Wednesday, June 07, 2006


Business Legislation Notes - Prof. Bijoy Kumar Dutta

25th January, 2006 – Prof. Bijoy Kumar Dutta – Business Legislation


Higher Purchase Agreement is one in which a person takes delivery of goods promising to pay the price by a certain number of installments & until full payment is made to pay higher charges for using the good. The ownership of the goods is not transferred until the last payment is made.

In Installment Sale the purchaser becomes the owner of specific good immediately although the total price is to be paid in a number of installments. In other words ownership is transferred at the time of first payment of installment.


Before a contract of sale is entered into a seller often makes statements with reference to the goods, which influence the buyer to clinch the bargain.

Whether any statement made by the seller in reference to the goods is under stipulation form a part of the contract or is a mere representation namely expression of opinion forming no part of the contract depends upon the construction of the contract.

Section 12 of the sale of goods act states that the stipulation or term in a contract of sale with reference to goods may be a CONDITION or a WARRANTY.

Condition:- Section 12 Subsection 2
Condition is a stipulation essential to the main purpose of the contract. The breach of which gives to a right to treat the contract as repudiated.

Warranty is also a stipulation collateral to the main purpose of the contract, the breach of which gives rise to claim damages but not a right to reject the goods & treat the contract as repudiated.
Eg: price, quality, colour cannot cancel but claim damage.

Section 13
When a condition can be treated as a warranty.

Section 13(1) - Voluntary waiver of a condition
The buyer may elect to treat a breach of condition as a breach of warranty i.e. instead of repudiating the contract he may accept performance & suffer damages if he has suffered only.
Eg: saree ordered to give by 31st September but gave on 5th October.

Section 13(2) – Compulsory waiver of a condition.
Where contract of sale is not sever able & the buyer has accepted the goods or a part thereof, he cannot repudiate the contract but can sue for damages.
Eg: 400 sarees & rest 100 sarees to be sent later

Some V V V Important Questions
1. Who is an unpaid seller? What are his rights against the good & the buyers personality?
2. What is lien?

Another class January, 2006 – Bijoy Kumar Dutta – Business Legislation

“No consolidation no contract” Exception to the rule (Imp question for Exam)

The general rule is that the consolidation is one of the essentials of a valid contract. If there is no consolidation the argument will be void however a contract without consolidation is not always void. Section 25 of the contract act deals with certain exceptional cases. The exceptions are as follows.

1) Agreement made under
a) natural love & affection with those standing in
b) near relation to one another. Such an agreement must be
c) written down & registered to become a contract
Eg: father giving some property to his daughter.

2) Agreement to compensate a voluntary service. A voluntary service means service rendered without any request.
Eg: A finds B’s purse & returns it to him. B promises to pay A Rs 500. This is a valid contract because it is to compensate a voluntary service.

3) Promise to pay time barred debt – This promise to pay must be in writing & sign by the person to pay whole or in part the day on which the creditor might have enforced payment but for the law of limitation.
4) Contract of agency – no consideraion is required.
5) Completed gift.


The parties who enter in to a contract must have the capacity to valid do so. Capacity means competency of the parties to enter into a valid contract. According to section II every person is competent to contract who –
a) is of the age of majority according to the law to which he is subject.
b) is of sound mind
c) is non-disqualified from contracting by any law to which he is subject.

Minor - According to section 3 of the Indian Majority Act 1875, a minor is a person who has not completed 18 years of age.

Person of unsound mind - Section 12 lays down that a person is said to be of unsound mind for the purpose of making a contract if at that time the contract is made, he is incapable of understanding it, and of following a rational judgment as to its effect upon his interest. Lunatic is a person who is mentally deranged due to some mental strain or some other personal experience.

Idiot - is a person who has completely lost his mental power.

Other person – Foreign sovereign (eg: Bush, Tony Blair)

Convict – is incapable

Intoxicated person


Contingent means that which is dependent on something else. 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 (Section 31)


Quasi Contracts are exceptional kinds of contracts by which one party is bound to pay money in consideration of something done or suffered by the other party. They are not found on actual promises but arise when one party has so concluded himself that he must be deemed bound as if he has made a promise although in fact he has not. A quasi-contract is founded on the principle of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.

