Mba legal aspects of business mb0051_summer 2013

Kuldeep Singh (Roll No. 571115427)
Master of Business Administration- MBA Semester 3
MB 0051: “Legal Aspects of Business”
Assignment Set – 1
Question No.1
It is important for any person to know law as ignorance of law is no excuse. Modern Indian
law has been derived from some sources. Discuss the primary and secondary sources of
Indian law.
Answer- Ignorance of law is no excuse. It is the real translation of “ignorantiajuris non excusat”.
Every member of the society is expected that his actions confirm to a set pattern or standard as
reflected in legal rules. For this porpoise, he is presumed to know the legal rules. He cannot
take the plea that he did not know them. No doubt, in practice, he cannot learn and know all
the laws of the land, but he can obtain expert guidance from those who possess legal
knowledge. Therefore, the maxim “ignorantiajuris non excusat” places a burden on every
member of the society with the knowledge of law. In other words, “Ignorance of law is not a
good excuse”.
The Indian law has been derived from many sources. The main source of modern Indian law, as
administered by Indian courts may be divided into two broad categories-
I. Primary Source
II. Secondary Source
Primary source of Indian Law:-
The primary sources of Indian law are
a) Customs
b) Judicial Precedents
c) Statutes
d) Personal Law
Customary Law:-
Customs have important role in making the law and therefore is also known as customary law.
Customary Law in the words of Keeton, may be defined as “those rules of human action,
established by usage and regarded as legally binding by those to whom the rules are applicable,
which are adopted by the courts and applied as sources of law because they are generally
followed by the political society as a whole or by some part of it”. In simple words, “It is the
uniformity of conduct of all persons under like circumstances”. It is generally observed course
of conduct by people on a particular matter. When a particular course of conduct is followed
again and again, it becomes a custom.
Judicial Precedents:-
Judicial precedents are another important source of law. It is based on the principle that a rule
of law which has been settled by a series of decisions generally should be binding on the court
and should be followed in similar cases. These rules of law are known as judicial precedents.
However, only such decisions which lay down some new rules or principles are treated as
judicial precedents. Thus, were there is a settled rule of law, it is the duty of the judges to

follow the same; they cannot substitute their opinions for the established rule of law. This is
known as the doctrine of ‘staredecisis’. The literal meaning of this phrase is “stand by the
decision”.
Statutory law:-
The statutes or the statutory law or the legislation is the main source of law. This law is created
by legislation such as Parliament. In India, the Constitution empowers the Parliament and state
legislatures to promulgate law for the guidance or conduct of persons to whom the statute is,
expressly or by implication, made applicable. It is sometimes called ‘enacted law’ as it is
brought into existence by getting Acts passed by the legislative body. It is called Statute Law
because it is the writ of the state and is in written form (jus scriptum).
Personal law:-
Many times, a point of issue between the parties to a dispute is not covered by any statute or
custom. In such cases, the courts are required to applythe personal law of the parties. Thus in
certain matters, we follow the personal laws of Hindus, Mohammedan and Christians.
Secondary sources of Indian law
The secondary sources of Indian Law are English Law and Justice, Equity and Good Conscience.
English law- The chief sources of English Law are:
(i) The Common Law
(ii) Equity
(iii) The law Merchant and
(iv) The Statute Law.
Nowadays, English law is not very important source of Indian law. The English law, in its
application to India, has to conform to the peculiar circumstances and conditions prevailing in
this country. Even though the bulk of our law is based on and follows the
English law, yet in its application our courts have to be selective. It is only when the courts do
not find a provision on a particular problem in the primary sources of Indian Law that it my look
to subsidiary sources such as the English Law. For example, the greater part of the Law
Merchant has been codified in India. The Indian Contract Act, 1872, the Indian Partnership Act,
1932, the Scale of Goods Act 1930 and the Negotiable Instruments Act, 1882, are some of the
very important Acts relating to business transactions. Where, however, there is some doubt as
to the interpretation of any provisions of these Acts or where certain branches of the Law
Merchant have not been codified, the courts in India look to English decisions on the point, for
guidance.
Justice, equity and good conscience- In India we do not have, no did we ever had separate
courts (as in England) administering “equity”. But the equitable principles of law, i.e., justice,
equity and good conscience, are the guiding force behind most of the statutes in our country
and the decisions of the courts. Especially, where law is silent on any point or there is some
lacuna in a statute, the principles of equity come handy to the judges who exercise their
discretion often on equitable considerations. The frequent use of terms such as “good faith”,

