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Chapter- 25A: MEANING AND letter to B to sell his car for Rs. 10,000. This is
known as a proposal. A is the promisor. If B
ESSENTIALS OF A CONTRACT
accepts the proposal, then he becomes the
promise. This results into a contract.

➢ In India the law relating to contracts is governed ➢ The intention of the two or more parties
by the Indian Contract Act 1872. entering into an agreement must be to create a
legal relationship between them.
➢ Contract means an agreement enforceable by
law meaning thereby that the rights and ➢ Agreements of social nature, as they do not
obligations arising out of the contract must be contemplate legal relationship, are not
enforceable in a court of law. contracts.

➢ All agreements between two or more persons ➢ When can valid contracts be made through oral
are contracts if It is made by free consent of all agreements. Under certain laws such as, The
the parties, It is made by parties who are Transfer of Property Act certain agreements are
competent to contract, It is made for a lawful required to be in writing only and are also
consideration, It is made with a lawful object required to be registered and/or attested.
and It is not declared as void expressly in the ➢ There must be a lawful consideration for both
Indian Contract Act. the parties to enter into an agreement.
➢ Contract = Agreement + Enforceability. Thus, all Consideration here means 'something in return'.
contracts are agreements but all agreements are ➢ Every promise and every set of promises,
not necessarily contracts. forming the consideration for each other, is an
➢ A proposal becomes a promise when it is agreement.
accepted. ➢ Promises which form the consideration or part
➢ The person making the proposal is called the of the consideration for each other are called
'promisor'. reciprocal promises.

➢ The person accepting the proposal is called ➢ An agreement not enforceable by law is said to
'promise'. be void.

➢ In terms of Section 10 "All agreements are ➢ An agreement enforceable by law is a contract.

contracts if they are made by the free consent of ➢ An agreement which is enforceable by law at the
parties competent to contract, for a lawful option of one or more of the parties thereto, but
consideration and with a lawful object, and are not at the option of the other or others, is a
not hereby expressly declared to be void......” voidable contract.
➢ Moreover, the offer and acceptance must be ➢ However, in the following cases an agreement
'consensus ad idem' which means that both the without consideration is valid: An agreement
parties must agree on the same thing in the made out of natural love and affection, between
same sense without 'consensus ad idem' there parties standing in near relation to each other
can be no contract. For example A proposes by a and which is in writing and registered. For
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example A out of his natural love and affection, ➢ "A person is said to be of sound mind for the
promises to give to his son B, a sum of Rs. 1000. purpose of making a contract, if, at the time
A put his promise in writing and registers it. This when he makes it, he is capable of
is a valid contract even though there is no understanding it and of forming a rational
consideration from B. judgment as to its effect upon his interests.

➢ A promise to compensate a person, who has ➢ A person who is usually of unsound mind, but
already done something voluntarily for the occasionally of sound mind, may make a
promisor (or done something voluntarily, that contract when he is of sound mind. For example
the promisor was legally bound to do) is a patient in a lunatic asylum, who is at intervals
enforceable at law. For example A finds B's of sound mind, may contract during those
watch and gives it to him. B promises to give A, intervals.
a sum of Rs. 100. This is a contract.
➢ A person who is usually of sound mind, but
➢ The object of a contract should be lawful. It occasionally of unsound mind, may not make a
must not be illegal or immoral or opposed to contract when he is of unsound mind. For
public policy. example A sane man, who is delirious from fever
or who is so drunk that he cannot understand
➢ Free and genuine consent of the parties to a
the terms of a contract, or form a rational
contract is required. A consent is said to be free
judgment as to its effect on his interests, cannot
when the parties agree to the same thing in the
contract whilst such delirium or drunkenness
same sense.
lasts."
➢ Consent is said to be free when it is not caused
➢ When money is deposited in a bank, the
by coercion, as defined in section 15, or undue
relationship that is constituted between the
influence, as defined in section 16, or fraud, as
banker and the customer is one of debtor and
defined in section 17, or misrepresentation, as
creditor and not one of trustee and beneficiary.
defined in section 18, or mistake, subject to the
provisions of sections 20, 21, and 22. ➢ The relationship between bank and customer
becomes that of creditor-debtor when customer
➢ The agreement must not have been expressly
has borrowed money from the bank by way of
declared void by the law in force in the country.
overdraft, cash credit, demand loan, term loan,
For example, dealing in 'rhinoceros horn' is
bills discounting or any other kind of loan or
banned. An agreement for export of the horn
advance either on secured or unsecured basis.
between A and B is void.
➢ When a bank accepts securities, valuables,
➢ According to Section 11 dealing with 'who is
bonds, or other documents with the bank for
competent to contract' "Every person is
safe custody from a person, the bank, besides
competent to contract who is of the age of
becoming trustee, becomes a bailee and the
majority according to the law to which he is
customer is the bailor. Bailee (Bank) and Bailor
subject, and who is of sound mind and is not
(Customer)
disqualified from contracting by any law to
which he is subject" ➢ When ancillary services rendered by the bank
such as remittance, collection of cheque, bills,
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etc. on behalf of the customers, it is acting as an ➢ All insurance contracts are examples of
agent of its customer. Principal (Customer) and contracts of indemnity because all insurance
Agent (Bank) contracts are contracts, which indemnify a
➢ In respect of hiring of safe deposit lockers by the person from certain losses, which he may
bank, the relationship is that of lessor and suffer.
lessee, etc. Lessor (Bank) and Lessee (Customer)
Example: under a fire insurance policy taken by
a shopkeeper for his godown, the insurance
company undertakes to pay a certain amount
Chapter 25B: CONTRACT OF to the policy holder (i.e. the shopkeeper) in the
INDEMINITY event of fire in the godown, subject to the
conditions of the policy and payment of
premium by the shopkeeper (policy holder).
➢ A Contract of Indemnity is a contract by
➢ A contract of indemnity may be express or
which one party promises to save the other
implied depending upon the circumstances
from loss likely be caused to him.
of the case.
➢ The promisor is also called the indemnifier.
➢ The Indian Contract Act 1872, does not
➢ A contracts to indemnify B against the specify, the actual time of commencement
consequences of any proceedings which C of the liability of the indemnifier.
may take against B in respect of a certain
➢ Where notice has to be given to the
sum of 200 rupees.
indemnifier as per the terms of the
This is a contract of indemnity. indemnity, the indemnity holder has to
abide by it, to be entitled to the claim.
A: Promisor or indemnifier & B: Promisee or
indemnity holder

➢ The indemnity holder (i.e., the promisee or Chapter 25C: CONTRACT OF

the person who is indemnified) has the GUARANTEE
following rights against the indemnifier.

➢ In terms of Section 125 of the Act which

deals with extent of liability of the ➢ A 'Contract of Guarantee' is a contract to
Indemnifier, "the promisee is entitled to perform the promise, or discharge the
recover from the promisor/indemnifier, in liability, of a third person in case of latter's
respect of the matter to which the promise default.
to indemnify applies":
➢ A guarantee may be either oral or written.
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➢ The person who gives the guarantee is ➢ A contract of guarantee must be supported
called the 'surety'. by consideration.

➢ The person in respect of whose default the ➢ Anything done, or any promise made, for
guarantee is given is called the 'principal the benefit of the principal debtor, is a
debtor'. sufficient consideration to the surety for
giving the guarantee (Sec. 127).
➢ The person to whom the guarantee is given
is called the 'creditor/beneficiary'. For example, B requests A to sell and deliver
to him goods on credit.
➢ 'A' wants to take a loan of Rs. 10,000 from
B, but B does not know 'A' very well and A agrees to do so, provided C will give
fears that A may not return the money. guarantee for the payment of the price of
the goods.
C is a good friend of A.
C promises to guarantee the payment in
C tells B that if A does not return the money
consideration of A's promise to deliver the
to B, C will personally, pay it to B.
goods.
➢ Under this assurance by C to B, B lends the
This is a sufficient consideration for C's
money to A.
promise.
The contract, described above is called a
➢ The liability of the surety is co-extensive
Contract of Guarantee.
with that of the principal debtor unless it is
This contract involves three persons. otherwise provided by the contract (Sec.
128).
A is the principal debtor, B is the creditor
and C is the surety. A surety is regarded as a favored debtor.
➢ There are actually two separate agreements ➢ A guarantee which extends to a series of
each between two of the parties. transactions, is called, a ‘continuing
guarantee'. This type of guarantee is not
➢ The first is an express contract between the
limited to only one transaction but to many
person standing guarantee (surety) and the
transactions (Sec. 129).Mr. A contracts with
person to whom the guarantee is made
Mr. B, a shopkeeper to allow Mrs.
(creditor).
➢ A to take whatever goods she may need
The second agreement is between the
from his shop, up to the amount of Rs.
person who is being guaranteed (principal
20,000. Mr. A will be liable for the debts
debtor) and the surety and this is an implied
incurred by Mrs. A up to the given amount.
contract.
➢ A continuing guarantee may at any time be
revoked by the surety, as to future
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transactions, by notice to the creditor (Sec. not discharge the surety unless the parties
130).Say Mr. had agreed for such discharge.

A and his wife are now living separately; Mr. ➢ Where there are co-sureties, a release by
A may inform Mr. B that the guarantee the creditor of one of them does not
stands revoked from that point on. discharge the others. Also, the surety
released does not become free from his
Then, any debts incurred by Mrs.
responsibility to the other sureties.
A after such a revocation would not be
➢ Right of Subrogation or Subrogation is the
payable by Mr. A.
right of the surety to recover his money
➢ The death of the surety operates (in the from the principal debtor (PD) on
absence of any contract to the contrary) as a settlement of the liabilities of PD with the
revocation of a continuing guarantee, so far creditor.
as future transactions are concerned.
➢ Subrogation is the legal doctrine whereby
➢ Generally, all guarantees obtained by banks one person takes over the rights or
are continuing guarantees and in the case of remedies of a creditor against his/her
death of a surety, the guarantee would debtor.
stand revoked for future transactions.
➢ A surety is entitled to the benefit of every
➢ Any variance (change/modification) made, security which the creditor has against the
without the surety's consent, in the 'terms principal debtor at the time when the
of contract', between the principal debtor contract of surety-ship is made, whether the
and the creditor, discharges the surety as to surety knows of the existence of such
transactions subsequent to the variance security or not.
(Sec. 133).
If the creditor loses such security, then the
➢ The surety is discharged by any contract surety is discharged to the extent of the
between the creditor and the principal value of the security.
debtor, by which the principal debtor is
➢ Any guarantee obtained by means of
released, or by any act or omission of the
misrepresentation made by the creditor is
creditor, the legal consequence of which is
invalid.
the discharge of the principal debtor (Sec.
134). ➢ Any guarantee which the creditor has
obtained by keeping silent as to the material
➢ Further, mere forbearance on the part of
circumstance, is also invalid.
the creditor to sue the principal debtor or to
enforce any other remedy against him, does ➢ Where two or more persons are co-sureties
for the same debt or duty, either jointly or
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severally, and whether under the same or for some purpose, upon a contract that they
different contracts, and whether with or shall, when the purpose is accomplished, be
without the knowledge of each other, the returned or otherwise disposed of according
co-sureties (in the absence of any contract to the directions of the person delivering
to the contrary) are liable, as between them.
themselves, to pay each an equal share of
➢ The person delivering the goods is called the
the whole debt, or of that part of it which
"bailor".
remains unpaid by the principal debtor (Sec.
146). The person to whom they are delivered is
called, the "bailee".
➢ A continuing guarantee can be revoked by
the surety, as to future transactions, by ➢ The obligation of a bailee is contractual
notice to the creditor. obligation and arises only from the contract
of bailment.
For example, A gives guarantee for
discounting of bills of exchange of C to B, for ➢ The essence of bailment is possession.
twelve months, the due payment of all such
➢ The bailee must return the goods without
bills to the extent of Rs. 5,000. B discounts
demand on due date. However, sometimes
bills for C to the extent of 2,000 rupees.
there may be a bailment even without a
Afterwards, at the end of three months, A formal contract.
revokes the guarantee.
For example, if a person/legal entity finds
This revocation discharges A from all liability goods belonging to another, a relationship
to B for any subsequent discount. But A is of bailor and bailee is immediately created
liable to B for the Rs. 2,000, on default of C. without there being any formal agreement.
[Basava K.D. Patil vs State of Mysore]

➢ Contract - There must be a contract between

Chapter 25D: CONTRACT OF BAILMENT the party who delivers the goods i.e., bailor
and the party which receives the goods, i.e.,
bailee, which may be express or implied (as
➢ The term 'bailment' is derived from the
in the case of a person finding goods
French word 'ballier' which means 'to
belonging to another in the example above
deliver' and in the legal sense means any
kind of 'handing over' or 'change in ➢ Delivery of Goods - It is imperative that
possession' of movable property from one goods are delivered by one party to another.
person to another for a specific purpose.
➢ Delivery may be actual or constructive.
➢ As per Section 148, "A bailment" is the
While actual delivery is where the goods are
delivery of goods by one person to another
physically handed over to the bailee,
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constructive delivery or symbolic delivery is ➢ If the bailee (with the consent of the
where something is done which has the bailor), mixes the goods of the bailor with
effect of putting the goods in the possession his own goods, the bailor and the bailee
of the bailee as in the case of endorsement shall have an interest, in proportion to their
and delivery of a Bill of Lading or Railway respective shares, in the mixture thus
Receipt. produced.

