Subject: Business Laws
Attempt any three:
Question1: “The fundamental attribute of corporate personality is that company is a legal
entity distinct from the members.’’ Elucidate the statement. Also specify the important
features of a company.
Answer: In the Eye of Court, Company is an independent identity. It is an artificial person. There
is no body, soul or brain but it works like a human being. It can buy and sell on its own name.
No members have right on company except their invested share capital. So, no share holder
sells or buy the company’s property. They can only sell their bought share at its current market
value. It is not just association of persons like partnership. It has full independent legal entity.
Death or birth of new shareholder will not affect the existence of a company. Shareholders are
not also the agent of company. Company will not die with the death of any shareholder. When
any shareholder will die, his shares will transfer to other authorize party.
There are some exceptions when this rule will not apply. For example, when any company
starts acting like an agent of shareholders. At that time, company and its shareholders will not
different. At that time, its liability will be unlimited.
The following are the main characteristics and distinctive features of a company form of
1. An Association of Persons:
At least two persons or seven persons must come together to form a private or a public
company respectively. A single individual cannot constitute a company. This is the reason why a
company is called on Association of Persons.
2. Incorporated Association: A company comes into existence only after a certificate of
incorporation has been obtained from the Registrar of Joint Stock Companies. Without
incorporation, it has no legal existence.
3. Artificial Legal Person: A company is an artificial person created by law to achieve the
objectives for which it is formed. A company exists only in the contemplation of law. It is
artificial person in the sense that it is created by a process other than natural birth and does not
possess the physical attributes of a natural person.
It is invisible, intangible, immortal and exists only in the eyes of law. It has no body, no soul and
no conscience; it is regarded as an artificial person.
4. Distinct Legal Entity: A company is a legal person having a juristic personality entirely distinct
and independent of the individual persons who are its members. It enjoys in many respects the
right of a natural person in the eyes of law.
It can own property, conduct a lawful business, enter into contracts with others, buy, sell and
hold property, all in its own name under its own seal. It can file a suit against others and can be
5. Perpetual Succession: A company has perpetual existence i.e. its existence is not affected by
the death or lunacy or insolvency or retirement of its member.
Members may come and go, but the company continues its operations so long as it fulfils the
requirements of the law under which it has been formed. Thus, a company has a perpetual
succession irrespective of its membership.
6. Limited Liability: Liability of members of a limited company is limited to the face value of the
shares subscribed by each of them. Members cannot be asked to pay anything more than what
is due or unpaid on the shares of the company held by them.
In no case the personal property of the members of a company can be attached to satisfy the
claims of creditors of a company.
7. Transferability of Shares: Members of a public limited company are free to transfer the
shares held by them to any one members for either to purchase or sell the shares.
8. Diffused Ownership: Ownership of a company is in the hands of a large number of people. In
case of Private Ltd. Company, the upper limit is up to 50. In case of a public Ltd. Company there
is upper limit to the number of members.
Any individual is free to acquire the share of any company and become to the owner to that
extent only. As such ownership is spread among a number of share holders.
9. Separation of ownership and management: Share holders are the owners of the company.
Company’s share holders are widely scattered. It is physically impossible for all of them to take
patty in the management of the company.
Being a share holder of a company does not give him the right to manage the affairs of a
company. The management is vested with the directors, who are the legal representatives of
the shareholders. Thus owners of the company have no direct control over the management of
10. Common Seal: A company being an artificial person cannot sign documents for itself
whereas a natural person can do. The law has provided for the use of a common seal, with the
name of the company engraved on it, as substitute for its signature.
The common seal of the company is approved in the first Board Meeting held immediately after
the incorporation. Common seal has to be affixed on all important documents and contracts.
Any document bearing the common seal of the company duly signed by at least two directors
will be legally binding on the company.
11. Corporate Finance: A company generally raises large amount of funds in form of issuing
shares, debentures, bonds and incurring loans and advances from financial institutions. The
total share capital of a company is divided into a number of shares which are held by individual
members and institutions.
12. Object clause of Business: A company can conduct only such business as stated in its first
Memorandum of Association. In order to bring any charges in its activity, the object clause must
13. Publication of Accounts: A joint stock company is required to file annual audited
statements with the Registrar of Companies at the end of each financial year. The annual
statements are available for inspection in the office of the Registrar.
Question2: Discuss the essential elements of a valid contract.
Answer: A contract has been defined in Section 2(h) as “an agreement enforceable by law.” To
be enforceable by law, an agreement must possess the essential elements of a valid contract as
contained in Sections 10, 29 and 56.
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, with a lawful object, are not
expressly declared by the Act to be void, and, where necessary, satisfy the requirements of any
law as to writing or attestation or registration.
As the details of these essentials form the subject-matter of our subsequent chapters, we
propose to discuss them in brief here.
The essential elements of a valid contract may be summed up as follows:
1. Offer and acceptance: There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer,
thus resulting in an agreement. The adjective ‘lawful’ implies that the offer and acceptance
must satisfy the requirements of the Contract Act in relation thereto.