“public interest”, “public policy”, in statutes and by the judges in their judgments is based on
principles of equity.
Now we shall briefly describe the main sources of English law:
1. Common law- This source consists of all those unwritten legal doctrines embodying customs
and traditions developed over centuries by the English courts. Thus, the common law is
found in the collected cases of the various courts of law and is sometimes known as “case
law”.
2. Equity- The literal meaning of the term “equity” is “natural justice”. The development of
equity as a source of law occurred due to rigours and hardships of the Common Law.
Therefore, in its technical and narrower sense, “equity” means a body of legal doctrines and
rules emanating from the administrations of justice, developed to enlarge, supplement or
override a narrow rigid system of existing law of the land. However, like the common law,
the “equity” is unwritten and is a supplement to common law as a source of law.
3. Statute law- The Statute law consists of the law passed by the Parliament and therefore, is
“written” law. The authority of parliament is supreme but is subject to natural limitations
and those lay down by the Constitution. It can pass any law it pleases and can override its
own previous Acts and the decisions of the courts. Statute law, therefore, is superior to and
can override any rule of Common Law or equity.
4. The law merchant or lexmercatoria- It is another important source of law and is based to a
great extent on customs and usages prevalent among merchants and traders of the
middleages. Its evolution like that of equity can be traced to unsuitability of Common Law so
far as the commercial transactions were concerned. The Common Law was found to be
unsatisfactory in dealing with disputes between merchants. The merchants, therefore,
developed certain rules based upon customs and usages to over their mercantile
transactions. These rules were known as LexMercatoria or the Law Merchant.

Question No. 2
We all enter into many contracts in a day knowingly or unknowingly. Explain the definition of
a valid contract. How are contracts classified?
Answer-A contract is an agreement that can be enforceable by law. An agreement is an offer
and its acceptance. An agreement which can be enforceable by law must have some essential
elements. According to Section 10 "All agreements are contracts if they are made by the free
consent of the parties competent to contract, for a lawful consideration and with a lawful
object, and are not hereby expressly declared to be void" As per the above section, a contract
must have the following elements.
1. Intention to create legal relationship.
2. Lawful object
3. Agreement not expressly declared void.
4. Proper offer and its acceptance.
5. Free Consent
6. Capacity of parties to contract
7. Certainty of meaning.
8. Possibility of performance.
9. Lawful consideration
10. Legal formalities
Contracts can be classified as under:
Contracts on the basis of creation:
a) Express contract: Express contract is one which is made by words spoken or written.
b) Implied contract: An implied contract is one which is made otherwise than by works
spoken or written. It is inferred from the conduct of a person or the circumstance of the
particular case.
c) Quasi or constructive contract: It is a contract in which there is no intention either side
to make a contract, but the law imposes contract. In such a contract eights and
obligations arise not by any agreement between the practice but by operation of law.
e.g where certain books are delivered to a wrong address the addresses is under an
obligation to either pay for them or return them.
Contracts on the basis of execution:
a) Executed contract: It is a contract where both the parties to the contract have fulfilled
their respective obligations under the contract.
b) Executory contract: It is a contract where both the parties to the contract have still to
perform their respective obligations.
c) Partly executed and partly executory contract: It is a contract where one of the parties
to the contract has fulfilled his obligation and the other party has still to perform his

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

Question No. 3
The parties to bailment have certain rights and duties. Discuss the duties of both parties i.e.
the bailor and bailee.
Answer:-
Bailment is defined as the “delivery of goods by one to another person for some purpose, upon
a contract that they shall, when the purpose is accomplished, be returned or otherwise
disposed of according to the directions of person delivering them”. The person delivering the
goods is called the “bailor” and the person to whom the goods are delivered is called the
“bailee”. The explanation to the above Section points out that delivery of possession is not
necessary, where one person, already in possession of goods contracts to hold them as bailee.
The bailee is under an obligation to re-deliver the goods, in their original or altered form, as
soon as the time of use for, or condition on which they were bailed, has elapsed or been
performed”.
For example-
(i) A delivers some clothes to B, a dry cleaner, for dry cleaning. (ii) A delivers a wrist watch to B
for repairs. (iii) A lends his book to B for reading. (iv) A delivers a suit-length to a tailor for
stitching. (v) A delivers some gold biscuits to B, a jeweler, for making jewellery. (vi) Delivery of
goods to a carrier for the purpose of carrying them from one place to another. (vii) Delivery of
goods as security for the repayment of loan and interest thereon, i.e., pledge.
Duties of a bailor-
1. To disclose know faults in the goods- The bailor is bound to disclose to the bailee faults in
the goods bailed, of which the bailor is aware and which materially interfere with the use of
them or expose the bailee to extraordinary risks. If he does not make such disclosure, he is
responsible for the damage arising to the bailee directly from such faults.
Example: A lends a horse, which he knows to be vicious, to B. He does not disclose thefact that
the horse is vicious. The horse runs away. B is thrown and injured. A isresponsible to B for
damage sustained.2.
2. Liability for breach of warranty as to title- The bailor is responsible to the bailee for any loss
which the bailee may sustain by reason that the bailor was not entitled to make the bailment,
or to receive back the goods or to give directions respecting them (Sec.164).
Example: A gives B‟s car to C without B‟s knowledge and permission. B sues C and receives
compensation. A, the bailor, is responsible to make good this loss to C, the bailee.
3. To bear expenses in case of gratuitous bailments- Regarding bailments under which bailee is
to receive no remuneration, Sec.158 provides that in the absence of a contract to the contrary,
the bailor must repay to the bailee all necessary expenses incurred by him for the purpose of
the bailment.
4. In case of non-gratuitous bailments, the bailor is held responsible to bear only extraordinary
expenses.
Example: A car is lent for a journey. The ordinary expenses like petrol, etc., shall be borne by
the bailee but in case the car goes out of order, the money spent in its repair will be regarded
as an extraordinary expenditure and borne by the bailor.
Duties of a bailee-

