Business Law Notes (mba) 546f3v

Difference between Fraud and Misrepresentation? Fraud:1. Fraud is defined under Sec. 17. 2. Fraud means a misrepresentation made with an intention to cheat 3. The distinction between fraud and misrepresentation is solely on intention. 4. In case of fraud, the aggrieved party can avoid the contract even if the means to discover the truth were available. 5. In case of fraud not only the agreement is voidable but also the aggrieved party can claim damages. Misrepresentation:1. Misrepresentation is defined under Sec. 19 2. Misrepresentation means a misstatement made innocently. 3. In case of misrepresentation misstatement is made innocently. 4. In case of misrepresentation if the aggrieved party has the means to discover the truth, it cannot avoid the contract. 5. In case of misrepresentation no damages can be claimed, the aggrieved party can only avoid the contract.

What are the remedies for breach of contract? : Whenever there is breach of contract, the injured party becomes entitled to any one or more of the following remedies against the guilty party: 1. Rescission of contract, 2. Suit of damages, 3. Suit upon quantum merit, 4.Suit for specific performance of the contract, 5.Suit for injunction 1. Rescission of contract: When there is breach of contract by one party, the other party may rescind the contract and need not perform his part of obligations under the contract and may sit quietly if he does not want to take any legal action against the guilty party. But in case the aggrieved party intends to sue guilty party for damages for breach of contract, he has to file a suit for ‘Rescission of Contract’. When the court grants rescission , the aggrieved party is freed from all his obligations under the contract, and becomes entitled to compensation for damages which he has sustained through the nonfulfillment of contract 2. Suit of damages: Damages are monetary compensation allowed to the injured part for the loss or injury suffered by him as a result of breach of

contract. The fundamental principal underlying damages is not punishment but compensation. By awarding damages the court aims to put the injured party into the position he would have been, had there been performance and not breach, and not to punish the defaulter party.

Who can employ an agent? Sec.183 declares that any person who is the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.

What is Insurance? Insurance is a contract in which one party, known as the insured or assured , insures with another person, known as the insurer, assures or underwriters his property or life, or the life of another person in whom he has a pecuniary interest, or property in which he is interested or against some risk or liability, by paying a sum of money as the .

What is the difference between cheque and bill of exchange ? A cheque differs from a bill of exchange in the following respects: 1. Drawee: A cheque is always drawn on a bank or a banker while a bill

of exchange can be drawn on any person including a banker. 2. Acceptance: A cheque does not require any acceptance while a bill

must be accepted before the drawee can be made liable upon it. 3. Payment: A cheque is payable immediately on demand without any

days of grace, but a bill of exchange is normally entitled to three days of grace unless it is payable on demand. 4. Crossing: A cheque may be crossed but there is no such provision in

the case of a bill of exchange. 5. Notice of dishonor: When a cheque is not met, notice of dishonor is

not necessary. Want of assets in the hands of the banker is sufficient notice. It is necessary to give a notice of dishonor in order to make the drawer of a bill liable. 6. Payable to bearer on demand: A cheque can be drawn payable to

bearer on demand. But a bill of exchange cannot be so drawn. 7. Stamp: A bill of exchange must be stamped, whereas a cheque does

not require any stamp.

8. Countermanding payment: A cheque may be revoked by

countermand of payment. The payment of a bill, however cannot be countermanded. 9. Noting and protesting: A cheque is not noted or protested for

dishonor and is generally inland. 10. Presentment: A bill of exchange must be duly presented for payment

otherwise the drawer will be discharged. The drawer of a cheque is not discharged by failure of the holder to present it in due time unless the drawer has sustained damage by the delay. 11. Protection: A banker is given statutory protection with regard to

payment of cheques in certain circumstances. No such protection is available to the drawee or acceptor of a bill of exchange.

Holder in Due Course in section 9 of the Negotiable Instruments Act as 1881 “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 the payee or indorsee thereof, if before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.”

What is Caveat Emptor?: In business laws, the phrase ‘Caveat Emptor’ stands for ‘let the buyer beware.’ This implies that the responsibility of identifying goods and finding defects with them lies with buyer. He should be finalizing the goods that he needs. It implies that the seller is not responsible to enquire what the buyer’s requirements are and not required to reveal faults in his products or services.

Rights of an unpaid seller: The sale of Goods Act has expressly given two kinds of right to an unpaid seller of goods, namely: (1) Against the goods (a) When property in the goods has ed (i) Right of lines: A lien is a right to retain possession of goods until payment of the price. Its available when; a) Goods sold without any condition b) Goods sold on credit but the period has expired c) The buyer becomes insolvent (ii) Right of stoppage of goods in transit: It’s the right of stopping the goods in transit after the unpaid seller has parted with the possession of the goods. It is possible when; a) The buyer becomes insolvent; and b) Goods are in transit

(iii) Right of re-sale: The unpaid seller can re-sell the goods. When; a) Goods are Of a perishable in nature; b) Notice provided to the buyer for the intention of resell but he isn’t paying within a reasonable time; c) Expressly reserves the right of resale. (b) When property in the goods has not ed (i)Right of withholding delivery: When the goods are not ed to buyer, the seller can’t acquire the ‘rights of lien’ but gets a right of withholding the delivery of goods. (2) Against the buyer personally (i) Right to use for price (Sec. 56): Where the property in the goods has ed to the buyer, the seller is entitled to sue for price, whether the possession is with the buyer or the seller. Similarly, where the price is payable on a certain day irrespective of delivery, the seller may sue for the price, if it is not paid on that day, although the property in goods has not ed. (ii) Right to sue for damages:(Sec. 56). Where the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue him for the price of the goods. (iii)Right to sue for interest: [Sec. 61 (2) (a)]. Where there is a specific agreement between the seller and the buyer as to interest on the price of the goods from the date on which payment, becomes due, the seller may charge interest on the price when it becomes due from such day as he may notify to the buyer.