➢ No Transfer of Ownership - Goods as has ➢ If the bailee, without the consent of the
been defined in Section 2(7) of the Sales of bailor, mixes the goods of the bailor with his
Goods Act 1930, includes every kind of own goods and the goods can be separated
movable property only excluding money and or divided, the property in the goods remain
actionable claims. with the parties respectively.

➢ The bailor is bound to disclose to the bailee The bailee is bound to bear the expense of
faults in the goods bailed (Sec. 150) of which separation or division, and any damage
the bailor is aware, and which materially arising from the mixture.
interfere with the use of them, or expose
➢ It is the duty of the bailee to return the
the bailee to extraordinary risk;
goods bailed as soon as the time, for which
➢ A lends a horse, which he knows to be those were bailed has expired or the
vicious, to B. purpose for which they were bailed has
been accomplished.
He does not disclose the fact that the horse
is vicious. ➢ In the absence of any contract to the
contrary, the bailee is bound to deliver to
The horse runs away. B is thrown and
the bailor any increase or profit which may
injured.
have arisen from the goods bailed.
A is responsible to B for damage sustained.
➢ A leaves a cow in the custody of B.
➢ The bailee (in the absence of any special
B agrees to take care of the cow.
contract) is not responsible for the loss,
destruction or deterioration of the thing ➢ The cow delivers a calf. B is bound to deliver
bailed if he takes such care. the calf as well as the cow to A.

➢ A contract of Bailment is voidable at the ➢ If the bailee has rendered any service
option of the bailor, if the bailee does any involving the exercise of labour or skill in
act with regard to the goods bailed, respect of the goods bailed to him, he has a
inconsistent with the conditions of the right to retain such goods until he receives
bailment. due remuneration for the services he has
rendered.
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➢ For example, A delivers a rough diamond to ➢ A lien disappears the moment the
B, a jeweller, to be cut and polished which is possession is lost and there is no right of
accordingly done. sale.

B is entitled to retain the stone till he is paid ➢ If the pawnor makes default in payment of
for the services he has rendered. the debt in respect of which the goods were
pledged, the Pawnee may bring a suit
against the pawnor and retain the goods
Chapter 25E: CONTRACT OF PLEDGE pledged as a security or he may sell the
goods pledged, after giving notice of the
sale to the pawnor.
➢ As per Section 172 of the Indian Contract Act
➢ If the proceeds of such sale are less than
1872
the amount due, in respect of the debt, the
➢ "The bailment of goods as security for pawnor is still liable to pay the balance.
payment of a debt or performance of a
➢ It is important to note, that all contracts
promise is called 'pledge'.
pledge is a type of bailment as brought out
➢ The bailor is in this case called 'pawnor'. earlier, the bailee, while he is in possession
of the goods, steps into the shoes of the
➢ The bailee is called 'Pawnee'."
owner for the purpose of legal remedy.
➢ The essential ingredients of a valid pledge
are property pledged should be actually or ➢ The Pawnee can retain the goods pledged,
constructively delivered to the Pawnee; and not only for payment of the debt/interest on
the debt but also for all necessary expenses
Pawnee has only a special property in the
pledge while the general property remains incurred by him in preservation of the goods
pledged. (Section 173)
with the pawnor and wholly reverts to him
on discharge of debt. ➢ The Pawnee is entitled to receive from the
➢ The major distinction between a pledge and pawnor, extraordinary expenses incurred by
lien is that in lien there is no power of sale him for the preservation of the goods
pledged.
or disposition of the goods whereas in case
of pledge there is power to sell on default. ➢ Where person pledges goods in which he
➢ In the case of a lien, there is no transfer of has only a limited interest, the pledge is
valid to the extent of that interest. (Section
any interest; the person exercising the lien
has only a right to retain the subject matter 179)
of lien until he is paid.
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PLEDGE BY PLEDGEE: ➢ Thus, an agent should also be competent to
contract. Even a Company may act as an
Where, under certain circumstances, the
agent.
pledgee further pledges the movable property
pledged, the pledge will be valid only to the ➢ According to Section 185 "No consideration
extent of the interest of the pledgee, which is is necessary to create an agency."
equivalent to the amount for which the
➢ Authority given to the Agent may be express
property has been given to him as security.
or implied. An authority is express when it is
given by words oral or written and the
authority is said to be implied when it is
Chapter 25 F: CONTRACT OF AGENCY
inferred from the circumstances of the case.

➢ The first rule of agency is that whatever a

➢ A 'Contract of Agency' stems from the need person can do personally can also be
which arises sometimes for a person to achieved through an agent, with certain
employ another person to do an act for him exceptions such as when the act to be
or to represent him in dealing with third performed is personal (e.g. marriage) or
persons. official.
➢ In terms of Section 182 "An ‘agent' is a ➢ The second rule is that he who does an act
person employed to do any act for another, through another does it himself.
or to represent another in dealings with
third persons. ➢ The acts of an agent, subject to certain
conditions, are acts of the principal.
➢ The person for whom such act is done, or
who is so represented, is called the ➢ For example, X buys goods from Z, knowing
"principal". that he is an agent for their sale, but not
knowing who the principal is. Z's principal is
➢ The first requisite is that the principal the person entitled to claim from X the price
should be competent to contract. of the goods, and X cannot, in a suit by the
➢ In terms of Section 183 of the Act "Any principal, set-off against that claim a debt
person who is of the age of majority and due to himself from Z.
who is of sound mind, may employ an There are two ways of classifying an agent:
agent".
On the basis of extent of their authority(special
➢ In terms of Section 184 “No person who is agent, General agent and Universal agent and
not of the age of majority and of sound on the basis of nature of work performed by
mind can become an agent ". them(Mercantile or commercial agent, non-
mercantile agent and banker)
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Special Agent: The duties of an agent are:

An agent appointed to perform a particular act To carry out the work undertaken as agent as
for the principal or represent the principal in a per the directions given by the principal and in
particular transaction e.g. an agent employed the absence of any special/specific directions,
to sell a house belonging to the principal. the agent must carry out the work in
accordance to the prevailing practices in the
➢ A general agent is one who is authorized to
line and To carry out the work rationally and
do all acts in respect of a particular line of
with care, skill and diligence.
business, trade or employment.
Duties of Principal:
➢ Such authority of the agent generally
continues until it is terminated. To indemnify the agent against the
consequences of all lawful acts. (section
➢ Universal agent is one whose authority to
222)and to indemnify the agent against the
act for the principal is unlimited.
consequences of all acts done in good faith.
➢ He has authority to bind the principal by any (Section 223)
act which he does, provided the act is legal.
Rights of Principal:
➢ Mercantile agents are also known as
Right to recover damages in case the agent
functional middlemen.
neglects to follow the directions of the
➢ They receive a commission on each sale principal which causes damage to the principal,
made. to recover secret profits of the agent not
disclosed to the principal after obtaining a full
➢ For example, a clothing manufacturer may
account for them, to resist the agent's claim for
hire a mercantile agent to sell their products
indemnity against liability incurred under
to retailers.
certain circumstances.
Banker:

The relationship between a banker and a

customer is basically that of a debtor and Chapter 26 A: MEANING AND
creditor for most of the transactions. ESSENTIALS OF A CONTRACT OF SALE
Non-Mercantile Agent:

These types of agents include solicitors, ➢ The Sale of Goods Act, 1930, extends to the
attorneys, insurance agents, forwarding agents whole of India.
etc.
The Sale of Goods Act is specially enacted to
lay down the law relating to the sale and
purchase of moveable goods in the country.
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➢ 'Goods' means every kind of moveable When the property in the goods is transferred
property (other than actionable claims and from the seller to the buyer, the contract is
money) and includes stock and shares, called a sale.
growing crops, grass and things attached to
Bilateral contract: A sale involves two persons -
or forming part of the land which are agreed
The buyer and the seller.
to be severed before sale or under the
contract of sale. ➢ The consideration for a sale of goods must
be money, called the price payable for the
Buyer: means a person who buys or agrees to
transfer of goods.
buy goods.
It cannot be a barter, where goods are
Seller: means a person who sells or agrees to
exchanged for goods.
sell goods.
➢ The Sale of Goods Act covers only the sale of
Price: means the money consideration for a
moveable goods and not immoveable
sale of goods.
property like land and building.
Delivery: means voluntary transfer of
➢ The contracts relating to transfer of
possession from one person to another.
immoveable property are governed by the
Document of title to goods: includes bill of Transfer of Property Act 1882 and not Sale
lading, dock-warrant, warehouse-keeper's of Goods Act.
certificate, railway receipt.
➢ The Sale of Goods Act does not make it
Future goods: means goods to be mandatory to enter into written contracts
manufactured or produced or acquired by the for the sale of goods.
seller after making of the contract of sale.
➢ The contract may be oral or written or can
Specific goods: means goods identified and be implied by the conduct of the parties.
agreed upon at the time a contract of sale is
➢ A contract of sale is made by an offer to buy
made.
or sell goods for a price and the acceptance
Mercantile agent: means an agent having of such offer.
authority either to sell goods, or to consign
➢ A contract of sale may be absolute or
goods for the purposes of sale, or to buy goods,
conditional.
or to raise money on the security of goods.
➢ In an absolute contract for sale of goods,
➢ A contract of sale of goods is a contract
there are no conditions to be fulfilled by the
under which the seller transfers or agrees to
seller or the buyer for the sale and purchase
transfer the property goods to the buyer for
of the goods.
a price.
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➢ In a conditional sale, the parties to the 3. The risk in 3. The risk in goods
contract (seller and buyer) agree that the goods is with the is still with the
sale of goods shall be regarded as final only buyer. seller and passes to
on the fulfilment of certain conditions either the buyer only
after the
before or after the conclusion of the
agreement to sell
contract for sale of goods.
becomes a sale.
➢ An agreement to sell becomes a sale when 4. In a sale, if the 4. In an agreement
the time elapses or the conditions are seller does not to sell, if the seller
fulfilled, subject to which the property in deliver the goods, does not deliver
the goods is to be transferred. the buyer can file the goods, the
a suit and buyer can only
Thus, when an agreement to sell provides that demand specific claim damages in a
the property in goods (the ownership) shall performance and suit and cannot
pass on a certain date, then the agreement to delivery of the demand the
sell becomes a sale on that date. goods. delivery as the sale
is not yet
DISTINCTION BETWEEN A SALE AND AN concluded.
AGREEMENT TO SELL: 5. If the buyer 5. in an agreement
does not pay for to sell the seller
Sale Agreement to Sell
the goods, the may not part with
1. A sale is a 1. An agreement to
seller can claim, the goods until he
contract in which sell is an act in
file a suit and is paid the price. In
the parties have which the parties
demand the price. case he parts with
already are yet to perform
He also has the the possession, he
performed their their mutual
right to stop the can sue for return
part. promises
delivery of goods of goods or
2. In a sale, the 2. In an agreement in transit and he payment of price.
ownership of to sell the can also resale
goods has already ownership of the goods.
passed, goods is yet to pass
irrespective of from the seller to
whether the the buyer at a later
goods are date after the
delivered or not. fulfilment of
certain conditions,
as agreed upon by
the seller and the
buyer.
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Chapter 26B: CONDITIONS AND a right to sell the goods at the time when
WARRANTIES the ownership is to pass to the buyer (in the
case of an agreement to sell) For example- A
buy a second-hand car from B and pays him.
➢ Under Section 12(1) of the Sale of Goods Police takes away the car, as it was a stolen
Act,1930 "A stipulation in a contract of sale one.
with reference to goods which are the
A can recover the price paid, from B, as he has
subject thereof may be a condition or a
violated the implied condition above.
warranty"
➢ In the sale of goods by description, there is
➢ If the stipulation agreed to between the
an implied condition that the goods shall
parties is essential to the main purpose of
correspond with the description. For
the contract and is of such a nature that if
example- A sells certain curtains to B by
the stipulation is breached (i.e., violated
describing them to be of seventeenth
/not complied) then a party to the
century.
agreement would have a right to treat the
contract as repudiated (cancelled) then such Later on, B discovers that the curtains are not
a stipulation is known as a condition. of the seventeenth century. A can reject the
goods and claim back the price.
➢ On the other hand, a warranty is a
stipulation collateral to the main purpose of ➢ In case of a sale by sample there is an
the contract. implied condition that the bulk shall
correspond with the sample in quality and
The breach of such a stipulation gives rise to a
buyer shall have an opportunity to compare
claim for damages only.
the bulk with the sample; For example- A
➢ In a "contract of sale of goods", conditions wants to buy rubber material of a certain
and warranties may be either expressed or length and width.
implied.
B shows a sample to A.
➢ Expressed conditions and warranties are
A approves the sample but B delivers the same
those, which are expressly stated in the
material with a variation in the length of the
contract.
rubber. A can reject the goods as the goods did
Implied conditions and warranties are those, not correspond with the sample in quality.
which the law interprets to imply to every
➢ If the sale is by sample as well as by
contract of sale of goods.
description, the goods must correspond not
➢ There is an implied condition on the part of only to the sample but also to the
the seller that, He has a right to sell the description given.
goods (in the case of a sale), or He will have
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For example- A sells to B, 'foreign rapeseed Chapter 26C: UNPAID SELLER
refined oil'. He even shows a sample to B.
Afterwards the oil according to the sample is
delivered to B. ➢ As per Sec. 45 of Sale of Goods Act. 1930,
When the oil is delivered to B, he discovers that The seller of goods is deemed to be an
there is some 'hemp oil' also mixed in it. 'unpaid seller 'When the whole of the price
has not been paid or tendered and when
B can reject the goods because he was the payment for the goods is received in the
delivered as per the sample but the sample and form of a cheque or other negotiable
oil itself were not foreign rapeseed refined oil instrument and the same is dishonored for
as described by A. financial or other reasons.
➢ There is an implied warranty that the buyer ➢ Rights of Unpaid Seller against Goods and
shall have and enjoy quiet possession of the the Buyer:
goods i.e., the right to own or use property
or goods without anyone causing you any
difficulties.

➢ There is an implied warranty that the goods

shall be free from any charge or
encumbrance in favour of any third party
not declared or known to the buyer before
or at the time when the contract is made.
➢ The unpaid seller of goods (who is in
➢ There is no implied warranty or condition as
possession of them), is entitled to retain
to the quality or fitness of goods for any
possession of them until payment of the
particular purpose except in the following
price is made If the goods have been sold
case:
without any stipulation as to credit or if the
➢ Caveat means a warning, a caution. goods have been sold on credit, but the
term of credit has expired or if the buyer
➢ According to the doctrine of caveat emptor,
becomes insolvent.
the person who buys goods must keep his
eyes open, his mind active and be cautious ➢ The unpaid seller of goods loses his lien
while buying the goods. thereon When he delivers the goods to a
carrier or other bailee for the purpose of
transmission to the buyer without reserving
the right of disposal of the goods, When the
buyer or his agent lawfully obtains
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possession of the goods and by waiver of
lien.

➢ When the buyer becomes insolvent, the

unpaid seller who has parted with the Chapter 27A: DEFINITION, MEANING
possession of the goods has the right of AND NATURE OF A PARTNERSHIP
stopping them in transit.

He may retain them until payment of the

price. ➢ Partnership is the relation between persons
who have agreed to share the profits of a
➢ Goods are deemed to be in course of transit business carried on by all or any of them
from the time when they are delivered to a acting for all. For example- A and B are joint
carrier or other bailee for the purpose of owners of a car.
transmission to the buyer and the transit
ends, when the buyer or his agent takes ➢ It is not a partnership.
delivery of them from such carrier or other However, if they decide to give it on hire and
bailee. share the rentals it is a partnership between
➢ The unpaid seller's right of lien or stoppage the two.
in transit is not affected by a further sale or ➢ Persons, who have entered into partnership
by other disposition of the goods, which the with one another are called individually
buyer may have made (unless the seller has 'partners' and collectively a 'firm' and the
given his permission). name under which their business is carried
➢ Exception to this is when any person in good on is called the firm's name.
faith and for consideration takes documents ➢ It must always be remembered that a
of title to goods from a buyer or transfer of partnership is not a separate legal entity like
goods is by way of pledge, where right of a company formed under the Companies
unpaid seller may get defeated. Act, 1956/2013.
➢ These rights arise out of breach of contract ➢ The contract between the partners may be
and the seller can file a suit to claim oral or written.
damages, claim the price of goods with
interest and he can also repudiate (cancel) ➢ The partnership must be formed to carry on
the contract. some lawful business.

➢ There must be a mutual relation of 'agency'

between the partners. This means that any
partner can by his acts bind all the partners
of the firm.
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This is the meaning of 'business carried on ➢ Business has been defined in Section 2(b) of
by all or any of them 'acting for all' in the the act as "Business" includes every trade,
definition of partnership. occupation, and profession..."

➢ Section 464 of the Companies Act 2013 has ➢ It is also necessary that the objective of
prescribed that the number of persons in carrying on the business is to make profits,
case of a partnership firm should not be which may be shared amongst the partners
more than 100 and given powers to Central in a definite ratio, as agreed.
Government to notify the maximum number
➢ Since the business of a partnership firm may
within the limit of 100.
be carried out by all the partners or any or
➢ The term 'person' used in Section 4 of the few of them acting for all, a partner is both
statute does not include another an agent and the principal.
partnership firm because a firm is not a
Agent, because a partner can bind by his
separate legal entity.
acts the firm/ other partners, and principal
Hence two partnership firms cannot enter because a partner is bound by the act of any
into a partnership though all the partners of of the other partners.
two separate firms may join together and
➢ TYPES OF PARTNERSHIP:1. Partnership at
form a partnership which would be distinct
will (Sec. 7): Where no provision is made by
from the two firms.
a contract between the partners for the
➢ A Company being a legal person is an entity duration of their partnership or for the
distinct from its members and is a 'person' determination (i.e., the termination or end)
as per Section 4. Hence a Company may of the partnership - the partnership is
enter into a contract of partnership if known as 'partnership at will'.
authorized by its Memorandum of
➢ 2. Partnership for a fixed period: When two
Association [Steel Bros and Co. Ltd. vs
or more persons enter into a partnership
Commissioner of Income Tax].
agreement for a fixed period of time, it is
➢ The partnership being a contract never known as a partnership for a fixed term.
arises from the operation of law or
➢ 3. Particular Partnership: Such partnership is
inheritance. Thus, it must have all the
entered into, for completing a particular job
characteristics of a valid contract.
or assignment taken up by two or more
➢ It is imperative that a partnership is formed persons jointly and to share the profits
for carrying on some business. However, the arising there from.
business being carried out by the persons
➢ Limited Liability Partnership Act, 2008 came
forming the partnership must be legal.
into effect by way of notification dated 31st
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March 2009. An LLP is a body corporate and into a LLP in accordance with the provisions
a legal entity separate from its partners. of the act.

It has perpetual succession. ➢ The winding up of LLP may be either

voluntary or by the National Company Law
While the LLP is a separate legal entity liable
Tribunal (NCLT) under certain circumstances,
to the full extent of its assets, the liability of
etc.
partners is limited to their agreed
contribution.

➢ Further, no partner is liable on account of Chapter 27B: RELATIONS OF PARTNERS

the independent or un-authorized actions of TO ONE ANOTHER
other partners, thus allowing individual
partners to be shielded from joint liability
created by another partner's wrongful ➢ "Uberrimae fidei" is a Latin phrase that
business decisions or misconduct. means "utmost good faith".
➢ The LLP is viewed as an alternative It's a legal doctrine that governs insurance
corporate business vehicle that provides the contracts.
benefits of limited liability but allows its
members the flexibility of organizing their ➢ A partnership is primarily a contract of
internal structure as a partnership based on 'uberrimae fidei' and Section 9 of the Indian
a mutually arrived agreement. Partnership Act, 1932 deals with the duty of
a partner in this connection, as general
➢ Every partner in a LLP is an agent of the LLP duties'.
but not of other partners of LLP.
➢ In terms of Section 9 "Partners are bound to
➢ Every LLP has at least two partners and also carry on the business of the firm to greatest
has at least two individuals as Designated common advantage, to be just and faithful
Partners having Designated Partner to each other, and to render true accounts
Identification Number (DPIN), of whom at and full information of all things affecting
least one should be resident in India. the firm to any partner, his heir or legal
➢ The Central Government has powers to representative."
investigate the affairs of a LLP, if required, by ➢ According to Section 10 of the Act "Every
appointment of competent inspector, for the partner shall indemnify the firm for any loss
purpose. caused to it by his fraud in the conduct of
➢ A firm, private company or an unlisted the business of the firm."
public company is allowed to be converted ➢ Subject to the provisions of this Act Sec.
(11), the mutual rights, and duties of the
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partners of a firm may be determined by ➢ The partners are entitled to share equally in
contract between the partners, and such the profits earned and liable to contribute
contract may be expressed or may be equally to the losses made by the firm.
implied by a course of dealing.
➢ Where a partner is entitled to interest on
➢ As per section 27 of the Indian Contract Act, the capital subscribed by him such interest is
1872, contracts between partners may to be paid only out of profits of the firm.
provide that a partner shall not carry on any
➢ Interest at 6% on extra amount paid by the
business other than that of the firm while
partner.
he is a partner though strictly speaking the
agreement becomes an agreement in ➢ The property of the firm includes all
‘restraint of trade”. property/rights in property originally
brought into the firm or later on acquired
➢ A restraint of trade is any activity that tends
(by purchase, etc.) by the firm for the
to limit a party's ability to enter into
purpose of business of the firm and includes
transactions.
also the goodwill of the business.
➢ As per Section 12 “Subject to a contract
➢ The property of the firm has to be held and
between the partners”: Every partner has a
used by the partners exclusively for the
right to take part in the conduct of the
purposes of the business.
business (unless he or she is a sleeping
partner) and Every partner is bound to ➢ If a partner derives any profit for himself
attend diligently to his duties in the conduct from any transaction of the firm or from the
of the business. use of the property/ business connection of
the firm/the firm name, he is bound to pay
➢ Any difference arising as to ordinary matters
it to the firm.
connected with the business can be decided
by a majority of the partners and every ➢ Also, if a partner carries on any business
partner has a right to express his opinion competing with the firm, he is bound to pay
before the matter is decided. to the firm all profits made by him in that
business.
➢ Every partner has a right to have access to
and to inspect any of the books of the firm. ➢ The reason for this is that a partnership is a
fiduciary relationship (trust) and no partner
➢ As per Section 13 of the Indian Partnership
is entitled to make any personal profit.
Act 1932 dealing with mutual rights and
liabilities of partners "Subject to a contract
between the partners” A partner is not
entitled to receive remuneration for taking
part in the conduct of the business.
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Chapter 27C: RELATION OF PARTNERS of the ordinary business of a firm selling
TO THIRD PARTIES groceries.