1) Necessary for incapable persons – If a person incapable of entering into a contract or anyone whom he is legally bound to support is supplied by another with necessary suited to his condition in life. The person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person (Section 68)

Eg: A supplies B a lunatic with necessaries suited to his condition in life. A is entirely to be reimbursed from B’s property.

2) Reimbursement of interested person - A person who interested in the parent of money, which another is bound to pay, and therefore pays it, he is entitled to be reimbursed by the other person. (Section 69)

Eg: B holds land on a lease granted by A the zamindar. The revenue payable by A to the government being in arrear his land is advertised for sale will be annulment of B’s lease. B to prevent sale, pays to the government the sub due from A is bound to make good to be the amount so paid.

3) Benefit of non gratuitors act where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitors by & such other person enjoys the benefit the latter is bound to make compensation to the former (I don’t have any other notes of January)

5th June, 2006 – Bijoy Kumar Dutta – Business Legislation


The law confers upon a company distinct legal personalities with peripheral succession & common seal.

Eg: company is an artificial personality. Any individual is a natural personality.
Perpetual company – it will go on till it is dissolved.

Accordingly a company is different from its members & individuals who compose it. Suppose A, B, C, & 50 others form a company named ABC& Co. This ABC & Co is a legal person; separate from A, B, C & 50 others.
Eg: as company is formed the members loose their personality.

Solomon V/s Solomon & Company Ltd. – This case was decided in 1897 by House of Lords in England It still rules the world.

Facts of the case -

Solomon had a business in boot manufacturing. He formed a company called Solomon & Co Ltd. With himself, his wife, daughter & 4 sons (7 members) & shareholders & transferred the business to the company.

As a consideration, Solomon received major share of the company & debentures, which created a charge on the assets of the company.

Subsequently the company went into liquidation. (chalate parlo naa)
Solomon claimed to be a secured creditor & demanded priority in payment out of the assets of the company. The unsecured creditors of the Co. objected on the ground that the company belonged to Solomon & so cannot be a secure creditor. But the House of Lords gave the verdict that Solomon, as an individual was quite distinct from Solomon & Company Ltd. & he is a secured creditor & will get priority in payment.

What are the different companies?

1) STATUTORY COMPANY – A company or corporation formed by an act of legislation is called Statutory Corporation or Company.
Eg: To form this Company the Parliament passes a law, like LIC of India and RBI.

2) PRIVATE COMPANY – It is one which by its articles of association
a) restricts the rights of its members to transfer the shares
b) limits the number of its members to 50 and minimum to 2.
c) prohibits any invitation to public to subscribe a share or debenture to any company.
d) restriction about invitation of public deposits.

3) PUBLIC COMPANY – It means a company, which is not a private company. Public companies are classified into 3 types: -
a) A company limited by shares – In these companies there is a share capital. Each share has a fixed nominal value, which the shareholder pays at a time or by a number of installments. Shareholders are not liable to pay anything more than the fixed value of shares whatever may be the liability of the company.

b) A company limited by guarantee – In these companies each member promises to pay a fixed sum of money in the event of liquidation of the company. This amount is called the guarantee.

c) Unlimited Company - Liability of the shares in unlimited.(no one takes the responsibility) (limited company means my liability is limited)

d) Government Company – It is one in which not less than 51% of the paid up share capital is held by the central government and/or state governments & governments by one or more of them together.

e) Holding Company & Subsidiary Company – If a company can control the policies of another company
i) through the ownership of shares or through the composition of the board of directors then the former company is called the holding company & latter company is called the subsidiary company.


It is the charter or constitution of a company. It is the foundation on which the structure of company is build upon. It defines its relations with the outside world. Its purpose is to enable the shareholder & creditors of the company to know.

i) Its permitted range of activities are
Eg: WBSEB generates & sells electricity but cannot manufacture bulb, as it is not in memorandum.

Memorandum is a public document. Every can look into it.

Qs) What is the form & content of MOA?

1. NAME CLAUSE – The name of company with the word “limited” at the end of a name of a public company & the word private limited is to be given.
Eg: CC Saha Private Ltd for private company but CC Saha Ltd for public company.