Contract of Carriage. A contract of carriage of goods is a contract of bailment for reward, or locatio operis faciends. However, the contract of bailment is modified by the different statutes mentioned above in the case of carriage of goods by land, sea or air.

Baggage Check : It includes unaccompanied baggage but does not include mot vehicles. Under section 77, the owner of the baggage is required to make declaration of the contents of the baggage to the proper officer and has to be checked.

Define carriage of goods/ Contract of Carriage In the commercial life of any country, the need for carrying goods from one place to another cannot be overemphasized. Also, goods are to be moved from one country to another. For these purposes, a contract of carriage is to be entered into. The persons, organizations or associations which carry goods are known as carriers. Goods may be carried by land (including inland waterways),

sea or air. Accordingly, the law relating to carrying of goods is contained in the following enactments: 1. In case of carriage of goods by land: (i) The Carriers Act, 1865. (ii) The Railways Act, 1989. 2. In case of carriage of goods by sea: (i) The (Indian) Bills of Landing Act, 1856. (ii) The Carriage of Goods by Sea Act, 1925. (iii) The Merchant Shipping Act, 1958. (iv) The Marine Insurance Act, 1963. 3. In the case of carriage of goods by air: The Carriage by Air Act, 1972. Wherever there is no specific provision for a particular matter in these statutes, then the Indian Courts resort to English Common Law.

What is statutory meeting? The first meeting of the shareholders of a public company is called as the statutory meeting. It has to be called within six months from the date on which the company is entitled to commence business, but it cannot be held within one month from that date. It is so because of the requirement of Section 165 of the Company Act.

MEANING OF "MANUFACTURE": The term "manufacture" in an inclusive manner so as to include any process: 1. and

Incidental or ancillary to the completion of a manufactured product;

2. Which is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture; and 3. Which in relation to goods specified in the Third Schedule to the Central Excise Tariff Act, 1985, involves packing or repacking of such goods in a unit, container or labeling or re-labeling of containers or declaration or alteration of retail sale price or any other treatment to render the product marketable to consumer.

What is gross total income under income tax act? Under the scheme of computation of total income under the Income Tax Act, the income falling under each head is to be computed as per the relevant provisions of the Act relating to computation of income under that head. The aggregate of income under each head is known as 'Gross Total Income’.

What is contract? “Every agreement and promise enforceable at law is a contract.” – Pollock “A Contract is an agreement between two or more persons which is intended enforceable at law and is contracted by the acceptance by one party of an of him by the other party to do or abstain from doing some act.” – Halsbury

Counter offer: an offer made in response to a previous offer by the other party during negotiations for a final contract. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the of the counter offer or there is no contract.

What is Consideration? Anything given or promised or forborne by promissory in exchange for the promise or undertaking of another in a lawful agreement. Consideration means a reasonable equivalent or other valuable benefit ed on by the promisor to the promise or by the transferor to the transferee.

Who is Minor? According to INDIAN LAW minor is the person who did not attain the age of 18. he did not understand what is right and what is wrong for him. no one can sue case against him.

Coercion: "Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement

Auction sales : Auction sales are events whereby personal or commercial property and merchandise are sold at the highest price to bidders who place monetary offers on the items. Auction sales can take many forms from selling wholesale merchandise on an online auction site to holding an auction at a particular location to sell off unwanted belongings or settle debts.

Implied conditions and warranties [Secs.14-17]. Implied conditions and warranties are deemed to be incorporated by law in every contract of sale of goods unless the of the contract show a contrary intention. The implied conditions: (i) condition as to title (Sec.14), (ii) sale by description (Sec.15), (iii) condition as to quality or fitness for buyer’s purpose (Sec.16(1)), (iv) condition as to merchantable quality [Sec.16(2)],(v) condition as to wholesomeness, (vi) implied condition in the case of sale by sample (Sec.17), (vii) implied condition in the case of sale by sample as well as description (Sec.15).

Not Negotiable crossing: A person taking a cheque crossed generally or specially bearing in either case the words 'not negotiable' shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had.[Sec.130] The words 'Not Negotiable' can be added to General as well as Special crossing and a crossing with these words is known as Not Negotiable crossing. The effect of such a crossing is that it removes the most important characteristic of a negotiable instrument i.e. the transferee of such a crossed cheque cannot get a better title than that of the transferor (cannot become a holder in due course) and cannot convey a better title to his own transferee, though the instrument remains transferable.

Holder: The definition given in section 8 implies that any person (a) who is entitled in his own name to the possession of the negotiable instrument and (b) has right to receive or recover the amount from the parties thereto. (a) Possession of instrument (b) Entitled to receive the amount.

A t Stock Company: A t-stock company is a business entity which is owned by shareholders. Each shareholder owns the portion of the company in proportion to his or her ownership of the company's shares (certificates of ownership).[1] This allows for the unequal ownership of a business with some shareholders owning a larger proportion of a company than others. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company

Direct tax : A direct tax is one paid directly to the government by the persons juristic on whom it is imposed often accompanied by a tax return filed by the taxpayer. For example some income taxes, some corporate taxes, and transfer taxes such as estate tax and gift tax.

INDIRECT TAX: INDIRECT TAX is the tax collected from the customers on the goods purchased or for the service provided. That is VAT, sales tax, excise duty, customs duty etc.

Illegal / Unlawful agreement: An illegal agreement, under the common law of contract, is one that the courts will not enforce because the purpose of the agreement is to achieve an illegal end. The illegal end must result from performance of the contract itself. The classic example of such an agreement is a contract for murder.

Agent: An agent is a person employed to do an act for another or to represent another in dealings with third persons. Thus agent is the person who acts in place of another. The person for whom or on whose behalf he acts is called principal.

An Initial Public Offer (IPO) : An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both.