➢ We can see what an implied authority of a

partner refers to by taking the example of a
➢ Section 18 of the Act implies that a partner trading concern.
is an agent of the firm for the purpose of the
➢ In terms of Section 19(2) of the Indian
business of the firm.
Partnership Act, 1932, the implied authority
➢ A partner can make the firm liable by his of a partner does not allow him to do
acts, if done in the name of the firm and in Submitting a dispute pertaining to the
the ordinary course of business of the firm. business of the firm for arbitration, open a
banking account on behalf of the firm,
However, a partner, who contracts in his
Compromise or relinquish any claim filed on
own name, incurs only a personal liability
behalf of the firm.
and the firm is not liable for the contracts
entered in to in his personal name. ➢ All the partners of a firm may also ratify an
action of a partner after obtaining full
➢ 'Authority' available to a partner in a firm is
knowledge of facts, which has been carried
actually the capacity in which a partner can
out in excess of the implied authority
bind the firm, through his acts.
provided it is legal [S.N. Soni vs Taufiq
The authority may be express or implied. Farooki].

➢ The manner of doing an act to bind the firm, ➢ Any act done by a partner on behalf of the
is contained in Section 22 of the statute firm within his implied authority binds the
which states that "In order to bind a firm, an firm unless the person with whom he is
act or instrument done or executed by a dealing knows the restriction or does not
partner or other person on behalf of the know or believe that partner to be a partner.
firm, shall be done or executed in the firm This has been provided in Section 20.
name or in any other manner expressing or
Thus, a third party is not affected by a secret
implying an intention to bind the firm.
restriction of the implied authority of a
"For example, if A, a partner in firm ABC & partner of which he does not know about or
Co. selling groceries, enters into an has no notice about.
agreement with X to supply him car spare
➢ Whatever may be the powers given to a
parts in the name of the firm without
particular partner, in case of an emergency,
authority and obtains an advance of Rs. 50
a partner has authority to do all acts to
lacs, the other partners would not be liable
protect the firm from loss, as would be done
for the amount so received, for it is not part
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by a person of ordinary prudence in his own When a person who is not at all a partner in
case. a firm, either represents himself, or
knowingly permits himself to be
➢ The firm is bound by such acts.
represented, as a partner in a firm and as a
This has been provided in Section 21. For result of this, he induces others to give
example, a partner in a firm receives a credit to the firm then he is known as a
consignment of fruit in Kolkata on behalf of partner holding out.
his firm situated in Chennai and being
➢ However, legal heirs or estate of the
perishable sells it in Kolkata for a price
deceased partner is not liable to the firm,
which was less than that obtaining in
who uses his name or when the business of
Chennai as he was sure that the fruit will
the firm is carried on in the old name of the
not bear the journey. He is not liable as
firm, after his death.
Section 21 protects him.
➢ A transfer by a partner of his interest in the
➢ Every partner is liable jointly with all the
firm does not entitle the person to whom
other partners and also severally for all acts
the interest is transferred (transferee) to
of the firm done while he is a partner.
interfere in the conduct of the business but
This is a core principle of partnership entitles the transferee only to receive the
business. share of profits of the transferring partner
and the transferee has to accept the account
➢ Sec. 26 of the Act stipulate that if a partner
of profits agreed to by the partners.
commits some wrongful act or omits doing
of something in the ordinary course of the ➢ On dissolution of firm or cessation of the
business of the firm with or without the partnership business, the transferee is
authority of other partners and entitled to a share in assets of the firm and
consequently a loss or injury is caused to verification of accounts to ascertain his
any third party, the firm is liable thereof to share.
the same extent as the partner.

For example, where due to the negligence of

the managing partner of a firm the shaft of
the mine they operated is not properly
guarded and a workman falls and is injured,
the firm itself becomes liable.

➢ Sec. 28 of the Act states about doctrine of

holding out.
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Chapter 27D: MINOR ADMITTED TO THE ➢ Where such a person becomes a partner
BENEFIT OF A PARTNERSHIP (either because he elected to do so or
because he failed to take decision and six
months have elapsed since he attained
majority):his rights and liabilities as a minor
➢ As mentioned in the Indian Contract Act,
continue up to the date on which he
1872 a minor is not competent to enter into
becomes a partner but he also becomes
a contract.
personally liable to third parties for all acts
➢ A person who is a minor cannot be a partner of the firm done since he was admitted to
in a firm but with the consent of all the the benefits of partnership, and his share in
partners, he may be admitted to the the property and profits of the firm shall be
benefits of partnership. the share to which he was entitled as a
minor.
➢ The minor has a right to share the property
and profits of the firm as may be agreed ➢ If such person elects not to become a
upon by the partners and the minor can partner: his rights and liabilities shall
have access to the accounts of the firm. continue to be those of a minor up to the
date on which he has given public notice
➢ This is provided in Section 30(4).
that he does not want to become a partner;
As per this section "Such minor may not sue his share shall not be liable for any acts of
the partners for an account or payment of the firm done after the date of the notice;
his share of the property or profits of the and he shall be entitled to sue the partners
firm". for his share of the property and profits.
(Section 30(7))
➢ Section 30(5) of the Indian Partnership Act
1932 stipulates that at any time within 6 ➢ A partner may retire with the consent of all
months of his attaining majority. or Of his other partners or where the partnership is
obtaining knowledge that he had been at will, by giving notice in writing to all the
admitted to the benefits of partnership other partners of his intention to retire.
(whichever date is earlier).
➢ The retiring partner and other partners shall
➢ the minor partner who has attained be liable as partners to third parties for any
majority may give public notice informing act done by any of them which would have
whether he has elected to become a partner been an act of the firm if done before
or not. retirement until the public notice is given of
the retirement.
However, if he fails to give such notice, he
shall become a partner in the firm on the ➢ A partner can also be expelled from the firm
expiry of the said six months. by any majority of the partners in exercise of
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good faith, of powers conferred by contract As per this section "Such minor may not sue
between the parties. the partners for an account or payment of
his share of the property or profits of the
The expelled partner is in the same position
firm".
as that of the retiring partner. (Section 33)
➢ Section 30(5) of the Indian Partnership Act
➢ If partner of a firm is adjudicated as an
1932 stipulates that at any time within 6
insolvent, he ceases to be partner from the
months of his attaining majority.
date on which the order of adjudication is
made. or of his obtaining knowledge that he had
been admitted to the benefits of
➢ An order of adjudication of a partner may or
partnership (whichever date is earlier).
may not dissolve the firm.
➢ the minor partner who has attained
➢ If the firm is not dissolved pursuant to a
majority may give public notice informing
contract upon adjudication of a partner, the
whether he has elected to become a partner
estate of a partner so adjudicated is not
or not.
liable for any act of the firm and firm is not
liable for any act of the insolvent partner, However, if he fails to give such notice, he
done after the date on which the order of shall become a partner in the firm on the
adjudication is made. (Section 34) expiry of the said six months.

➢ Where such a person becomes a partner

(either because he elected to do so or
Chapter 27E: DISSOLOUTION OF A FIRM because he failed to take decision and six
months have elapsed since he attained
majority):his rights and liabilities as a minor
➢ As mentioned in the Indian Contract Act, continue up to the date on which he
1872 a minor is not competent to enter into becomes a partner but he also becomes
a contract. personally liable to third parties for all acts
➢ A person who is a minor cannot be a partner of the firm done since he was admitted to
in a firm but with the consent of all the the benefits of partnership, and his share in
partners, he may be admitted to the the property and profits of the firm shall be
benefits of partnership. the share to which he was entitled as a
minor.
➢ The minor has a right to share the property
and profits of the firm as may be agreed ➢ If such person elects not to become a
upon by the partners and the minor can partner: his rights and liabilities shall
have access to the accounts of the firm. continue to be those of a minor up to the
date on which he has given public notice
➢ This is provided in Section 30(4).
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that he does not want to become a partner; done after the date on which the order of
his share shall not be liable for any acts of adjudication is made. (Section 34)
the firm done after the date of the notice;
and he shall be entitled to sue the partners
for his share of the property and profits. Chapter 27F: EFFECT OF NON-
(Section 30(7)) REGISTRATION
➢ A partner may retire with the consent of all
other partners or where the partnership is
at will, by giving notice in writing to all the ➢ A company is compulsorily required to be
other partners of his intention to retire. incorporated and registered with the
Registrar of Companies under the
➢ The retiring partner and other partners shall
Companies Act, 1956 (now ICA 2013).
be liable as partners to third parties for any
act done by any of them which would have However, a partnership firm is not required
been an act of the firm if done before to be compulsorily registered with the
retirement until the public notice is given of Registrar of Partnership Firms.
the retirement.
➢ The provisions of Section 69 states No suit
➢ A partner can also be expelled from the firm to enforce a right arising from a contract
by any majority of the partners in exercise of shall be instituted in any Court by or on
good faith, of powers conferred by contract behalf of any person suing as a partner in a
between the parties. firm against the firm unless the firm is
registered and the person suing is or has
The expelled partner is in the same position
been shown in the Register of Firms as a
as that of the retiring partner. (Section 33)
partner in the firm.
➢ If partner of a firm is adjudicated as an
➢ No suit to enforce a right arising from a
insolvent, he ceases to be partner from the
contract shall be instituted in any Court by
date on which the order of adjudication is
or on behalf of a firm against any third party
made.
unless the firm is registered and the persons
➢ An order of adjudication of a partner may or suing are or have been shown in the
may not dissolve the firm. Register of Firms as partners in the firm.
➢ If the firm is not dissolved pursuant to a ➢ the enforcement of any right to sue for the
contract upon adjudication of a partner, the dissolution of a firm or for accounts of a
estate of a partner so adjudicated is not dissolved firm, or any right or power to
liable for any act of the firm and firm is not realize the property of a dissolved firm, or
liable for any act of the insolvent partner, the powers of an official assignee, receiver
or Court under the Presidency-towns
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Insolvency Act, 1909, or the Provincial Companies registered under Companies Act,
Insolvency Act, 1920, to realize the property 1956 need not re-register.
of an insolvent partner.
➢ A company is an artificial legal person which
is created by law and can be dissolved by
the law alone. It is invisible, intangible and
Chapter 28A: DEFINITION AND exists only in the eyes of the law.
FEATURES OF A COMPANY
It enjoys many rights of a natural person.

➢ Limitation of liability is an advantage of

➢ The Indian Companies Act 1956 was enacted incorporation of a company.
to "consolidate and amend the law relating ➢ An incorporated company never dies unless
to companies and certain other wound up as per the applicable law.
associations".
It is a legal entity with perpetual succession.
This law related to Companies in India was
amended and replaced by the Companies The insolvency or death of members does
Act 2013 which came into being on the 29th not affect the continued existence of the
August 2013. company.