The promoters of a company can select any name but they cannot select any name, which in the opinion of the central government is undesirable. The name will be considered undesirable if it has close resemblance or identical with the name of an existing company.

2. SITUATION CLAUSE – The name of the state in which the registered office of the company to be situated is to be started. The purpose is that the persons dealing with the co. can kanow
a) where the notice is to be served.
b) Replace where registers of the company are kept

3. OBJECT CLAUSE – The MOA must state separately the main objects as well as incidental or ancillary to the main object.

4. LIABILITY CLAUSE – The nature of the liability of the company whether limited by shares or guarantee is to be stated.

5. CAPITAL CLAUSE – In case of a company having a share capital, the MOA shall state the authorized share capital, the division there of shares into fixed value & different kinds of shares.

6. SUBSCRIPTION CLAUSE – No subscriber of MOA shall beg less than one share.


It is a document, which contains the rules, regulations & by-laws regarding the internal management of the company.

1. AOA is subbordinte to MOA.
2. The MOA must be read in conjunction with AOA.
3. In terms of MOA cannot be modified or controlled by AOA.

REGISTRATION OF A COMPANY ( V V V Imp ) ( 12 ½ marks or 8 marks for Exam)

Procedure regarding registration of a company

For the purpose of registration of a company, the following documents accompanied by necessary fees must be submitted to the registrar of the companies of the state, in which the registered office of the company will be situated.

What is to be submitted?

1. MOA signed by 2 subscribers in case of a Pvt. Ltd company & 7 subscribers in case of a Public Ltd company.
2. AOA must be signed in similar manner.
3. The agreement if any which the company proposes to enter into with any individual for appointment as its MD or whole time director.
4. A declaration by any of the following that all requirements of the act in regard to registration have been complied with –
a) An advocate of Supreme Court or High Court.
b) An attorney or a solicitor
c) A company secretary in wholesome practice.
d) A chartered accountant in whole time practice.
e) A person named in the article as director, manager or secretary of the company.

If the registrar is satisfied that all requirements of the act have been complied with, he shall register the company 7 issue a certificate called the certificate of incorporation.

On incorporation a company acquires a distinct Legal Personality or Entity & secures perpetual succession.


A Pvt. Ltd. Company can commence business immediately on incorporation but the public limited company having a share capital & issuing a prospectus cannot commence business until the registrar issues a “certificate of commencement of business”.


1. AUTHORISED CAPITAL – It is the total face value of the shares of the company authorized to issue as per its MOA.
2. ISSUED CAPITAL – It is that part of authorized capital, which is actually offered to the public for sale.
3. SUBSCRIBED CAPITAL – It is that part of the issued capital which is taken up or/and subscribed by the public.
4. PAID UP SHARE CAPITAL - It is the amount of money actually paid by the subscribers that is the actual amount of money, received on shares.


1) EQUITY SHARES – are that share capital which is not preference share capital.
2) PREFERENCE SHARES – these are shares that are given by AOA of the company to privileges namely
a) priority in payment of dividends over other shares.
b) priority as regard on return of capital in the event liquedation

7th June, 2006 – Bijoy Kumar Dutta – Business Legislation


When the AOA of a company prescribes a particular mode for doing a thing, the duty of carrying out of the provision lies upon the person, in-charge of the company.

Outsiders are entitled to assume that the rules are being complied with.
Eg: The AOA provides that the director can give bond if authorized by a resolution of the company. The director gave a bond to A although no resolution was passed. Held (means Court decided), A was entitled to assume that the resolution was passed.


1. STATUTORY MEETING (held only once)

Every public company limited by shares & every company limited by guarantee & having a share capital by guarantee & having a share capital must, within a period of not less than one month & not more than six months at which the company is entitled to commence business, hold a general meeting of members. This is called statutory meeting. In this meeting, the members are to discuss report by the directors of the company known as statutory report which contains particulars relating to the formation of the company.



The first AGM of a company is required to be held within 18 months from the date of incorporation.

A company holding its first AGM within this period will not be required to hold any other AGM either in the year of incorporation or in the following year, but the time gap between AGMS should not exceed 15 months.