‘Winding Up’: A process that involves selling all the assetsof a business entity, paying off creditors, distributing any remaining assets to the principals, and then dissolving the business.

Winding Up By The Court/ Tribunal / Compulsory winding up Grounds for Compulsory winding up Sec. 433 1. Company es a special resolution for winding up by Court. 2. Default made in delivering Statutory Report to the Registrar or in holding Statutory meeting. 3. Company fails to start its business within one year of its incorporation or suspends its business for one year. 4. Number of reduced in the case of public company below 7 and that of a private company below 2 5. Company unable to pay its debts. 6. The just and equitable clause— E.g.--loss, loss of substratum of the company, deadlock in management,fradulent object,misconduct & misappropriation Persons entitled to apply Sec. 439 1. Company

4. Registrar

2. Creditor

5. Person authorized by Central Govt.

3. Contributory/s

6. Central / State Govt.

Commencement of Winding Up The winding up of a Company by the Court is deemed to commence from the time of the presentation of the petition for winding up.-Sec. 441.

Central Sales Tax

Sales Tax is a tax levied on the sale of goods. In India, the law for levying sales tax is provided in the Central Sales Tax Act of 1956 which applies to the entire country. Generally, the CST Act does not deal with intra-state or import or export sales. However, with respect to certain declared goods such as oil seeds, sugar, pulses, crude oil etc., the CST Act imposes restrictions on the powers of state governments to levy sales tax even in the case of intra-state sales. Accordingly, sales can broadly be classified into three categories. •

Intra-State sales, i.e, sales within the state.

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Sales during import and export.

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Inter-State sales.

The Act also provides for the levy, collection and distribution of taxes on sale of goods in the course of inter-state trade or commerce.

What happens when the free consent is missing in the contract /Voidable Contract :An agreement An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract[Sec.2(i)] This happens when the essential element of free consent in a contract is missing

Types of Negotiable Instruments: According to the Negotiable Instruments Act, 1881 there are just three types of negotiable instruments i.e., promissory note, bill of exchange and cheque. However many other documents are also recognized as negotiable instruments on the basis of custom and usage, like hundis, treasury bills, share warrants, etc., provided they possess the features of negotiability. PROMISSORY NOTE:A promissory note is an instrument in writing containing an unconditional undertaking, signed by the maker, to pay on demand or at a fixed or determinable future time a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. Parties to Promissory Note •

MAKER: The person who makes the promissory note and promises to pay is called the maker. (I-e debtor)

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PAYEE: The person to whom payment is to be made is called payee. (I-e creditor)

Essentials Of The Promissory Notes 1. It must be in writing.

2. It must contain a promise or undertaking to pay a definite sum of money. 3. The promise to pay must be unconditional. 4. It must be signed by the maker.

5. The payee must be identified & must be certain. 6. The sum payable must be certain.

BILL OF EXCHANGE :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 certain person to the bearer of the instrument. Parties to a Bill of Exchange •

DRAWER: The person who makes the bill is called the drawer.

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DRAWEE: The person who is directed to pay is called the drawee.

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PAYEE: The person to whom the payment is to be made is called the payee.

Essentials of a Bill of Exchange •

The amount payable must be certain.

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The payment must be made in money.

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The bill payable may be either on demand or after a specified period.

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The bill may be payable either to the bearer or to the order of payee.

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It must comply with other formalities e.g. stamps, date etc.

Cheque: A cheque is a bill of exchange drawn on a specified banker and expressed to be payable otherwise than on demand. The maker of a bill of exchange or Cheque is called the “Drawer"; the person thereby directed to pay is called the "Drawee". Parties •

DRAWER: The person who makes a cheque is called Drawer.

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DRAWEE: The person who is directed to pay is called Drawee.

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PAYEE: The person to whom the payment is to be made.

Essentials of a Chque

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It is always drawn on a banker

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It is always payable on demand

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It does not require acceptance

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No Stamp is required to be affixed on cheques

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A cheque is usually valid for fix months

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The banker is liable only to the drawer

CONDITIONS AND WARRANTIES •

In a contract of sale, parties make certain stipulations, i.e., agree to certain . Some of them may be intended by the parties to be of a fundamental nature, e.g., quality of the goods to be supplied. The stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. Such stipulations are known as `Conditions`.

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In contrast, some may be intended by the parties to be binding, but of a subsidiary or inferior character, e.g., time of payment. Thus, stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods. Here the stipulations are known as `warranties'.

Contract of Sale A: contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for price". ESSENTIALS OF CONTRACT OF SALE : From the above definition, the following essentials of a contract of sale may by noted: 1. There must be at least two parties 2. Transfer or Agreement to transfer the ownership of goods. 3. The subject matter of the contract must necessarily be 'goods'. 4. The consideration is Price. 5. A Contract of sale may be absolute or conditional 6. All other essentials of a valid contract must be present Examples where Contracts need not be performed are:•

Agreement to do impossible acts, are void and need not be performed.

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When a contract is substituted by a new contract, or is rescinded or altered, the original contract need not be performed.

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Contracts discharged by operation of law need not be performed.

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Contracts which have lapsed by time.

Specific or Ascertained goods - the property in the good is transferred to the buyer at such times the parties to the contract intend to be transferred or when something has to be done by the seller to put them in a deliverable state, property es only when such thing is done, and the buyer has notice thereof.

Unascertained or Future Goods - property in the goods is not transferred to the buyer unless and until the goods are ascertained.

When can unpaid sellers resell the goods? Unpaid sellers can resell the goods : (a)

the whole of the price, has not been paid or tendered;

(b) When 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 reason of the dishonor of the instrument or otherwise.

Common carrier.- "common carrier" denotes a person, other than the Government, engaged in the business of transporting for hire property from place to place, by land or inland navigation, for all persons indiscriminately: "person" includes any association for body of persons, whether incorporated or not.