➢ Section 3 of the Companies Act, 1956 ➢ On incorporation the company becomes the
defined a company as 'a company formed owner of its capital and assets.
and registered under this Act, or an existing The company is capable of holding property
company'. in its own name.
➢ Section 2(20) of the new Companies Act, ➢ The Companies Act, 1956 (now ICA 2013)
2013 similarly defines company as "a states that shares or other interest of any
company incorporated under the Companies member in a company shall be moveable
act, 2013 or under any previous company property, transferable in the manner
law" which also means that those provided by the articles of association.
companies that were incorporated under
Section 3 of the Companies Act, 1956 or any ➢ As a company is an artificial legal person, it
previous Companies Act shall remain within is not capable of signing documents for
the precincts of definition of company under itself.
the new act. It acts through natural persons who are the
➢ A company has to be compulsorily directors appointed by the shareholders of
registered under the Companies Act, 2013. the company.
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➢ Any document bearing the common seal of The maximum number shall not exceed 100.
the company is legally binding on the (ICT 2013)
company.
➢ A company has a legal existence separate
It has to be affixed in the manner stated in from its own members and is viewed as a
the articles of association, e.g., in the separate legal person from its members.
presence of two directors who shall sign on
A firm does not have a separate legal
the document where the common seal is
existence different from its own partners.
affixed in their presence.
➢ The property of the company is owned by
➢ The corporate veil is said to be lifted or
the company itself and not its members as
pierced when the Court ignores the separate
the company has a separate legal existence.
entity of the company and directly concerns
itself with the members or directors of the The property of the firm is owned by the
company. firm through its partners as a firm does not
have a separate legal existence different
There is no specific law as to when this
from its own partners.
should be done.
➢ The company is managed by a board of
➢ The Corporate veil is normally ignored and
directors elected by the shareholders. A
lifted by the Court when the persons
partnership is managed by the partners
managing the company have indulged in to
except the dormant and sleeping partners.
fraudulent, illegal acts or have siphoned off
the funds of the company for their own ➢ A company has a perpetual existence.
benefit.
A partnership does not have a perpetual
➢ Registration of a company is compulsory existence and may be dissolved on the
under the Companies Act, 2013. Registration happening of certain events or otherwise
of a partnership is not compulsory under the even with the consent of all partners.
Indian Partnership Act, 1932.
➢ A member/shareholder of the company can
➢ Minimum of 2 and maximum of 200 in case contract with the company.
of a private company.
A partner cannot contract with his/her own
In case of a One Person Company as defined partnership firm.
in Section 2(62) of the Companies Act 2013,
➢ Except in case of a company with unlimited
means a company which has only one as a
liability, the liability of the members of the
member.
company is limited to their shareholding.
Minimum number of 2 persons is required
The liability of partners in a partnership is
to form a partnership.
unlimited.
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➢ When shares of a company are transferred incorporated under the Reserve Bank of
to someone, he i.e., the transferee becomes India Act, 1934.
a member of the company and the consent
➢ Registered under the Companies Act, 1956
of all members is not required to become a
and also Companies Act, 2013: Such
member.
companies are incorporated and registered
A person can become a partner in a under the prevailing Companies Act
partnership firm with the consent of all the 1956/2013, e.g. Tata Iron Steel Company
partners. Limited.

➢ The death of any or all members of the ➢ Where Companies are classified on the basis
company does not determine (end) the of liability, they could be Company limited
existence of the company. by shares, Company limited by guarantee
and Company with unlimited liability.
Death of a partner dissolves the partnership
unless the partnership deed provides ➢ Company Limited by Shares: In such
otherwise. companies there is a provision for 'share
capital' divided into a certain number of
➢ The members of a company are not the
shares, which the source of funds to the
agents of each other or of the company.
Company, and each share has a fixed
Every partner of a firm is an agent of the
nominal value also known as the face value
firm as well as other partners.
which the shareholder is bound to pay
either at a the time of allotment or
sometimes in instalments.
Chapter 28B: TYPES OF COMPANIES
It may be a private company or a public
company.

➢ When classifying on the basis of ➢ Where the liability of the members of the
incorporation, companies could be of two company is limited by the memorandum of
types namely Statutory Corporation and association (MOA) to such an amount as the
Companies registered under the Companies members undertake to contribute to the
Act, 1956 / 2013 assets of the company in the event of the
liquidation of the company, the company is
➢ A statutory company is created or
known as a company limited by guarantee.
incorporated by a special Act passed by
either the Central or the State Legislature. ➢ Where the liability of the members of a
company is unlimited it is known as an
Examples of statutory corporations (body
unlimited company.
corporates) - Reserve Bank of India
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➢ On the basis of public interest, companies ➢ A private company can have minimum two
can be classified as Private Company, members and two directors.
Government Company, Public Company,
A public company has to have a minimum of
Foreign Company, One Person Company and
seven members and three directors.
Small Company.
➢ A private company need not obtain a
➢ A private company is defined under the
certificate of commencement of business
Section 3 of the Companies Act, 1956 as a
from the Registrar of Companies which a
company which under its articles of
public company has to obtain.
association contains the following
restrictions:(a) Transfer of Shares: If a A Private Company has to only get the
private company has a share capital it certificate of incorporation.
imposes restriction on the right to transfer
➢ A private company need not hold a
shares. (b) Restricts the number of members
statutory meeting and submit a statutory
to 200 (As per ICA 2013).
report to the Registrar of Companies while a
Minimum Directors: 2 public company has to do so.

➢ A private company cannot issue a ➢ The Companies Act, 2013 Sec. 2(45) defines
prospectus and cannot invite the public to a government company as any company in
subscribe for any shares or debentures of which not less than 51% of the paid-up
the company. share capital is held by:

➢ A private company cannot acceptance of ➢ The Central Government or

deposits from persons other than its
➢ By any State Government or Governments
member, directors or their relatives.
or
➢ No minimum paid up capital is prescribed
➢ Partly by the Central Government and partly
for a private company as per the Companies
by one or more of State Governments and
Act, 2013.
includes a company which is a subsidiary of
➢ A public company is one which is not a such a government company.
private company. In a public company the
In India there are a large number of such
number of its members is unlimited.
companies, two examples being Bharat
Minimum members: 7 Maximum Members: Heavy Electricals Limited and Hindustan
Unlimited Minimum Directors: 3 Aeronautics Ltd.

➢ No minimum paid up capital is prescribed ➢ Foreign Company as per Sec. 2(42) of Indian
for a public company as per Companies Act, Companies Act, 2013, means any company
2013. or body corporate incorporated outside
India which Has a place of business in India
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whether by itself or through an agent, Chapter 28C: MEMORANDUM OF
physically or through electronic mode; and ASSOCIATION AND ARTICLES OF
conducts any business activity in India in any
ASSOCIATION
other manner.

➢ As per provision of section 2(62) of the

Companies Act, 2013, "one person ➢ The first step in the formation of a company
company" (OPC) means a company which is the preparation of the memorandum of
has only one person as member. association, which is described in detail in
➢ Small Company: It means a company, other Section 4 of the Companies Act 2013.
than a public company, Paid-up share capital ➢ Various clauses of the memorandum of
of which does not exceed 50 lakh ₹ or such association (MOA):
higher amount as may be prescribed which
shall not be more than five crore rupees; or Name clause: A company is a legal person and
Turnover of which as per its last profit and hence it must have a name to be identified.
loss account does not exceed 2 crore ₹ or If the company is with limited liability the last
such higher amount as may be prescribed word of the name should be "limited" and in
which shall not be more than 20 crore case of a private company the last words
rupees. should be "private limited".
➢ A company is deemed to be a subsidiary of B. Registered office clause: This clause must
another if that other company controls the mention the name of the State in which the
majority composition of its board of registered office of the company is situated.
directors with the sole objective of
controlling its management and that other ➢ A company shall from the date on which it
company holds the majority of its shares. commences business or within 30 days after
the date of incorporation, whichever is
➢ If the holding company's subsidiary has its
earlier, have a registered office to which all
own subsidiary; it becomes the subsidiary of
the communications and notices may be
the first mentioned company (i.e. the first
addressed.
holding company).
Notice of every change in registered address is
Thus, for example, company B is a subsidiary of
to be given within 30 days after the date of the
company A and company C is a subsidiary of
change to the registrar of companies who shall
company B then company C is a subsidiary of
record the same.
company A also.
C. Object’s Clause: This is a very important
clause and must be drafted very carefully and it
should clearly state the objectives for which
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the company is established (incorporated) and In terms of Section 5: the articles of a company
the nature of business it can undertake/carry shall contain the regulations for management
on. of the company.

The Main Objectives clause must contain the ➢ The memorandum of association contains
main objectives which are to be pursued by the the fundamental activities (objects) for
company immediately on incorporation. which the company is incorporated.

The Other Objectives clause must contain other The articles of association are the internal
objectives which are not included in the above regulations of the company and they
clause. provide the manner in which the company
will be managed.
➢ D. Liability clause: If the company is to be
incorporated with limited liability the ➢ The memorandum of association is a
liability clause must state that the liability of dominant instrument as it states the
the members shall be limited by the unpaid purposes of the company and the reasons
amount on shares. for which it has come into existence.

➢ E. Capital clause: In case of companies The articles of association are always held to
having a share capital this clause must state be subordinate to the memorandum of
that the amount of share capital which the association because the articles of association
company will be authorized to raise and the are merely the internal regulations of the
number and the value of shares into which it company while the memorandum of
is divided. association states the objects of the company
beyond which the company cannot go.
➢ F. Association or subscription clause: The
MOA concludes with a declaration of the ➢ Clauses in the memorandum of association
subscription that the persons who have (e.g. change of registered office in another
subscribed their signatures intend to form State or the objects clause) can be altered
themselves into an association. only by a special resolution passed by the
company and with the approval of the
➢ The Articles of Association, usually called as
Central Government.
‘Articles' is the second important document
of a company and is described in Section 5 Any terms of the articles of association can be
of the Companies Act 2013. altered by a special resolution and no
approvals are required from the Central
It consists of a set of rules/regulations and bye
Government or any other authority.
laws made by the company for internal
management of the company and for carrying ➢ If a company commits an act in
out the object or objective of the company contravention of the memorandum of
embodied in its Memorandum of Association. association (e.g. a company having objects
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only to manufacture biscuits starts activities ➢ An ultra vires transaction is void ab initio
of bottling of milk without proper and therefore cannot become intra vires by
amendments in the objects clause) then the reason of ratification.
acts done and liabilities arising there from
No company can be held liable for
are not binding on the company and the
obligations arising out of such a contract.
same cannot be ratified by the company.
➢ If the rendering of a particular service by the
If a company does something in contravention
company is ultra vires the company is
of the provisions of its articles of association, it
entitled to recover the charges for such
is only a procedural irregularity and the same
services.
can be ratified by the shareholders at a general
meeting and thus rectified. If the property of the company is delivered
to an outsider through an ultra vires act, the
company can get back the property if such
Chapter 28D: DOCTRINES OF ULTRA property can be traced.
VIRES/CONSTRUCTIVE NOTICE/INDOOR ➢ If the company borrows money from a
MANAGEMENT lender beyond the limits which it is
permitted to borrow, say for the purpose of
an objective which is not covered by the
memorandum of Association or Articles of
➢ These three doctrines deal with the rights
Association, such borrowing would be ultra
and duties of the company with respect to
vires and the company may not be held to
the members, amongst the members, and of
be liable for the same unless the money has
the company with the outsiders.
been used for the purposes of the company.
➢ DOCTRINE OF ULTRA VIRES: The Doctrine of
➢ However, the lender can trace the assets
Ultra Vires is a fundamental rule of
created out of such borrowing and can
Company Law. It states that the objects of a
proceed against those assets for recovery of
company, as specified in its Memorandum of
the money due to him.
Association, can be departed from only to
the extent permitted by the Act. This is popularly known as 'Doctrine of
Tracing' which is well recognized by Foreign
➢ When a company exercises its powers to
Courts as well as Indian Courts.
promote or realize any of its objectives
stated in the memorandum of association, it ➢ If a company's money has been spent ultra
is intra vires (i.e. within the powers of) the vires in purchasing any property the
company. The company cannot sue on an company is entitled to the ownership of
ultra vires transaction. such a property because that asset though
Further, it cannot be sued too.
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wrongly acquired represents the capital of whereas the doctrine of indoor
the company. management seeks to protect outsiders
against the company.
➢ If a director of a company makes an ultra
vires payment, he is personally liable to the ➢ The doctrine of indoor management has the
company and he can be compelled to refund following exception:
the money.
➢ Knowledge of internal irregularity: Where a
➢ Directors are the agents of the company. person dealing with the company has actual
Hence, they must act within the limits of the knowledge of the internal irregularity of the
powers of the company. company, he is not entitled to claim
protection of this doctrine because he could
➢ The memorandum of association and
have taken measures for self-protection.
articles of association of a company are
registered with the Registrar of Companies ➢ Acts outside apparent authority of an officer
at the time of incorporation. of company: Finally, if an officer of the
company makes a contract with an outsider
As the office of the registrar of companies is
and if the act of the officer falls outside the
a public office, the memorandum of
apparent authority of an officer, then the
association and articles of association
company is not bound by such a contract.
become public documents.