2. Intention to create legal relations: There must be an intention among the parties that the
agreement should be attached by legal consequences and create legal obligations. Agreements
of a social or domestic nature do not contemplate legal relations, and as such they do not give
rise to a contract.
3. Lawful consideration: The third essential element of a valid contract is the presence of
‘consideration’. Consideration has been defined as the price paid by one party for the promise
of the other. An agreement is legally enforceable only when each of the parties to it gives
something and gets something. The ‘consideration’ may be an act (doing something) or
forbearance (not doing something) or a promise to do or not to do something. It may be past,
present or future. But only those considerations are valid which are ‘lawful’.
4. Capacity of parties: The parties to an agreement must be competent to contract; otherwise
it cannot be enforced by a court of law. In order to be competent to contract the parties must
be of the age of majority and of sound mind and must not be disqualified from contracting by
any law to which they are subject (Sec. 11).
5. Free consent: Free consent of all the parties to an agreement is another essential element of
a valid contract. ‘Consent’ means that the parties must have agreed upon the same thing in the
same sense (Sec. 13). There is absence of free consent’ if the agreement is induced by (ii)
coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake (Sec. 14). If the
agreement is vitiated by any of the first four factors, the contract would be voidable and cannot
be enforced by the party guilty of coercion, undue influence etc.
6. Lawful object: For the formation of a valid contract it is also necessary that the parties to an
agreement must agree for a lawful object. The object for which the agreement has been
entered into must not be fraudulent or illegal or immoral or opposed to public policy or must
not imply injury to the person or property of another (Sec. 23). If the object is unlawful for one
or the other of the reasons mentioned above the agreement is void. Thus, when a landlord
knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent
through a court of law.
7. Writing and registration: According to the Indian Contract Act, a contract may be oral or in
writing. But in certain special cases it lays down that the agreement, to be valid, must be in
writing or/and registered. For example, it requires that an agreement to pay a time barred debt
must be in writing and an agreement to make a gift for natural love and affection must be in
writing and registered (Sec. 25). Similarly, certain other Acts also require writing or and
registration to make the agreement enforceable by law which must be observed. Thus, (i) an
arbitration agreement must be in writing as per the Arbitration and Conciliation Act, 1996; (ii)
an agreement for a sale of immovable property must be in writing and registered under the
Transfer of Property Act, 1882 before they can be legally enforced.
8. Certainty: Section 29 of the Contract Act provides that “Agreements, the meaning of which is
not certain or capable of being made certain, are void.” In order to give rise to a valid contract
the terms of the agreement must not be vague or uncertain. It must be possible to ascertain
the meaning of the agreement, for otherwise, it cannot be enforced.
9. Possibility of performance: Yet another essential feature of a valid contract is that it must be
capable of performance. Section 56 lays down that “An agreement to do an act impossible in
itself is void”. If the act is impossible in itself, physically or legally, the agreement cannot be
enforced at law.
10. Not expressly declared void: The agreement must not have been expressly declared to be
void under the Act. Sections 24-30 specify certain types of agreements which have been
expressly declared to be void.
3 . Explain - ‘different modes of crossing of a cheque’ and section 138 as per the provisions
of the Negotiable Instrument Act, 1881.
Different modes of crossing of a cheque
Crossing are of the following types:
(1) General crossing;
(2) Special crossing;
(3) However, there is yet another type of crossing which is recognized by usage and custom,
called restrictive crossing:
(4) Not negotiable crossing.
1. General Crossing:
In a general crossing, simply two parallel transverse lines, with or without the words 'not
negotiable' in between, may be drawn. Such a cheque is crossed generally.
The effect of general crossing is that the payment of the cheque will not be made at the
counter, it can be collected only through a banker.
2. Special Crossing:
In a special crossing, the name of a banker with or without the words 'not negotiable' is
written on the cheque. Such a cheque is crossed specially to that banker.
It should be noted that two transverse parallel lines are necessary for a general crossing,
whereas for a special crossing, no such lines are necessary.
The effect to special crossing is that the paying banker will be the amount of the cheque only
through the bank named in the cheque.
3. Restrictive crossing:
Besides the two statutory types of crossing discussed above, there is one more type of
crossing namely, restrictive crossing. This type of crossing has been recognised by usage and
custom of the trade.
In a restrictive crossing the words 'Account Payee' or Account Payee Only' are added to the
general or special crossing.
The effect of restrictive crossing is that the payment of the cheque will be made by the bank
to the collecting banker only for the account payee named. If the collecting banker collects
the amount for any other person, he will be liable for wrongful conversion of funds.
It should be noted that the duty of the paying banker is only to ensure that the payment is
made through the named bank, if there is any. He is not liable, in case the collecting banker
collects the cheque for any other person than the account payee. In that case collecting
banker will be liable to the true owner.
4. Not negotiable Crossing (Sec. 130):
A person taking is cheque crossed generally or specially, bearing in either case the words 'not
negotiable' shall not be able to give a better title to the holder than that of the transferor.
The effect of a not negotiable crossing is that the cheque can be transferred but the
transferee will not acquire a better title to the cheque. Thus a cheque is deprived of its
essential feature of negotiability.