Holding & Subsidiary Companies A Holding Company is one which controls another company either by means of holding shares in that company or by having power to appoint the whole or majority directors of that company. A Holding Company may have control on more than one company also. A company controlled by a Holding Company is called a Subsidiary Company. The companies becoming subsidiaries continue to remain and function as separate legal entities.

Requisites of a Valid Meetings The following conditions must be satisfied for a meeting to be called a valid meeting:-

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It must be properly convened. The persons calling the meeting must be authorized to do so.

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Proper and adequate notice must have been given to all those entitled to attend.

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The meeting must be legally constituted. There must be a chairperson. The rules of quorum must be maintained and the provisions of the Companies Act, 1956 and the articles must be complied with.

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The business at the meeting must be validly transacted.. The meeting must be conducted in accordance with the regulations governing the meetings.

• Basic difference between CSTDuty , Central ExciseDuty and Customs Duty

Particulars CST

Central Excise

Customs

Basis of charge

Manufacture of goods in India

Import or Export of goods to India

It is a tax on sale of goods in India

Classificati CST classify goods on Classify goods for the Classify goods for on of goods interstate sale & state purpose of levy & rates of the purpose of levy sales tax classify as duty & rates of duty per the particular state Taxable event

Sale of goods in interstate trade or commerce

Production or Entry inward of manufacturing of goods in goods or outward of India goods from India

Collection Power

CST is levied by the central govt. but collected & returned by respective state govt.

Most of the products are levied by central govt. except on alcoholic liquors, OPM, Indian hemp. Above are even levied & collected by state govt.

It is levied, collected and retained by central govt.

Values

Sales tax is charged on sale price

Excise duty is levied on accessible value

It is levied on accessible value

Rates of Tax

CST is 4% is uniform by rates of state sales tax varies

Basic excise duty is uniform @ 16%

Customs duty rates irrespective of goods is uniform @ 20%

Time of Payment

It is payable after the It is payable on removal sale takes place of goods from factory or godown

It is payable on or before customs clearance

Capacity of parties-competency: The parties to the agreement must be capable of entering into a valid contract. Every person is competent to

contract if he is of the age of majority, is of sound mind, and is not disqualified from contracting by any law to which he is subject. Flaw in capacity to contract may arise from minority, lunacy, idiocy, drunkenness, etc., If a party suffers from any flaw in capacity, the agreement is not enforceable except in some special cases.

OFFER/PROPOSAL: A proposal is defined as “when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.” [Section 2 (a)]. An offer is synonymous with proposal. The offer or proposer expresses his willingness “to do” or “not to do” (i.e., abstain from doing) something with a view to obtain acceptance of the other party to such act or abstinence. Thus, there may be “positive” or “negative” acts which the proposer is willing to do.

Void Contract:- A contract which ceases to be enforceable by law becomes void. In other words, an agreement may be enforceable initially and due to certain circumstances may become void subsequently. Thus a contract is not void from its inception. Some of such circumstances which make a contract void are:•

An agreement without lawful consideration becomes void

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A contingent contract to do or not to do something on the happening of an event becomes void when the event becomes impossible

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When the party, whose consent is not free, repudiates the contract, etc.

Voidable Contract:- A voidable contract is 'an agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others'. In such a contract, the consent of one of the parties is not free and the law regards it as an aggrieved party. The aggrieved party has the option to either affirm or rescind the contract within a reasonable time. The other party does not have any such right. However, the aggrieved party is entitled to recover from the other party the damages which it may have suffered but it must restore the benefits received by it.

Lawful Object / Legality of Object : Legality of Object Sec 23 declares that object & consideration of a contract should be lawful Consideration & object could be unlawful:- a) If it is forbidden by law b) If it is of such a nature that, if permitted, it would defeat the provisions of any law c) If it is fraudulent d) If it involves or implies injury to the person or property of another e) If the court regards it as immoral f) If the agreement opposed to public policy.

Insurance vs Lottery: Like many things in life, the decision to purchase insurance or not is based on a system of risk/reward. Unfortunately, consumers often look at the reward and ignore the risk altogether. This can impede the process of making an educated decision. For example, the lottery is a very popular system of risk / reward. In this case, the risk is generally small, but the reward can be great, making it a popular choice. Gambling in casinos is another example. In this case, some people become so fixated on the reward that they forget the risk of losing. Think of insurance as an inverted version of the lottery. The reward (not paying for insurance and therefore saving an immediate expenditure) is miniscule compared to the possible risk (losing everything you own and being in debt for the rest of your life). And sadly, the chances of your number coming up in the insurance game are a lot greater than your chances of winning millions.

Special or Restrictive Crossing :- When a particular bank's name is written in between the two parallel lines the cheque is said to be specially crossed. In addition to the word bank, the words "A/c. Payee Only", "Not Negotiable" may also be written. The payment of such cheque is not made unless the bank named in crossing is presenting the cheque. The effect of special crossing is that the bank makes payment only to the banker whose name is written in the crossing. Specially crossed cheques are more safe than a generally crossed cheques.

Bill Discounting: While discounting a bill, the Bank buys the bill (i.e. Bill of Exchange or Promissory Note) before it is due and credits the value of the bill after a discount charge to the customer's . The transaction is practically an advance against the security of the bill and the discount represents the interest on the advance from the date of purchase of the bill until it is due for payment.

Transfer of property: In the following sections "transfer of property" means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons; and "to transfer property" is to perform such act. In this section "living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals.

Difference between warranty and guarantee?