➢ Hence, the act expressly guarantees the

right of inspection of these documents to Chapter 28E: MEMBERSHIP OF
all. It is therefore the duty of every person COMPANY
who deals with a company to inspect its
public documents, i.e. its memorandum of
association and articles of association and ➢ According to Section 2 (55) of the
make sure that his contract is in accordance Companies Act, 2013, the term member of a
with their provisions. However, whether a company means: The subscriber to the
person has actually read them or not he memorandum of the company who shall be
shall be in the same position as if he had deemed to have agreed to become member
read them. of the company and on its registration shall
be entered as member in its register of
This kind of presumed notice is known as
members;
constructive notice. This is known as the
doctrine of constructive notice. ➢ Every other person who agrees in writing to
become a member of a company and whose
➢ DOCTRINE OF INDOOR MANAGEMENT: The
name is entered in its register of members;
principle of constructive notice seeks to
protect the company against the outsiders
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➢ Every person holding shares of the company such a case, he is estopped from denying his
and whose name is entered as beneficial membership.
owner in the records of the depository.
➢ When two or more persons hold shares in a
➢ VARIOUS MODES OF BECOMING A MEMBER company in their joint names, it is called a
OF ACOMPANY: joint membership. In such a case the name
of the member appearing first is considered
➢ The Companies Act, 1956 and The
to be the main member for the purpose of
Companies Act, 2013 provides that a
sending notices, dividend, etc. However,
subscriber of the memorandum of
they all shall be treated as a single member.
association shall be deemed to have agreed
to become a member of the company. ➢ Every person holding shares of the company
Hence on registration of the company he and whose name is entered as a beneficial
shall be entered as member of the company owner in the records of the depository shall
in its register of members. be deemed to be a member of the
concerned company.
➢ A person may become a shareholder if he
agrees to take shares in the company by ➢ Every person who is competent to contract
allotment. (sui juris) can become a member of a
company. It, therefore, follows that a person
➢ Allotment means an appropriation by
who is incapable of entering into a contract
directors of shares to a particular person.
cannot be a member.
➢ If a person buys shares of a company in the
➢ Under the Indian Contract Act, 1872 minors
open market and then applies to the
and persons of unsound mind are
company to register him as a member, he
incompetent at law to contract.
becomes a member on registration of his
name. ➢ As a company is a legal person it can
become a member of another company
➢ On a death of a member, if the member has
provided it is so authorized by its
not made a nomination for the shares then
memorandum of association. A company
the surviving joint holder (if any) or his legal
cannot buy its own shares and become a
representatives have the right to register
member of it.
themselves as members.
➢ Since a partnership firm is not a legal person
➢ A person is deemed to become a member of
it cannot buy any shares in its own name
a company if he allows his name to be put
and thus can’t become a member of a
on the register of the members or otherwise
company.
holds himself out as a member even if there
is no agreement to become a member. In
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➢ A society registered under the Societies memorandum of association and the articles
Registration Act, 1860 can hold shares in a of association of the company.
company.
➢ Proprietary Rights includes: To be registered
➢ A non-resident cannot become a member of as a member in the company's register of
a company without complying with the members.
requirements of the Foreign Exchange
(Subject to a valid membership obtained by
Management Act, 1999 and the regulations
transfer, allotment, etc.), No personal
made there under that inter-alia may
liability of a company's debts, to receive
stipulate the permission of the Reserve Bank
dividends (if declared by the board of
of India.
directors and approved by the members at
➢ A LLP, being an incorporated body under the AGM) and to participate in the distribution
statute, can become a member of a of assets in case of liquidation of the
company. company.

➢ An insolvent person may remain a member

of a company as long as he is on the register
of members.
Chapter 28F: PROSPECTUS

➢ The membership in a company ceases in

case if a member transfers his shares to ➢ The Companies Act, 2013 Sec. 2(70) defines
another person, if a member's shares are a prospectus as any document described or
forfeited, if the shares are sold pursuant to a issued as a prospectus and includes a red
decree of a Court and If the member herring prospectus (Sec. 32) or shelf
surrenders his shares to the company where prospectus (Sec. 31) or any notice, circular,
such surrender is permitted. advertisement or other document inviting
offers from the public for subscription or
➢ The liability of a member of a company
purchase of any securities of a body
depends upon the nature of the company.
corporate.
➢ Statutory Rights: These are the rights
➢ A red herring is a preliminary prospectus
conferred by the Companies Act.
filed with the SEBI, usually in connection
These rights cannot be taken away or with an IPO and it excludes key details of the
modified by the memorandum of issue, such as price and number of shares
association or the articles of association. offered.

➢ Documentary Rights: These rights are ➢ As per Section 32: A company proposing to
conferred upon the members by the make an offer of securities may issue a red
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herring prospectus prior to the issue of a ➢ It is stated that a prospectus must be dated
prospectus. and this ensures prima facie evidence of the
date of its publication.
➢ Red herring prospectus means a prospectus
which does not include complete particulars ➢ A prospectus must be signed by every
of the quantum or price of the securities person mentioned therein as a director or
included therein". proposed to be a director.

➢ A shelf prospectus is a document filed by a ➢ Every application form for shares must be
company with regulatory authorities, accompanied by a copy of the prospectus
allowing them to offer securities to the except for the application forms issued to
public over a certain period without filing a underwriters and existing shareholders and
new prospectus each time, providing debenture holders.
flexibility in subsequent offerings.
➢ Before the issue of a prospectus the same
➢ Private companies cannot issue a prospectus must be delivered to the Registrar of
to raise funds from the public. It is Companies for registration with the
prohibited under the articles of association documents which are stipulated under the
of the company. Companies Act, e.g. the consent of the
expert, copy of contracts relating to
➢ It is necessarily the public companies who
appointment and remuneration of the
issue the prospectus. However, a private
managerial personnel, etc.
company can issue shares without a
prospectus through a private placement. ➢ No prospectus shall be valid if it is issued
more than 90 days after the date on which a
➢ However, in the following cases, even
copy thereof is delivered to the Registrar.
though shares are offered to the public,
issue of prospectus is not required: When a ➢ Civil Liability: If there are untrue statements
person is invited to enter into an or misstatements or omissions in a
underwriting agreement/arrangement to prospectus which have induced any
purchase/subscribe the shares or when the shareholder or debenture holder to buy
shares are offered only to the existing shares or debentures respectively, the
shareholders or debenture holders of the person has twofold remedies:
company.
1. Rescind the contract.
➢ A prospectus can be issued only after the
2. He can claim the damage from the company
incorporation of the company.
whether the statement is a fraudulent one
➢ Section 26 of the Companies Act, 2013 or innocent one.
stipulates the mandatory provisions that are
to be stated in the prospectus.
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➢ A suit for damages can be filed for minimum number of three directors in the
misstatements in the prospectus against the case of a public company, two directors in
promoters and experts who were the case of a private company, and one
responsible for or associated with the issue director in the case of a One Person
of the prospectus. Company; and (b) A maximum of 15
directors:
➢ Criminal Liability: It is required that certain
matters and reports must be stated in the ➢ Every company shall have at least one
prospectus. director who has stayed in India for a total
period of not less than one hundred and
➢ Section 34 provides that if prospectus
eighty-two days (182) in the previous
contains an untrue statement, every person
calendar year.
who is responsible for the untrue statement
in the prospectus shall be punishable with a ➢ Independent director: Every listed public
fine or imprisonment or with both. company shall have at least one-third of the
total number of directors as independent
directors and the Central Government may
Chapter 28G: DIRECTORS prescribe the minimum number of
independent directors in case of any class or
classes of public companies.
➢ The ownership of a company is with the ➢ The term 'independent director' has been
shareholders who are scattered all over and elaborately defined in Section 149 (6) as: An
due to free transferability of shares; the independent director in relation to a
shareholders keep on changing quite company, means a director other than
frequently. In such a scenario, the managing director or a whole-time director
management of the company needs to be or a nominee director, Who, in the opinion
entrusted with a professional body, i.e., the of the Board, is a person of integrity and
board of directors. possesses relevant expertise and experience
➢ The board of directors control the day-to- or who is or was not a promoter of the
day working and management of the company or its holding, subsidiary or
company as well as the long-term strategic associate company.
planning of the company. No, body ➢ The provisions for appointment of Directors
corporate, association or firm can be is found in Section 152 of the Companies Act
appointed as director of a company, and 2013.
only an individual can be appointed.
➢ Section 152 states: Where no provision is
➢ As per Sec. 149 of Indian Companies Act, made in the articles (Article of Association,
2013 every company must have:(a) A AOA) of a company for the appointment of
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the first director, the subscribers to the ➢ The retiring director can also be
memorandum who are individuals shall be reappointed. This does not include
deemed to be the first directors of the independent directors.
company until the directors are duly
➢ Every individual intending to be appointed
appointed and
as director of a company shall make an
➢ In case of a One Person Company an application for allotment of Director
individual being member shall be deemed to Identification Number (DIN) to the Central
be its first director until the director or Government in such form and manner and
directors are duly appointed by the member along with such fees.
in accordance with the provisions of this
➢ The Central Government shall, within one
section 152.
month from the receipt of the application,
➢ No person shall be appointed as a director allot a Director Identification Number to an
of a company unless he has been allotted applicant.
the Director Identification Number (DIN)
➢ Any person is eligible for appointment to the
under section 154 or any other number as
office of director at any general meeting, if
may be prescribed under section 153.
not less than 14 days before the meeting, he
➢ A person appointed as a director shall not himself or some other member intends to
act as a director unless he gives his consent propose that person be appointed as a
to hold the office as director and such director, gives a signed notice in writing to
consent has been filed with the Registrar the company signifying that person's
within thirty days of his appointment in such candidature for the office of director along
manner as may be prescribed. with a deposit of one lakh rupees or such
higher amount as may be prescribed which
➢ Section 152(6) is applicable on public
shall be refunded to such person or, as the
companies which means private companies
case may be, to the member, if the person
are out of the ambit of retirement by
proposed gets elected as a director or gets
rotation. Applicable on Public company +
more than 25% of total valid votes cast
Private Company which is subsidiary of
either on show of hands or on poll on such
public company.
resolution.
➢ It states that unless it is provided by the
➢ In the case of a public company or a private
articles of the company, 2/3rd directors are
company (which is a subsidiary of a public
liable to retire by rotation and 1/3rd are
company) if there arises any vacancy in
liable to retire at every general meeting.
office of any director (other than by expiry
Independent directors and Nominee
of term of office) then subject to the
directors are excluded from the calculation
articles, the board of directors can fill the
of 2/3rd.
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vacancy at a meeting of the board. Such a Provided that the maximum number of
director can hold office only up to the date public companies in which a person can be
up to which the director in whose place he is appointed as a director shall not exceed ten.
appointed would have held office if he had
➢ In terms of Sec. 167 of Indian Companies
continued as a director.
Act, 2013, the office of a director shall
➢ As per Indian Companies Act, 2013 Sec. 152 become vacant in case: He incurs any of the
(5), in case of every public company and disqualifications as specified in Sec. 164 or
every private company (which is subsidiary He absents himself from all the meetings of
company of a public company), every person the Board of Directors held during a period
proposed as a candidate for the office of a of 12 months with or without seeking leave
director must sign, and furnish to the of absence of the Board.
company, his consent in writing to act as a
➢ A company can remove a director even
director.
before the expiry of his period of office (not
➢ A person cannot act as a director unless he, being a director appointed by the Central
within thirty days of his appointment, signs Government) by passing ordinary
and files with the Registrar of company his resolution.
consent to act as a director.
➢ The board of directors has the general
➢ A "whole-time director" includes a director powers to do all the acts on behalf of the
who has whole-time employment of the company but certain powers can be
company. exercised only at meetings of the board and
not by circulating papers amongst the
➢ No company can appoint or re-appoint any
directors and passing the resolution by such
person as its managing director, whole-time
circulation.
director for a term exceeding five years at a
time: Provided that no re-appointment shall ➢ No company shall, directly or indirectly,
be made earlier than one year before the advance any loan to its Directors or any
expiry of his term. other person in whom the Director is
interested, or give any guarantee or provide
➢ A director is required to hold certain shares
any security in connection with a loan taken
as qualification shares if such requirement is
by the Director or any other person in whom
there in the articles of association of the
the director is interested.
company (public).
➢ The Board of Directors, can appoint an
➢ No person, after the commencement of this
alternate director to act for a director ('the
Act, shall hold office as a director, including
original director') during the original
any alternate directorship, in more than
director's absence for a period of not less
twenty companies at the same time.
than three months from India in which
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meetings of the board are ordinarily held if found to be of unsound mind by a Court of
the articles or a shareholder's resolution competent jurisdiction and the finding is in
have authorized the directors to make such force, He is an undischarged insolvent or He
appointments. The alternate director has applied to be adjudicated as an
vacates the office when the original director insolvent and his application is pending.
returns or when the term of office of the
➢ According to Section 6: Every limited liability
original director expires (whichever is
partnership shall have at least two partners.
earlier).
There will not be any limit to the maximum
number of partners.