The objects of "not negotiable" crossing is to protect the drawer against loss or theft in the
course of transit.
A cheque was drawn in favour of a firm B & Co. The cheque was crossed 'not negotiable'; one
of the partners, A in fraud of his Co-partner B, endorsed the cheque to P who encashed it.
Held that B, who under the terms of the partnership agreement was entitled to the cheque
could recover the amount from P as A could not transfer better title than he himself had
[Fisher v. Roberst]
Who may cross a cheque? As a rule, it is the drawer who can cross a cheque. However, Sec.
125 provides that even a holder can cross the cheque. It further provides that a banker
can cross the cheque specially for collecting to another banker as his agent for collection.
Section 138 in The Negotiable Instruments Act, 1881
138. Dishonour of cheque for insufficiency, etc., of funds in the account. Where any cheque
drawn by a person on an account maintained by him with a banker for payment of any
amount of money to anotherperson from out of that account for the discharge, in whole or
in part, of any debt or other liability, is returned by the bank unpaid. either because of the
amount of money standing to the credit of that account is insufficient to honour the cheque
or that it exceeds the amount arranged to be paid from that account by an agreement made
with that bank, such person shall be deemed to have committed an offence and shall,
without prejudice. to any other provision of this Act, be punished with imprisonment for a
term which may extend to one year, or with fine which may extend to twice the amount of
the cheque, or with both: Provided that nothing contained in this section shall apply unless-
(a) the cheque has been, presented to the bank within a period of six months from the date
on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course. of the cheque as the case may be, makes a demand
for the payment of the said amount of money by giving a notice, in writing, to the drawer of
the cheque, within fifteen days of the receipt of information by him from the bank regarding
the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the
payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of
the receipt of the said notice. Explanation.- For the purposes of this section," debt or other
liability" means a legally enforceable debt or other liability.
Question4: What are the characteristics of negotiable instrument? Discuss the privileges of
holder in due course as per the provision of the Negotiable Instrument Act.
Answer: A Negotiable instrument means a promissory note, bill of exchange or cheque either to
order or bearer." Justice K. C. Wills defines negotiable instrument as "ONE THE PROPERTY IN
WHICH IS ACQUIRED BY ANY ONE WHO TAKES IT BONAFIED FOR VALUE, NOT WITHSTANDING
ANY DEFECT OF TITLE IN THE PERSON FROM WHOM HE TOOK IT". Transferability A Negotiable
instrument as a document of title to money is transferable either by the application of the law
or by the custom of the trade concerned. Special feature of N.I The special feature of such an
instrument is the privilege it confers to the person who receives it bonafide and for value, to
possess good title thereto, even if the transferor has no title or had defective title to the
instrument. Distinctive features of Negotiable Instruments - Easily transferable from one person
to another - Confers absolute and good title on the transferee - The holder of a Negotiable
Instrument (P.N./B.E./Cheque) is called as the holder in due course and possesses the right to
sue upon the instrument in his own name. Types of Negotiable Instruments Negotiable
instruments by Statue are of three types, cheques, bills of exchange and promissory note.
Negotiable instruments by custom or usage :- Some other instruments have acquired the
character of negotiability by the the custom or usage of trade. Section 137 of Transfer of
Property Act 1882 also recognizes that an instrument may be negotiable by Law or Custom.
Thus in India Govt. Promissory notes, Shah Jog Hundis, Delivery Orders, Railway Receipts, Bill of
Lading etc. have been held negotiable by usage or custom. These can be said as quasi statutory
Negotiable Instruments. Exceptions Sometimes the Drawer and Holder can take away the
negotiability of an instrument by expression such as "Not Negotiable", Pay to "A" only. Here "A"
(the holder) cannot transfer a better title to the transferee. Promissory Note Section 4: "A
promissory note is an instrument in writing (not being a bank note or a currency note),
containing an unconditional undertaking, signed by the maker to pay a certain sum of money
only to, or to the order of a certain person or to the bearer of the instrument." Bill of Exchange
Section 5: "A bill of Exchange is an instrument in writing containing an unconditional order
signed by the maker, directing a certain person to pay a certain sum of money only to, or to the
order of a certain person or to the bearer of the instrument." According to Section 7, the
maker/creator of the instrument is known as 'Drawer'. The person to whom payment may be
made is known as "Payee". The person who is directed to pay the amount is known as Drawee.
He accepts to pay the amount mentioned in the instrument. In case of a promissory note
Drawer and Drawee are same. In case of a cheque the Drawee is always a Banker. Cheque As
per Section 6 "A cheque is a bill of exchange drawn on a specified banker and not expressed to
be payable otherwise than on demand." After 2002 amendment cheque includes " the
electronic image of a truncated cheque and a cheque in the electronic form." In terms of
Explanation I, (a) " 'a cheque in the electronic form' means a cheque which contains the exact
mirror image of a paper cheque, and is generated, written and signed in a secure system
ensuring the minimum safety standards with the use of digital signature (with or without
biometrics signature) and asymmetric crypto system; (b) “ 'a truncated cheque' means a
cheque which is truncated during the course of a clearing cycle, either by the clearing house or
by the bank whether paying or receiving payment, immediately on generation of an electronic
image for transmission, substituting the further physical movement of the cheque in writing."