A guarantee is basically a commitment on the part of the guarantor to make good any defects in a product or a service during a fixed period while a warranty mainly pertains to the repairing of an article or replacing a defective part of an article within the validity period. One key difference between a guarantee and a warranty is that unlike a guarantee which is always free, you will need to pay for a warranty to avail the benefit. The second important difference is that unlike a guarantee which is provided by the manufacturer, a warranty is usually provided by the retail sellers or distributors.

unlimited company : An unlimited company or private unlimited company is a mixture company incorporated either with or without a share capital but where the liability of the or shareholders is not limited - that is, they are liable to donate whatever sums are required to pay the outstanding debts of the company should it ever go into formal liquidation and its assets are insufficient to pay its debts and liabilities and the fixed cost of liquidation. In that situation, the or shareholders are liable for the shortfall. As with its counterpart the incomplete company, its or shareholders have no direct liability to the creditors of an unlimited company. Unlimited companies are found in the India. A similar entity, the unlimited liability corporation, exists in India.

Voluntary Winding Up of a ed Company When a company is wound up by the or the creditors without the intervention of Tribunal, it is called as voluntary winding up. It may take place by:•

By ing an ordinary resolution in the general meeting if :- (i) the period fixed for the duration of the company by the articles has expired; or (ii) some event on the happening of which company is to be dissolved, has happened.

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By ing a special resolution to wind up voluntarily for any reason whatsoever.

Within 14 days of ing the resolution, whether ordinary or special, it must be d in the Official Gazette and also in some important newspaper circulating in the district of the ed office of the company. Once the resolution of voluntarily winding up is ed, and then the company may be wound up, either through: •

voluntarily winding up, or

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Creditors voluntarily winding up

The only difference between the abate two, is that in case of voluntarily winding up, Board of Directors have to make a declaration to the effect, that company has no debts.

Central Excise : The meaning of Central Excise, that the duties of Central Excise are levied and collected by the Government of India only on Production or Manufacture. It is one of the Indirect Taxes by character as the manufacturers can shift the incidence of the Central Excise duty on the Consumers.

An annual general meeting : An annual general meeting (commonly abbreviated as AGM, also known as the annual meeting) is a meeting that official bodies, and associations involving the general public (including companies with shareholders), are often required by law (or the constitution, charter, by-laws etc. governing the body) to hold. An AGM is held every year to elect the board of directors and inform their of previous and future activities. It is an opportunity for the shareholders and partners to receive copies of the company's s as well as reviewing fiscal information for the past year and asking any questions regarding the directions the business will take in the future. Principle of Subrogation: Subrogation means the restitution of the rights of an assured in favour of the insurer against the third party for any damages caused by the third party, after the insurer has indemnified the assured for the loss. In accordance with this principle the insurance company acquires the right of the insured to sue the third party to compensate for the loss inflicted, when it indemnifies the insured for the losses suffered by him. This means that, if another vehicle hits your vehicle, and the insurer pays you the claim, then the insurer, not you, can sue the owner of that vehicle to claim damages.

lawful consideration: Section 23 says that a consideration or an object of an agreement is lawful unless, •

it is prohibited by law.

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it is of such nature that, if permitted, defeats the provisions of a law.

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it is fraudulent.

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it involves or implies injury to another person or property of another.

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it is immoral or against public policy.

Crossed cheque: Crossed cheque is a negotiable instrument which restrict payment only to the beneficiary through his/her bank . It prevents from any other person from encashing the proceeds mentioned therein. Crossing may be of two types: •

general crossing

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special crossing

Accommodation Bills: An accommodation bill is a bill drawn by one person upon another, who accepts it for the mere convenience of the drawer, that is, not in consideration of value received, but as a means of raising money in behalf of the drawer. The object of an accommodation bill should merely be that of affording assistance to a merchant in case of some unexpected emergency, on the understanding that the drawer, in whose favour the bill is accepted, is to provide the accommodation acceptor with funds to meet the bill when due. In the slang of trade, accommodation bills are often called kites or windmills, which gives an idea of the consideration they are held in by business men.

When does a cheque get dishonored? the bank may not honour the cheque on certain grounds, such as if there are not enough funds in your ; your signature does not match on the cheque; there is a difference between the amount mentioned in words and figures; if the cheque is more than six months old, etc. This means the concerned party will not receive the money and, additionally, you may have to pay cheque bounce charges to the bank. Under the provisions of Section 138 of the Negotiable Instruments Act, 1881, such dishonored cheques may attract punitive action.

perpetual succession? A company is a stable form of business organisation. Its life does not depend upon the death, insolvency or retirement of any or all shareholder(s) or director(s). Law creates it and law alone can dissolve it. may come and go but the company can go on forever.

Common seal: Common Seal more often called as the Company Seal or the Corporate Seal. This is used to get an authentic embossing imprint generally rrequired on the paper documents and certificates. Common Seals are generally only used for two purposes by corporations today:

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Documents which need to be executed as deeds (as opposed to simple contracts), may be executed under the company's common seal.

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Certain corporate documents, for example share certificates are often issued under the common seal.

Articles of Association: It is an official document governing the running of a company, that is placed with the Registrar of Companies. The articles of association constitute a contract between the company and its , set out the voting rights of stockholders and the conduct of stockholders' and directors' meetings, and detail the powers of management of the company. A memorandum of association is a related document. The important items covered by the AA include :1. Powers, duties, rights and liabilities of Directors

5. Borrowing powers of the company

2. Powers, duties, rights and liabilities of

6. Calls on shares

3. Rules for Meetings of the Company 4. Dividends

7. Transfer & transmission of shares 8. Forfeiture of shares 9. Voting powers of , etc.

General Offers: When the offer is made to a specific or an ascertained person it is known as a specific offer, but when the same is not made to any particular person but to the public at large it is known as general offer.

A person of unsound mind : “A person is said to be of unsound mind for the purpose of making a contract, if at the time when he makes it, he is incapable of understanding it, and of forming a rational judgment as to its effect upon his interests

Contract of Insurance: A contract of insurance is technically known as uberrima fides, which means it is a contract of utmost good faith. In this principle, you have the doctrine of disclosing all material facts and that applies to all forms of insurance. Any misrepresentation, fraud or non-disclosure in any document leading to the acceptance of the risk will render the insurance contract null and void.