1. To take care of the goods bailed- In all cases of bailment, the bailee is bound to take as much
care of the goods bailed to him as a man of ordinary prudence would, under similar
circumstances, take of his own goods of the same bulk, quality and value as the goods bailed. In
case, bailee has taken the amount of care as described above, he shall not be responsible, in
the absence of any special contract, for the loss, destruction or deterioration of the thing bailed
(Sec.152).
Example: A lends a car to B for his own driving only. B allows C, his wife, to drive the car. C
drives with care, but the car is damaged in an accident. A is liable to make compensation to B
for the damage done to the car.
2. Not to make unauhorised use of goods- In case the bailee makesunauthorised use of goods,
i.e., uses them in a way not warranted by the terms of bailment, he is liable to make
compensation to the bailor for any damages arising to thegoods from or during such use of
them.
3.Not to mix bailor’s goods with his own- If the bailee without theconsent of the bailor, mixes
the goods of the bailor with his own goods and the goods canbe separated or divided, the
bailee shall be bound to bear the expense of separation ordivision and any damages arising
from the mixture.
Example:A bails 100 bales of cotton marked with a particular mark to B. B, without A’sconsent,
mixes the 100 bales with other bales of his own bearing a different mark. A isentitled to have
his 100 bales returned and B is bound to bear all expenses incurred in theseparation of the
bales and any other incidental damage.But in case goods are mixed in such a manner that it is
impossible to separate the goodsbailed from the other goods and deliver them back, the bailor
is entitled to becompensated by the bailee for the loss of the goods.
4.To return the goods bailed without demand- It is the duty of the bailee toreturn, or
deliveraccording to the bailor‟s directions, the goods bailed, without demand,as soon as the
time for which they were bailed has expired, or the purpose, for which theywere bailed has
been accomplished.If bailee fails to return the goods at the proper time, he is responsible to the
bailor for anyloss, destruction or deterioration of the goods from that time (Sec.161).

Question No. 4
A contract comprises of reciprocal promises. In a contract of sale who is an unpaid seller?
Discuss the remedies for breach of contract under Sale of Goods Act, 1930.
Answer- A contract is comprised a reciprocal promises. In a contract of sale, if seller is under as
obligation to deliver goods, buyers has to pay for it. In case buyer fails or refuse to pay, the
seller shall have certain rights.
Unpaid Seller: - A seller of goods is an unpaid seller when
i) The whole of the price has not been paid or tendered.
ii) A bill of exchange or other negotiable instrument has been received as conditional
payment and the condition on which it was received has not been fulfilled by
reasons of the dishonor of the instrument or otherwise.
Remedies for breach of contract-
In addition to rights of a seller against goods provided in Secs. 47 to 54, the seller has the
following remedies against the buyer personally.
i) Suit for price (Sec. 55)
ii) Damage for non-acceptance of goods (Sec. 56)
iii) Suit for interest (Sec. 61)
Suit for Price- Where under a contract of sale the property in the goods has passed to the buyer
and the buyer wrongfully neglects or refuses to pay the price, the seller can sue the buyer for
the price of the goods. Where the property in goods has not passed to the buyer, as a rule, the
seller cannot file a suit for the price; his only remedy is to claim damages.
Suit for damage for non-acceptance- Where the buyer wrongfully neglects or refuses to accept
and pay for the goods, the seller may sue him for damage for non-acceptance. Where the
property in the goods has not passed to the buyer and the price was not payable without
passing of property, the seller can only sue for damages and not for the price. The amount of
damage is to be determined in accordance with the provisions laid down in Sec. 73 of the Indian
Contract Act, 1872. Thus, where is an available market for the goods prima facie, the difference
between the market price and the contract price can be recovered.
Suit for interest- When under a contract of sale, the seller tenders the goods to the buyer and
the buyers wrongfully neglects or refuse to accept and pay the price. The seller has a further
right to claim interest on the amount of the price. In this absence of contract to the contrary,
the court may award interest at such rate as it thinks fit on the amount of the price. The
interest may be from the date of the tender of the goods or from the date on which the price
was payable. It is obvious that the unpaid seller can claim interest only when he can recover
the rice, i.e., if the seller’s remedy is to claim damages only, than he cannot claim interest.
Buyers remedy against seller- The buyer has the following rights against the seller for breach of
contract.