M.I.C.R.Cheques/Drafts In MICR (Magnetic Ink Character Recognition) cheques: First six number
indicate the cheque number Next three numbers indicate city code Next three numbers
indicate Bank code Next three numbers indicate Branch code Characteristics of Cheque, Bill of
Exchange and Promissory Note 1) Instrument in writing: Pencil writing is not forbidden by the
law but to prevent alternation, etc. the custom and usage do not allow this. (2) Unconditional
order/promise: Cheque and bill of exchange are orders of creditors (Drawers) to the debtors
(Drawee) to pay money. Instruments with expressions such as "I.O.U. Rs.500/-" is not a bill of
exchange. On the other hand a promise with following narration duly signed, dated and
accepted by a drawee is a Bill of Exchange B/E – "I promise to pay B or order Rs.5,000/-" (3)
Difference between cheque and bill of exchange: The main difference between a cheque and a
bill of exchange is that the former is always drawn on and is payable by a banker specified
therein. (4) Certainty of the sum: The amount of the instrument must be certain. (5)
Payable to order or bearer: The instrument must be payable either to order or to bearer as per
the provision of Section 13 of the Act. For example if a cheque is drawn with the expression "
Pay to Ram Lal" it indicates that it can be paid to Ram Lal or any person as per his order. But if it
is written pay to 'Ram Lal' only it must be paid to Ram Lal only. A bill of exchange and cheque
are payable to bearer if it is expressed to be so payable or if the only or the last endorsement is
an endorsement in blank. (6) Payee must be a certain person: The term 'person' includes
besides individuals, bodies corporate, local authorities, Co-operative Societies, etc. and it also
includes Registrar, Principal, director, Secretary, etc. of those institutions. Payee may be more
than one person (7) Term of payment: A cheque is always payable on demand, though words
to this effect are not mentioned therein. A bill may be payable at sight or after a period of time
specified therein. A promissory note or bill of exchange in which no time for payment is
specified is payable on demand (Section 19). If the bill is payable after a certain period it must
be accepted by a drawee. But no such acceptance is necessary in case of a cheque. (8) Signature
of the drawer/promisor: The negotiable instrument is valid only if it bears the signature of the
drawer/promisor. (9) Delivery of the instrument: The making, acceptance or endorsement of an
instrument is completed by delivery in terms of Section 46 of the Act. Stamping of promissory
notes and bill of exchange is necessary. The Indian Stamp Act 1899 requires that the promissory
note and the bill of exchange except cheques to be stamped. (11) Currency note: The currency
note is a promissory note payable to bearer on demand. Section 21 of RBI Act prohibits creation
of this type of promissory notes by others excepting the Reserve Bank of India. Holder and
holder in due-course A negotiable instrument is transferable from person to person. The
Negotiable Instrument Act confers upon the person who acquires it bonafide and for value, the
RIGHT TO POSSESS good title to the instrument. such a person is called HOLDER IN DUE
COURSE. Each and every person in possession of a cheque or bill cannot be its holder in due
course and cannot claim statutory protection available under the Act. In terms of Section 8,
"The Holder of a Promissory Note, Bill of Exchange or cheque means any person entitled in his
own name to the possession thereof and to receive and recover the amount due thereon from
the parties thereto." Two fold entitlements He must be entitled to the possession of the
instrument in his own name and under legal title. Actual possession of the instrument is not
essential; the holder must have legal right to possess the instrument in his own name. He must
have lawfully derived the title as an endorsee or payee. He must be entitled to receive or
recover the amount from the parties concerned in his own name. In case of order instruments,
the name of the person must appear as its endorse or payee. Bearer/Order instrument In case
of a bearer instrument, the bearer may claim the money without having his name mentioned
on the cheque. In case a Bill, a Promissory note or a cheque is lost or destroyed its holder is the
person so entitled at the time of such loss or destruction. Holder in due course As per Section 9,
"Holder in due course means any person who for consideration became the possessor of a
promissory note, bill of exchange or cheque, if payable to bearer, or payee or endorsee thereof
if payable to order before the amount mentioned in it became defect in the title of the person
from whom derived his title." Conditionalities A person becomes holder in due course if the
following conditions are satisfied:- The instrument must be in the possession of the holder in
due course and in case of an order instrument he must be its payee or endorsee. The
negotiable instrument must be regular and complete in all aspects. Alterations if any must be
authenticated. The instrument must have been obtained for valuable consideration i.e. by
paying its full value. Exceptions A person who receives a cheque (not being a gift cheque issued
by banks) as a gift will not be called its holder in due course for want of consideration. If a
cheque is given in respect of a debt incurred in gambling the consideration of the cheque is
unlawful and hence cheque received on such consideration cannot make the payee thereof a
holder in due course provided: The instrument must have been obtained before the amount
mentioned therein became payable. He must have received it without having sufficient cause
to believe that any defect existed in the title of the transferor. The title of a Negotiable
Instrument is deemed to be defective if it is acquired by unfair means, e.g. fraud, coercion,
undue influence or by any other illegal means. Section 9 thus lays heavy responsibility on the
person accepting a negotiable instrument. Rights of a Holder An endorsement in blank may be
converted by him into an endorsement in full. (2) He is entitled to cross a cheque either
generally or specially with the words Not Negotiable. (3) He can negotiate a cheque to a third
person. (4) He can obtain a duplicate of the lost instrument. Privileges of a Holder in Due
Course (1) He possesses a better title free from all defects, which is the greatest privilege of all.