MISREPRESENTATION: Like fraud, misrepresentation is incorrect or false statement but the falsity or inaccuracy is not due to any desire to deceive or defraud the other party. It is innocent. The party making it believes it to be true. Section 18 of the Contract Act classifies cases of misrepresentation into three groups as follows: •

The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true.

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Any breach of duty which, without an intent to deceive, gives an advantage to the person committing it (or anyone claiming under him), by misleading another to his prejudice or to the prejudice of anyone claiming under him.

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Causing, however innocently, a party to an agreement to make a mistake as to the substance of thing which is the subject of the agreement.

Is Past Consideration valid in Indian law? Yes In India, past consideration is a good consideration.

Negotiable instrument: A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. Negotiable instruments are often defined in legislation. For example, according to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. So, in India, there are just three types of negotiable instruments such as promissory note, bill of exchange and cheque. Cheque also includes Demand Draft [Section 85A].

Definition of `GOODS` under the Act: 'Goods' means every kind of moveable property and includes stock and shares, growing crops, grass, and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale. Thus, goods include every kind of moveable property other than actionable claim or money. Example - goodwill , copyright, trademark, patents, water, gas, and electricity are a ll goods and may be the subject matter of a contract of sale.

Private Carriers: A private carrier is one who does not transport goods from one place to another regularly; he may engage in some casual jobs of carrying goods for certain selected persons between certain terminals. In fact, he carries his own goods and that’s why he is known as a private carrier and not a common carrier. Also, he does not make a general offer to carry goods for any one from one place to another for hire. However, he may enter into a contract with someone to carry goods on the agreed upon between them. In such

a situation, it is a contract of bailment. Therefore, such transactions are not covered by the Common Carriers Act, 1865.

Exceptions for Caveat Emptor Rule. 1. The shelter of caveat emptor rule is not available to shelter on the following occasions; When caveat emptor is not applicable buyer can repudiate the contract. 2. When Sale is need by means of description: When goods are sold on the basis of description, the delivered goods must be in accordance with description. If it is not so, seller’s fraudulent behavior can be observed and there is no ground to say that buyer is negligent. Then caveat emptor rule is not applicable and buyer can repudiate the contract 3. When sale is made by means of sample: When goods are sold on the basis of sample, the delivered goods must be in resemblance with sample. Otherwise seller cannot claim the shelter of caveat emptor rule. 4. When purpose is mentioned: at the time of purchasing the goods if buyer communicates the purpose for the sake of which he is purchasing the goods seller should sell such goods only which are suitable to that purpose otherwise caveat emptor rule is not applicable. 5. When concealment is made: In case where buyer conceals material facts and thus fraudulently sells goods, then also caveat emptor rule is not applicable. 6. When mis-representation is made: When seller sells the goods by giving mis-representation, he cannot claim the protection of caveat emptor rule.

'Property in Goods' :'Property in Goods' which means the ownership of goods, is different from ' possession of goods' which means the physical custody or control of the goods. On ing of the property to the buyer, he becomes the owner of the goods and aquires all the rights held by the seller in respect of the goods sold.

When the goods are deemed to be in transit: According to Section 51, goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent takes delivery of them.

Thus the transit continues so long as the goods are not delivered to the buyer or his agent, no matter whether they are lying at the destination with the carrier awaiting transmission or are in actual transit. The goods are still deemed to be in transit if they are rejected by the buyer and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back.

Novation: The substitution of a new contract in place of an old one. it takes place when (1) a new contract is substituted for an existing one between the same parties, or (2) a contract between two parties is recinded in consideration of a new contract being entered into on the same between one of the parties and a third party.

Bill of Lading. A bill of lading is a document acknowledging the shipment of goods, signed by or on behalf of the carrier and containing the and conditions on which it has been agreed to carry the goods. It is a quasinegotiable instrument. It is a document of title and can be transferred by endorsement and delivery. It is generally used for the carriage of goods on a general ship, i.e., a ship which is used for the carriage of the goods of several merchants who wish to have them conveyed by her and which is not employed for the carriage of a charterer’s goods only. Lord Blackburn says, “a bill of lading is a writing, signed on behalf of the owner of the ship in which goods are embarked, acknowledging the receipt of the goods and undertaking to deliver them at the end of the voyage, subject to such conditions as may be mentioned in the bill of lading. It is sometimes an undertaking to deliver the goods to the shipper by name, or his assigns, sometimes to order of assigns, not naming any person which is apparently the same thing and sometimes to a consignee by name or assigns, but in all its usual forms it contains the word assigns”.

Corporate veil : Legal concept that separates the personality of a corporation from the personalities of its stockholders (shareholders), and protects them from being personally liable for the firm's debts and other obligations. This protection, however, is not ironclad or impenetrable. Where a court determines that a firm's business was not conducted in accordance with the provisions of corporate-legislation (or that it was just a façade for illegal activities) it may hold the stockholders personally liable for the firm's obligations under the legal concept of 'lifting (or piercing) the corporate veil.'

Difference between a public company and a private company: The distinction between a public company and a private company are explained in the following manner:

1. Minimum number of : The minimum number of person required to form a public company is seven, whereas in a private company their number is only two. 2. Maximum number of : There is no limit on the maximum number of member of a public company, but a private company cannot have more than fifty excluding past and present employees. 3. Commencement of Business: A private company can commence its business as soon as it is incorporated. But a public company shall not commence its business immediately unless it has been granted the certificate of commencement of business. 4. Invitation to public: A public company by issuing a prospectus may invite public to subscribe to its shares whereas a private company cannot extend such invitation to the public. 5. Transferability of shares: There is no restriction on the transfer of share In the case of public company whereas a private company by its articles must restrict the right of to transfer the share. 6. Number of Directors: A public company must have at least three directors whereas a private company may have two directors. 7. Statutory Meeting: A public company must hold a statutory meeting and file with the a statutory report. But in a private company there are no such obligations. 8. Further Issue of Capital: A public company proposing further issue of shares must offer them to the existing . A private company is free to allot new issue to outsiders.