I) Damages for non-delivery (Sec. 57)
II) Right of recovery of the price
III) Specific Performance (Sec. 58)
IV) Suit for breach of condition
V) Suit for breach of warranty (Sec.59)
VI) Anticipatory breach (Sec. 60)
VII) Recovery of interest (Sec. 61)
Question No.5
The Companies Act, 1956 deals with the formation and transaction of business of a company.
Discuss the features of a company. Also explain the process of formation of a company
Answer-In common usage, ‘Company’ means an association of persons associated for some
common purpose. The common object may be business, charity, research etc. The persons are
united for achieving a common objective, normally, for earning profits, which are shared by the
investors.
Definition of Company- Section 3 (1) (i) of the Companies Act, 1956 defines a company as:
“A company registered and formed under this Act or an existing company.”
The above definition does not give clear description about the company. The definition
provided by Haney gives a better view about the essential elements of a company. According to
Haney, “A company is an incorporated association which is an artificial person created for by
law, having a separate entity, with a perpetual succession and a common seal”.
Also Sec. 12 permits the formation of different types of companies. These may be
Companies limited by shares
Companies limited by guarantee
Unlimited Companies
Features of a Company-
1. Registration: A company is to be compulsorily registered under the Companies Act.
2. Artificial Person: A company is an artificial person. “Company is an artificial person, invisible,
intangible and existing only in the eyes of law.” It is created under the law, not itself a human
being. It is called a person as it is clothed with certain rights and obligations.
3. Separate Legal Entity: A company can enter into contracts with its directors, its shareholders
and outsiders. It functions through its board of directors. A company is a distinct person, with
its own independent identity.
One Man Company: When a single person holds almost all the shares of the company, it is

called ‘One Man Company’. Such a company has a legal personality, if it complies with the
necessary requirements of registration. Such companies may be public or private companies.
Usually, they are private companies.
Formation of a Company- The whole process of formation of a company is divided into four
steps for convenience.
A. Promotion of Company
B. Incorporation or Registration of Company
C. Floatation of Company
D. Commencement of Business
A. Promotion of Company- Promotion is a term of wide import denoting the preliminary steps
taken for the purpose of registration and floatation of the company. The persons who assume
the task of promotion are called promoters. The Promoter is a person who initiates the process
of formation of company. Heundertakes to form a company with reference to a given project
and takes the necessary steps toaccomplish the purpose. Promoter assumes responsibility for
all the matters relating to the formationof the company.
B. Incorporation or Registration of Company- For a public company, the minimum number of
members is seven, while it is two in the case of a private company. The promoter has to gather
the required number for subscribing to the Memorandum of Association.
The following are the steps for the incorporation of a company:
1. Application for Availability of Name: A company cannot be registered in the name of an
existing company. It also cannot be registered in a name, which is undesirable in the opinion
of the Central Government. Therefore, it is necessary for the promoters to find out the
availability of the name of the company from the Registrar of Companies. The first step in
the formation of a company is the approval of the name by the Registrar of Companies
(ROC) in the State/Union Territory in which the company is to be registered. This approval is
provided subject to certain conditions. For instance, there should not be an existing
company by the same name. Further, the last words in the name are required to be “Private
Ltd.” in the case of a private company and “Limited” in the case of a Public Company.
2. Filing of Documents: The following three documents are required to be filed with the
Registrar of Companies of the State in which the registered office of the company is to be
situated:
(i) Memorandum of Association,
(ii) Articles of Association, and
(iii) Agreement with the company for the proposed appointment of the managing director,
whole-time director or manager.
The above documents (i) and (ii) are required to be signed by the seven persons in the case
of the public company and two persons in the case of private company.
3. Payment of Stamp Duty and Filing Fee: The Company has to pay the necessary stamp duty
and filing fee, according to the authorized share capital of the company.
4. Declaration of Compliance of Act and Rules: A declaration that the requirements of the Act
and the rules framed there under have been complied. This declaration is to be signed by an
advocate of the Supreme Court or High Court or attorney or a pleader having the right to
appear before High Court. Alternatively, this declaration can be signed by a Company Secretary