Section 53 states that a holder of negotiable instrument who derives title from a holder in due
course has rights thereon of that of a holder in due course. (2) Every prior party to negotiable
instrument, i.e, maker or drawer, acceptor or endorser is liable thereon to a holder in due
course until the instrument is duly satisfied. (Section 36). (3) If a negotiable instrument was
originally inchoate (i.e. incomplete) instrument and a subsequent transfer completed the
instrument for a sum greater than what was the intention of the maker, the right of a holder in
due course to recover the money of the instrument is not affected at all. (4) Right in case of
fictitious instrument is unaffected. (5) Right in case the instrument was obtained by
unlawful means or for unlawful consideration is unaffected. (6) Estoppel against denying
original validity of the instrument. (7) Estoppel against denying capacity of payee to endorsee.
(8) Estoppel against denying signature or capacity of prior party. Payment in due course
Section 10 defines payment in due course as “Payment in due course means payment in
accordance with the apparent tenor of the instrument in good faith and without negligence to
any person in possession thereof under circumstances which do not afford a reasonable ground
for believing that he is not entitled to receive payment of amount mentioned therein.” The
other important provisions relating to payment in due course are the following. i. The payment
should be made in accordance with the apparent tenor of the instrument i.e. according to the
true intentions of the parties. ii. The payment should be made in good faith and without
negligence. iii. The payment should be made to the person in possession of the instrument in
circumstances, which do not arouse suspicion about his title to possess the instrument and to
receive payment thereof.
5 . Elaborately explain the essential features of the consumer protection act 1986. Also
briefly discuss unfair trade practice and restrictive trade practice as discussed under
consumer protection Act?
Features of Consumer Protection Act 1986
1. This Act is applicable on both goods and services. Goods are manufactured by the
manufacturer and consumer buys them from manufacturer or seller. Services include transport,
electricity, water; roads, etc. are under this Act.
2. Consumer Redressal Forum-Under Consumer Protection Act, the three judicial systems has
been set up to provide relief to consumers. In this system, consumer forums have been set up
at various levels which are functioning to safeguard the interests of consumers. Under this
system, many forums and commissions have been set up at various levels where consumers can
lodge their complaints.
I. At district level there is District Consu-mer Dispute Redressal Forum. It is headed by a judicial
officer equivalent to Session Judge. He is assisted by two members. Cases involve compensation
up to 20 lakhs are entertained in this forum.
II. At state level there is State Consumer Dispute Redressal Commission. It is headed by a
judicial officer equivalent to High Court Judge. He is also assisted by two members. Here cases
involve compensation of 20 lakhs to one crore are entertained.
III. At national level there is National Consumer Dispute Redressal Commission. It is headed by a
Judge of Supreme Court. He is assisted by four members. Here cases involve compensation
above one crore are entertained. National Commission has jurisdiction for appeals coming up
against orders of State Commission. Supreme Court is the final deciding authority.
3. Under this Act there is provision to settle the complaint within three months of filing it. If the
complaint needs laboratory testing, the period is extended to five months.
4. In Consumer Protection Act, clause VI defines the rights of the consumer which have been
already discussed in the previous chapter.
5. There is no fee for lodging a complaint. Even poor people can get justice.
6. The clause II of this Act has defined some terms used by Consumer Protection Act like:
I. Defect-it is any fault or shortcoming in quality, quantity, purity, potency, or standard fixed by
II. Deficiency-it is any fault, shortcoming or imperfection in quality or performance.
III. Unfair Trade Practice-it is unfair and deceptive procedure used to promote sale or supply of
goods and services like lottery, chit fund, conducting competitions, etc.
IV. Restricted trade practices.
Unfair Trade Practice and Restrictive Trade Practice
According to the provisions of the Consumer Protection Act, 1986 ‘unfair trade practice’ means
a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for
the provision of any service, adopts any unfair method or unfair or deceptive practice including
the practice of making any statement, whether orally or in writing or by visible representation
which falsely represents that the goods are of a particular standard, quality, quantity, grade,
composition, style or model; falsely represents that the services are of a particular standard,
quality or grade; falsely represents any re-built, second-hand, reno-vated, reconditioned or old
goods as new goods; makes a false or misleading representation concern-ing the need for, or
the usefulness of, any goods or services etc. permits the publication of any advertisement
whether in any news-paper or otherwise, for the sale or supply at a bargain price, of goods or
services that are not intended to be offered for sale or supply at the bargain price. ‘Bargaining
price’ has been defined as a price that is stated in any advertisement to be a bargain price, by
reference to an ordinary price or otherwise, or a price that a person who reads, hears or sees
the advertisement, would reasonably understand to be a bargain price having regard to the
prices at which the product advertised or like products are ordinarily sold.