Is a person bound by the printed on a ticket issued to him and which he has not read? The theory in case of tickets issued by clerks is that the company makes the offer of the ticket and the customer by paying for the ticket without objection accepts it with all its . He has a chance to reject the ticket. But where the ticket is issued by an automatic machine, the customer cannot refuse it. He is committed the moment when puts his money into the machine. The contract is then made. The of the offer are contained in the notice placed on the rear of the machine. The customer is bound by its if they are sufficiently brought to his notice beforehand, but not otherwise. He is not bound by the printed on the ticket if they differ from the notice, because the contract has already been made and the ticket comes too late. The ticket is therefore no more than a receipt for money. Hence, it is the duty of the party relying on the exclusion clause to make the and conditions clear to the other party at the time of contract that the same has been incorporated into the contract.

Discuss how far agreements in restraint of trade are enforceable in India. Courts do not allow any tendency to impose restrictions upon the liberty of an individual to carry on any business, profession or trade.In India, the law on the subject is contained in Section 27 which reads: “every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.” Thus, in India, all agreements in restraint of trade, whether general or partial, qualified or unqualified, are void. It is, therefore, not open to the Courts in India to enter into any question of reasonableness or otherwise of the restraint

Exceptions [or Cases in which restraint of trade is valid in India] 1. Sale of goodwill: Exception 1 to Section 27 provides that the seller of the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer or any one deriving title to the goodwill from him carries on a like business, provided that such limits are reasonable. 2. Partners’ agreement:(a) a partner shall not carry on any business other than that of the firm while he is a partner. (b) a partner on ceasing to be a partner will not carry on any business similar to that of the firm within a specified period or within specified local limits. 3. Service agreements: An agreement of service by which a person binds himself during the term of the agreement not to take service with anyone else or directly or indirectly take part in or promote or aid any business in direct competition with that of his employer is valid

Explain the circumstances whereunder a party to a contract may be exempted from the performance of contract on the ground of ‘Supervening impossibility’ under the Indian Contract Act, 1872 When performance of a promise becomes impossible or illegal by occurrence of an unexpected, event or a change of circumstances beyond the contemplation of parties, is called supervening impossibility. In case of supervening impossibility the contract becomes void. Supervening impossibility:

Circumstances: A party to a contract may be excused from the performance of his promise on the ground of ‘supervening impossibility’ under the Indian Contract Act, 1872 in the following circumstances. (a) Accidental destruction of the subject matter of the contract: If the subject matter of the contract is destroyed by an accident both the parties are excused from the performance of the contract.

(b)

Non-existence or non occurrence of a particular state of things: Nonexistence or non occurrence of a particular state of things of the contract exempts the parties from the performance of the contract.

(c) Incapacity to perform a contract of personal services: In case of contract of personal service, disability or incapacity to perform, caused by the act of God e.g. illness, constitutes lawful excuse for non-performance of the contract. (d) Change in law: Performance of a contract may also become impossible due to a subsequent change in the law. The law ed after the contract may prohibit performance of some act, which may be very basis of the contract. As such the contract is discharged due to subsequent impossibility and the parties become free from their mutual obligations. (e) Outbreak of war: Contracts may be affected by war in a variety of ways, viz., (i) by emergency legislation controlling prices or otherwise relating to restriction of trade; (ii) by prohibiting or restraining transaction with alien enemy.

Discuss the effect of supervening impossibility on the performance of contract. I. Where an act becomes impossible after the contract is made

The contract to do such an act becomes void when the act becomes impossible

II. Where an act becomes unlawful by reason of some event beyond the control of promisor

The contract to do such an act becomes void when the act becomes unlawful.

III. Where the promisor alone knows about the impossibility

Such promisor must compensate knows about the impossibility the promisee for any loss which such promisee might have suffered on of nonperformance of the promise.

IV. Where an agreement is discovered to be void or where a contract becomes void

Any person who has received any benefit under such agreement or contract is bound to restore it or to make compensation for it, If’ the person from whom he received it.

Exemplary or Punitive or Vindictive Damages- These damages are awarded with a view to punish the guilty party for the breach. The exemplary damages have no place in the law of contract since the object of the damages are to compensate the loss suffered by the injured party in case of a breach. However, Exemplary or Punitive damages are awarded to the following exemptions. •

Breach of a contract to marry

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Dishonour of a cheque by a banker when there are sufficient funds to the credit of the customer.

Implied Warranty of Quiet Possession -- In every contract of sale, unless there is a contrary intention, there is implied warranties that the buyer's shall have and enjoy quiet possession of the goods. If the buyer's right to possession and enjoyment of the goods is in any way disturbed as consequences of the seller's defective title, the buyer may sue the seller for damages for breach of this warranty.

Re-Insurance and Double Insurance: Every insurer has a limit to the risk he can undertake. If a profitable proposal comes his way he may insure it even if the risk involved is beyond his capacity. Then, in order to safeguard his own interest, he may insure the same risk, either wholly or partially, with other insurers, thereby spreading the risk. This is called -re-insurance. Re-insurance can be resorted to in all kinds of insurance and a contract of re-insurance is also a contract of indemnity. The re-insurers are liable to pay the amount to the original insurer only if the latter has paid to the insured. Re-insurance is subject to all the conditions in the original policy and the re-insurer is entitled to all the benefits, which the original insurer enjoys under the policy. When the insured insures the same risk with two or more independent insurers, and the total sum insured exceeds the value of the subject matter, the insured is, said to be over insured by double insurance. Both double insurance and overinsurance are perfectly lawful, unless the policy otherwise provides. A man may insure with as many insurers as he pleases and up to the full value of his interest with each one of them. If a loss occurs, he may claim payment from the insurers in such order as he thinks fit; but in no case he shall be entitled to recover more than his loss, because a contract of insurance is a contract of indemnity only.