It can be convened by the board of directors on requisition received in this regard from

(i) Such number of members holding not less than 1/10th of the paid up capital of the company or from such number of members holding not less than 1/10th of the voting power.

(ii) The requisition now set out, that matter which will be considered at the meeting. The requisition must be deposited at the registered office.


The central theme of a prospectus is that it sets out the prospects of a company and the purpose for which the capital is required.

Section 2 Clause 36

Defines a prospectus as any document described or issued as a prospectus & includes any notice circular or advertisement or other document inviting deposits from the public, or inviting occurs from the public for the subscription or purchase of the shares in or debentures of a body corporate.


A private company need not approach public for money. The promoters of the company may tap their private resources or contacts for raising the requisite capital. In such a case no prospectus need be issued.

Promoter must prepare a document akin to the prospectus known as statement in lieu of prospectus. These documents must be in the form set up III of the Act. The sicument shall be delivers for registration 3 days before the 1st allotment of shares.

What is untrue in a prospectus?

A prospectus must tell the truth, the whole of the truth and nothing but the truth. It must not cancel any fact which is ought to be disclosed. This is known as GOLDEN RULE as to the framing of the prospectus.

Section 65 Subsection 1 Clause A

The statement included in a prospectus shall be deemed to be untrue if the statement is misleading in form & in content.

Greenwood v/s Leather Shade Wheel Company

A company manufacturing leather type wheels for trollies issued a prospectus stating orders have been received from the House of Commons in England to be followed by large number of orders later on.

In fact the person who supplied refreshment in House of Commons had only 1 trolley with these types of wheels & no customer has expressed any statement for buying anything on a large scale.

Hence the prospectus was misleading.


Application is an offer by a prospective shareholder to take shares. When an application is accepted, it is an allotment.


Section 69

The first requisite of a value allotment is that of minimum subscription when shares are offered to the public, the amount of minimum subscription has to be stated in the prospectus has to be stated in the prospectus.

Minimum subscription means the amount, which is in the estimate of directors enough to meet the needs namely purchased price of a property, preliminary expenses & working capital.

No shares can be allotted unless at least so much amounts have been subscribed & the application money which must not be less than 5% of the nominal value of the shares has been received in cash.


This is a certificate issued under a common seal of the company specified under a no of shares held by any number.


This is a document issued by a ****** stating that its bearer is entitled to shares their specified.


a) Share Warrant is issued only with fully paid up shares. Share Certificate is issued even though shares are partly paid.

b) The holder of a share warrant does not ordinarily possess the right to vote but holder of a share certificate possesses the right to vote.


Shares are converted in to stock only when they are fully paid up. Shares are always a specified denomination e.g.: Rs 5 or Rs 10 or multiple of them.


A company can borrow money at its own to what extent are matters depending upon MOA & AOA. The company’s Act does not condemn any profession expressing empowering a company to borrow money.

A trading company has implied power to borrow.
A non-trading company has no implied power to borrow.
It can borrow if permitted by MOA & AOA.


The issue of debenture is a particular mode of borrowing money by a company. Plamer defined debentures as follows:- “Any installment under seal evidencing a debt, the essence of it being the admission of indebtedness. It is simply an instrument of acknowledgement of debt by the company whereby it undertakes to pay the amount covered by it & till it undertakes further to pay interest thereon to debenture holders. It is an instrument, which acknowledges or creates a debt.


a) It is an acknowledgement of indebtedness in the form of a certificate of a company.

b) All the debentures issued under the common seal of a company.

c) A date is specified in so far as repayment of loan is concerned.

d) A debenture holder does not have the right to attend AGM.


Share has been defined in Section 2 Clause 46 of the Company’s Act to mean a share in the share capital of the company on the other hand a debenture is an instrument of debt executed by the company, acknowledging its receipt to repay the same at a specified rate & also carrying interest.

The corpus of 2 issues falls to different segments of capitals thus share representing the share capital & debenture representing the loan capital.
Shareholders are the owners of the company till it is folded up fully while the debenture holders are creditors of company.

u r the best
thanx a lot my FRIEND ....
Awesome work. Thanks Vaiju

- Madhurjya
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