The Act defines ‘restrictive trade practice’ as a trade practice which tends to bring about
manipulation of price or conditions of delivery or to affect flow of supplies in the market
relating to goods or services in such a manner as to impose on the consumers unjustified costs
or restrictions and shall include delay beyond the period agreed to by a trader in supply of such
goods or in providing the services which has led or is likely to lead to rise in the price; any trade
practice which requires a consumer to buy, hire or avail of any goods or services as condition to
buying, hiring or availing of other goods or services.
Read the case study given below and answer the questions given at the end
Aditya Mass Communication Private Limited
A.P. state Road Transport Corporation
A.P. State Road Transport Corporation, Hyderabad advertised tender notice on calling for
tenders for display of advertisements on the buses owned by it. According to the condition of
the Tender Notice, each tender form had to be accompanied by a demand draft for Rs 20
lakhs and tender forms completed in all respects had to be put in the tender box. The
accompanying sum of money was the Earnest Money Deposit (E.M.D). Clause (10) of the
terms provided that the tender will be opened at 3:00 p.m. on October 31, 1996, in presence
of the tenderers or their authorized agents. Clause (14) provided that tenderers will not be
permitted to withdraw their tender after the tenders were opened .Clause (15) provided that
if the highest tenderer backs out from taking up the agency , for whatsoever reason, the
E.M.D. paid by him will be forfeited.
Aditya mass Communication Private Limited submitted its duly filled tender along with
demand draft of Rs. 20 lakhs. In relation to this tender, another person approached the High
Court and got an order restraining the Transport Corporation from proceeding further with
the tender. Following the order, the A.P. State Road Transport Corporation opened the
tender box at 3 p.m. and found six sealed covers. In view of the directions of the High Court,
the covers were again placed back in the tender box without opening the seals. The signature
of the tenderers and their agents was taken to this effect .The tenders were not opened to
find out the highest bidder. Aditya Mass Communication Private Limited wrote a letter on
November 11, 1996 stating that no reasons were given to him for non-opening of the tenders
and that he could not keep the huge amount of Rs 20 lakhs locked in with all the uncertainty
associated with the tender. It, thus, requested for return of the Earnest Money Deposit. A.P.
State Road Transport Corporation replied on November 14, 1996 that the Aditya Mass
communication had signed on the note recording the proceedings of opening the tender box
and putting back sealed covers. Thus, it could not put up the argument that no reasons for
non-opening of the tender was given on it. The letter notified that the tenders would be
opened on November 16, 1996 at 11:30 hrs. Aditya Mass Communication once again wrote a
letter on November 15, 1996 that the question of their participation in the opening of tenders
did not arise as they asked for the return of E.M.D. The A.P. State Road Transport Corporation
went ahead with the opening of the tender, found Aditya Mass Communication to be the
highest bidder and awarded the tender to it. Aditya Mass Communication was informed of
this but it demanded refund of Earnest Money Deposit. The A.P. State Road Transport
Corporation following the terms of tender forfeited the earnest money deposit of Aditya
Question1: Elaborately state the important legal issue/s covered under this case.
Answer: The point in this case is whether the petitioner has withdrawn the tender before it was
opened in accordance with the conditions of the tender notice. According to the tender notice,
the tenders were to be opened at 3 pm by opening the tender box. But mere opening of the
box was not sufficient. The tender forms were to be scrutinized as to whether they were valid
tenders and successful bidder was to be found out. That process admittedly, was not gone
through and even according to the respondent the sealed covers were not opened on the given
date and were kept back in the box. The opening of the tenders by removing the salts was
postponed because of the interim order of this court. Before the actual process starts, the
petitioner had asked for the return of earnest money. Hence, it is not possible to accede to the
contention of the learned counsel for the respondent. Though the request of the petitioner did
not specifically refer to withdrawal of the tender, still no one would ask for return of the
earnest money unless there is an intention not to participate in the tender. The respondent had
also understood this because of the later reply where the respondent had clearly stated that
the petitioner should participate in the opening of the tenders on the date to which it was
postponed and expressed the inability to return the earnest money. But that clause comes into
operation after the tenders are opened and the highest bidder is declared and such a
declaration can come only after scrutinizing the tenders. In the present case, that did not take
place and the petitioner had asked for return of earnest money stating that he had no interest
in participating in the opening of the tenders.
Ques 2: What are the essential features of a tender?