What are statutory companies?: The statutory companies are also known as statutory corporations or public corporations, these are actually public bodies established and operated by Statute. A statute is any formal authority created by legislative authority that regulate or control a city, a state or a country. Known examples of statutory bodies are municipal councils, bar councils, universities etc.

Date of First AGM( annual general meeting)The first annual general meeting can be held within eighteen months of incorporation.

Stranger to consideration: While discussing second rule regarding consideration, we have seen that consideration may be given by the promisee or by a third party. When consideration is given by a third party then the promisee is called stranger to consideration. Under Indian Law, a stranger to

consideration can file a suit to enforce the promise as you might have noticed in the case of Chinayya v. Ramayya

RULES FOR A VALID OFFER An offer to be valid must fulfill the conditions discussed below. 1. Intention to Create Legal Relationship: An offer must intend to create

legal relations, An offer must be such that when accepted, it will create legal relationship among the parties 2. Certain and Unambiguous : The of the offer must be certain

and unambiguous and not vague. If the of the offer are vague, no contract can be entered into because it is not clear as to what exactly the parties intended to do. 3. Different from a Mere Declaration of Intention: The offer must be

distinguished from a mere declaration of intention. Such statement or declaration merely indicates that an offer will be made or invited in future. 4. Different from an Invitation to Offer: An offer must be distinguished

from an invitation to offer. In case of an invitation to offer, the person making an invitation invites others to make an offer to him. It is prelude to an offer inviting negotiations or preliminary discussions. 5. Communication: An offer must be communicated to the person to whom it

is made. An offer is complete only when it is communicated to the offeree. One can accept the offer only when he knows about it. Thus, an offer accepted without its knowledge does not confer any legal rights on the acceptor. 6. Non-compliance of offer doesn’t Amounts to Acceptance: The offer

must not contain a term the non-compliance of which would amount to acceptance. It means that while making the offer, the offerer can not say that if offer is not accepted before a certain date, it will be presumed to have been accepted.

A contract may be discharged in any of the following ways: •By performance,

•By Impossibility,

•By death,

•By agreement or consent, and

•By Lapse of time,

•By operation of law.

•By Breach of Contract,

Remission : Remission means acceptance of a lesser fulfillment or the promise made, i.e. acceptance of a lesser sum than what was contracted for the discharge of the whole of the debt. Eg.: A borrows Rs.2,00 from B. B repays only Rs.1000 which A accepts in will satisfaction of the whole debt.

Causa Proxima: It is a rule of law that in actions on fire policies, full regard must be had to the causa proxima. If the proximate cause of the loss is fire, the loss is recoverable. If the cause is not fire but some other cause remotely connected with fire, it is not recoverable, unless specifically provided for. Fire risks do not cover damage by explosion, unless the explosion causes actual ignition, which spreads into fire. The cause of the fire is immaterial, unless it was the deliberate act of the insured.

Liability of the Banker in Case of Wrongful Dishnour of Cheques: A Banker has the statutory obligation to honour his customer’s cheques unless there are valid reasons for refusing payment of the same. In case he dishonours the cheque, intentionally or by mistake, he is liable to compensate the customer for the loss suffered by him. According to section 31 of the Negotiable Instrument Act, 1981, the banker is liable to compensate the drawer for any loss or damage caused by the default on his part in dishonouring the cheques without sufficient reason. The banker thus incurs heavy liability for any mistake or default committed in dishnouring his customers cheques.

What is 'separate legal entity' : A company is a legal person having a juristic personality entirely distinct from and independent of the individual persons who are for the time being its . It has the right to own and transfer the title to property in any way it likes.

Creditors Voluntary Winding up: The Voluntary Winding up in which the declaration of the solvency of the company is not made by the directions and so is controlled and supervised by the creditors of the company is known as creditors Voluntary Winding up. In short, the winding up which takes place at the instance and under the control and supervision of the creditors is called Creditors Winding up.

Circumstances under which the Creditors Voluntary Winding up takes place: A Creditors Voluntary Winding u takes place when a company is unable to pay its liabilities in full [i.e., when a company is insolvent] and still wants to undergo voluntary winding up. In this case, creditors voluntary winding up is reslated. So as to protect the into of the creditors.

What is an EGM (Extraordinary General Meeting), when it is to be convened? An Extraordinary General Meeting (EGM) is a meeting of the shareholders of a company which is not an AGM. When certain urgent issue arises in relation to the working of the company which requires the input of the and is too serious or urgent to wait until the next AGM, an EGM is held. and/or shareholders must be informed of the purpose of the EGM so that they can prepare themselves to discuss and exercise intelligent judgment over the matters under consideration. A notice of at least 21 days before the meeting must be given to the unless consent is accorded to a shorter notice by , holding not less than 95% of voting rights in the company.On the receipt of a valid requisition, the board of directors of a company shall within 21 days move to call an EGM and the meeting should be held within 45 days from the date of the requisition.

THE OBJECTIVES OF CST( Central Sales Tax) ACT ? 1. Formulate principles for determining when a sale or purchase of goods takes place :- in the course of interstate trade or commerce ; or outside a State ; or in the course of import into or export from India. 2. Provide for the :-levy of collection and distribution Of taxes on sales of goods in the course of interstate trade or commerce. 3. Declare certain goods to be of special importance of inter state trade or commerce. 4. Specify the restriction and conditions to which state laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. 5. Provides for collection of tax in the event of liquidation of a company. 6. Authority to settle disputes in course of interstate trade or commerce.