Chapter 29: LIMITED LIABILITY ➢ 'Designated partners' required to be

PARTNERSHIP ACT, 2008 identified in each Limited Liability
Partnership Firm as per Section 7.

➢ Resident in India means a person who has

➢ Foreign limited liability partnership means a
stayed in India for a period of not less than
limited liability partnership formed,
one hundred and eighty-two days during the
incorporated or registered outside India
immediately preceding one year.
which establishes a place of business within
India. ➢ Any partner may become a designated
partner by and in accordance with the
➢ Limited liability partnership agreement
limited liability partnership agreement and a
means any written agreement between the
partner may cease to be a designated
partners of the limited liability partnership
partner in accordance with limited liability
or between the limited liability partnership
partnership agreement.
and its partners which determines the
mutual rights and duties of the partners and ➢ Every limited liability partnership shall file
their rights and duties in relation to that with the registrar the particulars of every
limited liability partnership. individual who has given his consent to act
as designated partner in such form and
➢ A limited liability partnership firm is a body
manner as may be prescribed within thirty
corporate which has its separate existence
days of his appointment.
from the partners of the firm and has
certain characteristics which are similar to ➢ Every designated partner of a limited
that which a company constituted under the liability partnership shall obtain a
Companies Act 2013 has. Designated Partner Identification Number
(DPIN) from the Central Government and
➢ As per Section 5: Any individual or body
the provisions of sections 153 to 159 of the
corporate may be a partner in a limited
liability partnership except He has been
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Companies Act, 2013 shall apply mutatis the limited liability partnership is to be
mutandis for the said purpose. situated

➢ The responsibilities/liabilities of the ➢ The incorporation document shall State the

designated Partner have been detailed in name of the limited liability partnership,
Section 8 of the Act in terms of which a State the proposed business of the limited
designated partner shall be Responsible for liability partnership and State the address of
the doing of all acts, matters and things as the registered office of the limited liability
are required to be done by the limited partnership.
liability partnership in respect of compliance
➢ If a person makes a statement under clause
of the provisions of this Act including filing
(c) of sub-section (1) which he knows to be
of any document, return, statement and the
false or does not believe to be true shall be
like report pursuant to the provisions of this
punishable with imprisonment for a term
Act and as may be specified in the limited
which may extend to two years and with
liability partnership agreement; and Liable
fine which shall not be less than ten
to all penalties imposed on the limited
thousand rupees but which may extend to
liability partnership for any contravention of
five lakh rupees.
those provisions.
➢ As per Section 12 Registrar shall retain the
➢ As per Section 9 a limited liability
incorporation document and, within a
partnership may appoint a designated
period of fourteen day register the
partner within thirty days of a vacancy
incorporation document and Give a
arising for any reason and provisions of
certificate that the limited liability
section 7 shall apply in respect of such new
partnership is incorporated by the name
designated partner.
specified therein.
➢ Section 11 states: For a limited liability
➢ As soon as a limited liability partnership is
partnership to be incorporated: Two or
incorporated all the persons who subscribed
more persons associated for carrying on a
their names to the incorporation document
lawful business with a view to profit shall
shall be its partners and any other person
subscribe their names to an incorporation
may become a partner of the limited liability
document.
partnership. (Section 22)
➢ The incorporation document shall be filed in
➢ Section 23 of the Act deals with the matter
such manner and with such fees, as may be
of relationship of partners just as prevalent
prescribed with the Registrar (Registrar,
in the Partnership Act.
Additional Registrar, Deputy or Assistant
Registrar having duty to register companies) ➢ As per Section 24 A person may cease to be
of the State in which the registered office of a partner of a limited liability partnership in
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accordance with an agreement with the with the provisions of the Second Schedule,
other partners or, in the absence of the Third Schedule or the Fourth Schedule,
agreement with the other partners as to as the case may be, shall, register the
cessation of being a partner, by giving a documents submitted under such Schedule
notice in writing of not less than thirty days and issue a certificate of registration in such
to the other partners of his intention to form as the Registrar may determine stating
resign as partner. that the limited liability partnership is, on
and from the date specified in the
➢ A person shall cease to be a partner of a
certificate, registered under this Act:
limited liability partnership on his death or
dissolution of the limited liability ➢ All tangible (movable or immovable) and
partnership or If he is declared to be of intangible property vested in the firm or the
unsound mind by a competent court or If he company, as the case may be, all assets,
has applied to be adjudged as an insolvent interests, rights, privileges, liabilities,
or declared as an insolvent. obligations relating to the firm or the
company, as the case may be, and the whole
➢ The cessation of a partner from the limited
of the undertaking of the firm or the
liability partnership does not by itself
company, as the case may be, shall be
discharge the partner from any obligation to
transferred to and shall vest in the limited
the limited liability partnership which he
liability partnership without further
incurred while being a partner.
assurance, act or deed.
➢ A firm may convert into a LLP in accordance
➢ As per Section 35 amended w.e.f. 01-04-
with the provisions of this Chapter (X) and
2022 every limited liability partnership shall
the Second Schedule (Section 55).
file an annual return duly authenticated
➢ As per Section 56 "A private company may with the Registrar within sixty days of
convert into a LLP in accordance with the closure of its financial year in such form and
provisions of this Chapter (X) and the Third manner and accompanied by such fee as
Schedule". may be prescribed.

➢ As per Section 57 "An unlisted public ➢ If any limited liability partnership fails to file
company may convert into a limited liability its annual return under sub-section (1)
partnership in accordance with the before the expiry of the period specified
provisions of this Chapter (X) and the Fourth therein, such limited liability partnership
Schedule". and its designated partners shall be liable to
a penalty of one hundred rupees for each
➢ Section 58 The Registrar, on satisfying that a
day during which such failure continues,
firm, private company or an unlisted public
subject to a maximum of one lakh rupees
company, as the case may be, has complied
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for the limited liability partnership and fifty ➢ 'Right to inspection of work, documents,
thousand rupees for designated partners. records.

➢ Right to taking notes, extracts or certified

copies.
Chapter 31: THE RIGHT TO
INFORMATION ACT, 2005 ➢ Right to taking certified samples of material
of documents or records.

➢ Right to Obtaining information in the form

➢ The Right to Information Act, 2005 was of diskettes, floppies, tapes, video cassettes
enacted for citizens to secure access to or in any other electronic mode or through
information under the control of public printouts where such information is stored
authorities, in order to promote in computers or in other device.
transparency and accountability in the
working of every public authority.

➢ It extends to the whole of India. Chapter 32: RTI AND OBLIGATIONS OF

PUBLICAUTHORTIES
➢ On 12.10.2005 the Freedom of Information
Act, 2002 was repealed.

➢ The Act exempts disclosure of personal As per Section 4 of The Right to Information
information which has no relation to any Act 2005,
public activity or interest or which would
➢ Every public authority shall maintain all its
cause unwarranted invasion of the privacy
records duly catalogued and indexed in a
of the individual.
manner and the form which facilitates the
➢ 'Information' (Section 2f) means any right to information under this Act
material in any form, including records,
➢ The information should be Published within
documents, memos, e-mails, opinions,
one hundred and twenty (120) days from
advices, press releases, circulars, orders,
the enactment of this Act.
logbooks, contracts, reports, papers,
samples, models, data material held in any ➢ It shall be a constant endeavor of every
electronic form. public authority to take steps in accordance
with the requirements of Act to provide as
➢ ‘Public authority' (Section 2h) means any
much information Suo-motu to the public at
authority or body or institution of self-
regular intervals through various means of
Government established by or under the
communications, including internet, so that
Constitution, by any other law made by
the public have minimum resort to the use
Parliament and by any other law made by
of this Act to obtain information.
the State Legislature.
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➢ PIOs (Public Information Officers) shall deal from the receipt of the request and take its
with requests from persons seeking representation into consideration.
information and where the request cannot
➢ Third party must be given a chance to make
be made in writing, to render reasonable
a representation before the PIO within ten
assistance to the person to reduce the same
days from the date of receipt of such notice.
in writing.
➢ As per the Right to Information Rules, 2005,
➢ PIO, on receipt of a request, shall as
the application shall be accompanied by a
expeditiously as possible, and in any case
fee of rupees ten which may be paid in cash
within 30 days of the receipt of the request,
against proper receipt or by demand draft or
either provide the information on payment
a banker's cheque or by Indian Postal Order
of such fee as may be prescribed or reject
to the accounts officer of the public
the request for any of the reasons specified
authority.
in Act.
➢ If the application relates to the public
➢ Fee for RTI:
authority receiving it, the information shall
➢ Application fee: ₹10/-. be provided as expeditiously as possible but
within thirty days.
➢ Fee for access: ₹2/- per page.
➢ If the information sought, concerns the life
➢ Fee for inspection of records: No fee for the
or liberty of a person, the same shall be
first hour and₹5/-foreach fifteen minutes or
provided within forty-eight hours of the
fraction thereof.
receipt of the request.
➢ Fee for computer printout: ₹5/- per page.
➢ If the Central Public Information officer fails
➢ Fee for floppy: ₹50/- per floppy. to give decision on the request for
information within the period of thirty or
➢ Fee for CD: ₹100/-
thirty-five days, the request shall be deemed
➢ Where a request has been rejected, the PIO to have been refused.
shall communicate to the requester reasons
➢ Third party means a person other than the
for such rejection, the period within which
citizen making a request for information and
an appeal against such rejection may be
public authority.
preferred and particulars of the appellate
authority. ➢ Where a request has been rejected, the
Central Public Information Officer shall
➢ If information sought has been supplied by a
communicate to the person making the
third party or is treated as confidential by
request the reasons for such rejection, the
that third party, the PIO shall give a written
particulars of the appellate authority and
notice to the third party within five days
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the period within which an appeal against Information Commission) and the same shall
such rejection may be preferred. have to be preferred within 90 days from
the date on which the decision should have
➢ The Act lists certain categories of
been made or was actually received.
information that is exempt from disclosure
and is provided in Section 8 of the statute. ➢ The Central Information Commission has the
power to impose a penalty of 250Rupees for
(a) Information, disclosure of which would
each day till the information is furnished
prejudicially affect the sovereignty and
subject to a maximum of 25000Rupees.
integrity of India, the security, strategic,
scientific or economic interests of the State, ➢ The Commission has the power to
relation with foreign State or lead to recommend taking disciplinary action
incitement of an offence. against the Central Public Information
Officer (CPIO) under the service rules
(b) Information which has been expressly
applicable to him when he is satisfied that
forbidden to be published by any court of
the Central Public Information Officer
law or tribunal or the disclosure of which
without reasonable cause persistently failed
may constitute contempt of court.
to receive an application for information.
(c) Information, the disclosure of which would
cause a breach of privilege of Parliament or
the State Legislature.
Chapter 33: INFORMATION
(d) Information received in confidence from TECHNOLOGY ACT, 2000
foreign Government.