Ans. As tender would amount to complete performance, if the offer were carried out, the
requisites of a valid tender are indicated by the requisites of valid performance. There must be
an un-conditional offer to perform, coupled with a manifested ability to carry out the offer, and
a production of the subject-matter of the tender;66 the amount tendered must not be less than
what is due; and if greater, there must be no demand for a return of the excess.68 The medium
of payment must be that which the contract specifies or in the absence of contractual definition
that which the law has made legal tender;69 the time must be that fixed by the contract or by
law;70 it must not be before maturity; and the hour of the day must be reasonable. But at the
present time in case of a liquidated debt a valid tender may be made subsequent to the day of
maturity by adding legal interest to the amount of the debt.
Question 3: Give your reasons in support of your decision for the issue discussed in this case.
Ans. According to the tender notice, the tenders were to be opened at 3 pm by opening the
tender box. But mere opening of the box was not sufficient. The tender forms were to be
scrutinized as to whether they were valid tenders and successful bidder was to be found out.
That process admittedly, was not gone through and even according to the respondent the
sealed covers were not opened on the given date and were kept back in the box. The opening
of the tenders by removing the salts was postponed because of the interim order of this court.
Before the actual process starts, the petitioner had asked for the return of earnest money.
Hence, it is not possible to accede to the contention of the learned counsel for the respondent.
Though the request of the petitioner did not specifically refer to withdrawal of the tender, still
no one would ask for return of the earnest money unless there is an intention not to participate
in the tender.
Question No. 2
Annual – general Meeting is required to be held---
By a private company only
By a public company only
By a company limited by guarantee only
By all kinds of companies
Ans. By all kinds of companies
Question No. 3
An acceptance is complete and effective only when it has been---
Communicated to the offerer
Merely mentally accepted
Kept in the drawer
Ans. Communicated to the offerer
Question No. 4
Name of a company can be changed by passing a special resolution and with the approval of--
The company law tribunal
The Central Government
The Registrar of Companies
none of the above
Ans. The Central Government
Question No. 5
A contract becomes voidable if it has been caused by---
All of them
Ans. All of Them
Question No. 6
If the goods have perished, the contract of sale of such specific goods, will become---
None of these
Question No. 7
Articles can be altered by---
Resolution requiring special notice
Ans. Resolution requiring special notice
Question No. 8
A contract entered into between the parties by words is called---
An express contract
An implied contract
A quasi Contract
An excited contract
Ans. Implied Contract
Question No. 9
A prospectus is issued---
By a Private LImited Company
By a Public Limited Company
By a Company limited by Guarantee
None of these
Ans. By a Private LImited Company
Question No. 10
When, before the contract becomes due for performance, the promisor declares his intention of not perfor
Question No. 11
A bailment cannot be made about---
Question No. 12
The damages which arise in the usual course of things happening from the breach of contract, are called
Ans. Ordinary damages
Question No. 13
When a person is employed to represent another in dealings with third person, it is a contract of---
Question No. 14
Which of the following is not an essential element of a contract of sale---
Goods as subject matter
Transfer of property in goods
Ans. Railway receipts
Question No. 15
Which of the following does not relate to ‘termination of agency by operation of law’---
Death of principal
Insolvency of principal
Destruction of subject-matter
Revocation of authority by the principal
Ans. Destruction of subject-matter
Question No. 16
Limited liability means liability of its---
Debtors is limited
Creditors is limited
Members is limited
Debenture holders is limited
Ans. Debtors is limited
Question No. 17
In a contract of sale, property means---
Ans. Immovable property
Question No. 18
The goods which are yet to be acquired by the seller, are called---
Ans. Future Goods
Question No. 19
Acceptance of an offer is complete as against the offeror as soon as---
The offerer knows about it
The letter of acceptance is posted
The letter f acceptance is signed by offeree
The letter is handed over to a delivery person
Ans. The letter of acceptance is posted
Question No. 20
If a company fails to pay its debts suit can be filed against the---
Ans. His guardian
Question No. 23
In return for a new television, Raju agrees to give his old television valued at Rs. 3,000 and an amount of c
This is a---
Contract of sale of goods
Sale of approval
Ans. Contract of sale of goods
Question No. 24
Which of the following rights is held by an unpaid seller---
Right of lien
Right of stoppage in transit
Right of resale
All of these
Ans. All of these
Question No. 25
Which of the following is not a remedy for breach of contract---
Rescission of the contract
Restitution of benefit
Suit for damages
Alteration of the contract
Ans. Suit for damages
Question No. 26
A contract by which one party promises to save the other from loss is called---
Contract of guarantee
Contract of indemnity
None of these
Ans. Contract of guarantee
Question No. 27
Surety’s liability is---
None of these
Question No. 28
Crossed cheques payable to bearer are negotiated by---
Endorsement & delivery
None of these
Question No. 29
In a contract of sale, which of the following is treated as implied condition---
That the seller has title to goods
That goods are similar to description
That goods are according to sample shown
All of these
Ans. That the seller has title to goods
Question No. 30
Consideration must move at the desire of---
A third party
None of them
Ans. The Promisor
Question No. 31
Which of the following sentence is a valid promissory note---
I promise to pay Mohan or order Rs. 1,000.
I promise to pay Hari Rs. 2,000 worth of shares..
I promise to pay Naraynan in East India Bonds
I promise to pay Rakesh Rs. 5,000 and to deliver 50 kg of sugar.
