounting at least to five hundred rupees, is in
arrear and unpaid for three months after becoming due.
IV. Right to appoint a receiver
Section 69A, Transfer of Property Act provides that a mortgagee having the right to
exercise a power of sale under section 69 shall, subject to the provisions of sub-section
(2), be entitled to appoint by writing signed by him or on his behalf, a receiver of the
income of the mortgaged property or any part thereof.
V. Right to accession to mortgaged property
If after the date of a mortgage, any accession is made to the mortgaged property, the
mortgagee, in the absence of a contract to the contrary, shall for the purposes of the
security, be entitled to such accession.
VI. Right to the benefit of the renewed lease
Where the mortgaged property is a lease, and the mortgagor obtains a renewal of the
lease, the mortgagee, in the absence of a contract to the contrary, shall for the purposes of
the security be entitled to the new lease.
VII. Right of mortgagee in possession
A mortgagee may spend such money as is necessary.
a. for the preservation of the mortgaged property from destruction, forfeiture or sale;
b. for supporting the mortgagors title to the property;
c. for making his own title thereto good against the mortgagor; and
d. when the mortgaged property is a renewable leasehold, for the renewal of the
lease,
And may, in the absence of a contract to the contrary, add such money to the principal
money at the rate of interest payable on the principal, and, where no such rate is fixed, at
the rate of nine percent per annum:
VIII. Liabilities of mortgagee in possession
Section 76, Transfer of property Act provides that when, during the continuance of the
mortgage, the mortgagee takes possession of the mortgaged property:
a. he must manage the property as a person of ordinary prudence would manage it if
it were his own;
b. he must use his best endeavors to collect the rents and profits thereof;
c. he must, in the absence of a contract to the contrary, out of the income to the
property, pay the Government revenue, all other charges of a public nature and all
rent accruing due in respect thereof during such possession, and any arrears of
rent in default of payment of which the property may be summarily sold;
d. he must, in the absence of a contract to the contrary, make such necessary repairs
of the property as he can pay for out of the rent and profits thereof after deduction
from such rents and profits the payments mentioned in clause (c) and the interest
on the principal money;
e. he must not commit any act which is destructive or permanently injurious to the
property;
f. where he has insured the whole or any part of the property against loss or damage
by fire, he must, in case of such loss or damage, apply any money which he
actually receives under the policy, or so much thereof as may be necessary in re-
instating the property, or, if the mortgagor so directs, in reduction of discharge of
the mortgage money;
g. he must keep clear, full and accurate accounts of all sums received and spent by
him as mortgagee, and, at any time during the continuance of the mortgage, give
the mortgagor, at his request and cost, true copies of such accounts and of the
vouchers by which they are supported;
h. his receipts from the mortgaged property, or, where such property is personally
occupied by him, a fair occupation rent in respect thereof, shall after deducting
the expenses properly incurred for the management of the property and the
collection of rents and profits and the other expenses mentioned in clauses (c) and
(d) and interest thereon, be debited against him in reduction of the amount (if
any), from time to time due to him on account of interest and , so far as such
receipts exceed any interest due, in reduction or discharge of the mortgage
money; the surplus, if any, shall be paid to the mortgagor;
i. when the mortgagor tenders or deposits in a manner hereinafter provided, the
amount for the time being due to on the mortgage, the mortgagee must,
notwithstanding the provisions in the other clauses of this section, account for his
receipts from the mortgaged property from the date of the tender, or from the
earliest time when he could take such amount out of the Court, as the case may
be, and shall not be entitled to deduct any amount therefrom on account of any
expenses incurred after such date or time in connection with the mortgaged
property.
IX. Loss occasioned by his default
If the mortgagee fails to perform any of the duties imposed upon him by this section, he
may, when accounts are taken in pursuance of a decree made under this Chapter, be
debited with the loss, if any, occasioned by such failure.
X. Liability to bring one suit on several mortgages
Section 67A, Transfer of Property Act provides that a mortgagee who holds two or more
mortgages executed by the same mortgagor in respect of each of which he has a right to
obtain the same kind of decree under section 67 and who sues to obtain such decree on
any one of the mortgages, shall, in the absence of a contract to the contrary, be bound to
sue on all the mortgages in respect of which the mortgage money has become due.
Q.60 Central Excise duty
Central Excise duty is an indirect tax levied on goods manufactured in India. Excisable
goods have been defined as those, which have been specified in the Central Excise Tariff
Act as being subjected to the duty of excise. The word "Goods" has not been defined in
the Act. Therefore its meaning is borrowed from the constitution and from the sale of
goods Act and understood as per the decisions of the apex court. Under excise it is
understood to be items that are movable, i.e. capable of being moved and marketable, i.e.
capable of being sold.
Central Excise Act defines 'Manufacture' by an inclusive definition as any process
incidental or ancillary to the completion of a manufactured product. Manufacture under
Central Excise can be understood as process wherein the name, characteristic and use of
the input are changed or is/becomes distinct and different after the process. Thus a
process which simply changes the form or size of the same article or enhances the value
of the article would not constitute manufacture. Repairing or reconditioning does not
constitute manufacture. Assembling would constitute manufacture.
Q.61 Customs duty
Customs duty is a tax which the State collects on goods imported into or exported out of
the boundaries of a country. Customs duties now form a significant source of revenue for
all countries, more so in the case of developing countries like India. In India, customs
duties are levied on the goods and at the rates specified in the Schedules to the Customs
Tariff Act, 1975. The taxable event is import into export from India. Export duties are
practically non-existent at present. They are levied occasionally to mop up excess
profitability in international price of goods in respect of which domestic prices may be
low at given time. But sweep of import duties is very wide, almost universal, barring a
few goods like food grains, fertilizer, life saving drugs and equipment etc. Import duties
generally consist of the following:
1.Basic duty. It may be at the standard rate or, in the case of import from some countries,
at the preferential rate.
2.Additional customs duty equal to central excise duty leviable on like goods produced
or manufactured in India. It is commonly referred to as countervailing duty or C.V.D.
3.Special additional duty of Customs at the rate of 4% in order to provide a level
playing field to indigenous goods which have to bear sales tax. This duty is to computed
on the aggregate of
assessable value;
basic duty of Customs;
surcharge; and
additional duty of Customs leviable under section 3 of the Customs Tariff Act,
1975 (c.v.d.)
4. Additional duty of Customs at the rate of Re. 1/- per liter on imported motor spirit
(petrol) and high speed diesel oil.
5. Anti-dumping duty/Safeguard duty for import to specified goods with a view to
protecting domestic industry from unfair injury.