➢ The Central Information Commission (also

the State Information Commission wherever ➢ In May 2000, both the houses of the Indian
it has the jurisdiction) has been empowered Parliament passed the Information
to receive and inquire into a complaint from Technology Bill. The Bill received the assent
any person. of the President in August 2000 and came to
be known as the Information Technology
➢ The appellate authority has the power to Act, 2000.
condone the delay in filing the appeal if he is
satisfied that the appellant was prevented ➢ Cyber laws are contained in the IT Act,
by sufficient reasons from filing the appeal 2000.This Act aims to provide the legal
in time. infrastructure for e-commerce in India which
involves the use of alternatives to paper
➢ A second appeal will lie against the decision based methods of communication and
of the appellate authority before the Central storage of information and also to facilitate
Information Commission (or the State
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electronic filing of documents of the public key can verify a digital signature
Government agencies. created by the private key.

➢ Digital signature means authentication of ➢ Originator means a person who sends,

any electronic record by a subscriber by generates, stores or transmits any electronic
means of an electronic method. message or causes any electronic message
to be sent, generated, stored or transmitted
➢ Affixing digital signature means adoption of
to any other person.
any methodology or procedure by a person
for the purpose of authenticating an ➢ Chapter III of the Act deals with electronic
electronic record by means of digital governance and gives legal recognition to
signature. electronic records (section 4) and electronic
signatures (Section 5).
➢ The Telecom Disputes Settlement and
Appellate Tribunal of the Telecom ➢ CA means a person who has been granted a
Regulatory Authority shall be the Appellate license to issue a Digital Signature Certificate
Tribunal for the purposes of this IT Act and under Section 24.The Act envisages a
the said Appellate Tribunal shall exercise the Controller of Certifying Authorities who
jurisdiction, powers and authority conferred shall perform the function of exercising
on it by this Act. supervision over the activities of certifying
authorities as also laying down standards
➢ Asymmetric crypto system means a system
and conditions governing the certifying
of a secure key pair consisting of a private
authorities as also specifying the various
key for creating a digital signature and a
forms and content of Digital Signature
public key to verify the digital signature.
Certificates.
➢ Certifying Authority means a person who
➢ PENALTIES: If any person without the
has been granted a license to issue a Digital
permission of the owner or any other
Signature Certificate under Section 24.
person who is in charge of a computer,
➢ Indian Computer Emergency Response Team computer system or computer network
means an agency established under accesses or secures access to such computer,
subsection (1) of Section 70B. computer system or computer network or
computer resource.
➢ Information includes data, text, images,
sound, voice, codes, computer programs, ➢ The Act provides for appointment of any
software and databases or micro film. officers not below the rank of a director to
the Government of India or an equivalent
➢ Key pair, in an asymmetric crypto system,
officer who shall adjudicate whether any
means a private key and its mathematically
person has made a contravention of any of
related public key, which are so related that
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the provisions of the Act or rules framed information, which is obscene in electronic
there under. form and hacking.

➢ The Telecom Disputes Settlement and ➢ Critical Information Infrastructure means

Appellate Tribunal established under section the computer resource, the incapacitation or
14 of the Telecom Regulatory Authority of destruction of which, shall have debilitating
India Act, 1997, shall be the Appellate impact on national security, economy, public
Tribunal for the purposes of this Act and the health or safety.
said Appellate Tribunal shall exercise the
➢ Any person who secures access or attempts
jurisdiction, powers and authority conferred
to secure access to a protected system in
on it by or under this Act.
contravention of the provisions of this
➢ Every appeal under sub-section (1) shall be section shall be punished with
filed within a period of forty-five days from imprisonment for a term which may extend
the date on which a copy of the order made up to 10 years and shall also be liable to
by the Controller or the adjudicating officer fine.
is received by the person aggrieved and it
➢ The national nodal agency designated under
shall be in such form and be accompanied
sub-section (1) shall be responsible for all
by such fee as may be prescribed
measures including Research and
➢ On receipt of an appeal under sub-section Development relating to protection of
(1), the Appellate Tribunal may, after giving Critical Information Infrastructure.
the parties to the appeal, an opportunity of
➢ In cheque truncation the physical movement
being heard, pass such orders thereon as it
of a paper cheque issued stops and
thinks fit, confirming, modifying or setting
electronic flow begins while the electronic
aside the order appealed against.
cheque is issued electronically and no paper
➢ The appeal filed before the Appellate is involved
Tribunal under sub-section (1) shall be dealt
➢ Further the Act (Section 88) also provides
with by it as expeditiously as possible and
for the constitution of the Cyber Regulation
endeavour shall be made by it to dispose of
Advisory Committee which shall advise the
the appeal finally within 6 months from the
Government as regards any rules or for any
date of receipt of the appeal.
other purpose connected with the said Act.
➢ Chapter XI of the IT Act 2000 lists various
➢ The First Schedule to the statute
offences and how the said offences will be
enumerates the documents or transactions
investigated by the Police Officer not below
to which the Act does not apply are
the rank of Inspector of Police. These
negotiable instrument (other than a
offences include the tampering with
cheque), A power-of-attorney as defined in
computer source documents, publishing of
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section 1A of the Powers-of-Attorney Act, ➢ In terms of Section 3 "(1) The Central
1882, A trust as defined in section 3 of the Government or the State Government may, by
Indian Trust Act and Any contract for the notification in the Official Gazette, appoint as
sale or conveyance of immovable property many special Judges as may be necessary for
such area or areas or for such case or group of
or any interest in such property. (with few
cases as may be specified in the notification to
exception)
try the following offences, namely:- Any offence
punishable under this Act; and Any conspiracy to
commit or any attempt to commit or any
Chapter 34: THE PREVENTION OF abetment of any of the offences specified in
CORRUPTION ACT,1988 clause (a)

➢ A person shall not be qualified for appointment

as a special Judge under this Act unless he is or
➢ The Prevention of Corruption (PC Act) Act was
has been a Sessions Judge or an Additional
promulgated on the 9th September 1988 mainly
Sessions Judge or an Assistant Sessions Judge
'to consolidate and amend the law relating to
under the Code of Criminal Procedure, 1973 (2
the prevention of corruption and for matters
of 1974)."
connected therewith.' Thus, it is the main
statute aiming to curb corruption among public ➢ Procedure Code (CrPC) and to the High court
servants and others in the country. under Section 407 of CrPC should be limited by
the condition that they are to be tried by the
➢ The term 'Election' appearing in the Act has
Special Judges only.
been defined in Section 2a as "election" means
any election, by whatever means held under any ➢ Section 7 to 15 of the P.C. Act defines the
law for the purpose of selecting members of offences falling under the provisions of the
Parliament or of any Legislature, local authority Prevention of Corruption Act and the
or other public authority punishment/fine prescribed thereto which is
summarized in tabular form hereunder
➢ Under Section 2b" 'public duty' means a duty in
the discharge of which the State, the public or Section Description of Punishment
the community at large has an interest; of PC Offence Prescribed
Act
➢ Section 2c defines a public servant as "public
servant' means any person in the service or pay 7 Where the public Punishable with
of the Government or remunerated by the servant is bribed imprisonment for a
Government by fees or commission for the term which shall
performance of any public duty; service or pay not be less than
of a local authority; three years but
which may extend
➢ Section 3 of the P.C. Act gives powers to the
to seven years and
Central and State Governments to appoint
'Special Judges' to try cases under the statute.
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shall also be liable advantage, term which shall
to fine. without be not less than six
consideration months but which
7A Taking undue Punishable with
from person may extend to five
advantage to imprisonment for a
concerned in years and shall also
influence public term which shall
proceeding or be liable to fine.
servant by not be less than
business
corrupt or illegal three years but
transacted by
means or by which may extend
such public
exercise of to seven years and
servant.
personal shall also be liable
influence. to fine. 12 Punishment for Punishable with
abetment of imprisonment for a
offences term which shall
8 Where any person Punishable with not be less than
gives or promises imprisonment for a three years but
to give an undue term which may which may extend
advantage to extend to seven to seven years and
another person to years Or with fine shall also be liable
induce a public or with both. to fine
servant to act
illegally etc.
➢ As per Section 13 subsection 1 (inserted in
9 Offence relating Punishable with
amendment of 2018) "(1) A public servant is said
to bribing a public fine
to commit the offence of criminal misconduct If
servant by a
he dishonestly or fraudulently misappropriates
commercial
or otherwise converts for his own use any
organization
property entrusted to him or any property under
10 Where person in Punishable with his control as a public servant or allows any
charge of imprisonment for a other person so to do; or If he intentionally
commercial term which shall enriches himself illicitly during the period of his
organization such not be less than office.
as any director, three years but
➢ As per subsection 2 a public servant who is
manager, which may extend
found guilty of criminal misconduct is
secretary or other to seven years and
punishable with imprisonment for a term which
officer is found to shall also be liable
shall be not less than four years but which may
be guilty of to fine
extend to ten years and shall also be liable to
offence.
fine.
11 Public servant Punishable with
➢ Section 14 of the Act deals with the punishment
obtaining undue imprisonment for a
for a habitual offender, who, is a person
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convicted initially of an offence under this Act implementation for prior approval processes
and who subsequently commits another similar under section 17A of the statute.
offence. Such a person is punishable with
➢ The SOPs provide for Stage wise processing of
imprisonment for a term which shall not be less
information received by a Police Officer and
than five years but which may extend to ten
specifying the rank of Police Officer to seek prior
years and shall also be liable to fine
approval under Section 17A, in respect of
➢ In terms of Section 15 which deals with different categories of public servants.
punishment for 'attempting' to commit an
➢ Section 18 of the P.C. Act gives powers to a
offence under the Act "Whoever attempts to
police officer who has reason to suspect that for
commit an offence referred to in clause (a) of
the purpose of investigation or inquiry in an
sub-section (I) of section 13 shall be punishable
offence under Section 17 of the statute, it is
with imprisonment for a term which shall not be
necessary to inspect any bankers' books.
less than two years but which may extend to
five years and with fine." ➢ In terms of Section 27 of the Act "... the High
Court may exercise, so far as they may be
➢ As per Section 17 of the Act the persons
applicable, all the powers of appeal and revision
authorized to investigate have been specified.
conferred by the Code of Criminal Procedure,
➢ No investigation against a public servant who is 1973 (2 of 1974) on a High Court as if the court
accused of committing criminal misconduct of the special Judge were a 'Court of Session'
under Section 13 by intentionally enriching trying cases within the local limits of the High
himself/herself illicitly during the period of Court."
office, can be made without the order of a
➢ The Prevention of Corruption Act was legislated
police officer, not below, the rank of a
in 1988(amended in 2013, 2018 and 2021) with
Superintendent of Police.
the aim to combat corruption and other
➢ Section 17A states" No police officer shall misconducts mainly in the Government and
conduct any enquiry or inquiry or investigation Public Enterprises including Public Sector Banks.
into any offence alleged to have been The Act presently has 30 sections.
committed by a public servant under this Act,
where the alleged offence is relatable to any
recommendation made or decision taken by
such public servant in discharge of his official
functions or duties, without the previous
approval—

➢ On 3rd September 2021, the Ministry of

Personnel, Public Grievances and Pensions,
Government of India, vide their circular given a
set of 'Standard Operating Procedures (SOPs)
with a view to achieving uniform and effective