Ans. I promise to pay Mohan or order Rs. 1,000.
Question No. 32
A stipulation collateral to the main purpose of the contract, is called a---
None of these
Question No. 33
A person who receives a negotiable instrument for consideration, before maturity, and in good faith, is c
Holder for value
Holder in due course
None of these
Ans. Holder in due course
Question No. 34
A director must vacate his office if he fails to obtain qualification shares within---
Ans. Two months
Question No. 35
A private company has at least---
Ans. 2 Members
Question No. 36
A cheque payable to order may be negotiated---
By endorsement & delivery
None of these
Ans. By endorsement & delivery
Question No. 37
Which of the following endorsements is invalid---
Ans. Restrictive endorsement
Question No. 38
When a cheque bears across its face an addition of the words “&” between two parallel transverse lines,
Ans. Special Crossing
Question No. 39
Which of the following is a mode of discharge of contract---
By impossibility of performance
By lapsse of time
By breach of contract
All of the above
Ans. By Breach of Contract
Question No. 40
Which of the following rights are available to a finder of goods---
Right of lien
Right to file a suit for reward
Right of sale of goods
All of these
Ans. Right of Lien
4 . What are the characteristics of negotiable Instrument? Discuss the ‘privileges’ of holder in due cours
Negotiable Instruments Act, 1881? Also state the important amendment to be incorporated under se
Characteristics of negotiable Instrument
The possessor of the negotiable instrument is presumed to be the owner of the property contained th
instrument does not merely give possession of the instrument but right to property also. The property
can be transferred without any formality. In the case of a bearer instrument, the property passed by m
transferee. In the case of an order instrument, endorsement and delivery are required for the transfe
The transferee of a negotiable instrument is known as holder in due course.’ A bonafide transferee fo
defect of title on the part of the transferor or of any of the previous holders of the instrument. This is
a negotiable instrument and other subjects of ordinary transfer. The general rule of nemo dat quod n
The transferee of the negotiable instrument can sue in his own name, in case of dishonor.
A negotiable instrument can be transferred any number of times till it is at maturity. The holder of the
notice of transfer to the party liable on the instrument to pay.
Certain presumptions apply to all negotiable instruments e.g. a presumption that consideration has b
5. Prompt Payment
A negotiable instrument enables the holder to expect prompt payment because a dishonor means th
persons who are parties to the instrument.
PRIVILEGES OF A HOLDER IN DUE COURSE:
Section 9 of the Act defines ‘holder in due course’ as any person who (i) for valuable consideration, (i
negotiable instrument payable to bearer or the indorsee or payee thereof, (iii) before the amount me
becomes payable, and (iv) without having sufficient cause to believe that any defect existed in
the title of the person from whom he derives his title. (English law does not regard payee as a holder
The essential qualification of a holder in due course may, therefore, be summed up as follows:
1. He must be a holder for valuable consideration.
Consideration must not be void or illegal, e.g. a debt due on a wagering agreement. It may, however,
acquired title to the instrument by way of gift, is not a holder in due course, since there is no conside
cannot maintain any action against the debtor on the instrument. Similarly, money due on a promisso
consideration of the balance of the security deposit for the lease of a house taken for immoral purpos
2. He must have become a holder (passessor) before the date of maturity of the negotiable instrumen
takes a bill or promissory note on the day on which it becomes payable cannot claimrights of a holde
takes it after it becomes payable, as the bill or note can be discharged at any time on that day.
3. He must have become holder of the negotiable instrument in good faith. Good faith implies that he
negotiable instrument after knowing about any defect in the title to the instrument. But, notice of de
subsequent to the acquisition of the title will not affect the rights of a holder in due course. Besides g
requires reasonable care on the part of the holder before he acquires title of the negotiable instrume
instrument without any negligence on his part.
Reasonable care and due caution will be the proper test of his bona fides. It will not be enough to sho
instrument honestly, if in fact, he was negligent or careless. Under conditions of sufficient indications
defect in the title of the transferor, the holder will not become a holder in due course even though he
instrument without any suspicion or knowledge.
(i) A bill made out by pasting together pieces of a tom bill taken without enquiry will not make the ho
sufficient to show the intention to cancel the bill. A bill should not be taken without enquiry if suspici
(ii) A post-dated cheque is not irregular. It will not preclude a bonafide purchase instrument from clai
due course. It is to be noted that it is the notice of the defect in the title of his immediate transferor w
claiming the right of a holder in due course. Notice of defect in the title of any prior party does not af
4.A holder in due course must take the negotiable instrument complete and regular on the face of it.
1988 Amendment to Section 138
o If a person issues a cheque and it got dishonored the person is said to have done an Criminal off
o Whatever be the reason for the dishonor weather for insufficiency of funds or whatever, the sa
Purpose of Amendment
o These provisions were incorporated with a view to encourage the culture of use of cheques and en
o The larger objective is to protect the interest of honest people dealing in cheques.
o DRAWER BEWARE, Because, by the said amendment the DISHONOURED CHEQUE is being TREATED