or Chartered Accountant in whole time-practice, who is engaged in the formation of a company
or a person named in the articles as a director. This declaration is also to be filed with the
Registrar of Companies, where the registered office of the company would be located.
5. Additional Requirement, in Case of a Public Company: The following further requirements
are to be complied with:
(i) A list of persons who have consented to act as directors.
(ii) Written consent of the directors to act in that capacity.
(iii) An undertaking by the directors to take up and pay for the qualification shares.
6. Certificate of Incorporation or Registration: If the Registrar is satisfied that the requirements
under the Act for the purpose of registration of a company have been complied with, he shall
register the company and issue a certification of incorporation, under his hand and seal.
C. Floatation of Company- Once the Certificate of Incorporation is received, it means the
company is registered. Then the next step is to raise the required finances for running the
company. The company is ready for floatation.Floatation means raising the required finances
for commencing and carrying on the business, satisfactorily.
In other words, the company can go ahead, with raising capital sufficient to commence the
business and carry on it, satisfactorily.
D. Commencement of Business- A public company, having share capital, cannot commence the
business, without obtaining the certificate of commencement of business. The certificate of
commencement of business can be obtained, only after completing the floatation process. In
other words, a public limited company has to file either prospectus or statement in lieu of
prospectus and comply with the required legal requirements, relating to the capital
requirements. Thereafter only, Certificate of Commencement of Business is issued by ROC.
“A Public Company, having share capital, cannot commence the business, without obtaining the
Certificate of Commencement of Business.”
However, a private limited company can commence the business, without obtaining the
‘Certificate of Commencement of Business’. There is no need for a private company to obtain
Certificate of Commencement of Business. After obtaining the Certificate of Incorporation, it
can immediately commence business. It is the privilege a private limited company enjoys.

Question No.6
With Information Technology Act, 2000, India has a set of cyber laws to provide legal
infrastructure for e commerce. Discuss the objectives and limitations of this Act.
Answer-In May 2000, Indian Parliament passed the Information Technology Bill. The Bill
received the assent of the President in August 2000 and came to be known as the Information
Technology Act, 2000. This Act aims to provide the legal infrastructure for e-commerce in India.
And the cyber laws have a major impact for e-businesses and the new economy in India. So, it is
important to understand what are the various perspectives of the IT Act, 2000 and what it
offers. The Information Technology Act, 2000 also aims to provide for the legal framework so
that legal sanctity is accorded to all electronic records and other activities carried out by
electronic means. The Act states that unless otherwise agreed, an acceptance of contract may
be expressed by electronic means of communication and the same shall have legal validity and
enforceability. This act is helpful to promote business with the help of internet. It also set of
rules and regulations which apply on any electronic business transaction. Due to increasing
crime in cyber space, Govt. of India understood the problems of internet user and for
safeguarding the interest of internet users, this act was made.
Main Objectives of I. T. Act - The following are its main objectives
1. It is objective of I.T. Act 2000 to give legal recognition to any transaction which is done by
electronic way or use of internet.
2. To give legal recognition to digital signature for accepting any agreement via computer.
3. To provide facility of filling document online relating to school admission or registration in
employment exchange.
4. According to I.T. Act 2000, any company can store their data in electronic storage.
5. To stop computer crime and protect privacy of internet users.
6. To give legal recognition for keeping books of accounts by bankers and other companies in
electronic form.
7. To make more power to IPO, RBI and Indian Evidence act for restricting electronic crime.
Limitation of Information Technology Act- it extends to the whole of India and save as
otherwise provided in this Act, it applies to any offence or contravention thereunder
committed India by any person.
The Act is not applicable to the following:-
1. A negotiable instrument (other than a cheque) as defined in Sec. 13 of the Negotiable
Instrument Act 1881.
2. A Power of Attorney as defined in Sec. 1A of the Power of Attorney Act, 1882
3. A trust as defined in Sec.3 of the India Trust Act, 1882.
4. A will as defined in Sec. 2(h) of the Indian Succession Act, 1925 including any other
testamentary disposition by whatever name called.

5. Any contract for the sale or conveyance of immovable property or any interest in such
property.
6. Any such class of documents or transactions as may be notified by the Central
Government in the Official Gazette.

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